Our first case for July comes from the Sixth Circuit, the federal appellate court for cases arising in Michigan, Ohio, Kentucky and Tennessee. The issue was whether a contractor’s Commercial General Liability insurance policy should provide a defense when the contractor is sued by temporary employees who were injured on the job. Or were they temporary employees? The court had to answer that question first, and it turned to the “definitions” section of the policy to do so. Our second case deals with the requirements for supplying handicapped parking spaces in a school parking lot. Did a school district violate equal protection laws by supplying only five spaces for an elementary school? The United States District Court for the Northern District of Ohio had to answer that question recently. Finally, we look at what an Ohio Court of Appeals (for Mahoning County) had to say about a possible oral contract for a county to install a sanitary sewer. Although we summarize only three cases this month, we think you will agree that the topics cover the waterfront.

Sixth Circuit Interprets Policy To Determine CGL Coverage For Injured “Temporary” Workers

Many insurance policies contain an obligation by the insurance company to defend an action brought against the insured by a third party. What triggers the insurance company’s duty to defend? Earlier this month, the United States Court of Appeals for the Sixth Circuit examined this issue in the case of General Agents Insurance Company of America, Inc. v. Mandrill Corporation, Inc. (July 13, 2007), 2007 U.S. App. LEXIS 17391.

During the fall and winter of 2000-01, Mandrill was performing demolition work in Chattanooga, Tennessee. This was the only project Mandrill worked on during that time frame. During Mandrill’s time on the project, a wall collapsed, injuring two workers (Johnny Mathis and Robert Wynn) and killing a third (Scott Wheeler).

In a nightmare of bad timing, Mandrill’s workers’ compensation insurance policy was cancelled one day before the wall collapsed, because the insurance company was insolvent. Mandrill’s new workers’ compensation insurance coverage was not effective until two days after the wall collapsed.

Mathis, Wynn, and Wheeler’s representative filed suit under various theories including negligence and wrongful death. The three alleged in their complaint that they were employees of Mandrill. However, Wynn amended his complaint to allege that he was an independent contractor.

During this time frame, Mandrill was covered under a Commercial General Liability policy issued by General Agents Insurance Company. Mandrill requested that GAINSCO defend it against the suits. GAINSCO refused because the CGL policy excluded coverage for “bodily injury” sustained by “employees” in the course of their duties for Mandrill.

The policy contained the following exclusion:

This insurance does not apply to:

...e. Employer’s Liability

“Bodily injury” to: (1) An “employee” of the insured arising out of and in the course of:

(a) Employment by the insured; or (b) Performing duties related to the conduct of the insured’s business . . .

The definitions section of the policy stated that “employee” included “leased workers” but not “temporary workers.” Who was a “temporary worker”? “‘Temporary worker’ means a person who is furnished to [the insured] to substitute for a permanent ‘employee’ on leave or to meet seasonal or s hort term workload conditions,” according to the policy.

GAINSCO filed an action asking the court to declare that it did not have a duty to defend Mandrill. Ultimately, the trial court agreed with GAINSCO; it did not have the duty to defend or indemnify Mandrill for the suits. Mandrill appealed the decision.

Since Wynn had amended his complaint to allege that he was an independent contractor, the appeals court examined his complaint separately from the Mathis and Wheeler complaints. The trial court had found that GAINSCO did not have a duty to defend against Wynn’s complaint because “[t]here is no provision in the policy to prevent bodily injury to an independent contractor from being treated as bodily injury to an employee.”

The appeals court found this analysis was incorrect. The proper inquiry is not whether a provision in the policy prevents a reading in favor of the insurance company. The proper inquiry should read ambiguities in favor of the insured. The default setting should be for coverage, not against it.

Wynn’s amended complaint alleged that he was an independent contractor. Because the policy arguably covered the independent contractor claim, the appellate court concluded that GAINSCO had a duty to defend Mandrill until it was proven that the policy did not cover the claim.

Mathis and Wheeler’s complaint hinged on the determination of whether they were “employees” or “temporary workers.” Turning to the definition of “temporary worker,” the court looked at it two possible ways;

(a) “temporary worker” means a person (1) who is furnished to [the insured] to substitute for a permanent “employee” or (2) to meet seasonal or short-term workload conditions.

(b) “temporary worker” means a person who is furnished to [the insured] (1) to substitute for a permanent “employee” or (2) to meet seasonal or short-term workload conditions.

The court found the second interpretation to be the only reasonable interpretation. The first interpretation, by omitting the “who is furnished to” in the final option, made no grammatical sense. The term “temporary worker” could not mean “a person . . . to meet seasonal or short-term workload conditions.” Therefore, “furnished to” must apply to both substitute and seasonal or short-term workers, the court thought.

Further, “furnished to” necessarily requires the involvement of a third party. To say that an employee could furnish himself to the employer would read the phrase “furnished to” out of the policy. Then all employees would furnish themselves to the employer! Because the pleadings did not allege that Mathis and Wheeler were “furnished to” Mandrill, they were not temporary workers, and GAINSCO did not have the duty to defend Mandrill.

Two judges dissented in part from the majority opinion, so the three-judge panel produced three opinions. One, while agreeing that the duty to defend is triggered by the language of the complaints, argued that this concept should not be taken too literally. “It appears unreasonable to me that the duty to defend should depend entirely on semantics.” The second dissenting opinion thought it unnecessary to discuss temporary workers, since the complaints filed by Mathis and Wheeler did not allege either that they were substitutes for permanent employees or that they were hired on a short-term or seasonal basis. The complaints said they were employees, and there was no coverage for injuries to employees, period.

An insurance policy is a contract. Policy coverage is similar to other contractual obligations. Reading the language of the policy is critical. But sometimes, the language can mean three different things to three different people, even when those people are judges. Mandrill’s fatal mistake here was in letting its workers’ compensation coverage lapse for three days. If the wall had not collapsed during that period, the company would never have needed to argue that its CGL policy should cover the ensuing suits. In fact, if the wall had collapsed one week later, the company might have been relieved to argue that the injured workers were indeed employees.

District’s Handicapped Parking Complied with State Law, Didn’t Violate Students’ Rights

When designing or constructing a public building, don’t neglect state requirements for the parking lot. Just providing a black-topped area with yellow lines painted on it to separate the spaces for cars may not be enough. A recent dispute over the handicapped parking area provided at Bazetta Elementary School in Ohio’s Lakeview District wound up in federal court, but the School District succeeded in getting all claims against it dismissed earlier this month.

Plaintiffs in Jones v. Lakeview School District, 2007 U.S. Dist. LEXIS 52353 (N.D. Ohio July 19, 2007) were parents of handicapped students who attended the school. On behalf of their children, they claimed that inadequate handicapped parking in the school’s parking lot denied them access to the school, in violation of their constitutional right to equal protection (a “§ 1983 claim”) and the Americans with Disabilities Act, as well as Ohio Revised Code § 4112.022(A), which makes it unlawful for an educational institution to discriminate on the basis of disability.

What had the defendant school district allegedly done? It had provided four handicapped parking spaces in a lot with 59 spaces total. When parents complained, the district added a fifth space. Warned that other parents often blocked these spaces when dropping off or picking up their children, the district mailed flyers to all parents and asked them to drive and park courteously. It also hired a police officer to direct traffic in the lot.

When the parents sued, Lakeview filed an Answer and then asked the District Court to dismiss the case, based solely on the inadequacy of the plaintiffs’ pleadings. The District Court reviewed the law and the admitted facts and agreed with the school district: The parents had no claim for discrimination.

The court began with the equal protection claim, based on allegations that the students were losing “the education they are entitled to receive by law.” To prove an equal protection claim, the parents needed to show that the state (here, the school district) was intentionally treating one class of students differently from others similarly situated, without any rational basis for making the distinction. But here, the allegation was that the admittedly handicapped students were being treated differently from students who were not handicapped. The court pointed out that “general education and special education students are not similarly situated for the purpose of an equal protection analysis.”

Here, the parents had negotiated Individualized Education Plans, called “IEPs,” with the school district for each student. The IEPs required the parents to provide specialized transportation for the students and the district to provide handicapped parking spaces for the parents. All parties had lived up to these plans, the court noted. Thus, there was no basis for a claim based on an equal protection violation.

Turning to the Americans with Disabilities Claim, the court recited the requirements for such a claim: (1) proof of a disability, (2) proof that the plaintiff is otherwise qualified, and (3) proof that he is being excluded from participating in a program, or denied its benefits, based solely on disability. The third element was the difficult one for the plaintiffs here, as the court found that the district was providing the students with “all reasonable accommodations.” Indeed, they were attending school, receiving satisfactory grades, and were rarely even tardy. So even if the parents had trouble parking, the students were not being deprived of the benefits of the school program.

To evaluate the Ohio statutory claim, the court looked at what Ohio law requires for handicapped parking spaces. The 59-space lot at Bazetta Elementary School fell into the category of lots with 51 to 75 spaces, for which the requirement was at least three handicapped spaces. So Bazetta’s four—and eventually five—spaces more than met the requirements, and the state law discrimination claim also failed.

Finally, the court denied the parents’ request for attorney’s fees under the Individuals with Disabilities Education Improvement Act because the parents were “not the prevailing party.”

This decision shows a school district that apparently did everything right. It planned for the right number of handicapped spaces, and it increased that number when parents complained of parking difficulties. It tried to get cooperation from the parents of other students, even hiring a police officer to help enforce that cooperation. The court recognized the district’s efforts and dismissed the claims against it.

Conditional Oral Agreement Fails To Bind County To Install Sanitary Sewer

Can various discussions between county and township officials be the basis for an oral agreement that will equate to a contract between the two governmental bodies? The court had to answer that question in State v. ex rel. Bayus v. Woodland Park Properties, Ltd., Mahoning App. No. 05 MA 169, 2007-Ohio-3147, in which a township trustee brought suit to force a county to construct a sanitary sewer line at the county’s expense.

In late 1998, Mahoning County officials and the Canfield Township Trustees began discussing the possibility that the township would take possession of Gibson Road. Once the road was transferred, the township would be responsible for the maintenance and repair of the road. There was, however, a difference of opinion as to what the county agreed to do with respect to the transfer of the road. No written agreement existed between the county and the township.

One township trustee believed that the county, through various meeting minutes and statements made by the county engineer, agreed to install a sanitary sewer line at the county’s expense. The trustee alleged that the township was to be responsible for the road only after the county installed the sanitary sewer line.

As a result of a separate legal action, the township was ordered to make repairs to Gibson Road. At that point, the trustee brought suit against the county to compel it to construct the sanitary sewer line. The trustee asserted that an oral contract existed or, in the alternative, that the parties had formed an implied contract.

The court disagreed. Evidence presented to the court led to the conclusion that the county agreed to “help Canfield Township with the installation of sanitary sewers along Gibson Road ‘if the County could obtain an EPA loan and possibly other funding.’” The county sought but did not obtain EPA funding for the project.

The court found no evidence that supported the trustee’s claim. In fact, the trustee’s own testimony showed that the construction of the sanitary sewer line was conditioned on the county receiving the appropriate funding, and that the trustee knew of this condition.

Even if there were no express oral contract, the trustee argued that the county should be prohibited from denying its promise to build the sewer because the township had relied to its detriment on such a promise. (In legal jargon, such a claim is called “promissory estoppel.”) Again, the court did not agree.

The court turned to a recent decision of the Ohio Supreme Court, Hortman v. Miamisburg, 110 Ohio St.3d 194, 2006-Ohio-4251, for the principle that “the doctrines of equitable and promissory estoppel do not apply to a political subdivision when it is engaged in a governmental function.” (For more on this case, see this column in our August 2006 issue.) What could be more governmental than providing sewer and water services? So this claim, too, was unsuccessful.

For some unknown reason, the court never discussed one Ohio statute that might have ended this case in a single paragraph: O.R.C. § 305.25. According to that statute, “No contract entered into by the board of county commissioners, or order made by it, shall be valid unless it has been assented to at a regular or special session of the board, and entered in the minutes of its proceedings by the county auditor or the clerk of the board.”

This decision underscores the necessity of having a written agreement that is thoroughly reviewed by both parties. The transfer of possession of a road, construction projects, and other expensive endeavors can lead to litigation when parties rely on oral agreements. Quite often one party will have a different view from the other party as to the substance of the purported contract and this can, and usually does, lead to a dispute between the parties.