Coleman v. School Bd Richland

United States Court of Appeals
Fifth Circuit
F I L E D
In the United States Court of Appeals
July 25, 2005
For the Fifth Circuit
Charles R. Fulbruge III
_________________________ Clerk

No. 04-30445

_________________________

KATIE COLEMAN,

Plaintiff,

versus

SCHOOL BOARD OF RICHLAND PARISH,

Defendant - Third Party Plaintiff -
Appellant,

versus

MID-CONTINENT CASUALTY INSURANCE CO.,

Third Party Defendant - Appellee.

_________________________

Appeal from the United States District Court
For the Western District of Louisiana
_________________________

Before HIGGINBOTHAM, SMITH, and BENAVIDES, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Mid-Continent Casualty Insurance Company agreed to insure the

Richland Parish School Board against various risks, including loss

resulting from claims based on actual or alleged racial

discrimination, racial harassment, and breach of contract.

Following execution of this agreement, a lawsuit was filed against

the School Board alleging federal claims for intentional racial
discrimination, and state claims for breach of contract and abuse

of rights. Mid-Continent refused to defend the suit on grounds

that the policy excluded from coverage acts committed with

knowledge of their wrongful nature or with intent to cause damage.

We find that the policy did not provide coverage for claims

alleging acts of intentional racial discrimination committed by

members of the School Board. However, we also conclude that Mid-

Continent breached its duty to defend the School Board because the

plaintiff’s complaint alleged non-excluded claims for breach of

contract and abuse of rights.

I

Katie Coleman, an African-American woman, applied for the

newly-created position of associate principal at Rayville

Elementary School in Rayville, Louisiana. Coleman, who had

previously worked as a teacher in another Parish, was awarded the

position and received a two-year contract of employment. She

began serving as associate principal on September 6, 2000. In

October 2000, she was asked to resign by the superintendent of the

School Board. She refused to comply. The School Board then held

a hearing to consider nine separate charges of insubordination

levied against Coleman and, after finding her guilty of four, voted

to terminate her employment.1

1
The charges included seven allegations related to Coleman’s failure to
perform “bus duty,” one allegation that Coleman addressed the Rayville Elementary
principal in an unprofessional and insubordinate manner, and one allegation that
Coleman improperly used a federally-funded copier for a non-designated use.

2
 Coleman filed suit against the School Board alleging that she

had been discriminated against and terminated on account of her

race. She brought claims under Title VII of the Civil Rights Act,2

42 U.S.C. §§ 1981 and 1983, and pleaded state law causes of action

for breach of contract and abuse of rights. Coleman alleged that

the position of associate principal at Rayville Elementary had been

created as a concession by white members of the School Board only

after African-American members agreed to campaign within the

African-American community on behalf of a school bond proposal to

be voted on in October of 2000. She claimed that she accepted the

position without knowledge of these “political under-currents.”

Coleman alleged that the next business day after the bond

proposal passed, she was asked to resign. According to Coleman,

the superintendent “explained the political reality of her

appointment and told her that she risked ruining her career if she

did not resign.” She alleged that he then threatened her with

continuous “write-ups” and eventual termination if she did not

relent to his demands, and offered to buy out one year of her two-

year contract. She claimed that after this meeting, she was

subjected to disparate enforcement of the Board’s rules and

regulations, and was continuously written-up for infractions that

she did not commit. These events ultimately culminated in her

termination by the Board without the consent and approval of

2
42 U.S.C. § 2000e et seq.

3
several African-American members.

Prior to terminating Coleman, the School Board purchased an

Educators Legal Liability Policy from Mid-Continent. The policy

obligated Mid-Continent to defend and indemnify the Board, its

directors, trustees, officers, and employees against loss resulting

from any “claim” made during the policy period, which ran from

October 11, 2000, through October 11, 2001. The policy defined

“claim” as any written notice received by an insured, or any

judicial or administrative proceeding initiated against an insured,

seeking to hold the insured responsible or liable for a “wrongful

act.” The policy defined “wrongful act” as “any actual or alleged

act, error, omission, misstatement, misleading statement, neglect

or breach of duty” committed by an insured party in the discharge

of his duties, including:

(1) actual or alleged discrimination, whether based
upon race, sex, age, national origin, religion,
disability or sexual orientation;

(2) actual or alleged sexual or racial harassment;

(3) actual or alleged libel, slander or other
defamation;

(4) actual or alleged invasion of privacy; or

(5) actual or alleged interference with or breach of
any employment contract, whether oral, written,
express or implied.

The policy also contained a provision excluding coverage for loss

resulting from any claim “brought about or contributed to in fact

by any dishonest, fraudulent or criminal Wrongful Act or by any

4
Wrongful Act committed with actual knowledge of its wrongful nature

or with intent to cause damage.”

The School Board tendered the defense of Coleman’s lawsuit to

Mid-Continent pursuant to the terms of the policy. Mid-Continent

denied coverage and declined to defend the suit, prompting the

School Board to file a third-party claim against Mid-Continent.

Mid-Continent filed a motion for summary judgment arguing that it

had no duty to defend or indemnify the Board on grounds that

coverage for Coleman’s claims was precluded by the exclusion for

acts committed with actual knowledge of their wrongful nature or

intent to cause damage. The School Board filed a cross-motion for

summary judgment arguing that it was entitled to a defense and

indemnity on grounds that the policy explicitly provided coverage

for actual or alleged racial discrimination and racial harassment.

While these motions were pending, the School Board defended

against Coleman’s suit at its own cost and ultimately reached a

settlement. Following this settlement, the district court entered

summary judgment in favor of Mid-Continent on the School Board’s

third-party claim, and denied the Board’s motion for summary

judgment. The court found that coverage for all of Coleman’s

claims was precluded by the policy’s intentional acts exclusion.

The Board timely appealed.

II

We review the grant of a motion for summary judgment de novo,

5
applying the same standards employed by the district court.3 “We

review the legal question of the district court’s interpretation of

an insurance contract de novo, as well as its determination of

state law.”4 Summary judgment is appropriate if “the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no genuine

issue as to any material fact and that the moving party is entitled

to a judgment as a matter of law.”5 The party moving for summary

judgment “bears the burden of identifying those portions of the

record it believes demonstrate the absence of a genuine issue of

material fact.”6 The burden then shifts to the non-moving party to

“show the existence of a genuine fact issue for trial.”7 We view

all evidence and reasonable inferences from the evidence in the

light most favorable to the non-moving party.8

III

On appeal, the School Board contends that the district court

erred in holding that Mid-Continent was not obligated to defend and

indemnify the Board against claims alleging intentional racial

3
See Blakely v. State Farm Mut. Auto Ins. Co., 406 F.3d 747, 750 (5th Cir.
2005).
4
Id. (citations omitted).
5
FED. R. CIV. P. 56(c).

6
Lincoln Gen. Ins. Co. v. Reyna, 401 F.3d 347, 349 (5th Cir. 2005).
7
Id.
8
Id. at 350.

6
discrimination. In addition, the School Board argues that even if

coverage for intentional discrimination were excluded, Mid-

Continent would still be obligated to defend against Coleman’s suit

because her complaint alleged non-excluded claims for breach of

contract and abuse of rights. We take up these arguments in turn.

A

The School Board’s primary argument on appeal centers on its

contention that Mid-Continent was obligated to defend and indemnify

it against the totality of Coleman’s lawsuit because the policy

explicitly provided coverage for actual or alleged racial

discrimination and racial harassment. The Board acknowledges, as

it must, the presence of the exclusion for intentional acts, but

urges that the exclusion cannot be squared with the policy’s

explicit coverage of racial discrimination and racial harassment as

both are inherently intentional in nature. The Board argues that

any attempt to reconcile the policy’s exclusion with its coverage

for discrimination and harassment leads to the absurd result that

coverage is available only for “unintentional” “intentional” acts.

Moreover, the Board posits that even if this result were

permissible under established rules of contract interpretation, it

would run afoul of Louisiana’s reasonable expectations doctrine.

Mid-Continent rejects these contentions, arguing that coverage

is available only for wrongful acts committed without knowledge of

their wrongful nature or with intent to cause damage. It claims

7
that this limitation does not render coverage for discrimination or

harassment illusory because it cuts back, but does not wholly

eliminate, such coverage. In addition, it asserts that limiting

coverage of discrimination and harassment claims in this manner is

consistent with Louisiana public policy. Accordingly, Mid-

Continent contends that it had no duty to defend or indemnify the

School Board against any of Coleman’s claims.

1

The parties agree that Louisiana law must guide our

interpretation of the insurance policy.9 Under Louisiana law, “an

insurance policy is a contract that must be construed in accordance

with the general rules of interpretation of contracts set forth in

the Louisiana Civil Code.”10 Under the Civil Code, “[t]he

judiciary’s role in interpreting insurance contracts is to

ascertain the common intent of the parties to the contract.”11 “The

words of a contract must be given their generally prevailing

meaning,”12 and “[w]hen the words of a contract are clear and

explicit and lead to no absurd consequences, no further

9
See Thermo Terratech v. GDC Enviro-Solutions, Inc., 265 F.3d 329, 334
(5th Cir. 2001) (finding that provisions of an insurance policy are interpreted
in accordance with the law of the state in which the policy was delivered).
10
Am. Int’l Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d 254,
262 (5th Cir. 2003).
11
Mayo v. State Farm Mut. Auto. Ins. Co., 869 So. 2d 96, 99 (La. 2004)
(citing LA. CIV. CODE ANN. art. 2045 (West 1987)).
12
LA. CIV. CODE ANN. art. 2047 (West 1987).

8
interpretation may be made in search of the parties’ intent.”13

Moreover, “[e]ach provision in a contract must be interpreted in

light of the other provisions so that each is given the meaning

suggested by the contract as a whole.”14 Importantly, Louisiana law

mandates that an insurance policy “should not be interpreted in an

unreasonable or strained manner so as to enlarge or to restrict its

provisions beyond what is reasonably contemplated by its terms or

so as to achieve an absurd conclusion.”15

With respect to coverage, the insured bears the burden of

proving that the incident giving rise to a claim falls within the

policy’s terms.16 However, “the insurer bears the burden of proving

the applicability of an exclusionary clause within the policy.”17

Exclusionary provisions must be read together with the entire

policy, and are construed strictly against the insurer and in favor

of coverage.18 Any ambiguities within an exclusionary provision or

13
LA. CIV. CODE ANN. art. 2046 (West 1987); see In re Liljeberg Enters.,
Inc., 304 F.3d 410, 440 (5th Cir. 2002).
14
LA. CIV. CODE ANN. art. 2050 (West 1987).

15
La. Ins. Guar. Ass’n., 630 So. 2d at 763; see also Mayo, 869 So. 2d at
99-100 (“The rules of construction do not authorize a perversion of the words or
the exercise of inventive powers to create an ambiguity where none exists or the
making of a new contract when the terms express with sufficient clarity the
parties’ intent.”); Reynolds v. Select Props., Ltd., 634 So. 2d 1180, 1183 (La.
1994).

16
See Doerr v. Mobil Oil Corp., 774 So. 2d 119, 124 (La. 2000).

17
Id.
18
See Garcia v. Saint Bernard Parish Sch. Bd., 576 So. 2d 975, 976 (La.
1991); Vallier v. Oilfield Constr. Co., 483 So. 2d 212, 215 (La. Ct. App. 1986).

9
the policy as a whole must be construed against the insurer and in

favor of coverage.19 To this end, ambiguities within an insurance

policy will “be resolved by ascertaining how a reasonable insurance

policy purchaser would construe the clause at the time the

insurance contract was entered.”20 This rule, known as the

“reasonable expectations doctrine,” requires that a court construe

an ambiguous insurance policy “to fulfill the reasonable

expectations of the parties in the light of the customs and usages

of the industry.”21 Courts employing this rule may extend coverage

to meet the reasonable expectations of the insured, even though a

close examination of the policy reveals that such expectations are

in conflict with the expressed intent of the insurer.22 However,

19
LA. CIV. CODE ANN. art. 2056 (West 1987) (“In case of doubt that cannot be
otherwise resolved, a provision in a contract must be interpreted against the
party who furnished its text.”); see Mayo, 869 So. 2d at 100 (“Ambiguous policy
provisions are generally construed against the insurer and in favor of coverage.
Under this rule of strict construction, equivocal provisions seeking to narrow
an insurer’s obligation are strictly construed against the insurer.” (citation
omitted)); Reynolds, 634 So. 2d at 1183 (“[A] provision which seeks to narrow the
insurer’s obligation is strictly construed against the insurer, and, if the
language of the exclusion is subject to two or more reasonable interpretations,
the interpretation which favors coverage must be applied.”); La. Ins. Guar.
Ass’n, 630 So. 2d at 764 (“If after applying the other general rules of
construction an ambiguity remains, the ambiguous contractual provision is to be
construed against the drafter, or, as originating in the insurance context, in
favor of the insured.”); RPM Pizza, Inc. v. Auto. Cas. Ins. Co., 601 So. 2d 1366,
1369 (La. 1992) (“[E]ven if [an] exclusion is deemed ambiguous, insurance
policies must be liberally construed in favor of coverage, and provisions
susceptible of different meanings must be interpreted with a meaning that renders
coverage effective and not with one that renders it ineffective.”).
20
Breland v. Schilling, 550 So. 2d 609, 610-11 (La. 1989).
21
La. Ins. Guar. Ass’n, 630 So. 2d at 764 (quoting Trinity Indus., Inc.
v. Ins. Co. of N. Am., 916 F.2d 267, 269 (5th Cir. 1990)) (internal quotation
marks omitted).

22
Id. at 764 n.9 (citing ROBERT E. KEETON & ALAN I. WIDISS, INSURANCE LAW § 6.13
(1988)).

10
when the “language of an insurance policy is clear, courts lack the

authority to change or alter its terms under the guise of

interpretation.”23

2

Looking to the plain language of the policy, coverage is

clearly available for loss caused by a “Wrongful Act,” including

actual or alleged racial discrimination and harassment. In

addition, the policy clearly excludes from coverage “any Wrongful

Act committed with actual knowledge of its wrongful nature or with

intent to cause damage.” Thus, the clear and explicit language of

the policy indicates that coverage is available for acts of racial

discrimination or harassment only if they are committed by an

insured without actual knowledge of their wrongful nature or intent

to cause damage.

The School Board argues that this interpretation contravenes

Louisiana’s established rules of contract interpretation.

Specifically, the Board contends that acts of racial discrimination

and harassment necessarily involve knowledge of their wrongful

nature and intent to cause harm, and that by limiting coverage of

such claims to those involving “unintentional” acts, the policy

offers coverage that is illusory and meaningless, giving rise to

ambiguity which must be resolved in favor of the insured. Further,

the Board urges that this result cuts against the reasonable

23
Id. at 764.

11
expectations raised by the policy’s coverage provisions, requiring

that coverage be found under the reasonable expectations doctrine.

A number of courts have held that an insurance policy that

purports to cover certain intentional acts or torts while

simultaneously limiting coverage to unintentional or unexpected

acts is ambiguous and must be construed against the drafter in

favor of coverage.24 Among these cases, the School Board relies

heavily on the unpublished opinion of the District Court for the

Eastern District of Louisiana in Manis v. St. Paul Fire & Marine

24
See North Bank v. Cincinnati Ins. Cos., 125 F.3d 983 (6th Cir. 1997)
(finding ambiguity when an insurance policy provided coverage for acts of
discrimination, yet excluded coverage for acts which did not occur unexceptedly
or unintentionally); Hurst-Rosche Eng’rs, Inc. v. Commercial Union Ins. Co., 51
F.3d 1336 (7th Cir. 1995) (same with respect to intentional torts such as libel,
slander, defamation, false arrest, malicious prosecution, and humiliation while
simultaneously limiting coverage to unintentional acts); Tews Funeral Home, Inc.
v. Ohio Cas. Ins. Co., 832 F.2d 1037, 1045 (7th Cir. 1987) (same with respect to
advertising injury); Liberty Life Ins. Co. v. Commercial Union Ins. Co., 857 F.2d
945, 950-51 (4th Cir. 1988) (vacating summary judgment in favor of insurer on
grounds that potential ambiguity was raised by apparent conflict between policy’s
coverage of libel, slander, defamation and unfair competition, and limitation of
coverage to unintentional or unexpected injuries); Titan Indem. Co. v. Newton,
39 F. Supp. 2d 1336, 1344 (N.D. Ala. 1999) (finding policy ambiguous when it
provided coverage for false arrest, unlawful prosecution, and violations of civil
rights, and then excluded coverage for intentional acts); Lineberry v. State Farm
Fire & Cas. Co., 885 F. Supp. 1095, 1099 (M.D. Tenn. 1995) (same with respect to
invasion of privacy); Lincoln Nat’l Health & Cas. Ins. Co. v. Brown, 782 F. Supp.
110, 113 (M.D. Ga. 1992) (same with respect to false arrest, malicious
prosecution, and assault and battery); Purrelli v. State Farm Fire & Cas. Co.,
698 So. 2d 618, 619-20 (Fla. Dist. Ct. App. 1997) (same with respect to invasion
of privacy); Mo. Prop. & Cas. Ins. Guar. Ass’n v. Petrolite Corp., 918 S.W.2d
869, 873 (Mo. Ct. App. 1996) (finding an insurance policy that extended coverage
to unintentional acts, including acts of discrimination, to be ambiguous,
“complete nonsense,” and oxymoronic); Titan Indem. Co. v. Riley, 641 So. 2d 766,
768 (Ala. 1994) (same with respect to malicious prosecution, assault and battery,
wrongful entry, piracy, and other intentional torts); see also Fed. Ins. Co. v.
Stroh Brewing Co., 127 F.3d 563, 571 (7th Cir. 1997) (refusing to interpret a
policy so that covered acts of discrimination were completely excluded by a later
provision when meaning of provision was genuinely ambiguous); Transamerica Ins.
Group v. Rubens, 1999 WL 673338 (S.D.N.Y. Aug. 27, 1999) (approving of the
reasoning in North Bank v. Cincinnati Ins. Cos., 125 F. 3d 983 (6th Cir. 1997)).

12
Insurance.25 In Manis, the court addressed whether an insurance

policy issued to a city provided coverage for claims arising under

§ 1983 and the Louisiana Civil Code alleging that city police

officers violated the plaintiff’s civil rights by intentionally

using excessive force during the course of an arrest and detention.

The policy provided coverage for losses resulting from claims based

on injuries caused by “wrongful acts” such as, inter alia, false

arrest, malicious prosecution, and violations of civil rights

protected under federal or state laws. The policy limited coverage

in two ways. First, it defined “wrongful act” as “any error,

omission or negligent act.”26 Second, it expressly excluded

coverage for “injury or damage that results from any criminal,

dishonest or fraudulent act or omission.”27 The court found that

it could harmonize the policy’s coverage and exclusionary

provisions by interpreting the policy as providing coverage for

acts which “constitute[] error, omission or negligence, but [are]

not criminal, dishonest, or fraudulent.”28

The court found this interpretation “cramped,” noting that it

would preclude recovery for all excessive force claims brought

against Louisiana police officers under § 1983 because such claims

25
No. Civ. A. 01-599, 2001 WL 1397318 (E.D. La. Nov. 8, 2001)
(unpublished).

26
Id. at *3 (internal quotation marks omitted).
27
Id. (internal quotation marks omitted).
28
Id.

13
necessarily involve conduct amounting to criminal battery under

Louisiana law. “Consequently,” the court opined, “two provisions

of the contract--one expressly covering liability for ‘violation of

civil rights’ and one excluding coverage for injury or damage

resulting from a ‘criminal’ act--are directly in conflict.”29 The

court found that it was “unclear from the contract which provision

trumps,” giving rise to an ambiguity requiring the court to adopt

“the interpretation that provides coverage.”30

In reaching this conclusion, the Manis court relied on the

reasoning of the Sixth Circuit in North Bank v. Cincinnati

Insurance Companies. In North Bank, the Sixth Circuit held that an

insurance policy was ambiguous when it provided coverage for

occurrences which “unexpectedly or unintentionally” caused

“personal injury,” and defined personal injury to encompass “a

number of torts which are inherently intentional,” including

discrimination.31 Calling this a “studied ambiguity,” the court

observed that “[i]n selling the policies, the insurance company

uses these conflicting provisions to ‘create the impression that

the policy provides coverage for an employer’s intentional

employment discrimination,’” only to deny coverage when an actual

29
Id. at *5.

30
Id.
31
125 F.3d 983, 986 (6th Cir. 1997) (internal quotation marks omitted).

14
claim is made.32 Noting that other courts reviewing similar policy

language had “concluded that the provisions of the policies are

internally inconsistent because they appear to provide coverage for

‘unintentional’ ‘intentional’ torts,” the court concluded that the

“ambiguity in the policy must be resolved in favor of the

insured.”33

Louisiana state courts have not addressed whether an insurance

policy that provides coverage for discrimination while excluding

coverage for intentional acts is ambiguous. Louisiana courts have

held that, “subject to the rules of insurance contract

interpretation, insurance companies have the right to limit

coverage in any manner they desire, so long as the limitations do

not conflict with statutory provisions or public policy.”34

Consistent with this approach, Louisiana courts have found

insurance policies to be ambiguous when they declare in one clause

that a particular coverage exists, while declaring in another that

32
Id. at 987 (quoting Sean W. Gallagher, The Public Policy Exclusion and
Insurance for Intentional Employment Discrimination, 92 MICH. L. REV. 1256, 1296
n.173 (1994)).
33
Id. at 986-87.
34
Edwards v. Daugherty, 883 So. 2d 932, 947 (La. 2004); see also Marcus
v. Hanover Ins. Co., 740 So. 2d 603, 606 (La. 1999) (“Absent a conflict with
statutory provision or public policy, insurers are entitled to limit their
liability and to impose reasonable conditions upon the obligations they
contractually assume.”); accord Reynolds v. Select Props. Ltd., 634 So. 2d 1180,
1183 (La. 1994).

15
such coverage is excluded.35 However, Louisiana courts have given

effect to unambiguous exclusions that cut back, but do not

eliminate, particular grants of coverage for intentional acts.36

We are persuaded that the exclusion for intentional acts in

the School Board’s policy does not conflict with the policy’s

coverage for racial discrimination and racial harassment. It is

well settled that claims for racial discrimination may allege

either “intentional” or “unintentional” acts. Specifically, “[i]n

the context of Title VII litigation, we recognize two types of

discrimination claims: disparate treatment and disparate impact.”37

“Disparate treatment refers to deliberate discrimination in the

terms or conditions of employment,” whereas disparate impact claims

35
See McIntosh v. McElveen, 893 So. 2d 986, 991-92 (La. Ct. App. 2005);
Cugini Ltd. v. Argonaut Great Cent. Ins. Co., 889 So. 2d 1104, 1113 (La. Ct. App.
2004) (conflict between coverage provisions and exclusions gives rise to
ambiguity which must be resolved in favor of coverage); Gottsegen v. Hart Prop.
Mgmt. Inc., 820 So. 2d 1138, 1142 (La. Ct. App. 2002) (finding that when “a
conflict exists between the declared coverage that was negotiated and paid for
and the exclusion that states that same hazard is not covered,” an ambiguity
exists that must be interpreted in favor of coverage); Domingue v. Rodrigue, 686
So. 2d 132, 137 (La. Ct. App. 1996) (“[A]n insurance policy cannot in one clause
declare that there is coverage . . . and in another clause declare that there is
no coverage . . . .”); Korossy v. Sunrise Homes, Inc., 653 So. 2d 1215, 1229 (La.
Ct. App. 1995) (conflict between exclusion and narrowed coverage provision which
eliminated coverage created an ambiguity to be construed against the drafter in
favor of coverage).
36
See Stein v. Martin, 709 So. 2d 1041 (La. Ct. App. 1998) (finding policy
unambiguous and not contradictory when it provided coverage for sexual misconduct
but excluded coverage for any person who personally participated in an act of
sexual misconduct); Michelet v. Scheuring Sec. Servs. Inc., 680 So. 2d 140, 147-
48 (La. Ct. App. 1996) (finding policy unambiguous when it extended coverage for
battery, but excluded coverage for criminal conduct or conduct that violated a
penal statute); see also Motorola, Inc. v. Associated Indem. Corp., 878 So. 2d
824, 829 (La. Ct. App. 2004) (“[A] court should not strain to find ambiguity in
a policy where none exists.”).
37
Munoz v. Orr, 200 F.3d 291, 299 (5th Cir. 2000).

16
“do not require proof of intent to discriminate.”38 As written, the

policy can readily be interpreted to extend coverage for claims

alleging disparate impact discrimination while excluding coverage

for disparate treatment discrimination.

A similar result was reached by the Seventh Circuit in Solo

Cup Co. v. Federal Insurance Co.39 In Solo Cup, an insured sued its

insurer seeking to enforce its insurer’s indemnity and defense

obligations with respect to a Title VII claim for sexual

discrimination. The policy provided coverage for loss sustained as

a result of an “occurrence,” which it defined as “an accident or

happening or event or a continuous or repeated exposure to

conditions which unexpectedly and unintentionally results in

personal injury.”40 The policy defined “personal injury” to include

“discrimination” and “humiliation.”41 The court held that the

insurer had no duty to defend or indemnify its insured against

Title VII claims grounded on allegations of disparate treatment

discrimination because such claims necessarily involved a

determination that the insured “acted with a discriminatory motive

38
Id. (emphasis added); see E.E.O.C. v. J.M. Huber Corp., 927 F.2d 1322,
1328 n.24 (5th Cir. 1991) (“[U]nder an impact theory, the employee need not prove
intentional discrimination, but need only show that a certain employment policy
has a disparate impact on a protected group.” (citing Griggs v. Duke Power Co.,
401 U.S. 424, 430 n.6 (1971)).
39
619 F.2d 1178 (7th Cir. 1980).
40
Id. at 1181.
41
Id. at 1182.

17
or purpose.”42 However, the court held that the insurer was

obligated to defend and indemnify its insured against claims

alleging disparate impact discrimination because such claims

require no proof of discriminatory motive.

While acknowledging the existence of disparate impact claims,

the School Board argues that a conflict cannot be averted between

the policy’s exclusion for intentional acts and its provision of

coverage for racial harassment. This argument fails to account for

the fact that employers such as the School Board are often held

directly liable under Title VII for negligently failing to take

prompt and immediate remedial action with respect to a hostile work

environment created by, inter alia, racial harassment.43

In short, while the policy’s exclusion for intentional acts

cabins the scope of the policy’s coverage, it does not render the

policy’s discrimination and harassment provisions wholly

ineffective. Furthermore, it does not give rise to an absurd

42
Id. at 1186.
43
See Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, 759 (1998)
(“[A]lthough a supervisor’s sexual harassment is outside the scope of employment
because the conduct was for personal motives, an employer can be liable,
nonetheless, where its own negligence is a cause of the harassment.”); id.
(“Negligence sets a minimum standard for employer liability under Title
VII . . . .”); Celestine v. Petroleos de Venezuella SA, 266 F.3d 343, 353 (5th
Cir. 2001) (“A prima facie case of racial harassment alleging hostile work
environment normally consists of five elements: . . . (5) the employer knew or
should have known of the harassment in question and failed to take prompt
remedial action.” (emphasis added)); Sharp v. City of Houston, 164 F.3d 923, 929
(5th Cir. 1999) (“An employer may be liable for sexual harassment if it ‘knew or
should have known of the harassment in question and failed to take prompt
remedial action.’” (quoting Williamson v. City of Houston, 148 F.3d 462, 464 (5th
Cir. 1999))).

18
outcome whereby the policy completely takes back with one hand what

it gives with the other. Consequently, we conclude that no

intractable or irreconcilable conflict exists between the policy’s

coverage of racial discrimination and harassment and its

exclusions.44

The School Board also argues that regardless of whether the

policy is ambiguous, it must be interpreted in a manner consistent

with the reasonable expectations of a typical purchaser of

insurance. The Board contends that no purchaser of insurance would

44
Our interpretation of the policy is buttressed by the apparent existence
in Louisiana law of a public policy prohibiting a person from insuring against
his own intentional acts. See First Mercury Syndicate, Inc. v. New Orleans
Private Patrol Serv., Inc., 600 So. 2d 898, 902 (La. Ct. App. 1992) (finding that
“it would violate public policy to allow indemnification for such wrongdoing on
the part of the insured” when insured corporate officers paid themselves
excessive compensation for no work, placed family members on the corporate
payroll when such members were not working, raided corporate funds for personal
use, and enacted a resolution indemnifying themselves against their own wrongful
acts.); Williams v. Diggs, 593 So. 2d 385, 387 (La. Ct. App. 1991) (“[W]hen
considering an intentional injury exclusion in an automobile liability policy,
another well-established public policy must also be given consideration. This
is the policy against allowing a person to insure himself against his own
intentional acts causing injury to others.”); Leon Lowe & Sons, Inc. v. Great Am.
Surplus Lines Ins. Co., 572 So. 2d 206, 210 (La. Ct. App. 1990) (“Public policy
forbids a person from insuring against his own intentional acts, but does not
forbid him from insuring against the intentional acts of another for which he may
be vicariously liable.”); Vallier v. Oilfield Constr. Co., 483 So. 2d 212, 218
(La. Ct. App. 1986) (“It is a longstanding principle of public policy that no
person can insure against his own intentional acts.” (citing Baltzar v. Williams,
254 So. 2d 470, 472 (La. Ct. App. 1971)); Swindle v. Haughton Wood Co., 458 So.
2d 992, 995 (La. Ct. App. 1984) (“No person can insure against his own
intentional acts. Public policy forbids it. But public policy does not forbid
one to insure against the intentional acts of another for which he may be
vicariously liable.” (quoting McBride v. Lyles, 303 So. 2d 795, 799 (La. Ct. App.
1974) (citations omitted)); see also Creech v. Aetna Cas. & Sur. Co., 516 So. 2d
1168, 1172 (La. Ct. App. 1988) (noting that “[t]he provisions of the insurance
policy should be given effect except to the extent they conflict with law or
public policy,” and holding that public policy does not preclude coverage of
exemplary damage awards). This public policy constitutes an additional aid to
construction indicating that the policy’s coverage provisions and exclusions are
not locked in irremediable conflict. See 7 LEE R. RUSS & THOMAS F. SEGALLA, COUCH ON
INSURANCE § 101:22 (3d ed. 1995) (noting that public policy may be resorted to as
an “aid to construction”).

19
engage in the “semantic hair splitting” necessary to reconcile the

policy’s coverage of discrimination with its exclusion for

intentional acts. Rather, a purchaser would believe that the

policy covers acts of discrimination regardless of whether intent

comprised a necessary part of a cause of action based on such acts.

In essence, the Board asks that we re-write the terms of the

insurance policy to conform with the reasonable expectations of a

typical purchaser of insurance. This step is foreclosed by

Louisiana law, which precludes use of the reasonable expectations

doctrine to recast policy language when such language is clear and

unambiguous.45 Because the language of the policy at issue here is

unambiguous, we cannot impose an alternative meaning on the policy

by way of interpretation.

In sum, we can find no basis for interpreting the policy to

extend coverage for loss caused by acts of racial discrimination

and harassment committed with knowledge of their wrongful nature or

intent to cause damage. Accordingly, Mid-Continent has no duty to

defend or indemnify the School Board against Coleman’s claims for

intentional racial discrimination under 42 U.S.C. §§ 1981 and 1983.

In addition, because Coleman has not alleged facts supporting a

claim for disparate impact discrimination or any other

discrimination claim not required proof of intent, Mid-Continent

has no duty to defend or indemnify the School Board against

45
See La. Ins. Guar. Ass’n., 630 So. 2d at 763; Mayo, 869 So. 2d at 99-
100; Reynolds, 634 So. 2d at 1183.

20
Coleman’s Title VII claim. The district court did not err in so

holding.

B

We turn next to the question of whether Coleman’s complaint

contained allegations of non-intentional conduct sufficient to

trigger Mid-Continent’s duty to defend. Under Louisiana law, “the

scope of the duty to defend under an insurance agreement is broader

than the scope of the duty to provide coverage.”46 “The insurer’s

duty to defend is determined solely from the plaintiff’s pleadings

and the policy, without consideration of extraneous evidence.”47

“If ‘there are any facts in the complaint which, if taken as true,

support a claim for which coverage is not unambiguously excluded,’

the insurer must defend the insured.”48 “[O]nce a complaint states

one claim within the policy’s coverage, the insurer has a duty to

accept defense of the entire lawsuit, even though other claims in

46
Suire v. Lafayette City-Parish Consol. Gov’t, ---So. 2d----, 2005 WL
832362, at **18 (La. April 12, 2005); see Lamar Adver. Co. v. Cont’l Cas. Co.,
396 F.3d 654, 660 (5th Cir. 2005); Selective Ins. Co. of S.E. v. J.B. Mouton &
Sons, Inc., 954 F.2d 1075, 1077 (5th Cir. 1992).
47
Selective Ins. Co. of S.E., 954 F.2d at 1078.
48
Lamar Adver. Co., 396 F.3d at 660 (quoting Complaint of Stone Petroleum
Corp., 961 F.2d 90, 91 (5th Cir. 1992)); see Jensen v. Snellings, 841 F.2d 600,
612 (5th Cir. 1988) (“Where the pleadings, taken as true, allege both coverage
under the policy and liability of the insured, the insurer is obligated to
defend, regardless of the outcome of the suit or the eventual determination of
actual coverage.”); Suire, 2005 WL 832362, at **18 (“Unless unambiguous
exclusion of all the plaintiff’s claims is shown, the duty to defend arises.”).

21
the complaint fall outside of the policy’s coverage.”49

Furthermore, “allegations in the complaint are liberally

interpreted to determine whether they establish the insurer’s duty

to defend.”50 We look only to the factual allegations in the

complaint, however; “statements of conclusions in the complaint

that are unsupported by factual allegations will not trigger a duty

to defend.”51

In her complaint, Coleman alleged that she was hired to serve

as associate principal at Rayville Elementary as part of a

political agreement between white and black members of the School

Board. She alleged that after the bond issue passed, she was asked

to resign by the superintendent of the School Board. She alleged

that after she refused this request, she was “subjected to

disparate enforcement of the Board’s rules and regulations and

written-up continuously for infractions she had not committed.”

Further, she alleged that she was purportedly terminated by the

Board for “cause,” but that this termination decision occurred

“without the consent and approval of several African-American Board

49
Montgomery Elevator Co. v. Bldg. Eng’g Servs. Co., 730 F.2d 377, 382
(5th Cir. 1984) (internal quotation marks omitted) (citing Am. Auto. Ass’n v.
Globe Indem. Co., 362 So. 2d 1206, 1209 (La. Ct. App. 1978)).
50
Jensen, 841 F.2d at 612; see Lamar Adver. Co., 396 F.3d at 660 (“In
making [the duty to defend] determination, this Court must liberally interpret
the complaint.”).
51
Jensen, 841 F.2d at 612 (citing Guidry v. Zeringue, 379 So. 2d 813, 816
(La. Ct. App. 1980)); see Yarbrough v. Fed. Land Bank of Jackson, 731 So. 2d 482,
489 (La. Ct. App. 1999) (“It is well settled that the allegations of fact, and
not conclusions, contained in the petition determine the obligation to defend.”).

22
members who were not in favor of terminating” her contract.

Based on these facts, Coleman asserted, inter alia, a claim

for abuse of rights alleging that the “School Board acted in the

absence of a serious and legitimate interest that is worthy of

judicial protection; alternatively, acted in violation of moral

rules, good faith, or elementary fairness; in the further

alternative, exercised a right for a purpose other than that for

which it was granted.” The Louisiana Supreme Court has described

the abuse of rights doctrine in the following terms:

In its origin, the abuse of rights doctrine was applied
to prevent the holder of rights or powers from exercising
those rights exclusively for the purpose of harming
another, but today most courts in civil law jurisdictions
will find an act abusive if the predominant motive for it
was to cause harm. . . . The doctrine has been applied
where an intent to harm was not proven, if it was shown
that there was no serious and legitimate interest in the
exercise of the right worthy of judicial protection.
Protection or enforcement of a right has been denied when
the exercise of the right is against moral rules, good
faith or elementary fairness. Another criteria, espoused
originally by the French scholar Louis Josserand, would
require an examination of the purpose for which the right
was granted. If the holder of the right exercised the
right for a purpose other than that for which the right
was granted, then he may have abused the right.52

Louisiana courts will apply the abuse of rights doctrine only when

one of four conditions is met:

(1) the exercise of rights exclusively for the purpose of
harming another or with the predominant motive to cause
harm;

(2) the non-existence of a serious and legitimate

52
Ill. Cent. Gulf R.R. Co. v. Int’l Harvester Co., 368 So. 2d 1009, 1014
(La. 1979) (citations omitted).

23
 interest that is worthy of judicial protection;

(3) the use of the right in violation of moral rules,
good faith or elementary fairness; or

(4) the exercise of the right for a purpose other than
that for which it was granted.53

Courts will find an abuse of rights “only in limited circumstances

because its application renders unenforceable one’s otherwise

judicially protected rights.”54

The School Board’s policy provides coverage for loss resulting

from claims based on wrongful acts, and defines “wrongful act” to

mean “any actual or alleged act, error, omission, misstatement,

misleading statement, neglect or breach of duty . . . including but

not limited to” a variety of specifically enumerated acts. This

broad provision is sufficient to provide coverage for Coleman’s

claim that the School Board abused her rights when it voted to

terminate her employment.

Mid-Continent argues that coverage for Coleman’s abuse of

rights claim is clearly precluded by the policy’s exclusion for

acts done with knowledge of their wrongful nature or with intent to

cause harm. Mid-Continent contends that although a claim for abuse

of rights may be established without proving intent to cause harm,

the facts pleaded by Coleman in support of her abuse of rights

claim allege only intentional conduct. Accordingly, Mid-Continent

53
Oliver v. Cent. Bank, 658 So. 2d 1316, 1321 (La. Ct. App. 1995); see
Truschinger v. Pak, 513 So. 2d 1151, 1154 (La. 1987).
54
Truschinger, 513 So. 2d at 1154.

24
asserts that Coleman’s claim as pleaded in her complaint is clearly

excluded from coverage under the terms of the policy.

Interpreting Coleman’s complaint liberally, we find that she

alleged facts which, if true, would support a finding of liability

under an abuse of rights theory without requiring proof of intent

to cause harm. Specifically, if Coleman were unable to prove that

the School Board terminated her on account of her race, she would

have the option of proving that the Board “acted in the absence of

a serious and legitimate interest that is worthy of judicial

protection.” Coleman explicitly alleged that, following her

meeting with the Board Superintendent at which he asked her to

resign, she was subjected to disparate enforcement of the Board’s

rules and written-up for infractions that she did not commit.

Implicit in this allegation is the assertion that Coleman did not

commit an infraction for which she could be rightfully terminated

under her contract of employment. Based on this assertion, a jury

could hold the School Board liable for abusing Coleman’s rights

under her employment contract by firing her without cause, while

simultaneously holding that the Board’s actions were not actuated

by intentional racial discrimination.

Coleman’s factual allegations could also support a garden-

variety breach of contract claim. Although Coleman asserts a

breach of contract cause of action in her complain, Mid-Continent

argues that this claim is not covered because it is premised on

25
actions taken by the School Board in “bad faith.” Mid-Continent

notes that, under Louisiana law, a claim for bad faith breach of

contract requires a showing of “an intentional and malicious

failure to perform.”55 The School Board concedes that a claim for

bad faith breach of contract is not covered under the policy. When

determining whether an insurer has a duty to defend, however, we

look to the facts pleaded in the plaintiff’s complaint. Coleman

alleged that she was terminated after being written-up for

infractions that she did not commit. Even if a jury were to

disbelieve Coleman’s claims of intentional racial discrimination,

it could still find that the School Board breached her employment

agreement by terminating her without cause. To this effect, the

policy explicitly provides coverage for “actual or alleged

interference with or breach of any employment contract whether

oral, written, express or implied.”

Accordingly, we hold that Mid-Continent had a duty to defend

the School Board against Coleman’s lawsuit. Under Louisiana law,

an insurer that breaches its duty to defend its insured is “liable

in damages for attorney fees and costs the insured incurs in

defending the suit.”56 We remand for a determination of these

55
LA. CIV. CODE ANN. art. 1997, cmt. c (West 1987).
56
Bossier Plaza Assocs. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 813
So. 2d 1114, 1119 (La. App. 2d Cir. 2002); see Smith v. Reliance Ins. Co. of
Ill., 807 So. 2d 1010, 1022 (La. Ct. App. 2002) (“Louisiana law is well settled
that an insurer’s failure to defend the insured on plaintiffs’ allegations
renders the insured liable for attorney’s fees incurred by the insured . . . .”
(citing Steptore v. Masco Const. Co., Inc., 643 So. 2d 1213, 1218 (La. 1994))).

26
amounts. In addition, to the extent that the School Board seeks

indemnity from Mid-Continent for the amount of its settlement with

Coleman, we remand for a determination of whether the Board has

demonstrated potential liability with respect to Coleman’s covered

claims,57 and the amount of the settlement allocable to such

claims.58

IV

With respect to its holding that the policy of insurance

issued by Mid-Continent to the School Board does not cover acts of

racial discrimination committed with actual knowledge of their

wrongful nature or with intent to cause harm, the judgment of the

district court is affirmed. However, with respect to its holding

that Mid-Continent had no duty to defend the School Board, the

judgment of the district court is reversed, and this case is

remanded for further proceedings consistent with this opinion.

AFFIRMED in part, REVERSED in part, and REMANDED.

57
See Sullivan v. Franicevich, 899 So. 2d 602, 609 (La. Ct. App. 2005);
Vaughn v. Franklin, 785 So. 2d 79, 87 (La. Ct. App. 2001) (“As a general rule,
one seeking indemnity must establish actual liability to recover. An exception
to the rule is that the indemnitee need show only potential, rather than actual,
liability on his part where the claim is based on a written contract, such as an
insurance policy.” citation omitted)); Rovira v. LaGoDa, Inc., 551 So. 2d 790,
795 (La. Ct. App. 1989) (“Where a claim is based on a written contract of
indemnity or insurance, the indemnitee must show potential, rather than actual,
liability on his part in order to recover from the indemnitor.” (citing Terra
Res., Inc. v. Lake Charles Dredging & Towing Inc., 695 F.2d 828 (5th Cir.
1983))).
58
It is premature for us to decide whether Louisiana law permits an
insured to recover the entire balance of a settlement amount when coverage is
potentially available for only a fraction of the claims alleged in the
plaintiff’s complaint. We note, however that when applying Texas law we have
held that coverage “cannot be created ex nihilo by estoppel.” See Enserch Corp.
v. Shand Morahan & Co., Inc., 952 F.2d 1485, 1493 (5th Cir. 1992) (Wisdom, J.).

27