mr wilkinson good morning your honour's may please the court my name is scott wilkinson and i represent the appellants x e and we're here today because in the case below the district court declined to rule on the specific policy construction issues there were raised by the parties and formed the basis for praetorians denial of access claim under the policy and said what the district court did when briefing was completed it came up with its own concept material breach and then employed that concept in order to dismiss axiom praetorians claims the district court did so in a manner in which its order violates all manner of controlling law it expands the concept of material breach beyond anything that we can find in existing president and as a result the order must be reversed and remit now in my conversation today i'm going to focus on three general areas which is your strongest argument public service company the walls well your honor i think the strongest argument is and i'm sorry i kind of work my brain works and conceptual instead of the exact the exact way which is the strongest argument is that this this interpretation of material breach comes out and ignores the agreement of the parties right and that's that's not an insurance policy specific argument that is a policy that argument that's the specific to all interpretive principles in this case we have a protective devices indorsement and a protective device a schedule the endorsement serves the purpose of two purposes like anything you do if you want to punish somebody for not doing something in a contract you have to impose an obligation on them to do so the other condition section of the protective devices indorsement says to axiom blackout you have an obligation to maintain these protective devices or services and the scuse me the conditions are sued the perils excluded section that says here's what you do if you're here's what happens if you don't maintain and now we had a circumstance that there was a six foot chain link fence everybody agrees it's at that protective device there's a dispute over whether it's a fire protective device the parties agreed in advance that there would not be a total forfeiture and when i say parties agree that's kind of colloquial because there's no real party agreement it's praetorians for in advance praetorian drafted a form that says if you do not do these things that we've told you to do in the protective devices you will lose either fire coverage or theft coverage or both as a political nothing in the policy says you will lose all of your rights and obligations under the policy and that's the biggest issue here the district court's order imposing the doctrine of material breach says by definition if you have committed a material breach praetorian is relieved of all further obligations under the policy this is a builder's rest policy doesn't just cover fire and that covers tornadoes it covers all manner and we listen in on our briefing of other covered causes of what you read district court order to say if a tornado hits and you know the coverage yes by definition that's that's the concept that is the definition of material breach if a material breach occurs the non breaching party has no further obligations under the contract by definition that's what it means right and so the biggest issue here is we have a court that is applied the doctrine of material breach to a circumstance where the parties already agreed that a lesser consequence would occur policy construction or otherwise that applies the doctrine of material breach to a circumstance where the parties agreed in advance that a breach in question would have less than a total abdication of the responsibilities under the contract now if we think about the interpretive principles behind the code the court's role in contract interpretation that's not surprising at its core whether it's an insurance policy or whether it's an arm's length contract every court's obligation is to enforce the clearly expressed intentions of the parties when the parties have already said if you breach this contract in this way you are not going to lose all of the benefit of the contract you're going to lose a subset of the benefit of the contract by definition their contract has made it impossible for that particular breach to be material because they have already agreed that it will not fully relieve them of obligate their obligations so that we think is our strongest argument because that is the argument that has absolutely from our perspective no supporting case law can i ask you because so much comes down to this protective devices endorsement i'm trying to understand that it begins if indicated on the protective devices schedule which i have that the following conditions apply to the locations described on the schedule and then there's nothing well what am i to make of that you're to make that this is a typical insurance policy so so do we distance regard that language no effective way the way you would read this in this is that again we go back to insurance policy construction principles how would a person of ordinary intelligence and understanding review this it sure its policy the other conditions section says you have to maintain these devices on this on the schedule i don't i'm not there yet i'm sort of the i'm to the following conditions and i see below that as other conditions but before we get other conditions are there any following conditions are there just aren't any the following conditions are the other conditions that's that's just the way it's written there's no space in the form this is a this is a standard form retore and he's not answers that thank you yes so again we get going a little broader picture we talked about the biggest army and here's here's the broad picture as we're looking at it if we're going to apply the correct policy interpreter principles and we've laid these out and extensively are briefs and conceptually the key point is if you're interpreting an insurance policy there are key and critical distinctions between insurance policy interpretation and standard arm's length contract interpreter we know the district court didn't hear those decisions the district court in its order specifically says that an ambiguity is a good touchstone because it's one of the biggest differences between the two the insurance policy the role of the court if an ambiguity exists is to construe the ambiguity against the draft or and in favor of coverage what would be wrong with the center potations obviously this protective devices indorsement concerned  so we limit other conditions to that we say protective devices you have to have a founds make sense and don't you can't come in and say well we had a finance that had a whole senate or something and so just being able to say we had a finance doesn't get you coverage and you can still lose based on these perils excluded if you didn't maintain the fence kids were getting an announce so forth and so on plans not the most natural reading of this line that's the so if we look at the language that was used by the district court and it's attempting clearly the district court in pretoria both understand that a risk in the a tripper taishan that the district court adopted is that you have rendered the perils excluded section of the protective devices indorsement was right and they both tried to get around it in various ways and if you look at their way in which what you see is an inability to acknowledge the full language of the policy the district court starts and tries to characterize the other conditions section as an obligation to erect a fe what the policy sets the policy uses the word maintain maintain can include reracked maintain can include erect that's absolutely correct but maintain goes beyond erect and that's the pearl excluded part well and so that's the point so here's the point you have to read the entire thing so that other condition says maintain but then go read the conditions themselves require you to maintain a fence that completely surrounds the entire project with locking gates now the argument is if you have a fence and there's a hole or two or section blows down well that's i mean that's a that's an obligation to keep it in good order that's not an obligation they'd say well if you have a fence that completely surrounds the project it completely surrounds the project there's no holes in the the purpose of a fence is to not have a right so you literally cannot comply if you comply with the other conditions portion there has to be a fence that completely surrounds the project there's no partial compliance there's no shades of grey and if it's material breach by failing to do that then what is the purpose of the pearls excluded section the pearls excluded section talks about if you fail to maintain an good working order one of the devices and services well if you fail to maintain it in good working order and the requirement is to completely enclose the project then you failed to maintain the fence period end of story and that's those two issues go hand in hand completely in closing could mean you can't do it on three sides that kind of  fense not going to count but if you do it on four sides and some somebody comes along and cuts the wire and you know about the lottery you don't know about that for a week and then comes the arson moused i don't know that you would say that the plants doesn't completely enclosed let you have his accounts that completely encloses and that's not maintained and there's available to arsonists well and i think the key point in your question your honor is the fact that you said it's not maintained and again we go back to the common use of the word maintained and the other condition section specifically says you are required to maintain at all times during the policy period the protective devices and services then we go into the protective devices and services  says the site will be protected with chain link fencing or other similar security fencing at least six feet in height completely enclosing the entire job site so if you have to explain the penny and if you have to explain the distinction by saying well you put it up but you didn't maintain it then your exact explanation begs the point you are saying you didn't maintain the fence which goes right back to the situation the parties and keep in mind we have to at one point take right the policy construction principle we need to be operating under is if you show this to a person of ordinary intelligence on the street how are they going to read this policy right and where i would ultimately come down as i don't know this policy a single person on the street who would come back and say yeah i read this policy and i understand that if i don't put a six foot chain link fence up i don't have coverage for a tornado i don't have coverage for a hail storm i don't have coverage for any of those things they i think an average person could say yes i may lose coverage for theft if that is a theft protective device i may lose coverage for fire if that is a fire protective device now i can have a different interpretation in the record suggests x you did x you have locked containers on site to deal with honor if they had clearly and this is not the only protective devices indorsement they had seen if they had worded this like other device or other endorsements in the market that said if you do not put up a six foot chain link fence and have a locking gate you will have no coverage you can rest assured they would have put up the fence right there are logistical considerations that came with this site that made it difficult to fence in advance of doing the construction they made a judgment call based on the way in which of this policy that said we don't have a substantial theft risk to the extent that we have a theft risk we're going to deal with it by locking the valuables in here we're going to take the risk on the theft risk that's far that's their call but under the controlling policy construction principles in order to take the risk they had to clearly and unequivocally understand what their risk was that's praetorians job praetorian if they wanted to make sure that they had an ability to draw a boundary around their coverage and they thought a six foot chain link fence was a fire protective device they had to clearly and unequivocally make sure actually understood that so they could comport their conduct without understanding that us to reserve i would like to reserve a little bit of time but i also be the one who keeps doing this but if you guys want to reserve time you have to do i understand your honor i also want to make sure i answer depends question so i do i do have a question and i would like you to answer now if you could and that sought your other argument which is then essentially this whole idea of a material breach is and we were specifically told by the court do not file anything else we do what we were told our only option at that point was to file something which is either in the form of a motion to reconsider or going back and saying look we need a new discovery but the reality the circumstances the legal argument you could have addressed in your brief you could have addressed in your brief i don't know how i'm supposed to address a factual issue my brief they never raised since i mean by their office you don't you don't necessarily know i think your point is although i wasn't clear from the brief you don't necessarily know when you're filing the simultaneous briefs whether or taurine is even going to pick up on this whole idea of a material breach the district court came up with the correct you don't know how they're going to respond are they going to say well yes we haven't raised that but now we'd like to in and yes the facts to support that dui do you know what they're going to do at that point now you have a clue or has there been any reason to think that they would take the position that they did in response to the district court's invitation to do so you don't know you're operating completely in the dark and in this case all of the indications before that point in time where that this was strictly i assume my time's up in half and yes all the indications before that point in time were that this was a strictly legal issue the only fact in question was whether offense was or was not maintained and we admitted it was the condition precedent argument that was raised was strictly one based on the i would care of the content of the policy as was the interpretive point which was there was nothing raised at any point prior to that that would have it even indicated to us that there was a factual issue that needed to be addressed and so we briefed it as best we could on the information we had firing in the dark and that's where we left so i  morning may it please the court my name is peter morgan i'm here today representing the appellate praetorian insurance company counsel when you denied coverage in this case when your client denied coverage in this case what was the basis communicated basis for the denial of coverage the denial was based on two bases your honor the condition the fence fence condition in the protective devices indorsement also the the principle under colorado law is that insurers are limited to the grounds for denial of coverage that they raised in their initial letter denying coverage us district court from relying on material breach because you did not raise it and as i read that case the court and the company are precluded from again relying on a basis for denying coverage that was not asserted by the insure  and i would respectfully disagree on two bases st the one colorado is that insurers do not waive bases of forfeiture that are not raised at the outset in their in their denial letter cases state farm versus  mcgowan there's another older case the name of which is escaping me i believe it may be hartford vs livestock i can supplement with that if the court is interested you may please i will your honor thank and the the other bases that i would disagree on is that this this issue of failure to satisfy the condition was raised clearly at the outset with the insured  explained in no uncertain terms that they had not built the fence that it was a requirement of the policy both as a condition and an exclusion and that same case that your honour's referring public service company versus wallace at least the court of appeals a version of that case puts the onus on the insured to satisfy a condition and to and to demonstrate that they've set as to what it should do what effect do you read the case the wall wallace let's refer to it for our purposes for that reason i'm happy to also supplement with with my reading of that case the court would like like you you may but me we're going to read it ourselves and ok yeah this is your position in a tornado destroying the property would not get coverage because there was no founts no your honor and what it what is your position as precise as you can state it let me help frame out that hypothetical bit assuming the facts are the same as this case insofar as we've got this fence requirement as a schedule protect the device and the policy and the loss instead of being an arson and fire his attorney joe in that case i don't believe that the court would've ruled that the breach was material the failure to build the fence was a material breach the reason is that the reason for that is you have to look at the factors that courts consider when determining whether or not a breach is material and the loss that ultimately ensues is important in that consideration so one of the factors the courts consider is the extent to which the injured party will be deprived of the benefit reasonably expected in the trade or caught in the trad the insurer is only scheduling offense as a protective device they're not bargaining for a construction project that's protected from term nato that's different from our case in our case we did bargain praetorian did bargain for a construction project that was protected from arson protected from trespassers sneaking onto the property in the middle of the night and so our case is different from the trade ok so in that we are in i should say is not getting the benefit of its bargain the bargain being a construction project that's protected from exactly the type of loss that ensued this is a question of fact whether the finance and deed would have stopped the arsonists i don't believe so your honor no i think  you know there's there's a presumption that a fence would protect against arson and the intent of the policy which is up to the court is really what matters there and i think the intent is clear and certainly we attach an affidavit in response to the trial court's request for a supplemental brief you know materiality that explained why the fence was was material to the insurance company and it was an important term and in fact why they went so far as to offer a ten percent premium discount let me let me just ask you a couple of questions about the policy st of all this other conditions language were required to maintain a found i'm so if work that's a really unusual named language as far as a west law search would reveal anyway and the case is the small number of cases that are out there w something similar or much more emphatic that this is a condition if you don't have a fence you don't have coverage point one and point two i don't see any cases out there that used the terminology from a policy fire protective device or the protective device that seems unique to this policy and nothing and the schedule says that a fence is either one of those things is there an ambiguity there or is or a lack of definition that should compel a different result here as to which section you're on or the lack of a definition of fire protective device both the number one relatively more well the more obscure protective devices not saying this is a condition you lose because there is language in other cases from other policies where it's more of phatic about that the person as described in the  unsophisticated who reads the policy and tries to understand what's this mean would understand that language whereas this language may be not and suck and if you're going to use a term that has never been construed so far as i know the fire protective device as opposed to a plain old protective the bias or theft protective device same thing should have to say in your protective device a schedule offense is a fire protective device to find no coverage where the condition itself doesn't say if you fail to satisfy this condition you won't you won't have coverage a recent example is the stress con opinion that a colorado supreme court that was in no voluntary payments provision  s the top of my head the philadelphia vs craft case which was a late notice case on a claims made policy another condition that the court was happy to enforce without any sort of willing language saying  oh by the way there won't be any coverage so these conditions in my experience your honor often don't say oh and by the way there won't be any coverage if you don't satisfy the condition it's fundamental to insurance contract law that it's the insureds burden to satisfy that condition and if they don't the only realistic expectation that a reasonable insured would have is that it's going to affect the coverage as to the piece on the exclusion and whether or not fire protective should be should be defined in the policy the track as as your honor is well aware the trial court didn't reach the language for you so that you could deal with the language in public service company of colorado v wallace is as follows quote an insure must raise or at least reserve all defenses that coverage within a reasonable time after learning of such defense is period when an insured denies coverage on specific grounds it waves the right later to assert additional defenses to coverage public service company of colorado what happened in this case is that judge martinez sue is spawn to a raised material breach as a basis for denial of coverage without the insurer or having complied with the requirements of public service company of colorado v wallace which is to have asserted that grounds for denial of coverage which you did not do so both parties were purchased by the ruling of judge martinez and i was raised i was left with the question of well can a judge just pop up a defense without the insurance company having raised it and that's why i asked a question of you that i thank you your honor and if you want to address that question and i would invite both parties to do so we'll discuss that amongst ourselves in it but i would element of the the insureds burden in response to that basis for denial we raised for tory and raised in very clear unequivocal terms the fact that the insured had failed to satisfy the condition in the policy that's different then material breach and material breach is a fact question it's all about whether the parties at the could have anticipated that this conduct at the time they entered into the contract was a material breach that's a fact question and there was no discovery on this because you never asserted it not as a grounds for the now of coverage you never asserted it in your answer as an affirmative defense in this litigation never served in a summary judgment motion there was no reason to do any discovery on what one of the parties would have intended for this to be a material breach and understand that if they did not comply with this particular condition that not only would the perils excluded fall into place the entire policy is breached that's a fact question about whether they intend that to be a material breach you never asserted that thank you judge martinez inserted into the litigation thank you your honor under rule fifty six the trial court is authorized to do exactly what it did it can we any issue that it chooses to raise give the parties an opportunity to brief that issue and dispose of the case on that issue but you haven't done discovery on it you haven't asserted as a basis for denial of coverage you have what it's nonsensical at that point rule fifty six dollars also provides a mechanism to deal with that issue  opportunity no one was to say well wait a minute this is this this isn't right you were told to file supplementary so when i read the order there wasn't a lot of really way there i understand your honor but respectfully under rule fi then preserve the issue on appeal essentially when the judge does something otherwise a trial court never asks parties whether or not they want to see that's up to the party to raise the issue right why would they have that why would anybody be asking for discovery discuss this a conference if we are to request additional briefing from you on the question that who raised by the wallace case will issue an order for your benefit both sides to afford to the opportunity