Appeals from the United States District Court for the Eastern District of Wisconsin. No. 92 C 540 Terence T. Evans, Judge.
Before HARLINGTON WOOD, JR., ESCHBACH, and DIANE P. WOOD, Circuit Judges.
HARLINGTON WOOD, JR., Circuit Judge.
DECIDED SEPTEMBER 16, 1996
This complicated case arises out of a dispute over the meaning of a handful of seemingly simple words. The words in question are found in a primary insurance policy issued by Aetna Casualty and Surety Company ("Aetna") and in an "excess umbrella" policy issued by Vigilant Insurance Company ("Vigilant"). The feud concerns whether those words provide coverage to the policy holder, Security Management Company, Incorporated ("Security Management"), for alleged acts of racial discrimination in violation of the Fair Housing Act. The district court found that coverage was provided by Aetna, the primary insurer. Concluding that coverage was not provided by Aetna, but was instead provided by Vigilant, we reverse and remand.
The litigation underlying this matter commenced on May 18, 1992, when the United States filed a complaint to enforce the provisions of the Fair Housing Act, 42 U.S.C. sec. 3601 et seq. The United States alleged that Security Management, as apartment managers (and others, as apartment owners), violated various provisions of the Fair Housing Act by discriminating against black and Hmong persons and families with children. *fn1 The Metropolitan Milwaukee Fair Housing Counsel, the Fair Housing Council of Fox Valley, and three individuals who had served as "testers" later intervened as plaintiffs.
During the period of the alleged discrimination, Aetna served as Security Management's primary insurer. Security Management also had excess umbrella coverage through Vigilant. On August 26, 1993, Aetna filed a motion to intervene as a defendant in order to obtain a determination of its duty to defend Security Management. On January 19, 1994, Security Management filed a third-party complaint against Vigilant in which it alleged that Vigilant also owed it a duty of defense and indemnification. Aetna then filed a cross-claim against Vigilant on March 31, 1994, in which it sought a declaration that Vigilant owed a duty to defend Security Management and indemnify Aetna for any amount Aetna became obligated to pay.
All of the parties eventually filed cross-motions for summary judgment. On November 29, 1994, all claims, except for those relating to coverage questions, were resolved by a consent order. Security Management agreed to pay a total of $173,000 to the intervening plaintiffs and their attorneys. Security Management also agreed to pay $45,000 to the United States as a civil penalty.
On May 31, 1995, the district court resolved the remaining coverage issues. The district court granted in part Security Management's cross-motion for summary judgment, determining that Aetna was obligated to defend and partially indemnify Security Management. The district court denied Security Management's cross-motion against Vigilant and it granted Vigilant's cross-motion for summary judgment against Security Management. Aetna now appeals the district court's coverage determination and Security Management cross-appeals the district court's determination that no indemnification is due for its payment of the intervening plaintiffs' attorneys' fees.
The cross-motions for summary judgment all hinge upon a judicial ruling on the meaning of the two policies' relevant provisions; therefore, these matters are appropriate for summary resolution. Iowa Nat'l Mutual Ins. Co. v. Liberty Mutual Ins. Co., 168 N.W.2d 610 (Wis. 1969). We review the district court's grant of summary judgment de novo. Pipefitters Welfare Educ. Fund v. Westchester Fire Ins. Co., 976 F.2d 1037, 1039 (7th Cir. 1992). Under Wisconsin law, which governs this case, "[t]he construction of words and phrases in insurance policies is generally a matter of law and is controlled by the same rules of construction as are applied to contracts generally." Kremers-Urban Co. v. American Employers Ins. Co., 351 N.W.2d 156, 163 (Wis. 1984). As a matter of law, we construe the policies' language de novo. Scottish Guarantee Ins. Co. v. Dwyer, 19 F.3d 307, 309 (7th Cir. 1994).
Security Management contends alternatively that Aetna and Vigilant are obligated to defend and indemnify it under their respective insurance policies. Since the duty to defend is separate from, and broader than, the duty to indemnify, our analysis will first focus on each insurer's duty to defend.
To determine whether an insurer is obligated to assume the defense of a third-party suit, it is necessary to determine whether the complaint alleges facts which, if proven, would give rise to liability covered under the terms and conditions of the policy. Doubts about coverage must be resolved by the insurer in favor of the insured. Sola Basic Indus., Inc. v. United States Fidelity & Guaranty Co., 280 N.W.2d 211, 213-14 (Wis. 1979) (citations omitted).
In construing the language of a policy, "the test is not what the insurer intended the words to mean but what a reasonable person in the position of the insured would have understood the words to mean." Kremers-Urban, 351 N.W.2d at 163. "The duty to defend is triggered by the allegations contained within the four corners of the ...