Present: Hassell, C.J., Keenan, Koontz, Kinser, Lemons, and
Millette, JJ., and Carrico, S.J.
SCHOOL BOARD OF THE CITY OF NEWPORT NEWS
v. Record No. 090313 OPINION BY JUSTICE DONALD W. LEMONS
February 25, 2010
COMMONWEALTH OF VIRGINIA
FROM THE CIRCUIT COURT OF THE CITY OF NEWPORT NEWS
H. Vincent Conway, Jr., Judge
In this appeal, we consider whether the trial court erred
in holding that an insurance policy administered by the
Commonwealth did not cover a claim made by the School Board of
the City of Newport News (“the School Board”).
I. FACTS AND PROCEEDINGS BELOW
The Commonwealth, through its Division of Risk Management
(“Risk Management”), established and administers an insurance
plan known as the Virginia Local Government Risk Management
Plan (“VaRISK 2” or “the Plan”). The School Board paid annual
premiums in return for its coverage under the Plan. The
underlying claim in this case concerns a judgment obtained in
the United States District Court for the Eastern District of
Virginia (“District Court”) by Stefan Jaynes (“Stefan”) and
his family (collectively, “the Jaynes family”) against the
School Board. The School Board petitioned the trial court to
order the Commonwealth, through the Plan, to indemnify the
School Board for the judgment obtained by the Jaynes family in
the District Court, and to reimburse the School Board for the
attorney’s fees incurred by the School Board in defense of the
Jaynes family’s action.
A. The Underlying Claim
The Jaynes family initiated their claim as a Special
Education Due Process Hearing, alleging that Stefan, a student
with a diagnosis of autism, was denied a free appropriate
public education as required by the Individuals with
Disabilities Education Act (“IDEA”), codified at 20 U.S.C.
§ 1400 et seq. (1994 & Supp. IV 1998). At the conclusion of
the Special Education Due Process Hearing, the local hearing
officer found that the Newport News Public Schools “maintained
a pattern and practice . . . of failing to follow the
procedures set forth in” IDEA. 1
The local hearing officer observed that Stefan “suffered
a loss of an educational opportunity as a result of the
procedural violations,” and the Newport News Public Schools
“seriously infringed upon [the Jaynes family’s] participation
in the [individualized education program] process.” The local
hearing officer also found that the Jaynes family “incurred
expenses for therapy and legal services related to [Stefan’s]
education from October 8, 1993 through August, 1998,” and as a
result “Stefan was damaged by the acts and omissions” of the
staff of the Newport News Public Schools. Accordingly, on
2
June 11, 1999, the local hearing officer held that the Jaynes
family was entitled to “reimbursement for the costs, legal and
educational, incurred in seeking to provide an education for
their son, in the sum of $117,979.78.”
The Newport News Public Schools appealed the local
hearing officer’s decision to a State Level Administrative
Review, and on September 14, 1999, the appeal hearing officer
issued his opinion. Based on his review of the record, the
appeal hearing officer upheld the award of educational costs
to the Jaynes family, however he reduced the reimbursement sum
to $56,090.84, finding that the statute of limitations
operated to bar a portion of the expenses sought by the Jaynes
family. The appeal hearing officer’s opinion provided,
“[e]ither party is entitled to appeal this decision to either
a state court of competent jurisdiction or a federal district
court within one year of the date of this decision.”
The Jaynes family then brought an action in the District
Court against the School Board in December of 1999. The
School Board timely and properly notified Risk Management of
the Jaynes family’s claim. The Jaynes family sought
reinstatement of the local hearing officer’s decision and
award, which included “$117,979.89, plus interest, and . . .
court costs, witness fees, expenditures and reasonable
1
Appellant School Board is responsible for the
3
attorney’s fees, pursuant to” IDEA, 20 U.S.C. § 1415. The
Jaynes family then filed a motion for summary judgment, which
the trial court granted in part pending resolution of the
issue of damages. The District Court ordered the Jaynes
family to submit a verified claim for damages if no
stipulation to the amount of damages could be reached by the
parties. Unable to stipulate to the amount of damages, the
Jaynes family filed a claim for damages in the District Court,
in which they sought $102,929.45, plus interest, from the
School Board.
On November 17, 2000, the District Court issued its
opinion and order on the Jaynes family’s claim for damages.
After its review of the record, the District Court found that
the award by the local hearing officer “was adequately
supported by the record and was not arbitrary,” and it entered
judgment in the amount of $102,929.45, plus interest at the
judgment rate from September 14, 1999 and taxable costs, in
favor of the Jaynes family. 2 Throughout its opinion, the
District Court repeatedly referred to the “amount of damages”
and the “issue of damages,” while only once referring to the
local hearing officer’s finding that the Jaynes family was
supervision of the Newport News Public Schools.
2
The District Court ordered that the taxable costs would
be calculated following the Jaynes family’s “timely submission
of a bill of costs.” Subsequently, the District Court
determined that the bill of costs was untimely filed.
4
entitled to “reimbursement.” The United States Court of
Appeals for the Fourth Circuit (“Fourth Circuit”) affirmed the
District Court’s decision in Jaynes v. Newport News Sch. Bd.,
13 Fed. Appx. 166, 173 (4th Cir. 2001).
B. The Present Litigation
In December of 2002, the School Board filed a petition in
the Circuit Court of the City of Newport News against the
Commonwealth alleging that the Commonwealth breached its
contractual duty under the Plan to provide coverage for
monetary liability arising out of the underlying litigation,
and breached its contractual duty to defend the School Board
against claims. The School Board sought indemnification in
settlement of the judgment paid to the Jaynes family in March
of 2002. The School Board alleged it paid the Jaynes family
the sum of $102,929.45, interest thereon of $10,001.65, and
“$29,325.50 in settlement of the [Jaynes family’s] claim for
attorney’s fees.” The School Board also sought the $49,229.07
it expended in defense of the underlying litigation. The
School Board sought an aggregate amount of damages of
$191,485.67.
The Coverage section of the Plan states that the Plan
will pay all sums, except as herein limited, on
behalf of the ENROLLED COVERED PARTY which the
Enrolled Covered Party is legally obligated to
pay on all claims, either first made or arising
from any act occurring during the term of the
coverage on causes of action established by law
5
by reason of liability arising out of acts or
omissions of any nature while acting in an
authorized governmental or proprietary capacity
and in the course and scope of employment or
authorization.
The Plan provided for a maximum compensation of one
million dollars per claim, and defined a “[c]laim” as “any
demand, suit or legal action.” This definition of “claim”
excluded “administrative hearings or procedures . . .
regardless of whether or not monetary relief is sought.” The
Plan defined “[c]ompensation” to “include compensatory or
punitive damages awarded by a court of competent
jurisdiction.”
The Plan also provided that it would pay, in addition to
compensation for liability, “[a]ll expenses incurred by the
[Plan], including defense costs.” The Plan defined “[d]efense
[c]osts” as,
all fees and expenses relating to the
adjustment, investigation, defense or
litigation of a claim including attorney’s fees
incurred by the [Plan], court costs applicable
to the defense and interest on judgments
accruing after entry of judgment. Defense
costs shall not include the office expense of
the Covered Party nor the salaries of employees
of any Covered Party.
The Plan contained a subsection entitled “DEFENSE,” which
read, “[o]n matters covered by this [Plan], VaRISK 2 shall have
the right and duty to defend any suit against the Covered
6
Party, even if any allegations are groundless, false or
fraudulent.”
The Plan contained 14 exclusions, two of which are at the
center of this litigation. Plan § IV.A. states that the Plan
does not apply to:
1. Any obligation under workers’
compensation, unemployment compensation,
disability benefits, administrative hearings or
procedures or any similar law or proceeding.
. . . .
10. Claims, demands or other actions seeking
relief or redress in any form other than
monetary damages, including, but not limited to
injunctive relief. For the purposes of this
exclusion, a claim for attorney’s fees, costs
or expenses shall not be construed as a claim
for monetary damages.
(Emphasis added.)
In May of 2008, the School Board submitted its brief in
support of its claim for coverage under the Plan. The School
Board argued that the amount paid to the Jaynes family is
within the scope of the insuring agreement and is not
otherwise excluded by the Plan.
The Commonwealth filed a response to the School Board’s
brief, in which it argued that the Plan did not indemnify the
School Board for, nor did it impose a duty upon the
Commonwealth to defend against, the Jaynes family’s claim.
The Commonwealth argued that the Plan excludes “‘other than
monetary damages’ from its coverage” and “[r]eimbursement is
7
not damages under IDEA,” rather it is a remedy. The
Commonwealth also argued that the action brought by the Jaynes
family was “an administrative procedure throughout,” and
therefore not a claim covered by the Plan. Finally, the
Commonwealth argued that “because the [School] Board was never
exposed to damages under IDEA, [the Commonwealth] had no duty
to provide a defense to the” School Board.
In September of 2008, the School Board filed a motion to
amend its petition to account for additional attorney’s fees
incurred by the School Board in defense of the Jaynes family’s
claim. The School Board’s amended petition now sought
$53,295.54 for attorney’s fees, raising the total ad damnum
clause to $195,552.14. On October 28, 2008, the trial court
heard argument on the School Board’s petition, and the School
Board’s motion to amend its petition to include the additional
attorney’s fees.
On November 6, 2008, the trial court issued an order
granting the School Board’s motion to amend the ad damnum to
$195,552.14, and denying the School Board’s petition for the
trial court to find coverage under the Plan. The trial court
held that the Jaynes family’s
action giving rise to the Board’s request for
coverage is an administrative action for its
entirety and, as such, was not a claim as defined
by [the Plan]; that the underlying action was for
“other than money damages” and, as such, fell
8
under an exclusion of the Plan; and that the Plan
was not ambiguous.
The School Board timely filed its notice of appeal and we
granted an appeal on the following assignments of error:
I. A. The court erred when it determined that the process in
the United States District Court was simply an appeal of
an administrative action rather than a civil action.
B. The court erred in determining that the language of
the insuring agreement was equivalent to that in a
liability insurance policy and would not allow coverage
for an award of damages based on reimbursement.
II. The court erred in not ordering that the defendant had a
duty to defend under the policy.
II. ANALYSIS
A. Standard of Review
The issue in this case is whether the Jaynes family’s
claim against the School Board is covered by the Plan. “The
interpretation of a contract presents a question of law
subject to de novo review.” PMA Capital Ins. Co. v. U.S.
Airways, Inc., 271 Va. 352, 357-58, 626 S.E.2d 369, 372
(2006). Familiar principles guide this Court’s interpretation
of a contract.
An insurance policy is a contract, and, as in
the case of any other contract, the words used
are given their ordinary and customary meaning
when they are susceptible of such construction.
Additionally, in the absence of an ambiguity
. . . we must interpret the contract by
examining the language explicitly contained
therein. [W]here an agreement is complete on
its face, [and] is plain and unambiguous in its
terms, the court is not at liberty to search
for its meaning beyond the instrument itself.
9
Graphic Arts Mut. Ins. Co. v. C.W. Warthen Co., 240 Va. 457,
459, 397 S.E.2d 876, 877 (1990) (internal citation and
quotation marks omitted).
B. The Nature of the Underlying Litigation
The trial court held that “the action giving rise to the
[School] Board’s request for coverage is an administrative
action for its entirety and, as such, was not a claim as
defined by the Risk Management Plan.” We disagree.
The question whether an action filed in state or federal
court pursuant to IDEA, following exhaustion of state
administrative procedures, remains an administrative action is
a question of first impression for this Court. 3 However, the
Fourth Circuit has addressed this precise issue in Kirkpatrick
v. Lenoir County Board of Education, 216 F.3d 380, 382 (4th
Cir. 2000), in which it held, after detailed analysis, that an
action brought in federal district court “by a party aggrieved
by a state administrative agency decision . . . is an original
civil action.”
3
We are aware of the decision of the Court of Appeals of
Virginia in Beasley v. School Bd. of Campbell County, 6 Va.
App. 206, 210, 367 S.E.2d 738, 740 (1988), rev’d on other
grounds by School Bd. of Campbell County v. Beasley, 238 Va.
44, 380 S.E.2d 884 (1989). To the extent Beasley suggests
that an action brought pursuant to IDEA – or its state
analogue, Code §§ 22.1-213 through 221 – in state or federal
court remains an administrative action, it is expressly
overruled.
10
In Kirkpatrick, the Fourth Circuit looked first to the
language of the statute. Id. at 383-84. 20 U.S.C.
§ 1415(i)(2)(A) states that any party aggrieved by the
findings and decision of the local or state administrative
agency “shall have the right to bring a civil action with
respect to the complaint presented . . . which action may be
brought in any State court of competent jurisdiction or in a
district court of the United States.” Kirkpatrick, 216 F.3d
at 384. The Fourth Circuit concluded that while “the statute
explicitly affords an aggrieved party a right to appeal from
the local educational agency to a state review officer . . .
it explicitly gives an aggrieved party who has exhausted his
administrative remedies the right to bring a civil action in
federal or state court.” Id. (citation and quotation marks
omitted).
In Kirkpatrick, the Fourth Circuit also noted that 20
U.S.C. § 1415(i)(2)(B)(ii) 4 provides that the state or district
court reviewing an action “shall hear additional evidence at
the request of a party.” Id. This procedure stands in
contrast to a true appellate court, which is limited by the
record developed below. Likewise, reviewing courts under IDEA
“are not limited to the parameters of the remedies issued by
the state administrative agency below.” Id. Therefore,
11
rather than simply affirming, reversing, or vacating a
decision of a state administrative agency, the reviewing court
“offers its own independent de novo review and conclusion.”
Id. While the Fourth Circuit acknowledged that deference is
given to the state administrative officer’s findings of fact,
that deference “is merely a recognition that state educational
administrative agencies possess a level of expertise and
familiarity with educational standards.” Id. at 385.
Finally, the Fourth Circuit relied on principles of
federalism in reaching its conclusion that a proceeding in
state or federal court is not an administrative proceeding.
In Rooker v. Fidelity Trust Co., 263 U.S. 413, 416 (1923), the
United States Supreme Court established that “[l]ower federal
courts lack jurisdiction to entertain appeals from state court
judgments because that power is reserved exclusively to the
United States Supreme Court.” Kirkpatrick, 216 F.3d at 386.
Based on this analysis, we adopt the conclusion reached
in Kirkpatrick. The plain language of IDEA labels the review
of the administrative process a “civil action” and the
substantive commands of IDEA further support that conclusion.
As the court in Kirkpatrick concluded,
while a federal district court may review a
state review officer’s decision and even defer
to that decision, the federal district court
4
This provision is currently set out in 20 U.S.C.
§ 1415(i)(2)(C)(ii)(2006 & Supp. II 2008).
12
does not sit as an appellate court. Federal
district courts are courts of limited, original
jurisdiction with no power to sit as appellate
tribunals over state court or administrative
proceedings. Federal district courts cannot
directly supervise and supplant state
administrative action by affirming, reversing,
or modifying administrative decisions.
Id. at 387. Commencement of an action in a state court rather
than in a federal district court does not change the nature of
the process employed. In both state and federal court, an
action filed pursuant to IDEA is an independent civil action,
and not an administrative action.
Turning to the facts of this case, the Plan contains very
broad coverage language that includes within its ambit “causes
of action established by law by reason of liability arising
out of acts or omissions of any nature.” (Emphasis added.)
The local hearing officer determined that “Stefan was damaged
by the acts and omissions” of the staff of the Newport News
Public Schools. The action brought by the Jaynes family in
District Court was a “claim” as contemplated by the Plan
because it was a “demand, suit or legal action” and, as
discussed above, it was not an “administrative hearing[] or
procedure[].” Therefore, under the plain language of the
Plan, the action brought by the Jaynes family in District
Court was a “claim” and not excluded on the grounds that it
was an administrative action.
13
C. The Plan’s Exclusion of Non-Monetary Damages
The trial court held that the Jaynes family’s claim was
excluded by the Plan because “there’s a difference between a
monetary claim and reimbursement under IDEA” and under the
Plan, reimbursement expenses are not covered. The trial court
noted that the City’s failure to provide a free appropriate
public education to Stefan Jaynes “should have been
anticipated and should have been taken care of so that no
administrative proceeding was necessary.” However correct
that sentiment may be, our review is confined to the language
of the Plan, and we hold that the trial court erred when it
ruled that the relief sought by the Jaynes family was in a
form “other than monetary damages” and therefore excluded by
the Plan.
Under the Plan, “[c]ompensation shall include
compensatory . . . damages awarded by a court of competent
jurisdiction.” “Compensatory damages are those allowed as a
recompense for loss or injury.” Virginia Highlands Airport
Auth. v. Singleton Auto Parts, Inc., 277 Va. 158, 169, 670
S.E.2d 734, 740 (2009). As a noun, “recompense” is defined as
“an equivalent or a return for something done, suffered, or
given: a repayment made : compensation .” Webster’s Third New
International Dictionary 1897 (1993).
The District Court, in its “Opinion and Order on
Plaintiffs’ Claim for Damages,” held that the Jaynes family
“may only receive indemnification for educational expenses
incurred after June 30, 1995,” and granted judgment in their
favor. Based on the District Court’s finding, the School
Board violated IDEA by failing to provide a free appropriate
public education to Stefan, and the Jaynes family sought
“recompense for [the] loss or injury” Stefan suffered by the
acts and omissions of the staff of the Newport News Public
Schools. See 277 Va. at 169, 670 S.E.2d at 740.
The Commonwealth argues that the “reimbursement the
[School Board] was ordered to pay is ‘other than monetary
damages,’” and therefore the School Board’s claim is excluded
by the policy. In support of its position, the Commonwealth
cites the United States Supreme Court’s decision in School
Committee of Burlington v. Department of Education, 471 U.S.
359 (1985); the relevant passage relied upon reads, “the Town
repeatedly characterizes reimbursement as ‘damages,’ but that
simply is not the case. Reimbursement merely requires the
Town to belatedly pay expenses that it should have paid all
along and would have borne in the first instance had it
15
developed a proper” individualized education program. Id. at
370-71.
IDEA, in 20 U.S.C. § 1415(i)(2)(C)(iii), states that the
reviewing court “shall grant such relief as the court
determines is appropriate.” In Burlington, the United States
Supreme Court granted certiorari to answer two questions
related to what constitutes “appropriate relief” under IDEA:
(i) “whether the potential relief available under [IDEA]
includes reimbursement to parents for private school tuition
and related expenses;” and (ii) “whether [IDEA] bars such
reimbursement to parents who reject a proposed [individualized
education program] and place a child in private school without
the consent of local school authorities.” Id. at 367.
The United States Supreme Court stated in Burlington, “we
are confident that by empowering the court to grant
‘appropriate’ relief Congress meant to include retroactive
reimbursement to parents as an available remedy in a proper
case.” Id. at 370. The Court also noted that the “ordinary
meaning of these words confers broad discretion on the court.
The type of relief is not further specified, except that it
must be ‘appropriate.’ Absent other reference, the only
possible interpretation is that the relief is to be
‘appropriate’ in light of the purpose of the Act.” Id. at
369. Burlington did not hold, as a matter of law, that a
16
school board’s payment of the educational expenses incurred by
a family is the equitable remedy of reimbursement. Rather, it
held that a trial court deciding a claim under IDEA is left
with “broad discretion” in fashioning relief. Therefore, the
dictum relied upon by the Commonwealth does not control
contract interpretation under Virginia law.
In light of this analysis, we turn to the District
Court’s Opinion and Order. In its opinion, the District Court
employed the word “reimbursement” only once to refer to the
Jaynes family’s claim for relief, instead choosing to refer to
that claim as the “amount of damages” and the “issue of
damages.” For the purposes of interpreting this Virginia
insurance contract according to its “ordinary and customary
meaning,” Graphic Arts Mut. Ins. Co., 240 Va. at 459, 397
S.E.2d at 876, we hold that the District Court’s award of
damages to the Jaynes family was an award of compensatory
damages as defined by the Plan, and not an award in some “form
other than monetary damages.” Accordingly, the Jaynes
family’s claim was not excluded by the Plan.
D. The Commonwealth’s Duty to Defend
The School Board assigns error to the trial court’s
failure to hold that under the Plan the Commonwealth had a
duty to defend the School Board. The “obligation to defend is
broader than [the] obligation to pay, and arises whenever the
17
complaint alleges facts and circumstances, some of which
would, if proved, fall within the risk covered by the policy.”
Virginia Elec. & Power Co. v. Northbrook Prop. & Cas. Ins.
Co., 252 Va. 265, 268, 475 S.E.2d 264, 265 (1966).
[I]f it is doubtful whether the case alleged is
covered by the policy, the refusal of the
insurer to defend is at its own risk. And, if
it be shown subsequently upon development of
the facts that the claim is covered by the
policy, the insurer necessarily is liable for
breach of its covenant to defend.
Brenner v. Lawyers Title Ins. Corp., 240 Va. 185, 189, 397
S.E.2d 100, 102 (1990) (citations omitted).
In its amended petition, the School Board asserted that
“the Commonwealth . . . agrees to defend suits against the”
School Board. The School Board further alleged that because
of the Commonwealth’s failure to “provide for the defense” of
the Jaynes family’s claim, “the School Board was forced to
undertake a defense of the . . . litigation at its own
expense,” thereby incurring litigation costs of $53,295.54.
The trial court held that there was no coverage under the
Plan; consequently, in its order on the School Board’s
petition, the trial court did not reach the question whether
the Commonwealth breached its duty to defend. The School
Board objected to the trial court’s “overall finding that
there was no breach of the policy contract pursuant to the
Plan which would give rise to damages for the School Board['s]
18
attorneys fees incurred in defense of the underlying suit.”
On brief to this Court, the School Board argued that “the duty
to defend and the damages sought would be subject to review at
retrial after remand.”
On brief, the Commonwealth argues that it had “no duty
under the Plan to provide a defense to the [School] Board or
to reimburse it for defense costs” because the Jaynes family’s
claim “was clearly not covered by the Plan.” The Commonwealth
does not argue that defense costs are excluded pursuant to the
Plan; rather, in support of its conclusion, the Commonwealth
relies on its earlier arguments that the underlying litigation
is excluded from coverage under the Plan. However, we hold
that the Plan covers the Jaynes family’s claim. Because “the
claim is covered by the policy, the insurer necessarily is
liable for breach of its covenant to defend.” Brenner, 240
Va. at 189, 397 S.E.2d at 102.
The Plan contained the following provision: “On matters
covered by this [Plan], VaRISK 2 shall have the right and duty
to defend any suit against the Covered Party, even if any
allegations are groundless, false or fraudulent.” In addition
to providing compensation for liability, the Plan covered
“[a]ll expenses incurred by the [Plan], including defense
costs.” The Plan defined “[d]efense [c]osts” as “all fees and
expenses relating to the adjustment, investigation, defense or
19
litigation of a claim including attorney’s fees incurred by
the [Plan], court costs applicable to the defense and interest
on judgments accruing after entry of judgment.”
Given the plain meaning of these contract provisions, the
Commonwealth had the duty to defend the School Board, and bear
the costs associated with that defense. Due to its failure to
comply with the terms of the Plan, the Commonwealth is liable
for the defense costs incurred by the School Board in defense
of the Jaynes family’s claim in District Court and on appeal
to the Fourth Circuit, as well as the costs associated with
this contract coverage litigation. Accordingly, the trial
court erred in failing to hold that the Commonwealth breached
its duty to defend, and in denying the School Board’s claim
for attorney’s fees related to the defense of the lawsuit and
the prosecution of this action to recover its damages.
III. CONCLUSION
We hold that the trial court erred when it held that the
Plan did not cover the claim submitted by the School Board.
We further hold that the Commonwealth breached its contractual
duty to defend under the Plan and is therefore liable for the
litigation costs associated with the defense of the Jaynes
family’s claim in federal court, as well as the costs of
prosecuting the contract claim in the Circuit Court of the
City of Newport News, this present appeal, and on remand.
20
Accordingly, we will reverse the judgment of the trial court
and remand with directions to enter judgment in favor of the
School Board consistent with this opinion, and including the
costs associated with the Commonwealth’s breach of its duty to
defend.
Reversed and remanded.
21