Petition — Federal Insurance v. Solo Cup Co.
Supreme Court brief1980
Ask Donna
What actually matters in this document.
Text
Supreme Court, U. S.
Ff LED
9 AUG1 419890
0-293 Q | mictac rovak, JR, cLeRK
No. |
In the
Supreme Court of the Anited States
Octoser Term, 1980
SOLO CUP COMPANY,
Respondent,
vs.
FEDERAL INSURANCE COMPANY,
Petitioner.
PETITION FOR WRI OF CERTIORARI
TO THE COURT OF APPEALS FOR
THE SEVENTH CIRCUIT
James L. Fox, Rosert G. SCHLOERB
Counsel of Record Russet M. Petron, JR.
Joun EK. Guy Mary Patricia CHAPIN
Donatp P. CoLLETON Peterson, Ross, SCHLOERB
Arsamson & Fox & SEIDEL
One East Wacker Drive 200 East Randolph Drive
Suite 3800 Suite 7300
Chicago, [llinois 60601 Chicago, Illinois 60601
(312) 644-8500 (312) 861-1400
Attorneys for Petitioners.
The Scheffer Press, Inc.—(312) 263-6850
QUESTIONS PRESENTED FOR REVIEW
I. Whether the Seventh Circuit Court of Appeals deci-
sion and order for judgment should be reversed under
Erie v. Tompkins for failure to follow settled Illinois law
that an insurer*, under a contract of casualty insurance,
has no duty to defend or indemnify its insured* in a suit
against it which prayed for no damages but only for
equitable relief.
II. Whether the decision of the Court of Appeals that
Title VII discrimination suits premised on the theory of
“disparate impact” do not allege “intentional” discrimi-
nation is contrary to the decisions of this Court.
III. Whether the decision of the Court of Appeals
conflicts with decisions of other Courts of Appeals on
the issue of whether permitting insurance against inten-
tional wrongs would violate public policy.
*The two parties to this proceeding are those named
in the caption.
TABLE OF CONTENTS
PAGE
eo ss scomisnsmoceeceversers ii
I IEE EOE 5. cc scasenccsasscnsevssensesosecoosecseces 1
noc cs laceacscscsssnvinconssveseceecevesoecenses 2
Statutory Provision Involved ...........ccccccccsssssssssesssossseseses 2
Ts cnsvepsscnensnsscooevee 3
Reasons for Granting the Writ ...........sssssssssssssesseers 5
1. The Court of Appeals decision and order for
judgment should be reversed under Erie v.
Tompkms for failure to follow settled Illinois
law that an insurer, under a contract of
casualty insurance, has no duty to defend or
indemnify its insured in a suit against it
which prayed for no damages but only for
EE 5
2. The decision of the Seventh Circuit, that Title
VII discrimination suits premised on the
theory of “disparate impact” do not allege
“intentional” discrimination, is contrary to
Te GOCeanONS OF This Court. ..........ccccccccccocccesiceccces 8
3. The Court of Appeals ruling that discrimina-
tion by “disparate impact” under Title VII
ean be a subject of insurance coverage is in
conflict with the general rulings that insurance
against intentional wrongs violates public
ical scasnsanastd socscotsatenencicnsrsessesere 11
Neca aaesccaseasssossseetncssqecosecooeme la
A. Opinion, United States Court of Appeals,
for the Seventh Circuit, filed April 11. 1980,
rehearing denied May 16, 1980 (published
sic cascsabucsmacovensunecesecsecnennees la
li
PAGE
B. Denial of Petition for Rehearing, dated May
RG AIUN vhinsihsnineiiyseitap mnsestatalansetdbonicanidiibidisieibenia 18a
C. Opinion, District Court, Northern District of
Illinois, Eastern Division, The Honorable
Thomas R. MeMillen, filed November 27, 1978. 19a
D. Opinion, District Court, Northern District of
Illinois, Eastern Division, The Honorable
Thomas R. MeMillen, filed April 4, 1979. ...... 24a,
KE. Letter, counsel for Federal to Court of
Appeals, under Circuit Rule 11, dated October
Di! RIPE sntnincsincdson deecststndalatiecuanbiiasdambiabaaetan 27a
F. Amended Complaint by Solo Cup, filed
December 18, 1978, with certain exhibits: .... 29a
EEOC Complaint, filed May 6, 1975, in
Northern District of Georgia. .........0... 40a
Excerpts from insurance policy. ........... 44a,
TasLeE Or AUTHORITIES
CASES:
Albermarle Paper Co. v. Moody, 422 U.S. 405, 45
L.Eid.2d 280, 95 S.Ct. 2362 (1975) ..reccccesscoccsssscecsceces 6
Colton v. Swain, 527 F.2d 296 (7th Cir. 1975) ....0..... 5
Day & Zimmerman vy. Challoner, 423 U.S. 3, 46
TIES 3B, DB TAGE. BE CERIO scscsssctstacstavecsacssrscreoene 5
Erie R.R. Co. v. Tompkins, 304 U.S. 64, 82 L.Ed.
S568) OG: GET CE -eirtivdsieinicateens 5, 7
Griggs v. Duke Power Co., 401 U.S. 424, 28 L.Ed.2d
es Be: } Epaenae ennmamnnen near wane 6, 9, 10
Industrial Sugars, Inc. v. Standard Ins. Co., 338 F.2d
GES CF Sees TID seitasentininitinssicsittapitiidamnictgstiaicewenns 11
lil
PAGE
International Brotherhood of Teamsters v. United
States 431 U.S. 324, 52 L.Ed.2d 396, 97 S.Ct.
I SUED sdenirceipeniasinwhtuehssreinhecsanseladasataenenseaaibed 4, 6,9
Johnson v. Georgia Highway Express, Inc., 417 F.2d
URE TUES UPN ciecccnstencidencbnscssediscadaanatsoaebsationtndanis 6
Ladd Construction Co. v. Insurance Co. of North
America, 73 Ill. App.8d 43, 391 N.E.2d 568 (3rd
Dist. 1979) siicicdadlaap aanlianianisadipipiaaniveidpaaredntnenivebeiessees 6, 7,8
McFadyen v. North River Insurance Co., 62 Ill.App.
2d 164, 209 N.E.2d 833 (2nd Dist. 1955) siienebtidininscienes 5,8
Midwest Contractors Equipment Co. v. Bitwminous
Casualty Corp., 112 Il. App.2d 134, 251 N.E.2d 349
Se i I -Kenibliinitiseskincikinencidiiptinesbuiasiadinienditintigsaantigsansbiie 5
Miree v. DeKalb County, 433 U.S. 25, 53 L.ld.2d 557,
ee I a a aiainis ta tanatnunatinnia 5
Morelock v. NCR Corp., 546 F.2d 682 (6th Cir. 1976) 6
NLRB vy. Jones & Laughlin, 301 U.S. 1, 81 L.Ed. 893,
eM MO MER anieindiieennccercadbadnoctietbeicncbesdinonbeseioe 6
Reis v. Aetna Cas. & Surety Co., 69 Ill. App.3d 777,
Be FES TOO CRGE TURE. TOTO) ciscesinscsnisovecssisniccsasenese 8
Robinson v. Lorillard Corp., 444 F.2d 791 (4th Cir.
OU. Sabucinisssctshaibanicodeandicepccesihpeclbbheic thea cRieniecenebichcebinlitatina teint 6
St. Paul Ins. Co. v. Talladega Nursing Home, 606 F.2d
ns EG PMD wisusnses ceicchsheeicitvenin acti densaeiensnaivcanines 11
Thornton v. Paw, 74 Ill.2d 132, 384 N.E.2d 335 (1979) = 8
STATUTES:
Title VII of the Civil Rights Act of 1964, 78 Stat. 253,
as amended by the Equal Employment Opportunity
Act of 1972, 86 Stat. 103, 42 U.S.C. §§ 2000e et. seq.
(1979) ed. and Supp. III) [42 U.S.C.S. $§ 2000e
Rs IRIEAE .. siacsssabnsshssdaiiesenteisonipntineaiiainnatnniboupiiciennnii 2, 3, 6, 9, 11
MISCELLANEOUS:
ee Glee OE CC cacsincantindennaneneiiinns 6
In THE
SUPREME COURT OF THE UNITED STATES
Octoser T'erm, 1980
No.
SOLO CUP COMPANY,
Respondent,
vs.
FEDERAL INSURANCE COMPANY,
Petitioner.
PETITION FOR WRIT OF CERTIORARI
TO THE COURT OF APPEALS FOR
THE SEVENTH CIRCUIT
TO: THe Honoraste Cuter Justice oF THE UNITED
STATES AND THE ASSOCIATE JUSTICES OF THE SUPREME
Court oF THE UNITED StraTEs:
Petitioner respectfully prays that a Writ of Certiorari
issue to review the opinion of the United States Court
of Appeals entered April 11, 1980, which reversed the
decisions of the District Court and ordered judgment
against petitioner.
OPINIONS BELOW
The District Court’s opinions have not been published.
The Seventh Cireuit Court of Appeals opinion was pub-
lished in 619 F.2d 1178 (1980). These opinions are set
out in the Appendix.
a ae
JURISDICTIONAL STATEMENT
(i) The decision of the United States Court of
Appeals for the Seventh Circuit, which is here
sought to be reviewed, was entered and an
opinion published on April 11, 1980.
(ii) Rehearing was denied on May 16, 1980.
(iii) Jurisdiction is conferred by 28 U.S.C. § 1254(1).
STATUTORY PROVISION INVOLVED
TITLE VII OF THE CIVIL RIGHTS ACT OF 1964,
42 USC 4 2000e et seq. in applicable part:
“5. (g) If the court finds that the respondent has in-
tentionally engaged in or is intentionally engaging in an
unlawful employment practice charged in the complaint,
the court may enjoin the respondent from engaging in
such unlawful employment practice, and order such
affirmative action as may -be appropriate, which may
include, but is not limited to, reinstatement or hiring of
employees, with or without back pay (payable by the
employer, employment agency, or labor organization, as
the case may be, responsible for the unlawful employ-
ment practice), or any other equitable relief as the court
deems appropriate. Back pay liability shall not accrue
from a date more than two years prior to the filing of a
charge with the Commission. Interim earnings or amounts
earnable shall operate to reduce the back pay otherwise
allowable. No order of the court shall require the ad-
mission or reinstatement, or promotion of an individual
as an employee, or the payment to him of any back pay,
if such individual was refused admission, suspended, or
expelled, or was refused employment or advancement or
was suspended or discharged for any reason other than
wacibniie
discrimination on account of race, color, religion, sex, or
national origin or in violation of section 794(a).
STATEMENT OF THE CASE
Solo Cup Company (Solo) brought a diversity action
in the District Court seeking a declaration that it should
have been indemnified and defended under a contract of
casualty insurance issued to it by Federal Insurance
Company (Federal) for the amounts paid by Solo in
settlement and defense of an employment discrimination
suit brought against it by the Equal Employment Oppor-
tunity Commission (EEOC) in the Northern District
of Georgia pursuant to Title VII of the 1964 Civil Rights
Act, 42 U.S.C. $2000e-5(g). The agency had sought in-
junctive and remedial relief for certain alleged acts of
intentional discrimination and Federal had denied cover-
age for Solo’s tender of the suit on the grounds that its
policy covered only unintentional discrimination.
The contract in issue required that Federal indemnify
Solo against losses resulting from liability for any oceur-
rence for which damages were sought. Occurrence was
defined as:
“an accident or happening or event or a continuous
or repeated exposure to conditions which unexpectedly
and unintentionally results in personal injury.” App.
46a.
The word “discrimination” was included in the list of
occurrences called “personal injury”, App. 45a. A sep-
arate endorsement required defense by Federal only of
suits resulting from an occurrence, and also seeking
damages. App. 47a.
On motion the district court granted a summary judz-
ment for Federal and against Solo, App. 19a, 24a, holding
va
that the allegations of the EEOC complaint controlled, that
intentional discrimination was not covered by the insur-
ance contract, and that therefore Federal had no duty
to indemnify or to defend.
On appeal, the Seventh Circuit, agreeing with the
district court, held that the Policy did nut cover the
EEOC complaint insofar as it alleged discrimination
arising from “disparate treatment” as described in this
court’s decision in International Brotherhood of Team-
sters v. United States, 431 U.S. 324, 335 n. 15, 52 L.Ed
2d 396, 97 S.Ct. 1843 (1977). In the view of the court
below, such discrimination was intentional and therefore
outside the contract which covered only unintentional
occurrences. App. 1la-12a.
The Court below, however, also concluded that the
EEOC complaint potentially contained a claim for dis-
crimination arising from “disparate impact” within the
meaning of Teamsters, supra, 431 U.S. 335 n. 15. This
exposure, the court held, was within the contract and
hence Federal breached its agreement of insurance in
not defending Solo against it. Accordingly, the court of
appeals reversed the district court’s ruling on the duty
to defend issue and, on a further principle that an im-
proper refusal to defend estops an insurer from denying
coverage of the insured’s substantive liability, entered
judgment against Federal in the amount of Solo’s settle-
ment with the EEOC less deductibles under the Policy
plus Solo’s costs of defense. The court did not say that
disparate impact discrimination is unintentional or ex-
plain how coverage of such discrimination can be brought
within a policy which insures only against unintentional
risks,
= on
REASONS FOR GRANTING WRIT
I.
THE DECISION AND ORDER OF JUDGMENT OF
THE COURT OF APPEALS CONFLICTS WITH ILLI-
NOIS CASE LAW AND THEREFORE VIOLATES
THE REQUIREMENTS ESTABLISHED BY THIS
COURT IN ERIE v. TOMPKINS.
As this is a diversity case, Erie R. Co. v. Tompkms, 304
U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1937) required that
the Court below apply Illinois law to determine the scope
of Federal’s duty to defend under the contract of casualty
insurance at bar. See also Day & Zimmerman, Inc. v.
Challoner, 423 U.S. 3, 46 L. Ed. 2d 3, 96 S. Ct. 167
(1975), and Miree v. DeKalb County, 483 U.S. 25, 53
L. Ed. 2d 557, 97 S. Ct. 2490 (1977).
Under Illinois law a casualty liability insurer is ob-
ligated to defend a suit if the complaint alleges facts
which bring the claim potentially within the coverage of
the policy. McFadyen v. North River Inswrance Co., 62
Ill. App. 2d 164, 209 N.E. 2d 833 (2nd Dist. 1955); Mid-
west Contractors Equipment Co. v. Bituminous Casualty
Corp., 112 Ill. App. 2d 134, 251 N.E. 2d 349 (1st Dist.
1969); Colton v. Swain, 527 F.2d 296 (7th Cir. 1975)
(applying Illinois law). Since the EEOC complaint alleged
only acts “intentionally” engaged in, App. 4la, and
since Federal’s insurance policy covers only acts which
“unintentionally” produce injury, App. 46a, no claim
potentially within the policy is alleged and there was,
therefore, no duty to defend.
It makes no difference to the insurance coverage in
this case that, as the Court below contends, 619 F2d at
-_ me
1187, arguendo a “disparate impact” claim’ could have
been proved under the allegations of the EEOC com-
plaint. The casualty policy here in question has two
basic contractual agreements: first, to indemnify, App.
44a, and second, to defend, App. 47a, but both also
require that the suit seek damages. The only relief per-
mitted in an Agency’ action for disparate impact under
Title VII, and the only relief requested by the EEOC
in its complaint, was equitable in nature, 7.e., an injunc-
tion, an affirmative action program, and back pay.*
App. 42a
*See infra, p. 9 and Teamsters v. United States, 431
U.S. 324, at 335 n.15; 52 L.Ed. 2d 396, 97 S. Ct. 1843
(1977); Griggs v. Duke Power Co., 401 U.S. 424, 28 L.Ed.
2d 158, 91 S. Ct. 849 (1971); Albemarle Paper Co. v.
Moody, 422 U.S. 405, 45 L.Ed. 2d 280, 95 S. Ct. 2362
(1975).
742 U.S.C. §2000e-5(g¢). under which the EEOC com-
plaint was brought provides in relevant part: “If the
eourt finds [an unlawful discrimination] the court may
enjoin... order such affirmative action as may be appro-
priate ... or any other equitable relief. . .. (emphasis
added)
*Tt is settled that a back pay award is strictly equitable
in nature, and is not an element of casualty damages.
NERB v. Jones & Laughlin, 301 U.S. 1, at 48, 81 L.Ed.
893 at 918, 57 S. Ct. 615 (1937), Albemarle Paper Co. v.
Moody, 422 U.S. 405, 45 L.Ed. 2d 280, 95 S. Ct. 2362
(1971) (ineluding Justice Rehnquist’s special concur-
rence): Robinson v. Lorillard Corp., 444 F.2d 791 at 802
(4th Cir. 1971); Johnson v. Georgia Highway Express,
Inc., 417 F.2d 1122 at 1125 (5th Cir. 1969); Morelock
v. NCR Corp., 546 F.2d 682 at 687 (6th Cir. 1976); see
also 21 ALRF 472, §§3(a), 7: Ladd Constr. Co. v. Insur-
ance Co. of North America, 73 Ill. App. 3d 43, 47, 391
N.E. 2d 568 (3rd Dist, 1979)
oa foe
One year ago, the Illinois courts definitively ruled that
a casualty insurer need not defend suits seeking equitable
relief, even if they involve financial exposure to the
insured:
“(We fail to find any allegation by Burlington as
to actual or direct damages to property, but instead
Burlington sets forth allegations which would sustain
a claim that it had suffered economic damages from
loss of the use of its railroad tracks. Burlington’s
complaint did not seek monetary damages, but in-
stead equitable relief in the form of a mandatory
injunction which would require or command .. . [the
insured] ... to remove debris . . . which had slid or
collapsed on the railroad’s tracks.”
* * *
‘The cost of compliance with the mandatory injunc-
tion is not reasonably to be regarded as a sum pay-
99:9 99
able “as damages”.
* * *
[Since the] court would not have been authorized
to award damages . . . the insurance company had
no corresponding duty to defend.” Ladd Constr. Co.
v. Insurance Co. of North America, 73 Ill. App. 3d
43, 45, 47, 48, 391 N.E. 2d 568 (3rd Dist. 1979)
Likewise the courts of Illinois have determined that there
is no duty that a casualty insurer defend an equitable
action on the possibility that a court might award dam-
ages even though none is asked:
“Should we indulge in speculation as to whether
a court by exercising its inherent power might award
damages when none were sought and then conclude
that such inherent power exists and insurance com-
pany must defend an action, then we would by specu-
lation be altering the responsibilities between parties
as set forth in an insurance contract. Moreover,
a giant if not final step would have been taken in
support of a proposition that an insurance company
ae
would be under an obligation to defend all suits,
regardless of policy provisions or allegations con-
tained in a complaint. Such a result could well create
havoc as to both the insurers and the insureds.”
Id. at 48
Since McFayden and Ladd authoritatively establish that
petitioner had no duty to defend in this case, the refusal*
by the court of appeals to follow these Illinois decisions
violates the command of this court in Erie. The decision
and order of judgment’ therefore impermissibly conferred
upon a diversity plaintiff an advantage denied a plaintiff
in the Courts of Illinois, and constitutes reversible error
and a compelling reason to grant the writ of certiorari
requested.
II.
THE DECISION OF THE SEVENTH CIRCUIT THAT
TITLE VII DISCRIMINATION SUITS PREMISED
ON THE THEORY OF “DISPARATE IMPACT” DO
NOT ALLEGE “INTENTIONAL” DISCRIMINATION
IS CONTRARY TO THE DECISIONS OF THIS COURT.
Title VII of the Civil Rights Act of 1964 prohibits
intentional discrimination. The operative language of
Title VII states:
‘Though urged on the court below by petitioner, App.
27a, xnd in oral argument and in its Petition for Rehear-
ing, Ladd is not mentioned in the court’s decision.
*Since Illinois law requires that before imposing an
equitable estoppel to prevent the insurer from denying
coverage the equities must be examined, Thornton v.
Paul, 74 Tll.2d 132, 384 N.E.2d 335 (1979), Reis v. Aetna
Casualty, 69 Ill. App. 3d 777, 387 N.E.2d 700 (1st Dist.
1979), the ordering of judgment by the court of appeals
without examining the equities as required under Erie
provides a further ground for granting the writ.
= ee
“Tf the court finds that the respondent has intention-
ally engaged in or is intentionally engaging in an un-
lawful employment practice charged in the complaint,
the court may enjoin the respondent from engaging
in such unlawful employment practice, and order such
affirmative action as may be appropriate. .. or any
other equitable relief.” 42 U.S.C. §2000e-5(g). (empha-
sis added)
The intentional discrimination proscribed by Title VIT
has been found to exist under either the theory of dis-
parate treatment or the theory of disparate impact. The
terms “disparate treatment” and “disparate impact”
were defined by the U. S. Supre.se Court m
Int’l Brotherhood of Teamsters v. United States, 431 U.S.
324, 335-36 n. 15, 97 S.Ct. 1848, 1854 n. 15, 52 L.Ed.2d
396 (1977):
“Disparate treatment”... is the most easily under-
stood type of discrimination. The employer simply
treats some people less favorably than others because
of their race, color, religion, sex, or national
origin. ...
Claims of disparate treatment may be distinguished
from claims that stress “disparate impact.” ‘The
latter involve employment practices that are facially
neutral in their treatment of different groups but
that in fact fall more harshly on one group than
another and cannot be justified by business necessity.
Teamsters has amplified this Court’s decision in Griggs
v. Duke Power Co., 401 U.S. 424, 28 L.Ed. 2d 158, 91
S.Ct. 849 (1971), a discrimination case based solely on
what became the disparate impact theory. The Griggs
rationale was that the “intention” required by the siatu-
tory terms of Title VII is present, regardless of the
absence of overt intent, if the effect or consequence
—
of the employment practice was discrimination. In stating
that “Congress directed the thrust of the Act to the
consequences of employment practices, not simply the
motivation”, Griggs, supra, 401 U.S. at 482, 28 L.Ed. 2d
at 165, 91 S.Ct. at 856, this Court necessarily determined
that the failure to correct the discriminatory consequences
of the employment practices constituted the congression-
ally required intent.
The error of the Seventh Circuit arose from an errone-
ous analogy of disparate impact discrimination and
common-law negligence. The liability triggered by dis-
parate impact however does not parallel the tort liability
arising from negligence. In negligence one can plead an
unintentional act with unintentional consequences to state
a valid claim for damages. But no valid disparate impact
discrimination case can be pleaded without intent as its
key element, simply because intent is required by the
terms of Title VII.
The court below therefore failed to follow the decisions
of this court when it ruled, necessarily though not ex-
pressly, that the consequences or effects of discrimination
in a disparate impact case are “unintentional” so as to
require Federal to defend under a contract covering
only unintentional occurrences. The practical effect of this
erroneous ruling is radically to amend Title VII in a
manner manifestly contrary to the intent of Congress by
making actionable under the Civil Rights Act discrimina-
tion which is unintentional in every respect.
axe 1) ax
ITI.
THE COURT OF APPEALS RULING THAT DIS-
CRIMINATION BY “DISPARATE IMPACT” UNDER
TITLE VII CAN BE A SUBJECT OF INSURANCE
COVERAGE IS IN DIRECT CONFLICT WITH THE
GENERAL RULINGS THAT INSURANCE AGAINST
INTENTIONAL WRONGS VIOLATES PUBLIC POL-
ICY.
Inasmuch as the failure to correct the discriminatory
effect or consequences of an employment practice (dis-
parate impact) is an intentional wrong within the meaning
of Title VII, §2000e-5(g¢), the Contract’s provision ex-
eluding such coverage conforms to the public policy
against insuring intentional wrongs. In analogous reason-
ing the Fifth Cireuit held, in St. Paul Ins. Co.'s. v. Talla-
dega Nursing Home, 606 F.2d 631 (5th Cir. 1979), that
an anticompetitive effect, regardless of specifie intent,
must result from an inherent tendency to suppress com-
petition, and therefore, for insurance purposes, the effect
is an intentional wrong and may not be insured. The
alleged antitrust violations in St. Paul were “almost
certainly not per se violations”, St. Paul, supra, p. 634,
n.3, yet a “close reading of the complaint discloses that
appellants are alleged to have committed a series of
intentional acts, each of which was calculated” to be
anticompetitive. St. Paul, supra, 634.
The Seventh Cireuit Court of Appeals ruling, that
disparate impact consequences are insured, violates the
general public policy prohibiting insuring of intentional
wrongs. Industrial Sugars, Inc. v. Standard Accident Ins.
Co., 338 F.2d 673, 676 (7th Cir. 1964).
The court below stated that although insurance against
disparate treatment could violate public policy, 619 F.2d
— >)
at 1187, insuring against disparate impact would not,
619 F.2d at 1188, based upon a perceived assistance 1o
affirmative action programs which insurance could pro-
vide. Such a concept either rewrites the contract which
prohibits insuring against intentional wrongs, or would
establish that disparate impact is not intentional, in
which case it would not be actionable, in equity, under
Title VII.
The decision of the Court below thus being in error.
this Court should grant petitioner’s prayer and issue
the writ of certiorari.
CONCLUSION
For the reasons stated, the decision of the Seventh
C.i:euit below is erroneous and should be reversed.
Accordingly, the Petitioners request that this Court issue
a Writ of Certiorari to the United States Court of Appeals
for the Seventh Circuit.
Respectfully submitted,
James L. Fox, Rosert G. ScHLOERB
Counsel of Record Rvussett M. Petron, Jr.
Joun E. Guy Mary Parricta CHapin
Donatp P. CoLLeToNn Peterson, Ross, Scuioern
Arpamson & Fox & SEIDEL
One East Wacker Drive 200 East Randolph Drive
Suite 3800 Suite 7300
Chicago, Illinois 60601 Chicago, Illinois 60601
(312) 644-8500 (312) 861-1400
Attorneys for Petitioners.
am 1Q a=
APPENDIX
In THE
UNITED STATES COURT OF APPEALS
For the Seventh Circuit
No. 79-1528
SOLO CUP COMPANY,
Plaintiff-A ppellant,
vs.
FEDERAL INSURANCE COMPANY,
Defendant-Appellee.
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 77 C 4540—Thomas R. MeMillen, Judge.
Arcuep November 8, 1979—Dercipep Aprit 11, 1980
Before Pett and Baver, Circuit Judges, and Dvum-
BAULD, Senior District Judge.*
Peti, Circuit Judge. This is an appeal by the plain-
tiff Solo Cup Company (Solo) from a judgment in favor
of the defendant, Federal Insurance Company (Federal).
Jurisdiction is based on diversity of citizenship. The dis-
trict court concluded that the law of Illinois governed
substantive questions, and the parties do not challenge
this determination on appeal. The principal issue presented
for review is whether the lower court erred in holding
that there was a lack of coverage under an insurance
policy for sums paid in settlement of an employment dis-
crimination action brought pursuant to Title VII of the
*Senior District Judge Edward Dumbauld of the
Western District of Pennsylvania is sitting by designation.
—_—
Civil Rights Act of 1964, 42 U.S.C. §§ 2000e-2000e-17 (1970
& Supp. IT 1972).
I.
On January 24, 1974, Federal issued an ‘‘ Umbrella
Excess Liability Policy’? to Solo which imposed both in-
demnity and defense obligations upon the insurer. The
relevant indemnity provisions obligated Federal to secure
Solo against any ‘‘ultimate net losses’ which it might
suffer as a result of ‘‘occurrences’’ of covered ‘‘personal
injuries.”’
An ‘‘occurrence’’ was defined as
an accident or happening or event or a continuous
or repeated exposure to conditions which unexpected-
ly and unintentionally results in personal injury
. . . . All such exposure to substantially the same
conditions existing at or emanating from one premise
or location shall be deemed one occurrence.
Policy Definition 5. (Emphasis supplied.)
The term ‘‘personal injuries’’ was broadly defined in
Policy Definition 2 to include
bodily injury, mental injury, mental anguish, shock,
sickness, disease, disability, false arrest, false im-
prisonment, wrongful evictions, detention, malicious
prosecution, discrimination, humiliation; also libel,
slander or defamation of character or invasion of
rights of privacy... .
(Emphasis supplied.)
Finally, covered ‘‘ultimate net losses’’ included not
only sums the insured became obligated to pay through
adjudication or compromise, but also
sums paid as salaries, wages, compensation, fees,
charges and law costs, premiums on attachment or
*Solo had no underlying insurance and Federal’s lia-
bility, if found to exist, could be subject to a deductible
of $10,000.
peo
appeal bonds, interest, expenses for . .. lawyers
. and for litigation, settlement, adjustment and
investigation of claims and suits which are paid as
a consequence of any occurrence covered here-
under....
Policy Definition 6.
In addition to the inclusion of defense costs as a part
of the ultimate net loss for which Solo was entitled to in-
demnity, however, there had been added to the policy
‘‘Endorsement No. 1—Supplementary Payments,’’ which
imposed the following separate and distinct defense ob-
ligation upon Federal:
It is agreed that, with respect to any occurrence not
covered by the underlying policies . . . but covered
by the terms and conditions of this policy ... the
company shall:
(A) Defend any suit against the insured alleging
such injury ... and seeking damages on ac-
count thereof, even if such suit is groundless,
false or fraudulent... .
While the policy was in force, Ann Willard, an em-
ployee in Solo’s Atlanta, Georgia, facility, filed a charge
with the Equal Employment Opportunity Commission
(EEOC), in which she alleged that Solo’s failure to
promote her was sexually discriminatory. Thereafter, on
May 6, 1976, the EEOC filed against Solo in the Northern
District of Georgia an action seeking broad compensatory
and injunctive relief for an alleged class of female dis-
criminatees. The complaint included allegations of inten-
tional discrimination.
Separately, on November 16, 1976, the General Ser-
vices Administration (GSA) conducted an on site review
of Solo’s Grandview, Missouri, facility to determine
whether Solo, as a government contractor, had complied
with the mandate of Executive Order 11246 and its im-
plementing regulations to refrain from employnient dis-
crimination. This compliance review resulted in an ad-
—
ministrative allegation that Solo had discriminated against
seventy-two female employees with respect to initial job
placement. While the GSA proposed that Solo pay the al-
leged discriminatees $266,667 in backpay and interest as
a basis for conciliation, the record does not indicate that
any debarment proceedings have been commenced against
Solo to date to enforce its alleged liability.
In a letter dated February 17, 1977, Solo advised
Federal of both the EEOC action*® and the GSA com-
pliance review, and asserted that both matters were with-
in the coverage of the policy. Federal immediately dis-
claimed coverage as to the EEOC matter, and thereafter
asserted in its answer to plaintiff’s amended complaint
below that the GSA review was merely investigative and
that Federal therefore had no obligation to defend.
On May 4, 1977, Solo advised Federal of its intention
to settle the EEOC litigation, and subsequently entered
into a consent decree in the Northern District of Georgia.
Pursuant to the terms of the decree, Solo paid the charg-
ing party, Anne Willard, $25,000. The decree recited,
however, that its entry did not ‘‘constitute or operate as
an acknowledgement or admission’’ that Solo had violated
Title VII. Equal Employment Opportunity Commission v.
Solo Cup Company, No. C 76-806 (N.D. Ga. May 31, 1977).
Solo then commenced this action seeking indemnity for
legal fees, costs, and sums paid in settlement of the EEOC
action, for legal fees paid in conjunction with the GSA
review, and additionally a declaration of its right to in-
demnity for any sums paid as a result of the administra-
tive claim of backpay lability.
The district court granted Federal’s motion for sum-
mary judgment as to all issues. The court reasoned that
Federal could have no indemnity or defense obligations
toward Solo with respect to the EEOC action because
the EEOC complaint contained allegations of intentional
*No issue is raised regarding the timeliness of the
notice to Federal.
au §@ =
discrimination which were inconsistent with the policy
definition of an insured ‘‘oceurrence.’’ With respect to
coverage of the claims related to the GSA review, the
court held that the insurer had no duty to defend against
administrative procedures, and that the question of
whether any claim resulting from the GSA review could
constitute an insured occurrence did not present an actual
controversy within the meaning of the Declaratory Judg-
ment Act, 28 U.S.C. § 2201, or Article III of the Consti-
tution, U.S. Const. art. IIT, § 2.
II.
A. The EEOC Action
The contract of insurance at issue in this litigation im-
posed an absolute duty upon Federal to provide a defense
in any actions filed against Solo charging the occurrence
of an injury within the coverage of the policy. It is well
settled under the law of Illinois that
[this] duty to defend extends to cases where the
complaint alleges several causes of action or theories
of recovery against an insured, one of which is within
the coverage of the policy while others might not be.
Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187, 355
N.E.2d 24, 28 (1976) (emphasis supplied). An insurer
may not refuse the tendered defense of an action unless
a comparison of the policy with the underlying complaint
shows on its face that there is no potential coverage.
Weed v. Ohio Farmer’s Insurance Co., 53 Ill. App. 3d
826, 368 N.E.2d 1310, 1312 (1977). In making the com-
parison any ambiguous or equivocal expressions in the
policy will be strictly construed against the insurer. Pio-
meer Insurance Co. v. Alliance Insurance Co., 374 Tll. 576,
586, 30 N.E.2d 66, 71-72 (1940). See generally TC Apple-
man, Jnsurance Law and Practice § 4683 (1979).
Solo contends, however, that even if Federal’s refusal
to provide a defense was proper under the above de-
scribed duty of defense and was therefore not a breach
of the agreement contained in Endorsement 1 of the
— “er
policy, quoted supra, Federal may nevertheless be required
to indemnify Solo for the $25,000 paid in settlement of
the underlying action if, on remand, a trier of fact con-
cludes that Solo’s actions toward Anne Willard were not
‘tintentional’’ within the meaning of the policy. Solo
bases this argument on the premise that because the
duties of indemnity and defense contained in the insurance
contract are independent covenants, the mere fact that
one covenant has not been breached does not preclude an
opposite conclusion with respect to the remaining cove-
nant.
While it is true that the obligations of indemnity and
defense contained in the contract are independent of each
other, we are unable to agree that Federal may, absent
the existence of a duty of defense regarding the EEOC
claim, have any obligation of indemnity for the sums
paid in settlement of that claim. This follows from the
fact that under Illinois law, a duty to defend such as
is embodied in this contract of insurance, is broader than
a general duty to indemnify for liabilities, fees, and
costs. Colton v. Swain, 527 F.2d 296, 301-302 (7th Cir.
1975) (applying Dlinois law).
The defense obligation is triggered when the insured
tenders the defense of an action against it which is
potentially within the policy coverage. By contrast, the
indemnity obligation at issue here matures only when
the insured becomes obligated to pay by reason of lia-
bility imposed by law. An insurer whose policy has an
assumption of defense clause will therefore frequently
have an independent duty to defend actions which will
not ultimately result in an obligation to indemnify, either
because the insured was not adjudged liable or because
the facts were resolved in such a way as to bring the mat-
ter within a policy exclusion.’ Conversely, litigation over
* The proper course of action for an insurer who disputes
coverage, but nevertheless has an obligation to defend an
action is set forth in Maryland Casualty Co. v. Peppers,
64 Ill. 2d 187, 355 N.E.2d 24 (1976). The insurer should
—
the independent duty to indemnify will result only: (1)
when the insurer has already defended the action under
a reservation of rights, the insured has been found liable,
and the insurer thereafter contests the coverage of the
policy, or (2) when the policy contains no defense clause.
If the broader duty to defend has not been triggered, it
is because the underlying action is not potentially within
the coverage of the policy, and there could be, as a prac-
tical matter, no duty to indemnify in such a situation.
Therefore, because Federal refused to assume the de-
fense of the EEOC action, our analysis here necessari-
ly focuses on whether that refusal was a breach of the
duty of defense covenant contained in Endorsement 1. In
the event it was not a breach of that covenant of the in-
surance contract, our inquiry is at an end. If, however,
we determine that the duty of defense was violated, the
applicable Tllinois law holds that the insurer is estopped
to deny coverage, Aetna Casualty & Surety Co. v. Cor-
onet Insurance Co., 44 Ill. App. 3d 744, 358 N.E.2d 914,
917 (1976), and provides for the following broad
measure of damages to the insured: (1) the costs of de-
fending the suit; (2) the amount recovered from the in-
sured, either by way of judgment or settlement; and, (3)
any additional damages caused by the insurer’s breach
of contract, see, e.g., J.L. Simmons Co., Inc. v. Fidelity and
Casualty Co., 511 F.2d 87, 90 (7th Cir. 1975) (apply-
ing Illinois law); Weed v. Ohio Farmer’s Insurance Com-
pany, 53 Tl. App. 3d 826, 368 N.E.2d 1310, 1313 (1977);
Sims v. Illinois National Casualty Co., 43 Tll. App. 2d
184, 193 N.F.2d 123, 127 (1963); see generally 7C Ap-
pleman, Insurance Law and Practice § 4683 (1979), again
obviating any additional inquiry into the duty to indemnify.
* (Continued)
either seek a declaration of its rights in an independent
action, or should defend under a reservation of rights,
which it may do by assuming the defense, or, if neces-
sary to avoid a conflict of interest, by means of indepen-
dent counsel retained to represent the interests of the
insured,
— 8a —
Federal contends that its refusal of the tendered de-
fense‘ was proper because the underlying EEOC com-
plaint against Solo included the following allegation:
Since July 2, 1965, and continuously up until the
present time, Defendant Company has intentionally
engaged in unlawful employment practices at its
Atlanta, Georgia facility, in violation of certain pro-
visions of Title VII. These volations include, but
are not limited to, the following:
1. Failing and refusing to promote women based
on sex;
2. Compensating women at a lower rate than men
for substantially the same work;
3. Maintaining job classifications segregated on the
basis of sex;
4. Having different terms and conditions of em-
ployment for women based on sex; and
5. Discharging women in retaliation for exercis-
ing protected rights under Title VII.
(Emphasis supplied).
Reasoning that the extent of its obligation to defend
should be measured by a comparison of the policy and
the underlying complaint, Federal then argues that the
act of the insured which is the subject of the suit must
be an ‘‘oceurrence.’’ Because the policy defines an ‘‘oe-
eurrence’’ insofar as is relevant to this litigation as one
which ‘‘unintentionally results in personal injury .. .”
(emphasis supplied), Federal therefore insists that the
inclusion of the word ‘‘intentionally’’ in the underlying
complaint negated coverage and relieved it of its duty to
provide a defense. We do not agree.
While it is true that an insurance company’s obliga-
tion to defend depends upon the underlying complaint
against its insured, this obligation, as noted previously,
is present whenever there appears to be a potential for
coverage under the policy. Colton v. Swain, 527 F.2d
‘Federal has not raised an issue as to the adequacy of
the tender.
——
296, 302 (7th Cir. 1975) (applying [Illinois law);
Maryland Casualty Co. v. Peppers, 64 Ml. 2d 187, 355
N.E.2d 24 (1976); Weed v. Ohio Farmer’s Insurance Co.,
53 Ill. App. 3d 826, 368 N.E.2d 1310 (1977). Where, un-
der the allegations of the pleadings against the insured,
‘fan insured’s liability exists on one theory as well as
another and one of them brings the liability within
coverage, we think the insured may avail himself of the
insurance protection.’ United States Steel Corporation v.
Hartford Accident & Indemnity Co., 511 F.2d 96, 99 (7th
Cir. 1975) (emphasis supplied) (applying TUinois law).
Especially since the advent of notice pleading. in a case
where there is doubt as to whether a theory of recovery
within the poliev coverage has been pleaded in the un-
derlying complaint, the insurer must defend, and_ its
defense obligations will continue until such time as the
claim against the insured is confined to a recovery that
the policy does not cover. Carboline Company v. Home
Indemnity Company, 522 F.2d 363, 366-367 (7th Cir.
1975) (analyzing Tllinois law).
To hold otherwise would he to place upon the insured
the burden of demonstrating in advance of the underly-
ing litigation which of the competing theories of re-
covery against it was applicable for purposes of insur-
ance, thereby frustrating one of the basie purposes of
such a clause in the insuranee contract — protection of
the insured from the expenses of litigation. Aetna
Casualty & Surety Co. v. Coronet Insurance Co., 44 Tl.
App. 3d 744, 358 N.F.2d 914 (1976).
The underlying complaint filed against Solo by the
EEOC seemingly alleges a full panoply of offenses under
Title VIT. Although based upon a promotional claim
filed by a single employee, it includes class allegations’
>The EEOC complaint was filed before the decision in
EEOC v. D.H. Holmes Co., Ltd., 556 F.2d 787 (5th Cir.
1977), cert. denied, 436 U.S. 962 (1978). In that case, the
Fifth Cireuit held that when the FEOC alleges class
discrimination and seeks relief for ‘‘those persons ad-
versely affected,’’ the suit is a class action and the FEOC
must comply with the requirements of Rule 23.
=
of sex based discrimination in compensation, promotion-
al opportunities, and job placement, as well as general
allegations of discrimination in terms and conditions ol
employment.
A Title VII plaintiff may establish a violation under
either the ‘‘disparate treatment’’ or the ‘‘disparate im-
pact’”’ theory. As the Supreme Court observed in Inter-
national Brotherhood of Teamsters v. United States, 431
U.S. 324, 335-36 n.15 (1977):
‘‘Disparate treatment’’. . . is the most easily un-
derstood type of discrimination. The employer simp-
ly treats some people less favorably than others be-
cause of their race, color, religion, sex, or national
origin. ...
Claims of disparate treatment may be distin-
guished from claims that stress ‘‘disparate impact.”’
The latter involve employment practices that are
facially neutral in their treatment of different groups
but that in fact fall more harshly on one group than
another and cannot be justified by business neces-
A
Id.
In our opinion, the allegations in the underlying
EEOC complaint were so general that the EEOC would
in all likelihood have been permitted to proceed under
either theory. An analysis of the question of whether a
disparate treatment claim would have been within the
coverage of the policy necessitates an examination of the
burdens of proof articulated for that type of action in
McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802
(1973), and its progeny. In order to establish a prima
facie case under the disparate treatment theory, a plain-
tiff is required to show the following: (1) that he or she
belongs to a protected group under the statute; (2) that
he or she applied and was qualified for the job or
promotion for which the employer was considering ap-
plicants; (3) that despite his or her qualifications, the
applicant was rejected or was not promoted; and (4) that
—lla —
after the plaintiff’s rejection, the employer continued to
seek or consider applicants of the plaintiff’s qualifications.
In Furnco Construction Corp. v. Waters, 438 U.S. 567
(1978), the Court defined the exact scope of the prima
facie case, noting that it was not the equivalent of a find-
ing of discrimination, but rather raises an inference that
the defendant’s acts, if not otherwise explained, were
more likely than not based on a consideration of imper-
missible factors. The burden that shifts thereafter to the
employer is consequently one of articulating a legitimate,
nondiscriminatory reason for its employment decision.
Board of Trustees of Keene State College v. Sweeney,
439 U.S. 24 (1978). If the employer meets this burden,
the plaintiff will then be given an opportunity to intro-
duce evidence that the employer’s proffered justification
is a mere pretext for discrimination.
What emerges from an overview of the above burdens
is that proof of discriminatory motive is critical in a dis-
parate treatment action. International Brotherhood of
Teamsters v. United States, supra, at 335-36 n.15. The
establishment of a case unedr McDonnell Douglas is
equated with proof of motive because
we know from our experience that more often than
not people do not act in a totally arbitrary manner,
without any underlying reasons, especially in a busi-
ness setting. Thus when all legitimate reasons for
rejecting an applicant have been eliminated as pos-
sible reasons for the employer’s actions, it is more
likely than not the employer, who we generally as-
sume acts only with some reason, based his decision
on an impermissible consideration.
Furnco Construction Corp. v. Waters, supra, at 577.
While the concepts of motive and intent are not iden-
tical, we think in the narrow context of determining the
scope of coverage under this insurance policy, there is
a similarity. The policy definition of an insured ocecur-
rence would extend only to a liability incurred by rea-
son of Solo’s unintentionally exposing women to dis-
— 12a —
criminatory conditions. The extent of this coverage is
therefore inconsistent with liability predicated on the
disparate treatment theory since such a liability would
necessarily involve a determination that Solo acted with
a discriminatory motive or purpose.
We reach the opposite conclusion, however, with re-
spect to the disparate impact theory, which is employed
to analyze the validity of employment practices which
are fair and neutral in form, but discriminatory in opera-
tion. The basic legal standards utilized in a disparate
impact analysis were developed in Griggs v. Duke Power
Co. 401 U.S. 424 (1971), and amplified in Albemarle
Paper Co. v. Moody, 422 U.S. 405 (1975). Proof of mo-
tive is not required. International Brotherhood of Team-
sters v. United States, supra, at 335-36 n.15.
In order to make out a prima facie case of diserimina-
tion under the disparate impact theory, the plaintiff is
required to show only that the employer utilized a fa-
cially neutral criterion which resulted in selecting ap-
plicants for hire or promotion in a significantly diserim-
inatory pattern. Once the employment standard is so
shown to be discriminatory in effect, the employer then
must meet the burden of showing that its standard bears
a manifest relation to the job in question. If the employer
can demonstrate the job relatedness of its standard, the
plaintiff may then show that other selection devices with-
out a similarly discriminatory effect will also serve the
employer’s interest in maintaining an efficient workforce.
Solo contended at argument that the basis of the un-
derlying claim against it was in fact a disparate impact
claim based on its policy of requiring sales experience as
a prerequisite for certain promotions. This policy, accord-
ing to Solo’s summary of the EEOC’s position in the
underlying action, disqualified disproportionate numbers
of women, who, as a group. tended not to have the re-
quired experience.
While there is nothing in the record below to enable
us to make a clear determination of whether the EEOC’s
— 13a —
complaint was in fact aimed at such a policy, we cannot,
as noted previously, hold that the EEOC complaint did
not contai: a potential disparate impact claim. Since
disparate impact liability does not require proof of dis-
criminatory motive, and since Federal has, moreover, con-
ceded that the policy covers at least some types of
disparate impact claims,’ we therefore hold that the dis-
parate impact claim which could have been proved un-
der the allegations of the underlying complaint was a
claim potentially within the coverage of the policy, Con-
sequently, under Illinois law, Federal has breached its
duty to defend its insured in the action. See generally
Maryland Casualty Co. v. Peppers, supra, at 28.
The final issue to be considered with respect to the
EEOC claim is whether our construction of the policy to
include coverage of disparate impact liability would, as
Federal contends, render the insurance contract violative
of the publie policy against employment discrimination
embodied in Title VII. It is well settled that ‘‘[a] con-
tract of insurance to indemnify a person for damages
resulting from his own intentional misconduct is void as
agaist public policy and the courts will not construe a
contract to provide such ¢ verage.’’ Industrial Sugars,
Inc. v. Standard Accider.t Insurance Co., 338 F.2d
673, 675 (7th Cir. 1964). This rule is based on the
simple principle long ago stated by Judge Cardozo, that
‘‘no one shall be permitted to take advantage of his
own wrong.’’ Messersmith v. American Fidelity Co., 232
N.Y. 161, 183 N.E. 482 (1921). Placing a limitation on
the clear meaning of an insurance contract due to policy
*Although it might seem that Federal’s argument
carried to its logical extreme would result in its pur-
ported coverage of ‘‘discrimination’’ as being without any
real meaning, Federal argues otherwise, pointing out that
there are instances of vicarious liability imposed by Title
VII, caused by the acts of others, which liability is there-
fore unintentional as to the insured. We regard this ap-
proach as so narrow as to leave little real meaning to the
purported coverage.
— 14a —
considerations, is, however, a restraint on the rights of
private parties to fashion their own contract, Union
Camp Corp. v. Contmental Casualty Co., 452 F.Supp.
565, 568 (S.D. Ga. 1978), and is a step which courts have
taken only where contracts were argued to extend cov-
erage to the knowledgeable and intentional, or the crimi-
nal wrongdoer. Hartford Life Insurance Co. v. Title Guar-
antee Co., 520 F.2d 1170 (D.C. Cir. 1975); 1 Couch on
Insurance 2d § 1.36 (1959 & Supp. 1978).
Because we have construed the policy to exclude cov-
erage of disparate treatment liabilities, we do not con-
sider whether the degree of motive which must be proved
in that type of action would be equivalent to a knowl-
edgeable and intentional wrong such as would void policy
provisions purporting to cover those claims.
With respect to the coverage of disparate impact lia-
bilities, there is clearly no basis for voiding or limiting
the contract. An insured may incur liability or become
involved in litigation under that theory as a result of
its utilization of any of a variety of seemingly neutral
selection criteria. We note our agreement with the opin-
ion of the Court of Appeals for the Sixth Cireuit in
L’Orange v. Medical Protective Company, 394 F.2d _ 57,
60 (6th Cir. 1968), where that court, interpreting Ohio
law, observed that ‘‘the violation of public policy is mea-
sured by the tendency of the contract to injure the pub-
lic good rather than by actual injury under the partic-
ular circumstances.’’
We do not think that allowing an employer to insure
itself against losses incurred by reason of disparate im-
pact liabilities will tend in any way to injure the
public good, which we equate here with that equality of
employment opportunity mandated by Title VII. To the
contrary, the fact of insurance may be helpful toward
achieving the desirable goal of voluntary compliance with
the Act. The statistical proofs in disparate impact ac-
tions, most particularly those involving employment test-
ing, have become increasingly complex, and employers
— 15a —
now often retain batteries of experts to validate their
selection criteria. Such complex analyses of employment
standards, while apparently necessary in order to ensure
that an employer’s policies do not needlessly place a
stumbling block in the way of women or minorities, may
well become, as a practical matter, beyond the financial
capabilities of all but the largest employers. The involve-
ment of insurance in the field might, however, ease the
burden on smaller employers by making claim prevention
services available on a cost effective basis to help em-
ployers evaluate their employment standards. Workmen’s
compensation insurers have, by way of analogy, no doubt
helped prevent numerous employee injuries, and it is not
undesirable, nor inconceivable, that discrimination insur-
ers might aid in preventing the injury of discrimination
as well.
Because we have held that Federal breached its duty
to defend its insured in an action which was potentially
within the coverage of its policy, and because there is no
public policy reason for limiting the contract, Solo is en-
titled under Illinois law to damages in the amount of the
costs and fees involved in defending the action, and the
sums paid in settlement of the claim, less the policy
deductible.
B. The GSA Review
Solo also seeks a declaration that it is entitled to have
Federal provide a defense with respect to the allegations
of sex discrimination made by the GSA in its compliance
review. It additionally seeks indemnity for the $3,750 in
legal fees and costs already expended during the review,
and further seeks a declaratory judgment that any sums it
becames obligated to pay as backpay to female employees
in the facility which was the subject of the GSA review
will be within the indemnity coverage of the policy.
Dealing with these contentions in order, our review of
the record does not indicate that Federal’s defense obli-
gations have been triggered by the events to date sur-
rounding the compliance review. Our determination rests
— 16a —
upon the fact that the only ‘‘claim’’ which has so far
been made against Solo is an administrative proposal’
that Solo pay some $266,667 in allegedly due backpay as
a basis for conciliation. Solo, has, however, refused to
conciliate upon this basis. Moreover, this excerpt from
Solo to Federal dated May 19, 1977, is itself illustrative
of the remote and indeed speculative nature of any claims
which might be made against Solo:
Solo Cup Company denies that it is guilty of any
such [backpay] deficiency because there are a number
of available defenses to the allegation and in any
event believes that the amount claimed is greatly
exaggerated. As a result of refusing to conciliate this
matter, it is anticipated that some time in the future
there will be a hearing with respect to Solo’s right
to continue as a government contractor and there
might be an action filed to seek backpay.
(Emphasis supplied.)
‘In the GSA matter there are no adjudicatory proceed-
ings taking place in any forum; therefore we leave for
another day the question of whether the duty to defend
imposed by the provisions of the policy is necessarily
confined to judicial proceedings. We do note, however,
that the duty to defend in Endorsement 1 obligates the
insurer to ‘‘defend any suit against the insured.’’? The
indemnity provisions of the policy, by contrast, obligate
the insurer to indemnify Solo for all sums paid by reason
of liability imposed ‘‘by law.’’ In light of this language
in the indemnity provisions, we think that the duty to
defend ‘‘suits’’ might in some circumstances be triggered
by adjudicatory proceedings before an administrative
body. This conclusion follows from the fact that under
Illinois law, the duty to defend, while independent of
the duty to indemnify, is the broader of the two. Further,
the word ‘‘suit’’ contained in the defense provisions is
ambiguous, see, e.g., Webster’s New Unabridged Inter-
national Dictionary (2d ed.) (defining ‘‘to sue’’ as ‘‘to
seek justice or right ... by legal redress’’), and must
therefore be construed liberally in favor of the insured.
J.L. Simmons Co., Inc. v. Fidelity & Cas. Co., 511 F.2d
87, 90 (7th Cir. 1975).
—17a—
Because we have held that Federal’s broad duty of
defense has not yet been triggered, we must examine the
question of whether Solo might be entitled to reimburse-
ment of the $3,750 of fees and costs expended to date in
conjunction with the review under the imdemnity provi-
sions of the policy. Because there have been no formal
proceedings against Solo, and therefore, no “liability im-
posed upon the Insured by law” as required by Paragraph
4 of the indemnity coverage, we hold that it is not so
entitled at this time.
Finally, we are in full agreement with the district
court that the question of whether Solo would be entitled
to indemnity for sums paid to female employees in any
actions which might be brought either to debar Solo as a
federal contractor or to seek backpay for alleged dis-
criminatees is not ripe for adjudication. The Declaratory
Judgment Act, 28 U.S.C. § 2201, provides for a remedy
only in cases of “actual controversy.” The mere possibili-
tv that proceedings might be commenced against an in-
sured regarding an act of the insured’s as to which the
insurer might contest coverage, is not sufficient to create
a controversy within the meaning of either the Declara-
tory Judgment Act or Article III of the Constitution.
The district court erred, however, in granting the in-
surer’s motion for summary judgment as to the GSA
related allegations. The appropriate remedy where an
action is found not to constitute a controversy is not
judgment but dismissal. Fed. R. Civ. P. 12(h)(3).
Reversep AND Remanpep, for entry of a judgment on
Count I and an order of dismissal on Count IT consistent
with this opinion. The judgment of this court shall in-
clude costs to the appellant.
A true Copy:
Teste:
POURUUURUOUS TOSS OCS COSC CET CeCe eee eee eee ea
Clerk of the United States Court of
Appeals for the Seventh Circuit
— 18a —
Unitep States Court Or AppEaLs
For the Seventh Circuit
Chicago, Illinois 60604
May 16, 1980
Before
Hon. Witaur F. Pew, Jr., Circuit Judge
Hon. Wituiam J. Baver, Circuit Judge
Hon. Epwarp DumBavuLp, Senior District Judge*
No. 79-1528
Soto Cup Company,
Plaintiff-Appellant,
vs.
FreprerAL [NsuRANCE COMPANY,
Defendant-Appellee.
Appeal from the United States District Court for the
Northern District of Illinois, Mastern Division.
No. 77 C 4540
THomas R. McMitien, Judge
On consideration of the petition for rehearing filed in
the above-entitled cause by Federal Insurance Company,
defendant-appellee, all of the judges on the original panel
having voted to deny the same,
IT IS HEREBY ORDERED that the aforesaid petition
for rehearing be, and the same is hereby, DENIED.
*Senior District Judge Edward Dumbauld of the
Western District of Pennsylvania is sitting by designation.
— 19a —
Unitep States District Court
NortHERN Disrricrt Or ILuLiNors
EASTERN DIVISION
No. 77 C 4540
Soto Cup Company,
Plaintiff,
vs.
FreperaL INSURANCE COMPANY,
Defendant.
DECISION ON PENDING MOTIONS
Plaintiff has filed a complaint seeking a declaratory
judgment concerning whether or not the defendant is
required to reimburse plaintiff for its defense and settle-
ment of an E.E.O.C. action filed in the Northern District
of Georgia and, in addition to such reimbursement, to
defend plaintiff in a G.S.A. investigation concerning its
racial practices in Grand View, Missouri. Defendant has
filed a motion to dismiss the complaint or for judgment
on the pleadings, and plaintiff has filed a motion for
judgment on the pleadings with respect to the declaratory
action portion of the complaint. We find and conclude
that the defendant is entitled to most of the relief which
it seeks.
The controversy involves defendant’s “Umbrella Excess
Liability Policy” which it issued to the plaintiff for the
period January 1, 1974 through January 1, 1977. The
defendant agreed to indemnify the plaintiff for all sums
which the plaintiff became obligated to pay for damages
and expenses on account of “Personal Injuries”; personal
injuries expansively are defined in par. 2 of the Defini-
tions to include such things as “malicious prosecution,
discrimination, humiliation . . . invasion of rights of
privacy. .. .” However, these injuries must be caused by
or arise out of an “occurrence” which is defined in par. 5
as “an accident or a happening or event or a continuous
or repeated exposure to conditions which unexpectedly
and unintentionally results in personal injury... .”
_ en
The complaint in the District of Georgia case was filed
on May 6, 1976 and, we find, does not allege an “ocecur-
rence” as defined in the policy. Paragraph 7 alleges:
Since July 2, 1965, and continuously up until the
present time, Defendant Company has intentionally
engaged in unlawful employment practices at its
Atlanta, Georgia facility, in violation of certain pro-
visions of Title VIT. These violations include, but are
not limited to the following:
1. Failing and refusing to promote women based
On sex;
2. Compensating women at a lower rate than men
for substantially the same work;
3. Maintaining job classifications segregated on the
basis of sex;
4. Having different terms and conditions of em-
ployment for women based on sex; and
5. Discharging women in retaliation for exercising
protected rights under Title VII.
None of the foregoing allegations constitutes an ac-
cident, happening or event, They allege a course of con-
duct, resulting in plaintiff's continuous or repeated ex-
posure to conditions which it intentionally created and
which resulted in the discrimination. This is not the type
of risk intended to be covered by the policy.
Under Illinois law, which controls this case, the duty
of an insurance company to defend is broader than the
duty to indemnify and arises when the complaint poten-
tially sets forth a situation covered by the policy. Coun-
try Mutual Ins. Co. v. Murray, 97 Til. App. 2d 61 (2d Dist.
1968). A claim which potentially falls within coverage
of the policy must be defended unless the complaint af-
firmatively alleges facts which, if proved, would exclude
coverage. John Mohr d Sons v. Hanover Ins. Co., 322
F. Supp. 184 (N.D. Til. 1971). Although plaintiff cor-
rectly contends that superfluous and immaterial allega-
tions of the complaint cannot control the duty to defend,
— 21a —
the gravamen of the E.E.0.C. complaint was to correct
an allegedly intentional and unlawful employment prac-
tice which had continued for more than a decade, It
sought a permanent injunction, an affirmative action pro-
gram, and back pay for the women who had been dis-
eriminated against. Defendant was justified in not de-
fending this case under the policy.
Also condition F of the policy requires that the in-
sured notify the defendant in advance of any settlements
above the retained limit, which is $10,000. Plaintiff has
shown no such notice to the defendant in advance of pay-
ing the $25,000 in settlement. Nor did it even tender
the defense to the defendant when it became apparent
that the claim might exceed the retained limit. There-
fore, plaintiff is not entitled to reimbursement for any
portion of the settlement, even though the defendant re-
fused to defend. In construing condition F, incidentally,
the parties have not shown whether or not there was any
“underlying insurer” who was obligated to defend the
claim, but we will assume, for plaintiff's benefit, that
either defendant or one of its assignees met this defini-
tion and that therefore there was an obligation under the
policy to defend covered claims.
The G.S.A. demand in Missouri also involved alleged
discrimination but did not result in any court proceed-
ings during the life of the policy. The insuring agree-
ment itself provides that the defendant indemnify the
plaintiff “for damages direct or consequential and ex-
penses, all as more fully defined by the term ‘ultimate
net loss”, on account of: (i) Personal Injuries. .. .”” How-
ever, ultimate net loss is defined in par. 6 as the amounts
which the insured becomes obligated to pay “either
through adjudication or compromise . .. and for litiga-
tion, settlement, adjustment and investigation of claims
and suits which are paid as a consequence of any occur-
rence covered hereunder... .” This does not appear to
us to require the defendant to defend against adminis-
trative procedures, particularly when they cannot be
filed as a court action.
— 22a —
Whether any demand or letter from G.S.A. can con-
stitute an “occurrence” within the definition of the policy,
in our opinion, would depend upon the nature of the
claims being made by the government. We do not find
any such document in the record, but plaintiff alleges
that the back pay claim involved 72 female employees
for a two-year period from October 1974 through Oc-
tober 1976. Thus, the definition of an occurrence as an
unexpected and unintentional repeated exposure to con-
ditions seems to be lacking in the G.S.A. claim also. In
view of the lack of evidence on this claim, we cannot
at this time make a final determination of plaintiff’s
rights for settling any claims arising from the G.S.A.
demand involving Grand View, Missouri, however.
The question arises why the crucial word “disecrimina-
tion” appears in the insuring agreement if it does not
eover these matters. In the context of this kind of insur-
ance policy, it was probably intended to cover a claim by
an individual or individuals for one act of discrimination
which resulted in a claim or lawsuit by such persons.
There is no evidence that the type of occurrences in-
volved in this case were ever contemplated by the par-
ties or intended to be insured against.
We do not reach the question of whether the plain-
tiff is entitled to any reimbursement for the settlement
of the G.S.A. claim over and above the retained amount
(prayer 5 of the Complaint) because of lack of evidentiary
support.
IT IS THEREFORE ORDERED, ADJUDGED AND
DECREED that the motion of the defendant for judg-
ment on the pleadings is granted as to prayers 1, 2, 3 and
4 of the Complaint. A status report will be held on the
remaining portions of the Complaint on Monday, Decem-
ber 18, 1978 at 11:30 a.m.
ENTER:
/s/ Thomas R. MeMillen
Judge, U. S. District Court
Dated: Nov. 27, 1978
— 23a —
UNITED STATES DISTRICT COURT
For The
Northern District Of Illinois -— Eastern Division
Civil Action File No. 77 C 4540
SOLO CUP CO.,
Plaintiff,
vs.
FEDERAL INSURANCE CO.,
Defendant.
JUDGMENT
This action came on for (hearing) before the Court,
Ffonorable Thomas R. Me Millen, United States District
Judge, presiding, and the issues having been duly (heard)
and a decision having been duly rendered,
It is Ordered and Adjudged that defendant’s motion
for summary judgment on count I of the amended com-
plaint is granted. Defendant’s motion for summary judg-
ment on Count II of the amended complaint is also
granted.
Dated at Chicago, Illinois, this 4th day of April, 1979.
H. Stuart Cunningham
Clerk of Court
By: Kathleen Branch
Deputy Clerk
—
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
No. 77 C 4540
SOLO CUP COMPANY,
Plaintiff,
vs.
FEDERAL INSURANCE COMPANY,
Defendant.
DECISION ON DEFENDANT’S MOTION TO DISMISS
OR FOR SUMMARY JUDGMENT ON THE
AMENDED COMPLAINT
On November 27, 1978, this court entered a decision
granting defendant judgment on the pleadings with re-
spect to prayers 1, 2, 3, and 4 of the original complaint.
That decision did not reach prayer 5 of the complaint,
for lack of the necessary evidentiary support. Plaintiff
was granted leave to file an amended complaint in lieu
of a motion to reconsider this court’s decision. Defendant
moves to dismiss or for summary judgment with respect
to the amended complaint. We reaffirm the reasoning of
our November 27, 1978 decision, with certain clarifica-
tions.
Count I. Count I of the amended complaint incor-
porates prayers 1-3 of the original complaint. Plaintiff
seeks reimbursement for the costs of defense and settle-
ment arising from a civil action filed by the E.E.O.C.
alleging discrimination at plaintiff's Atlanta, Georgia
facility, and a declaratory judgment that plaintiff is en-
titled to insurance coverage and benefits for the ultimate
net losses incurred from the discrimination alleged.
Without repeating the November 27, 1978 decision, our
reading of the insurance policy and the complaint filed
in the District of Georgia case is unaffected by the al-
legations of plaintiff’s amended complaint. Plaintiff does
allege that it tendered the defense of the action to this
insurer, and that it notified defendant in advance of pay-
— 25a —
ing $25,000, in settlement of the action. Plaintiff also al-
leges that no underlying insurer was obliged to defend
or indemnify against covered losses in the Georgia ac-
tion. And condition F in the poliey provides:
The Insured shall be responsible for the settlement
or defense of any claim made or suit brought or
proceeding instituted against the Insured which no
underlying insurer is obliged to defend.
The matters raised by plaintiff are only incidental to
the major issues in this portion of the case: the proper
construction of the insurance policy and of the E.E.O.C.
complaint filed against plaintiff in the District of Georgia.
We will grant summary judgment for defendant on Count
I of the amended complaint.
Count IT, Count IL of the amended complaint incor-
porates prayers 4-5 of the original complaint. Plaintiff
seeks reimbursement for costs of defense already in-
eurred from a General Services Administration on-site
review of plaintiff’s Grandview, Missouri plant. This re-
view was to investizate whether plaintiff complied as a
government contractor with Executive Order 11246, as
amended, and related rules and regulations thereunder,
which prohibit employment discrimination and require
that an affirmative action plan be implemented to pro-
vide equal employment opportunity. Plaintiff also prays
for a declaratory judgment that it is entitled to defense
in that review, and reimbursement for the ultimate net
losses incurred from the diserimination alleged pursuant
to the G.S.A. review.
The amended complaint, as previously, alleges no more
than administrative * procedures, instituted by the G.S.A.
to review plaintiff's conduct. We find that defendant is
not required under the. policy to defend against purely
administrative procedures, as we held in the November
27, 1978 decision.
We previously declined to rule as to whether any de-
mand or letter from the G.S.A. ean constitute an “oecur-
rence” within the definition of the policy, for in our
— 26a —
opinion that depends upon the nature of the claims being
made by the government. Sufficient evidence was lack-
ing for a final determination of plaintiff’s rights for
settling any claims arising from the G.S.A. demand, as
the nature and scope of the government’s demand was
unclear on the record, We find that an appropriate basis
for a ruling on this issue is still lacking in the record.
However, we find that this portion of plaintiff’s claim
does not present an “actual controversy,” ripe for deci-
sion under the Declaratory Judgments Act and within
the confines of Article III of the Constitution. Plaintiff
merely alleges that the G.S.A. has found that the plain-
tiff was guilty of discrimination at its Grandview, Mis-
souri plant, and that G.S.A. proposes, as a conciliation
of the alleged discrimination, that plaintiff pay speci-
fied amounts of backpay and interest. Plaintiff does not
allege that it has done so to date or that. any court
proceedings have been instituted.
While we have previously expressed our doubt that
the G.S.A. claim is founded upon an “occurrence,” as de-
fined by the policy coverage provisions, we will dismiss
the claim for indemnification of ultimate net losses un-
der Count II of the amended complaint, for lack of sub-
ject matter jurisdiction under the Declaratory Judgments
Act.
Finally, we call plaintiff's attorneys attention to
F.R.C.P. Rule 11 which requires that an amended com-
plaint be signed by at least one attorney of record.
IT IS THEREFORE, ORDERED, ADJUDGED AND
DECREED that defendant’s motion for summary judg-
ment on Count I of the amended complaint is granted.
Defendant’s motion for summary judgment on Count. II
of the amended complaint is also granted. A Rule 58
judgment will be entered.
SO ORDERED.
/s/ Thomas R. Me Millen
Judge, U. S. District Court
Dated: April 4, 1979
— 27a —
(Title Head — Abramson & Fox)
Law Offices
ABRAMSON & FOX
One East Wacker Drive
Chicago, Llinois 60601
(312) 644-8500
October 9, 1979
Thomas F. Strubbe, Clerk
United States Court of Appeals
for the Seventh Circuit
219 South Dearborn Street
Chicago, Illinois 60603
RE: Citation of Additional Authority
Under Cireuit Rule 11
No. 79-1528, Solo Cup Co. v.
Federal Ins. Co.
Oral Argument Scheduled, 11/8/79
Dear Sir:
Pursuant to Cireuit Rule 11, as amended March 30,
1979, Appellee respectfully cites:
Ladd Constr. Co. v. Insurance Co. of N. Amer.,
73 IllApp.3d 438 (Third Dist., filed 6/19/79,
reported 8/15/79),
for the proposition that:
The Complaint of the injured person, and not of
the insured, controls the duty of the insurance com-
pany to defend under a casualty policy where dam-
ages are sought.
The cited case relates to pages 2, 4, 5 and 6 of Ap-
pellee’s Brief.
—
A copy of this letter has been sent to counsel for Ap-
pellant.
Respectfully submitted,
/s/ John E. Guy
John E. Guy
Thomas M. Knepper
Abramson & Fox
One East Wacker Drive
38th Floor
Chieago, Illinois 60601
(312) 644-8500
Attorneys for Defendant-Appellee
Federal Insurance Company
Orig., 6 ec:
ec: Fox & Grove
JEG/kts
a=» 900, ...-
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CIVIL ACTION No. 77 C 4540
PLAINTIFF DEMANDS TRIAL BY JURY
SOLO CUP COMPANY, a Delaware corporation,
Plaintiff,
vs.
FEDERAL INSURANCE COMPANY, a New Jersey
corporation, Détendend
efenaant.
AMENDED COMPLAINT
COUNT I
Plaintiff Solo Cup Company, by and through its at-
torneys, Shayle P. Fox and Russell M. Kofoed, for Count
I of its Amended Complaint against Federal Insurance
Company, states as follows:
1. Plaintiff Solo Cup Company (hereinafter referred
to as “Solo”) is a Delaware corporation with its prin-
cipal place of business in Illinois.
2. Defendant Federal Insurance Company (hereinaf-
ter referred to as “Federal”) is a New Jersey corpora-
tion with its principal place of business in New Yotk.
3. The matter in controversy, exclusive of interest and
costs, exceeds $10,000.00.
4, On January 24, 1974,,Federal issued to Solo an
Umbrella Excess Liability Poliey, (“the Policy”) a copy
of which is attached hereto as Exhibit A and incorpo-
rated herein,
5. The Policy provided in part as follows:
“DECLARATIONS ...
Item 2. Policy Period: From 1-1-74
to 1-1-77...
=
Item 4. Limit of Liability—as per
Insuring Agreement II.
(a) Limit in respect of each occur-
rence $10,000.00
(b) Limit in the Aggregate for each An-
nual Period where applicable $10,-
000.00
(c) Retained Limit $10,000.00”
“1. Coverage
The Company hereby agrees, subject to the lim-
itations, terms and conditions hereinafter men-
tioned, to indemnify the Insured for all sums for
which the Insured shall become obligated to pay
by reason of liability
(a) imposed upon the Insured by law
or (b) assumed under contract or agreement by
the Named Insured and/or by any officer,
director, stockholder, partner or employee
of the named insured, while acting in his
capacity as such,
for damages direct or consequential and expenses,
all as more fully defined by the term “ultimate
net loss”, on account of:
(i) Personal Injuries, including death at any
time resulting therefrom,
(ii) Property Damage,
(iii) Advertising Liability,
caused by or arising out of each occurrence hap-
pening anywhere in the world.
2. Limit of Liability
The Company shall only be liable for the ultimate
net loss the excess of either
(a) the amount recoverable under underlying
insurances as set out in the attached sched-
ule
— 3la —
or (b) the retained limit as stated in Declara-
tion 4(c) in respect of each occurrence not
covered by said underlying insurances,
(hereinafter called the “underlying lim-
Pe
“THIS POLICY IS SUBJECT TO THE FOL-
LOWING DEFINITIONS ...
2. Personal Injuries
The term “Personal Injuries” wherever used here-
in means bodily injury, mental injury, mental
anguish, shock, sickness, disease, disability, false
arrest, false imprisonment, wrongful eviction, de-
tention, malicious prosecution, discrimination, hu-
miliation; also libel, slander or defamation of
character or invasion of rights of privacy, except
that which arises out of any Advertising ac-
tivities . . . (emphsais applied)
5. Occurrence
The term “Occurrence” wherever used herein shall
mean an accident or a happening or event or a
continuous or repeated exposure to conditions
which unexpectedly and unintentionally results in
personal injury, property damage or advertising
liability during the policy period. All such ex-
posure to substantially the same general condi-
tions existing at or emanating from one premises
location shall be deemed one occurrence.
6. Ultimate Net Loss
The term “Ultimate Net Loss’ shall mean the
total sum which the Insured, or any company as
his insurer, or both, become obligated to pay by
reason of personal injury, property damage or
advertising liability claims, either through ad-
judi ation or compromise, and shall also include
hospital, medical and funeral charges and _ all
sums paid as salaries, wages, compensation, fees,
charges and law costs, permiums on attachment
or appeal bonds, interest, expenses for doctors,
lawyers, nurses and investigators and other per-
— 32a —
sons, and for litigation, settlement, adjustment
and investigation of claims and suits which are
paid as a consequence of any occurrence covered
hereunder, excluding only the salaries of the In-
sured’s or of any underlying insurer’s permanent
employees .. .”
6. On or about October 18, 1974, Anne Willard, an
employee of Solo at that time, filed a Charge of Employ-
ment Discrimination against Solo with the Equal Oppor-
tunity Commission principally based upon her allega-
tion that she was denied a higher paying position with
the company by reason of her being a female.
7. Solo’s denial of a higher paying position to Anne
Willard in 1974 was a single act or occurrence as defined
in the policy.
8. On May 6, 1976, on the basis of the Charge of
discrimination filed with it by Anne Willard against
Solo, the Equal Employment Opportunity Commission
filed a Complaint against Solo in the United States Dis-
trict Court for the Northern District of Georgia, Eastern
Division, as civil action No. C76-806A, (hereinafter re-
ferred to as the “Lawsuit”) and had a Summons issued
against Solo, a copy of each of which are attached hereto
as Exhibit B and incorporated herein, in which the Equal
Employment Opportunity Commission alleged that Solo
was guilty of employment discrimination in violation
of Title VII of the Civil Rights Act of 1964, as amended.
9. By its letter of February 17, 1977, to Critchell-
Miller, Ine., an authorized agent of Federal, a copy of
which is attached hereto as Exhibit C and ineorporated
herein, Solo gave due netice to Federal of said oeenr-
rence of discrimination alleged by Anne Willard, an
ex-employee of Solo, on whose behalf the Equal Employ-
ment Opportunity Commission had filed the Lawsuit.
10. On or about February 17, 1977, Solo tendered to
Federal the defense of the Lawsuit and requested Fed-
eral to acknowledge its coverage under the policy.
— 33a —
11. By its letter of February 18, 1977, to Solo, a
copy of which is attached hereto as Exhibit D and in-
corporated herein, Critchell-Miller, Ine., an authorized
agent of Federal, acknowledged receipt of Solo’s letter
to it dated February 17, 1977.
12. By its letter of March 1, 1977, to Solo, and at-
tached Chubb Chicago Claims Office Notice of Loss Ac-
knowledged form dated February 23, 1977, a copy of
which are attached hereto as group Exhibit E and in-
corporated herein, Critchell-Miller, Ine., an authorized
agent of Federal, acknowledged the receipt of notice of
the occurrence of discrimination alleged by Anne Willard
on whose behalf the Equal Employment Opportunity
Commission had filed the Lawsuit, and Chubb/Pacifie In-
demnity Group, an authorized agent of Federal, specifi-
cally acknowledged Solo’s notice of loss and specifically
requested its Atlanta, Georgia office to handle Solo’s loss.
13. By its letter of April 1, 1977 to Solo, a copy of
which is attached hereto as Exhibit F and ineorporated
herein, Chubb/Pacifie Indemnity Group, an authorized
agent of Federal, denied that the Policy provided Solo
with any coverage for said occurrence of alleged discrimi-
nation and refused to pay any expenses and any portion
of the damages which Solo would suffer from the Law-
suit.
14. By his letter of May 4, 1977, to Ray MeCully
of Chubb/Pacifie Indemnity Group, an authorized agent
of defendant Federal Insurance Company, a copy of which
is attached hereto as Exhibit G and incorporated herein,
Shayle P. Fox, attorney for Solo, requested approval of
Federal to settle the Lawsuit by paying $25,000.00 to
Anne Willard to make her whole for her loss of income
during the two years from August, 1974, through August,
1976, which she alleged was due to the occurrence of al-
leged discrimination in denying her the higher paying
position, and advised Federal that in the absence of any
objection from Federal, Solo would proceed to settle
the Lawsuit by a $25,000.00 payment to Anne Willard.
== Sie
15. Having received no response to the Shayle P. Fox
letter of May 4, 1977, to Ray McCully of Chubb/Pacific
Indemnity Group, a copy of which is attached hereto as
Exhibit G, Solo settled the Lawsuit on May 31, 1977, paid
Anne Willard the sum of $25,000.00 in back pay, interest
and damages arising from the occurrence of alleged dis-
crimination, and in his letter of June 14, 1977, to Ray
McCully of Chubb/Pacifie Indemnity Group, a copy of
which is attached hereto as Exhibit H, Shayle P. Fox,
attorney for Solo, advised Federal that Solo had settled
the Lawsuit and had paid Anne Willard the sum of
$25,000.00 since Federal had never responded to his May
4, 1977 letter.
16. By its letter of June 22, 1977, to Solo, a copy
of which is attached hereto as Exhibit I and incorporated
herein, Ray McCully of Chubb/Pacifie Indemnity Group,
an authorized agent of Federal, again denied that the
Policy provided Solo with any coverage for the occur-
rence of alleged discrimination and refused to make
payment on any claims related to the Lawsuit.
17. Anne Willard, alone, received the entire sum of
$25,000.00 paid by Solo to settle the Lawsuit and no other
person or entity received any monies whatsoever from
Solo in settlement of said civil action.
18. Solo had no underlying insurer who was obligated
to provide coverage, or to pay any ultimate net losses, or
to defend it in the Lawsuit which was based on the
charge of discrimination filed with the Equal Employ-
ment Opportunity Commission by Anne Willard based
on the said occurrence of alleged discrimination against
Anne Willard.
19. In addition to $25,000.00 paid to Charging party,
Anne Willard, Solo has paid $6,500.00 in fees for legal
services rendered and $1,200.00 in costs incurred to settle
the Lawsuit.
20. Under the provisions of 28 U.S.C. 2201, Rule 57
of the Rules of Civil Procedure for the United States
District Courts, and Section 57.1 of the Civil Practice
=
Act of Illinois, Jllinots Revised Statutes (1977), FP oter
110, section 57.1, this Court is empowered to make bind-
ing declarations of rights and obligations of the parties
hereto under the terms and provisions of the Policy.
21. Any personal injury from discrimination which
may have resulted to Anne Willard from the occurrence
of Solo’s refusal to grant her the higher paying job was
unexpected and unintended by Solo.
WHEREFORE, plaintiff Solo Cup Company prays
this Court for the following relief on Count I of its
Amended Complaint against defendant Federal Insur-
ance Company:
1. Pursuant to 28 U.S.C. 2201, Rule 57 of the Rules
of Civil Procedure for the United States District Courts,
and Section 57.1 of the Civil Practice Act of Illinois,
Illinois Revised Statutes (1977) chapter 110, section 57.1,
declare that Solo is entitled to insurance coverage and
benefits from defendant Federal for the ultimate net
losses incurred from said occurrence of discrimination
alleged by Anne Willard.
2. Order Federal to pay Solo the sum of $7,700.00 to
reimburse Solo for its payment of fees for legal serv-
ices rendered and costs incurred and the sum of $25.,-
000.00 to reimburse Solo for its payment of that sum to
Charging party Anne Willard to settle civil action No.
C76-806A brought by the Equal Employment Opportunity
Commission against Solo formerly pending in the United
States District Court for the Northern District of Geor-
gia, Eastern Division.
3. Order Federal to pay Solo interest on all amounts
this Court determines to be due from Federal to Solo
from June 22, 1977, at the statutory rate.
4. Order Federal to pay Solo its reasonable attorneys
fees incurred in this action.
5. Grant Solo such other relief as this Court may deem
proper.
— 36a —
COUNT II
Plaintiff Solo Cup Company, by and through its at-
torneys, Shayle P. Fox and Russell M. Kofoed, for Count
II of its Amended Complaint against Federal Insurance
Company, states as follows:
1.-5. Solo realleges each and every allegation set forth
in paragraphs 1 through 5 of Count I of its Amended
Complaint as though set forth in full as paragraphs 1
through 5 of Count IT of its Amended Complaint.
6. On or about November 16, 1976, and thereafter, the
United States of America General Services Administra-
tion (hereinafter referred to as GSA) conducted an on-
site review of the Grandview, Missouri, plant of Solo to
investigate whether or not Solo, as a government con-
tractor, had complied with Executive Order 11246, as
amended, and rules and regulations promulgated there-
under, which prohibit employment discrimination and re-
quire implementation of an Affirmative action plan to
provide equal employment opportunity. After the com-
pletion of said on-site review. GSA found that Solo
was guilty of discrimination in employment opportuni-
ties arising from the initial placement of 72 female em-
ployees in cup packing area positions instead of higher
paying entry level jobs and proposed as a conciliation
of said occurrences of alleged discrimination, that Solo
pay $266,667.00 in back pay and interest to said group of
72 female employees, a list of whom together with their
date of hire is attached hereto as Exhibit J and incor-
porated herein, for all wages allegedly lost for the 2 year
period from October, 1974, through October, 1976.
7. Solo’s initial placement of said 72 female employees
in cup packing area positions were 72 single acts or oc-
eurrences, with each act or occurrence involving one per-
son only.
8. By its letter of February 17, 1977, to Critchell-
Miller, Inc., an authorized agent of Federal, a copy of
which is attached hereto as Exhibit C, Solo gave due
notice to Federal of said occurrences of discrimination
— 37a —
alleged by GSA on behalf of a group of Solo employees
at Solo’s Grandview, Missouri plant.
9. By its letter of February 18, 1977, to Solo, a
copy of which is attached herteo as Exhibit D, Critchell-
Miller, Inc., an authorized agent of Federal, acknowl-
edged receipt of Solo’s letter to it dated February 17,
1977.
10. By its letter of March 1, 1977, to Solo, and at-
tached Chubb Chicago Claims Office Notice of Loss Ac-
knowledged form dated February 23, 1977, a copy of
which is attached hereto as group Exhibit KE, Critchell-
Miller, Ine., an authorized agent of Federal, acknowledged
receipt of notice of the occurrences of discrimination
alleged by GSA on behalf of a group of Solo employees
at Solo’s Grandview, Missouri, plant.
11. By its letter of May 19, 1977, to Critchell-Miller,
Ine. Insurance, an authorized agent of Federal, a copy
of which is attached hereto as Exhibit K and incorporated
herein, Solo notified Federal that as a result of GSA’s
on-site review and proposed conciliation at Solo’s Grand-
view, Missouri, plant, GSA had found occurrences of
discrimination against a group of 72 female employees
resulting from their initial placement as cup packers
rather than placement in higher paying entry level jobs,
and requested Federal to state its position on Solo’s
claim for coverage under the Policy, a copy of which
is attached hereto as Exhibit A.
12. Despite the request of Solo in its letter of May
19, 1977, a eopy of which is attached hereto as Exhibit
K, of Federal to state its position on Solo’s claim for
coverage arising from GSA’s on-site review and pro-
posed conciliation of oceurrences of said alleged dis-
crimination, Federal has failed and refused to date to
state its position and is guilty of an anticipatory breach
of the Policy.
13. Solo had no underlying insurer who was obligated
to provide coverage, to pay any ultimate net losses, or
to defend it from any claim or action brought against
= ee
it by the GSA based upon said occurrences of alleged
discrimination by Solo against 72 of its female employees.
14. Through the date hereof, Solo has _ ineurred
$3,500.00 in legal fees for services rendered and $250.00 in
costs incurred in the defense of said pending claim of
GSA against Solo alleging oceurrences of diserimina-
tion.
15. Any personal injuries from discrimination which
may have resulted to said 72 female employees from the
occurrence of Solo’s initial placement of said employees
in cup packing area positions were unexpected and un-
intended by Solo.
16. Under the provisions of 28 U.S.C. 2201, Rule 57
of the Rules of Civil Procedure for the United States
District Courts, and Section 57.1 of the Civil Practice
Act of Illinois, Illinois Revised Statutes (1977), chapter
110, section 57.1, this Court is empowered to make bind-
ing declarations of rights and obligations of the parties
hereto under the terms and provisions of the Policy.
WHEREFORE, plaintiff Solo Cup Company prays
this Court for the following relief on Count IT of its
Amended Complaint against defendant Federal Insur-
ance Company:
1. Pursuant to 28 U.S.C. 2201, Rule 57 of the Rules
of Civil Procedure for the United States District Courts,
and Section 57.1 of the Civil Practice Act of Illinois,
Illinois Revised Statutes (1977) chapter 110, section 57.1,
declare that Solo is entitled to insurance coverage and
benefits from defendant Federal for the ultimate net
losses incurred from said occurrences of discrimination
alleged by the GSA on behalf of 72 female Solo employees
in the initial placement of them by Solo in eup packing
area positions.
2. Order Federal to pay Solo the sum of $3,750.00
to reimburse Solo for its payment of fees for legal serv-
ices rendered and costs through the date hereof, in the
defense of the pending claim of GSA against it for oc-
eurrences of alleged discrimination.
— 39a —
3. Order Federal to defend Solo and to pay Solo all
sums which Solo pays or is required to pay as a result
of the pending claim of GSA against Solo.
4, Order Federal to pay Solo interest on all amounts
this Court determines to be due from Federal to Solo
from June 22, 1977, at the statutory rate.
5. Order Federal to pay Solo its reasonable attorneys
fees incurred in this action.
6. Grant Solo such other relief as this Court may
deem proper.
December 18, 1978
Solo Cup Company
by:
Shayle P. Fox
Russell M. Kofoed
its attorneys
FOX AND GROVE
Suite 7818
233 S. Wacker Drive
Chicago, Illinois 60606
(312) 876-0500
PROOF OF SERVICE BY MAIL
I, Russell M. Kofoed, certify that I served this Amended
Complaint by mailing a copy to John G. Guy at One
E. Wacker Drive, Floor 38, Chicago, Illinois 60601 and
depositing the same in the U.S. mail at 233 S. Wacker
Drive, Chicago, Illinois 60606 at 11:30 a.m. on December
18, 1978, with proper postage prepaid.
/s/ Russell M. Kofoed
Russell M. Kofoed
——_
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
EQUAL EMPLOYMENT OPPORTUNITY
COMMISSION,
Plaintiff,
vs.
SOLO CUP COMPANY, a corporation,
Defendant.
CIVIL ACTION NO. C 76-8064
COMPLAINT
JURISDICTION AND VENUE
1. Jurisdiction of this Court is invoked pursuant to
28 U.S.C. Sections 451, 1343 and 1345. This is an action
authorized and instituted pursuant to Section 706(f)
(1) and (3) and (g) of Title VII of the Civil Rights
Act of 1964, as amended 42 U.S.C. Section 2000e. et seq.
(Supp. II. 1972), hereinafter referred to as ‘‘Title VII.”
2. The unlawful employment practices alleged below
were and are now being committed within the State of
Georgia and the Northern District.
PARTIES
3. Plaintiff, Equal Employment Opportunity Commis-
sion (hereinafter, the ‘‘Commission’’), is an agency of
the United States of America charged with the adminis-
tration, interpretation and enforcement of Title VII and
is expressly authorized to bring this action by Section
706 (f) (1), 42 U.S.C. Section 2000e- 5(f) (1).
4. Since at least July 2, 1965, Defendant, Solo Cup
Company (hereinafter, the ‘‘Company’’), has continuously
been and is now a Delaware corporation, doing business
in the State of Georgia and City of Atlanta, where it is
engaged in manufacturing cups and paper goods and
shipping them among the several states, and has continu-
ously and does now employ more than twenty-five em-
ployees.
a ee
5. Since at least July 2, 1965, the Company has con-
tinuously been and is now an employer engaged in an
industry affecting commerce within the meaning of Section
701 (b) (g) and (h) of Title VU. 42 U.S.C. Section
2000e-(b), (g) and (h).
STATEMENT OF CLAIM
6. More than thirty (30) days prior to the institution
of this lawsuit, a person claiming to be aggrieved filed
charges with the Equal Employment Opportunity Com-
mission alleging violations of Title VII by Defendant All
conditions precedent to the institution of this lawsuit have
been fulfilled.
7. Since July 2, 1965, and continuously up until the
present time, Defendant Company has intentionally en-
gaged in unlawful employment practices at its Atlanta,
Georgia facility, in violation of certain provisions of Title
VII. These violations include, but are not limited to the
following:
1. Failing and refusing to promote women based
On sex;
2. Compensating women at a lower rate than men
for substantially the same work;
3. Maintaining job classifications segregated on the
basis of sex;
4. Having different terms and conditions of em-
ployment for women based on sex;
and
5. Discharging women in retaliation for exercising
protected rights under Title VIT.
8. The effect of the policies and practices complained
of in paragraph (7) above has been to deprive women
of equal employment opportunities and otherwise adver-
sely affect their status as employees because of their sex.
—
PRAYER FOR RELIEF
WHEREFORE, The Commission respectfully prays
that this Court:
A. Grant a permanent injunction enjoining Defen-
dant, its officers, agents, employees, successors, assigns
and all persons in active concert or participation with it
from engaging in any employment practice which dis-
criminates because of sex.
B. Order Defendant to institute and carry out policies,
practices and affirmative action programs which provide
equal employment opportunities for women, and which
eradicate the effects of its past and present unlawful em-
ployment practices.
C. Order Defendant to make whole those persons ad-
versely affected by the unlawful employment practices
described herein, by providing appropriate back pay, with
interest, in an amount to be proved at trial and other
affirmative relief necessary to eradicate the effects of its
unlawful employment practices.
D. Grant such further relief as the Court deems nec-
essary and proper.
E. Award the Commission its costs in this action.
Respectfully submitted,
ABNER W. SIBAL
General Counsel
WILLIAL L. ROBINSON
Associate General Counsel
EQUAL EMPLOYMENT OPPORTUNITY
COMMISSION
2401 ‘‘E”’ Street, N.W.
Washington, D.C. 20506
/s/ Donald L. Hollowell
DONALD L. HOLLOWELL
Assistant Genera] Counsel
— 43a —
/s/ Roger J. Martinson
ROGER J. MARTINSON
Supervisory Trial Attorney
/s/ Laverne § Tisdale
LAVERNE 8. TISDALE
Trial Attorney
/s/ Cheryl P. Smith
CHERYL P. SMITH
Trial Attorney
EQUAL EMPLOYMENT OPPORTUNITY
COMMISSION
ATLANTA REGIONAL OFFICE OF
GENERAL COUNSEL
1389 Peachtree Street, N.E.,
Suite 101
Atlanta, Georgia 30309
—_ ee
UMBRELLA EXCESS LIABILITY POLICY
Policy No. FXL 77860406
FEDERAL INSURANCE COMPANY
Item 1. Named Insured Solo Cup Company, Etal. (See
Endt. #5)
Item 2. Policy Period From 1-1-74 To 1-1-77
Item 3. Premium: $13,500.00
Item 4. Limit of Liability—as per Insuring Agreement
II.
(a) Limit in respect of each
se $10,000,000.00
(b) Limit in the Aggregate for each
Annual Period where applicable.... $10,000,000.00
CG) BODINE TIE move sesescsspceccceesnscsssonss $ 10,000.00
Issued at Chicago, Illinois(Date) January 24, 1974
FEDERAL INSURANCE COMPANY...
Agrees with the Insured named in the declarations made
a part hereof, in consideration of the payment of the pre-
mium, and in reliance upon the statements in the declara-
tions and subject to the limit of liability, exclusions, eondi-
tions and other terms of the policy.
INSURING AGREEMENTS
1. Coverage
The company hereby agrees, subject to the limitations,
terms and conditions hereinafter mentioned, to indemnify
the insured for all sums for which the Insured shall be-
come obligated to pay by reason of liability
(a) imposed upon the Insured by law
— 45a —
or (b) assumed under contract or agreement by the
Named Insured and/or by any officer, direc-
tor, stockholder, partner or employee of the
named insured, while acting in his capacity
as such,
for damages direct or consequential and expenses, all as
more fully defined by the term ‘‘ultimate net loss’’, on
account of:
(i) Personal Injuries, including death at any time
resulting therefrom,
(ii) Property Damage,
(iii) Advertising Liability,
caused by or arising out of each occurrence happening
anywhere in the world.
2. Limit of Liability
The Company shall only be liable for the ultimate net
loss the excess of either
.. or (b) the retained limit as stated in Declaration
4(c) in respect of each occurrence not covered
by said underlying insurances (hereinafter
ealled the ‘‘underlying limits’’: ...
THIS POLICY IS SUBJECT TO THE FOLLOWING
DEFINITIONS ...
2. Personal Injuries The term ‘‘Personal Injuries’’
wherever used herein means bod-
ily injury, mental injury, mental anguish, shock, sickness,
disease, disability, false arrest, false imprisonment, wrong-
ful eviction, detention, malicious prosecution, discrimi-
nation, humiliaton; also libel, slander or defamation of
character or invasion of rights of privacy, except that
which arises out of any Advertising activities.
—_
5. Occurrence The term ‘‘Occurrence’’ wherever used
herein shall mean an accident or a hap-
pening or event or a continuous or repeated exposure to
conditions which unexpectedly and unintentionally results
in personal injury, property damage or advertising lia-
bility during the policy period. All such exposure to sub-
stantially the same general conditions existing at or
emanating from one premises location shall be deemed
one occurrence.
6. Ultimate Net Loss The term ‘‘Ultimate Net Loss’’
shall mean the total sum which
the Insured, or any company as his insurer, or both, be-
come obligated to pay by reason of personal injury, prop-
erty damage or advertising liability claims, either through
adjudication or compromise, and shall also include hos-
pital, medical and funeral charges and all sums paid as
salaries, wages, compensation, fees, charges and law
costs, premiums on attachment or appeal bonds, interest,
expenses for doctors, lawyers, nurses and investigators
and other persons, and for litigation, settlement, adjust-
ment and investigation of claims and suits which are paid
as a consequence of any occurrence covered hereunder,
excluding only the salaries of the Insured’s or of any
underlying insurer’s permanent employees.
The Company shall not be liable for expenses as afore-
said when such expenses are included in other valid and
collectible insurance.
Date issued 1-24-74 Endorsement No. 1
Insured Solo Cup Co. etal. Policy No. FXL 77860406...
— 47a —
SUPPLEMENTARY PAYMENTS
IT IS AGREED THAT, WITH RESPECT TO ANY
OCCURRENCE NOT COVERED BY THE UNDER-
LYING POLICIES LISTED IN THE SCHEDULE OF
UNDERLYING INSURANCE, BUT COVERED BY
THE TERMS AND CONDITIONS OF THIS POLICY
EXCEPT FOR THE AMOUNT OF RETAINED LIM-
IT SPECIFIED IN ITEM 4(C) OF THE DECLARA-
TIONS, THE COMPANY SHALL:
(A) DEFEND ANY SUIT AGAINST THE INSURED
ALLEGING SUCH INJURY OR DESTRUC-
TION AND SEEKING DAMAGES ON ACCOUNT
THEREOF, EVEN IF SUCH SUIT IS GROUND-
LESS, FALSE OR FRAUDULENT; BUT THE
COMPANY MAY MAKE SUCH INVESTIGA-
TION, NEGOTIATION AND SETTLEMENT OF
ANY CLAIM OR SUIT AS IT DEEMS EXPE-
DIENT;
ALL OTHER TERMS AND CONDITIONS NOT IN-
CONSISTENT HEREWITH REMAIN UNCHANGED.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.