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Town of Springfield v. United States Fidelity and Guaranty Co.

decided: June 27, 1986.

TOWN OF SPRINGFIELD, VERMONT, PLAINTIFF-APPELLEE,
v.
UNITED STATES FIDELITY AND GUARANTY COMPANY, DEFENDANT-APPELLEE, AND THE EMPLOYERS MUTUAL AND CASUALTY COMPANY, DEFENDANT-APPELLANT



Appeal from a judgment of the United States District Court for the District of Vermont, James S. Holden, Judge, declaring defendant Employers Mutual and Casualty Company contractually obligated to defend plaintiff and its officials and to indemnify plaintiff for any judgment rendered against it in an action against plaintiff for an alleged unconstitutional taking of property. Reversed.

Author: Kearse

Before: KEARSE, PRATT, and ALTIMARI, Circuit Judges.

KEARSE, Circuit Judge:

Defendant The Employers Mutual and Casualty Company ("EMC") appeals from so much of a judgment of the United States District Court for the District of Vermont, James S. Holden, Judge, entered in this diversity action, as declared EMC contractually obligated to defend plaintiff Town of Springfield, Vermont (the "Town"), and its officials, and to satisfy any judgment that might be rendered against the Town in connection with certain litigation brought pursuant to 42 U.S.C. § 1983 (1982), involving an alleged unconstitutional taking of property. On appeal, EMC contends principally that the court did not properly give effect to a provision in its insurance policy that excluded from coverage claims of property destruction resulting from certain acts of the Town or its officials. EMC's appeal is opposed by defendant United States Fidelity and Guaranty Company ("USF&G"), which the judgment also declared obligated to defend and indemnify the Town. We conclude that the district court erred in its construction of the insurance contract between EMC and the Town, and we therefore reverse the judgment of the district court and direct that judgment be entered in favor of EMC.

I. BACKGROUND

The material facts are not in dispute. On October 12, 1982, a fire occurred in Springfield on premises owned by Factory Falls Associates and occupied by Factory Falls Associates, Vermont Fibers, Inc., and Vermont Pellets, Inc. (collectively the "owners" or "property owners"). On the following day, demolition of the top story of the premises was commenced by order of the Town's fire chief. As a result, the property owners sued the Town and its officials for damages pursuant to 42 U.S.C. § 1983 ("§ 1983 action"), alleging that the demolition of the premises constituted a taking of their property without due process of law and without just compensation, in violation of their rights under the Fifth and Fourteenth Amendments to the Constitution.

At the time of the fire and the demolition, the Town was insured under various policies issued by defendants. It had two policies issued by USF&G, one for general liability and another for excess indemnity; and it had a so-called "linebacker policy" issued by EMC, obligating EMC to defend and indemnify it for losses, in excess of a deductible amount, reflecting amounts that the Town became legally obligated to pay because of certain "Wrongful Act[s]" as that term was defined in the policy. The Town notified EMC and USF&G of the property owners' claims and requested that the insurance companies defend the § 1983 action. Both insurers refused, denying coverage for the acts at issue.

The Town commenced the present action against EMC and USF&G, seeking a declaration that the two insurers were obligated to defend the § 1983 action and to satisfy any judgment in favor of the owners. All parties moved for summary judgment. EMC's motion was based principally on an exclusion from coverage ("Exclusion (f)"), which its policy described as follows:

EXCLUSIONS

This insurance does not apply to and [EMC] shall not be liable to make any payment in connection with any claim made or suit brought against the Insured:

(f) for any damages, direct or consequential,

1. arising from a Wrongful Act resulting in, or

2. arising from a Wrongful Act from which no damages would have resulted except for the occurrence of

bodily injury, sickness, disease or death, or from damage to any tangible property including loss of use thereof; however, this exclusion does not apply to any damages, direct or consequential, arising from assault and battery against a person while the Insured or anyone acting on the Insured's behalf is making or ...


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