## Facts

- The United States brought a Title VII pattern-and-practice action against Lee Way Motor Freight, Inc., alleging race discrimination in hiring, promotion, and transfers.
- The court in that action found a companywide pattern and practice of discrimination and later entered a final judgment awarding $1,818,191.33 in forty-seven individual back-pay awards.
- Lee Way had purchased eight annually renewed excess umbrella liability policies from Transport Insurance Company beginning January 1, 1967; the first five policies expressly covered discrimination.
- In late August or early September 1972, the umbrella policy was rewritten to exclude future discrimination coverage.
- The umbrella policies defined an “occurrence” to include continuous or repeated exposure to conditions causing injury and treated all exposures to substantially the same general conditions as a single occurrence.
- Transport filed a federal declaratory-judgment action seeking determinations on (i) the number of occurrences implicated by the discrimination judgment, (ii) whether back pay attributable to periods before January 1, 1967 was covered, and (iii) whether defense costs had to be apportioned.

## Issues

1. Whether Lee Way’s pattern-and-practice discrimination liability constituted one “occurrence” or multiple occurrences (by terminal or by individual claimant) under the excess umbrella policies.
2. Whether back-pay amounts attributable to periods before January 1, 1967 fell within coverage under the umbrella policies.
3. Whether defense costs incurred in the discrimination litigation were fully reimbursable or subject to apportionment between covered and uncovered components.

## Decision

- The court declared the pattern and practice of discrimination constituted a single occurrence under the policies.
- The court declared back pay attributable to periods before January 1, 1967 was not covered, while back pay attributable to periods after that date was covered under the discrimination-covering policies.
- The court held Lee Way’s defense costs in the discrimination action were reimbursable in full and should not be apportioned.

## Legal Principles

- When a liability policy defines an occurrence to include continuous or repeated exposure to substantially the same general conditions, multiple injuries caused by a unified set of companywide practices may be treated as one occurrence.
- Occurrence-based coverage is limited to loss attributable to the policy period; damages tied to pre-inception periods are not covered even if the challenged conduct began earlier.
- Where a single lawsuit alleges a continuous course of conduct that is at least partly within coverage, the insurer’s defense obligation (and resulting defense-cost reimbursement under the policy) is not reduced by attempting to allocate defense costs among covered and uncovered time periods within the same action.

## Conclusion

The court treated the Title VII pattern-and-practice discrimination judgment as one occurrence for deductible purposes, limited indemnity to post-inception back pay, and required the insurer to reimburse all defense costs without apportionment.


Transport Ins. Co. v. Lee Way Motor Freight, Inc., 487 F. Supp. 1325 (N.D. Tex. 1980)