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November 17, 1998

It Pays to Discriminate??

Circuit Court Judge Orders Aetna to Pay MBI for the Housing Discrimination Lawsuits and Then Some

by Edmund Tsang

Mobile County Circuit Court Judge Braxton L. Kittrell, Jr. ruled in September, 1998 that Aetna Insurance Company must pay Mitchell Brothers Inc. (MBI) a total of $1.675 million in settlement costs for two housing discrimination suits that MBI settled in 1996, as well as a $2 million punitive award. A local attorney who is familiar with the housing discrimination lawsuits involving MBI said that "Abe Mitchell made money in the process."

MBI vs. Aetna & Aetna vs. MBI

In June, 1996 MBI filed a lawsuit in the Circuit Court of Mobile County against Aetna and asked the Court to "enter a declaratory judgment finding that, under the policy, Aetna is required to indemnify and unconditionally defend MBI against the claims in Lowman and Craft cases." (The Harbinger, 10/7/1997) MBI wants the court to rule that its insurance policies with Aetna require the insurance company to pay for the litigation costs incurred in defending the housing discrimination lawsuits. MBI was covered by Aetna Insurance company's commercial general liability policies from July 1, 1995 to December 19, 1996.

The Lowman et al. versus MBI case concerns a class-action lawsuit, which was joined by the U.S. Department of Justice, filed against MBI in August, 1995 for discriminatory housing policies. The plaintiffs in the Lowman case allege that MBI used coded cards to discriminate against African-Americans who want to rent from an apartment complex under MBI management. This case was eventually settled a year later for $1.7 million, including a $75,000 fine and a $250,000 allotment to start a fair-housing center in Mobile.

Jamie Craft, the plaintiff in the Craft case, which was filed in December, 1995, alleged that she was fired from her position as manager of an apartment complex managed by MBI because she refused to follow the discriminatory policies. The Craft case was settled in December 1996, after a jury had already been impaneled, when a witness produced the original coded cards that were used over one ten-month period in one apartment complex under MBI management to identify African-Americans for discriminatory purposes. [The Harbinger, 1/7/1997] (Although the terms of the Craft settlement was confidential at the time, the recent order by Judge Kittrell revealed that it was settled for $500,000.)

The June, 1996 lawsuit filed by MBI against Aetna followed an earlier suit filed by Aetna against MBI in federal court. The case before the U.S. District Court accused MBI of "forum shopping" by filing a claim against Aetna in state court, and argued that the federal court is the proper forum to decide the issue of insurance coverage, since the Lowman and Craft cases were heard in federal court.

Aetna also claimed that, while MBI had liability insurance policies with Aetna, "the evidence has established that the plaintiff [MBI] intentionally, not accidentally, injured or damaged the plaintiffs in the Lowman and Craft cases, which conduct and damages are excluded by the Aetna policies." Aetna also claimed that since the Lowman and Craft lawsuits involved actions that were committed in 1991, and the insurance policies issued by Aetna to MBI was from 1995 to 1996, the company should not be held liable.

Aetna admitted in court papers that it had initially hired an attorney to represent MBI in both the Lowman and Craft cases, with "reservation of rights," before it decided that "there is no coverage offered under the policies for the allegations of the Lowman and Craft complaints."

By the time Judge Kittrell issued an order in September, 1998, the court papers filed in conjunction with the MBI vs. Aetna case in the Mobile County Circuit Court stand more than 15 inches tall, with two other fat folders in the U.S. District Court from the Aetna vs. MBI case.

Judge Kittrell's Order

Judge Kittrell ruled in September, 1998 that because "Aetna extended a defense of its insured under a reservation of rights, it had an obligation to observe the enhanced duty of good faith," but Aetna breached "its enhanced obligation of good faith by placing its interest above those of its insured." The effect of the breach of that obligation is that Aetna "will have an obligation of indemnity to its insured."

In his court order, Judge Kittrell cited two examples in which "Aetna breached its obligation of good faith" to MBI:

(1) Aetna obtained "opinions (adverse to Plaintiffs) from Harry Cole who at that time was MBI's appointed counsel and, after having actual knowledge of Cole's obvious conflict of interests, Aetna did not advise Plaintiffs of what had occurred and continued to consult with Cole on matters adverse to Plaintiffs."

(2) MBI has kept Aetna apprised of the status of the confidential settlement negotiations in the Lowman case, "Aetna purposefully divulged this confidential information to persons then adverse to Plaintiffs (principally Craft and her attorney) through extraneous inclusion of such negotiations in the filing of a declaratory judgment action in the United States District Court."

(Kathelene Coughlin, an attorney for Jamie Craft, stated, In a September, 1997 affidavit, that "the declaratory judgment did not influence my evaluation of the Craft case.")

Judge Kittrell orders "the Plaintiff shall have and recover from the Defendant Aetna, the sum of $1,175,000 as damages in the Lowman case and $500,000 in the Craft case. It is further ORDERED that under the law and the facts of this case and the bad faith of Aetna, Plaintiffs are entitled to recover from Aetna punitive damages in the sum of $2,000,000." (Because MBI has received payments totaling $525,000 from other insurance companies towards the Lowman settlement, this amount was subtracted from the $1.7 million settlement to give the amount of $1,175,000 in Judge Kittrell's order.)

According to an attorney for Aetna, the insurance company is petitioning Judge Kittrell to modify his September 1998 order against Aetna. The attorney said in a telephone interview last week that Aetna would most likely appeal Judge Kittrell's ruling if the judgment against Aetna is not modified to its satisfaction.

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