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Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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RO B E RT L. H O EC KE R 

CLERK 

;lliniteo ,,jhttes Qfourt of J\ppealsTENTH CIRCUIT 

OFFICE OF THE CLERK 

C404 UNITED STATES COURTHOUSE 

DENVER, COLORADO 80294 

January 22, 1990 

TO: ALL RECIPIENTS OF THE CAPTIONED OPINION 

RE: Nos. 87-1678 & 87-1740; Adams-Arapahoe v. Continental 

Opinion filed on December 11, 1989 by Judge Stephen 

H. Anderson. 

TELEPHONE 

(303) 844·3157 

(FTS) 564·3157 

Enclosed are new pages 14-18 for the captioned opinion. 

Please substitute these pages in your copy of the opinion sent to 

you on December 11, 1989. Corrections have been made to pages 15 

and 16 only. However, because of footnote placement, is is necessary 

to substitute pages 14-18. 

PF:kmh 

attachment 

Please call this office if you have questions. 

By 

Sincerely, 

P trick Fisher 

Chief Deputy Clerk 

Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 1
Nos. 87-1678 & 87-1740; Adams-Arapahoe v. Continental. 

Oμinion filed on 12/11/89 by Judge Stephen Stephen H. Anderson. 

question of whether an error is harmless is one of federal law. 

Brownlow v. Aman, 740 F.2d 1476, 1490 (10th Cir. 1984). 

An insurer bears the burden of proving an affirmative defense 

which will enable it to avoid a policy. Commercial Ins. Co. v. 

Smith, 417 F.2d 1330, 1336 (10th Cir. 1969} (citing Olinger Mut. 

Ben. Ass'n v. Christy, 342 P.2d 1000 (Colo. 1959)). If, however, 

Continental's claim of the District's knowledge was not an 

affirmative defense, but was interposed only to prevent the 

District from meeting its burden of proving fortuitousness, then 

Continental did not bear the burden of proof on the knowledge 

issue. Lockwood v. Travelers Ins. Co., 498 P.2d 947, 950 (Colo. 

1972} (where plaintiff had the burden of proving that insured's 

death was accidental, it was erroneous to place on the insurer the 

burden of proving its rebuttal argument that the death was a 

suicide). 

In its answer, Continental stated that the District's loss 

was "not the result of a fortuitous event," Answer, R. Vol. I at 

Tab 3, p. 3, but did not make any reference to the District's alleged knowledge. The pretrial order is similar. See Pretrial 

Order, April 11, 1986, R. Vol. I at Tab 5, p. 2. 5 · We feel that 

5 The District's first motion in limine, to which Continental 

did not object, stated that "Continental has raised as a defense 

to coverage" that the District knew or suspected, when It obtained 

the insurance policy, that the roof deck would collapse because of 

corrosion. R. Vol. III at 9-10; Plaintiff's First Motion In 

Limine, R. Vol. I at Tab 11, p. 2 (emphasis added}. The District 

contends that Continental's failure to object to either the motion 

or the making of such introductory remarks to the jury precludes 

Continental from now appealing the issue. We disagree. The 

statement is ambiguous. Stating that Continental has raised the 

issue as "a defense'' is not the same as stating that it is an 

affirmative defense upon which Continental bears the burden of 

[footnote continued ... ] 

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Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 2
Continental did not plead Adams-Arapahoe's alleged ~nowledge of 

the increased risk of corrosion as an affirmative defense. The 

argument was raised merely to rebut the District's claim that the 

loss was fortuitous. The affirmative defense instruction should 

not have been given. Even if Continental were asserting the 

District's knowledge both as an affirmative defense and as a 

rebuttal, the instruction, without further delineation, would have 

been erroneous. Britt v. Travelers Ins. Co., 556 F.2d 336 (5th 

Cir. 1977), modified, 566 F.2d 1020, 1022-23 (5th Cir. 1978). 

We will not reverse the judgment unless the error prejudiced 

Continental. Lusby v. T.G. & Y. Stores, Inc., 796 F.2d 1307, 1310 

(10th Cir.), cert. denied, 479 U.S. 884 (1986). We must decide, 

then, whether the fortuitousness instruction, which was correct, 

rendered harmless the improper affirmative defense instruction~ 

In Britt v. Travelers Insurance Co., the life insurance 

policy on plaintiff's husband paid double indemnity for an accidental death, and had an exclusion for death caused by a mental 

or physical infirmity. Decedent died under circumstances which 

may have been accidental, and may have been caused by a mental or 

physical infirmity. The insurer r~ised decedent's infirmities 

both to contest plaintiff's claim that the death was accidental, 

[ •.• footnote continued] 

proof. 

Besides, Continental made a specific objection to the 

affirmative defense instruction. See R. Vol.Vat 304-306. 

Nothing more is necessary to preserve the right to appeal the 

instruction. Weir v. Federal Ins. Co., 811 F.2d 1387, 1390 (10th 

Cir. 1987). 

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Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 3
and to show that the infirmity exclusion applied. The insurer 

bore the burden of proof on the second issue, but not on the 

first. 

The jury instruction correctly allocated the burden of proof 

regarding whether the death was accidental, but then stated that -

the insurer bore the burden of proving a mental or physical 

infirmity, without distinguishing between the two ways the insurer 

was using that argument. This was held to be a prejudicial error. 

Britt v. Travelers Ins. Co., 566 F.2d at 1022-23 & n.3. 

The trial court in Britt, by failing to distinguish between a 

rebuttal and an affirmative defense, shifted part of the 

plaintiff's burden of proving that the death was accidental onto 

fhe defendant. The affirmative defense instruction in the instant 

case had the same effect. In both cases, the error was 

prejudicial. 

We r~alize that jury instructions are to be reviewed as a 

whole, and that '''only in those cases where the reviewing court 

has a substantial doubt whether the jury was fairly guided in its 

deliberations should the judgment be disturbed. 111 Lutz v. Weld 

County School Dist. No. 6, 784 F.2d 340, 341 (10th Cir. 1986) 

(quoting Mid-Texas Communications v. American Tel. & Tel. Co., 615 

F.2d 1372, 1390 n.16 (5th Cir.), cert. denied, 449 U.S. 912 (1980) 

(citations omitted)). Still, the chance that the jury was misled 

is too great for us to assume that the fortuitousness instruction 

undid the harm done by the affirmative defense instruction. See 

Great W. Sugar Co. ~.Mrs.Alison's Cookie Co., 749 F.2d 516, 522 

-16-

Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 4
( 

(8th Cir. 1984); see also Campbell v. Otis Elevator Co., 808 F.2d 

429, 433 (5th Cir. 1987). 

This case differs from Fox v. Ford Motor Co., 575 F.2d 774 

(10th Cir. 1978). In that case, the trial court correctly 

instructed the jury on the standard by which to determine if the 

defendant was negligent, but then gave an instruction on the 

implied warranty of merchantability which imposed absolute liability for defects. The applicable state law required negligence 

to vio1ate the warranty. 

On appeal from a verdict for the plaintiff, the warranty 

instruction was found to be erroneous, but not prejudicial. The 

error was harmless because the trial court had not treated 

negligence and warranty as separate issues: "It blended both of 

these in with the extensive charge on.negligence and reasonableness." Id. at 786 (emphasis added). Because of this blending, 

"the jury very probably gave effect to the negligence charge •.. 

since there was no statement by the court that the war~anty was a 

separate basis for recovery." Id. Unlike in Fox, we have no 

reason in this case to believe that the jury did not give effect 

to the improper instruction. 

Finally, the District argues that the error was harmless 

because the evidence would not have supported any other verdict. 

However, there was enough evidence of the District•~ knowledge to 

support a verdict by a properly instructed jury that the loss was 

not _fortuitous. 6 Therefore, "' the jury might have based its. 

6 The exhibits included a letter from the roofing subcontractor to the general contractor that the manufacturer of the 

[ footnote continued . . • ] 

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Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 5
verdict"' on the erroneously given instruction. Farrell v. Klein 

Tools, Inc., 866 F.2d 1294, 1300 (10th Cir. 1989) (quoting 

McMurray v. Deere & Co., 858 F.2d 1436, 1444 (10th Cir. 1988) 

(emphasis added)). Even if that possibility is "very unlikely," 

reversal is required. Farrell v. Klein Tools, Inc., 866 F.2d at 

1301. 

c. Other issues 

Adams-Arapahoe filed a cross-appeal in this matter, challenging the trial court's application of the federal post-judgment 

interest rate, pursuant to 28 u.s.c. § 1961, instead of the state 

post-judgment interest rate. Since then, this·court decided in 

Everaard v. Hartford Accident & Indemnity Co., 842 F.2d 1186, 

( 1193-94 (10th Cir. 1988), that the federal rate applies, even in 

diversity actions. The trial court applied the correct rate. 

The District also challenged our jurisdiction, because 

Continental filed this appeal more than thirty days after judgment 

was entered (but within thirty days of the resolution of 

plaintiff's motion for pre-judgment interest). This argument 

subsequently was foreclosed by the Supreme Court's holding in 

Osterneck v. Ernst & Whinney, 109 S. Ct. 987, 991 (1989), that a 

[ ••• footnote continued] 

gypsum~based concrete had withdrawn its recommendation of the 

material as roof fill because of problems with corrosion. R. Vol. 

IV at 225; Attachment t0 Opening Brief of Appellant at 16. There 

was evidence that this letter was forwarded to the project 

architect, R. Vol. IV at 235-36; Attachment to Opening Brief of_ 

Appellant at 19, and that such issues would be discussed among the 

architect, the general contractor, and a representative of the 

District. R. Vol. VI at 11. The jury could conclude that the 

District had either-direct or imputed knowledge of an abnormal 

risk of corrosion. 

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Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 6
PUBLISH 

IN THE UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

ADAMS-ARAPAHOE JOINT SCHOOL 

DISTRICT NO. 28-J, 

Plaintiff-Appellee, 

Cross-Appellant, 

) 

), 

) 

) 

) 

FI LED 

Uoired States Court of Appeals 

TPnth Cim.frt 

DEC 111989 

ROBERT L. HOECKER 

Clerk 

) 

v. ) 

Nos. 87-1678 

87-1740 

THE CONTINENTAL INSURANCE 

COMPANY, a corporation, 

Defendant-Appellant, 

Cross-Appellee. 

) 

) 

) 

) 

) 

) 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLORADO 

(D.C. No. 85-K-0060) 

Wiley E. Mayne (Curt Krechevsky with him on the briefs), Holland & 

Hart, Denver, Colorado, Attorneys for Plaintiff-Appellee/CrossAppellant. 

Otto F. Becker, Thornton, Taylor & Downs, San Francisco, 

California (Stephen E. Connor, Wood, Ris & Hames, Denver, 

Colorado, with him on the briefs), Attorneys for DefendantAppellant/Cross-Appellee. 

Before LOGAN, HENLEY* and ANDERSON, Circuit Judges. 

'] --------------- ANDERSON, Circuit Judge. 

r 1 * Honorable J. Smith Henley, Senior Judge, United States Court 

of Appeals, Eighth Circuit, sitting by designation. 

Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 7
Defendant-appellant The Continental Insurance Company 

(''Continental") appeals from a judgment holding it liable under an 

insurance policy issued to plaintiff-appellee Adams-Arapahoe Joint 

School District No. 28-J ("Adams-Arapahoe" or "the District"-) for 

expenses incurred after the partial collapse of the roof of 

Gateway High School in Aurora, Colorado. 1 We affirm the trial 

court's decision that the loss, if fortuitous, was covered. We 

reverse the judgment entered on the jury's verdict that the loss 

was fortuitous, and remand for a new trial on that issue, because 

of a prejudicially erroneous instruction. 

I. BACKGROUND 

The construction of Gateway High School took place from 1972 

to 1974, with the roof put up during the winter of 1972-73. R. 

Vol. II at 6. The original plan called for galvanized steel 

sheets to be placed over the roof beams, then overspread with 

lightweight concrete and covered with asphalt and gravel. R. Vol. 

II at 40. During the construction, however, the general contract6r received permission to use gypsum-based concrete instead, 

because the material originally chosen would not cure properly in 

cold weather. R. Vol. VI at 8. 

The roofing subcontractor discussed the proposed change with 

the concrete manufacturer, who said that some corrosion had been 

experienced when the gypsum-based concrete was applied to metal 

d~cking. R. Vol. IV at 225: Attachment to Opening ,Brief of 

1 During the pendency of this appeal, both parties made motions 

to file supplemental briefs. Both motions were granted, and both 

supplemental briefs were received and considered. 

-2-

Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 8
Appellant at 16. The subcontractor notified the general 

contractor, who in turn informed the project's architect. R. Vol. 

IV at 235-36. After a meeting with the contractors and a District 

representative, the architect decided to proceed with the change. 

R. Vol. VI at 11. It is not clear whether the corrosion danger 

was discussed at this meeting. At the trial, representatives of 

the District denied.ever having been informed of any increased 

risk. R. Vol. IV at,~, 194-95, 201-02. 

Continental issued an all-risk insurance policy for the 

school, effective September l, 1982. The policy covered "all 

• risks of direct physical loss," but excluded any loss caused 

"[b]y wear and tear, deterioration, rust or corrosion, 

mould, wet or dry rot; inherent or lateiitdefect; .•• 

unless such loss results from ~·peril not excluded in 

this policy. If loss by a peril not excluded in this 

policy ensues, then this Company shall be liable for 

only such ensuing loss." 

Attachment to Opening Brief of Appellant at 75 (emphasis added). 

On April 23, 1984, a small portion (six to twelve square 

feet) of the roof collapsed. R. Vol. II at 9. An inspection 

revealed extensive corrosion throughout that portion of the roof 

which had been filled with gypsum-based concrete, making continued 

occupation of the building unsafe. R. Vol. II at 15, 39. AdamsArapahoe spent about $8.8 million to remove and replace eighty 

thousand square feet of roofing (approximately forty percent of 

the total area). 

After Continental denied the District's claim, Adams-Arapahoe 

filed suit in state court. The acti6n was removed to the United 

States District Court for the District of Colorado. The trial 

court granted plaintiff's motion for partial summary judgment, 

-3..;. 

Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 9
holding that (1) defective design and/or construction was a risk 

covered by the policy, and was the cause of the District's loss, 

(2) the corrosion exclusion did not preclude coverage, and (3) the 

District's loss included the entire corroded area of the roof. 

A jury trial was held on the remaining issues. Continental 

argued at trial that the District expected the loss, rendering it 

non-fortuitous (and therefore not covered). The jury was 

instructed that the District bore the burden of showing 

fortuitousness, but that Continental bore the burden of proof on 

its affirmative defense of the District's expectation, or 

knowledge of a substantial risk, of collapse. A verdict was 

returned in favor of the District for $8,674,778. 

II. DISCUSSION 

The substantive law of Colorado governs our decision in this 

diversity case. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 

(1934); Farmers Alliance Mut. Ins. Co. v. Bakke, 619 F.2d 885, 888 

(10th Cir. 1980). With respect to issues which the Colorado 

Supreme Court has not addressed, we may consider all available 

resources, including Colorado appellate court decisions, other 

state and federal decisions, and the general trend of authority, 

to determine how the Colorado Supreme Court would construe the law 

in this case. Farmers Alliance Mut. Ins. Co. v. Bakke, 619 F.2dat 888; City of Aurora, Colo. v. Bechtel Corp., 599 F.2d 382, 386 

(10th Cir. 1979). 

-4-

Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 10
A. Partial Summary Judgment 

The trial court interpreted the policy to cover the loss in 

question, if the loss was fortuitous. The construction of an 

insurance policy is a matter of law. Marez v. Dairyland Ins. Co., 

638 P.2d 286, 288-89 (Colo. 1982). The language of the policy is 

interpreted according to its common usage, with ambiguities 

construed against the insurer. Reed v. United States Fid. & Guar. 

Co., 491 P.2d 1377, 1379 (Colo. 1971). 

1. Whether defective design and/or construction was a 

covered risk. 

An all-risk insurance policy covers any fortuitous loss not 

resulting from an excluded risk or from fraud by the insured. 

Kane v. Royal Ins. Co. of Am., 768 P.2d 678, 679 n.l (Colo. 1989); 

Steamboat Dev. Corp.~- Bacjac Indus;, Inc., 701 P.2d 127, 128 

(Colo. Ct. App. 1985); 13A G. Couch, Cyclopedia of Insurance Law 

S 48:141 (2d rev. ed. 1982). Continental contends, however, that 

defective design and/or construction is not a risk at all; it is 

merely a~condition of the insured property. 

In Wolfe v. Levasseur-Hinson Construction Co., 147 So. 2d 747 

(La. Ct. App. 1962), the floors of a house were negligently 

installed prior to the purchase of an all-risk policy. Later, the 

floors buckled. The court denied coverage because the acts which 

caused the loss occurred before the coverage began. Id. at 750; 

accord 80 Broad St. Co. v. United States Fire Ins. Co., 389 

N.Y.S.2d 214, -215 (Sup. Ct. 1975), aff'd ~ curiam, 390 N.Y.S.2d 

768 (App. Div. 1976). 

-sAppellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 11
,\ 

Y~t, most of the decisions addressing this question hold that 

defective design and/or construction is a risk of physical peril, 

even if it predates the policy. See,~, Texas E.· Transmission 

Corp. v. Marine Office--Appleton & Cox Corp., 579 F.2d 561, 564-66 

(10th Cir. 1978); Essex House v. St. Paul Fire & Marine Ins. Co., 

404 F. Supp. 978, 992-93 (S.D. Ohio 1975)~ Garvey v. State Firm 

Fire & Cas. Co., 770 P.2d 704, 711 (Cal. 1989). See generally 

Annotation, Property Damage Resulting from Inadequate or Improper 

Design or Construction of Dwelling as Within Coverage of "All 

Risks" Homeowner's Insurance Policy, 41 A.L.R. 4th 1095 (1985). 

We agree with the trial court's decision that the Colorado Supreme 

Court would hold that a loss so caused is covered by an all-risk 

policy. 

Still, an all-risk policy does not cover losses which were 

not fortuitous. Texas E. Transmission Corp. v. Marine Office--

Appleton & Cox Corp., 579 F.2d 561 at 564; Essex House v. St. Paul 

Fire & Marine Ins. Co., 404 F. Supp. at 987. While this implied 

requirement of fortuitousness is universally recognized, Annotation, Coverage Under "All Risks" Insurance, 88 A.L.R. 2d 1122, 

1126 (1963), there is some disagreement regarding just what is or 

is not fortuitous. 

One group of cases holds that a loss is not fortuitous if it 

was inevitable when the policy was issued. See,~, Greene v. 

Cheetham, 293 F.2d 933, 937 (2d Cir. 1961); Glassner v. Detroit 

Fire & Marine Ins. Co., 127 N.W.2d 761, 764 (Wis. 1964). Under 

this rule, a loss-caused by defective design and/or construction 

which preceded the issuance of the policy is not fortuitous. 

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Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 12
Compagnie des Bauxites de Guinee v. Insurance Co. of N. Am., 566 

F. Supp. 258 (W.D. Pa. 1983), rev'd without opinion, 735 F.2d 1348 

(3d Cir. 1984). Obviously, the conclusion that a loss was inevitable at the time of contracting, and therefore non-fortuitous, 

often involves the use of hindsight. 

A more recent line of decisions rejects the use of hindsight 

and holds that a loss caused by a pre-existing defect is 

fortuitous so long as neither party knew of the defect or expected 

the loss. See,~' Standard Structural Steel Co. v. Bethlehem 

Steel Corp., 597 F. Supp. 164, 192 (D. Conn. 1984); Fidelity & 

Guar. Ins. Underwriters, Inc. v. Allied Realty Co., 

, __ (Va. Sept. 22, 1989). 

S.E.2d 

"A fortuitous event ••• is an event which so far as 

the parties to the contract are aware, is dependent on 

chance. It may be beyond the power of any human being 

to bring the everit to pass; it may be within the control 

of third persons; it may even be~ past event, ••• 

provided that the fact is unknown to the parties." 

Texas E. Transmission Corp. v. Marine Office--Appleton & Cox 

Corp., 579 F.2d at 564 (quoting Restatement of Contracts§ 291 

comment a (1932)) (emphasis added). Under this view, defective 

design and/or construction, even if it exists before the policy is 

issued, can cause a fortuitous loss. Compagnie des Bauxites de 

Guinee v. Insurance Co. of N. Am., 724 F.2d 369, 373 (3d Cir. 

1983); Kilroy Indus. v. United Pac. Ins. Co., 608 F. Supp. 847, 

857-58 (C.D. Cal. 1985); Essex House v. St. Paul Fire & Marine 

Ins. Co., 404 F. Supp. at 992-93. These decisions represent the 

clear trend of authority, and we believe that the Colorado Supreme 

Court would choose to follow them. 

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Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 13
Continental contends that even if a loss due to defective 

design and/or construction is a covered risk, coverage of the 

District's loss is barred by the exclusion for loss by "inherent 

or latent defect." Prior to considering this argument, we must 

decide whether or not it is properly before us. Adams-Arapahoe 

contends that Continental abandoned this issue on appeal. In 

fact, though, the issue was not raised and ruled upon in the trial 

court, so it never existed to be abandoned. 

Continental's references to the latent qefect exclusion 

before the district court were infrequent and nonspecific. In its 

answer, Continental raised as an affirmative defense 

"one or more of the following provisions ••• : loss by 

wear and tear, deterioration, rust or corrision [sic], 

wet rot, inherent or latent defect, settling, cracking, 

shrinkage, bulging or expansion of pavements, foundations, walls, floors, roofs or ceilings." · 

Answer, R. Vol. I at Tab 3, p. 3. Its brief in opposition to 

Adams-Arapahoe's motion for summary judgment repeats this list, 

and also states that, because "the eventual collapse of the roof 

was due to no casualty or risk other than the inherent deficiency 

within the design of the roof itself," the loss was not 

fortuitous. Memorandum Brief in Opposition to Plaintiff's Motion 

for Partial Summary Judgment, R. Vol. I at Tab 6, pp. 6, 9. 

Contipental made no other references to the latent defect exclusion. A matter not pursued before the trial court, such as this 

one, is "inappropriate for consideration on appeal." Stephens 

Ind;, Inc. v. Haskins & Sells, 438 F.2d 357, 361 (10th Cir. 1971). 

Even if the latent defect exclusion had been raised below, it 

was not preserved as an issue on appea~. The only exclusion which 

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Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 14
1 appears in the statements of issues in Continental's docketing \ 

statement and opening brief before thi~ court is the corrosion 

exclusion. An issue not included in either the docketing statement or the statement of issues in the party's initial brief is 

waived on appeal. Bledsoe v. Garcia, 742 F.2d 1237, 1244 (10th 

Cir. 1984). Proper appellate advocacy requires early identification of the issues. Braley v. Campbell, 832 F.2d 1504, 1508 & n.2 

(10th Cir. 1987). Merely mentioning inherent defects in another 

context is not enough. 

We will not consider the issue. 

2. Whether the corrosion exclusion applies. 

a. "corrosion" 

Continental contends that the policy excludes from coverage 

any loss due to corrosion. The District argues that the word 

"corrosion" refers only to normal or natural corrosion. 

Kane v. Royal Insurance Co., 768 P.2d 678 (Colo. 1989), addressed the question of whether damage caused when a man-made dam 

failed was covered under a policy which excluded loss caused by 

"flood, surface water, waves, tidal ~ater or tidal waves, overflow 

of streams or other bodies of water, or spray from any of the 

foregoing." Id. at 680. The court decided that the common meaning of the word "flood" included both natural and artificial 

overflowings of water. Id. at 681; accord Bartlett v. Continental 

Divide Ins. Co., 697 P.2d 412, 413 (Colo. Ct. App. 1984), aff'd £Y 

an evenly divided court, 730 P.2d 308 (Colo. 1986); see also 

Haines v. United Sec. Ins. Co., 602 P.2d 901, 902 (Colo. Ct. App. 

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Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 15
(per curiam). 2 But see Cyclops Corp. v. Home Ins. Co., 352 F. 

Supp. 931, 936 (W.D. Pa. 1973). 

We conclude that under Colorado law the word "corrosion'' unambiguously refers to all corrosion, however brought about. 

b. "unless such loss results, from a peril not excluded 

in this policy" 

Under the policy, coverage of a loss due to an excluded cause 

is excluded "unless such loss results· from a peril not excluded in 

this policy" [hereinafter "the 'unless' clause'']. The trial court 

held that, because the corrosion in this case resulted from a 

covered risk (defective design and/or construction), the exclusion 

did not apply. 

The only published decision construing such a clause 3 is 

Adrian Associates v. National Surety Corp., 638 S.W.2d 138 (Tex. 

Civ. App. 1982), aff'd ~ curiam, 650 S.W.2d 67 (Tex. 1983). In 

that case, water under the surface of the ground, produced by a 

ruptured water main, caused the.subsidence of an insured building. 

2 Similarly, in Sabella v. Wisler, 377 P.2d 889, 894-95 (Cal. 

1963), the ground under an insured home subsided.following the 

rupture of a sewer line. The court deemed irrelevant the fact 

that the subsidence was brought about unnaturally, and held that 

the exclusion of damage caused by "settling" would apply. Accord, 

~' General Ins. Co. of Am. v. Hallmark, 575 S.W.2d 134, 136 

(Tex. Civ. App. 1978) (following Lambros v. Standard Fire Ins. 

Co., 530 S.W.2d 138 (Tex. Civ. App. 1975); Bentley v. National· 

Standard Ins. Co., 507 S.W.2d 652 (Tex. Civ. App. 1974)). But see 

New Hampshire Ins. Co. v. Robertson, 352 So.2d 1307, 1310 (Miss-.-

1977) • 

3 Continental cites a number of decisions, such as Aetna 

Casualty & Surety Co. v. Yates, 344 F.2d 939 (5th Cir. 1965), 

which construe ensuing loss provisions. The "unless" clause is 

not the policy's ensuing loss provision; the sentence following 

the "unless" clause is the ensuing loss provision. Continental's 

authority is inapposite. 

-11-

Appellate Case: 87-1678 Document: 010110282909 Date Filed: 01/22/1990 Page: 16
The all-risk policy excluded loss or damage resulting from subsidence, but the exclusion had an "unless" clause identical to the 

one here at issue. The court held that because the subsidence 

resulted from subterranean water, a non-excluded cause, the "unless" clause negated the subsidence exclusion. Id. at 141. 

Like the-district court, we see no other reasonable construction of the clause. Contrary to Continental's fears, this 

interpretation of the "unless" clause doe~ not render the entire 

exclusion nugatory. Rather, the policy still excludes losses due 

to corrosion with no identifiable non-excluded cause. In effect, 

the corrosion exclusion applies only to naturally occurring corrosion. 

Accordingly, we affirm the trial court's decision that the 

District's loss, if fortuitous, was covered. 4 

3. Whether the District's loss included the entire corroded 

area, or just that portion of the roof which actually collapsed. 

Continental contends that the only loss Adams-Arapahoe suffered was the collapse of a small portion of the roof. The trial 

court, relying upon Western Fire Insurance Co. v. First 

Presbyterian Church, 437 P.2d 52 (Colo. 1968), ruled that the 

District's loss included the entire corroded area, because the 

4 . Because we have decided that defective design and/or 

·construction was a covered risk, and that the corrosion which 

occurred was not an excluded risk, we need not consider the 

question of which of these risks actually caused the loss. There 

is no cause to consider the parties' discussion of the last 

section of Kane v. Royal Insurance Co. of America, 768 P.2d at 

684-86; and other cases, such as Garvey v. State Farm Fire & 

Casualty Co., 770 P.2d 704 (Cal. 1989), because the causation 

analysis is unnecessary if both risks are covered. 

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corrosion made the school unsafe and unusable. In First 

Presbyterian Church, a church was rendered uninhabitable by the 

accumulation of gasoline around and under the building. Even 

though there was no physical damage, the Colorado Supreme Court 

held that the loss of use resulting from the infiltration was a 

physical loss. Western Fire Ins. Co. v. First Presbyterian 

Church, 437 P.2d at 55 (citing Hughes v. Potomac Ins. Co., 18 Cal. 

Rptr. 650 (Ct. App. 1962) (landslide did not damage house, but 

left it perched precariously over a cliff; the uninhabitability of 

the house was held to be a loss)); see also Hampton Foods, Inc. v. 

Aetna Cas~ & Sur. Co., 787 F.2d 349, 352 (8th Cir. 1986); Gibson 

v. Secretary of HUD, 479 F. Supp. 3, 5 (M.D. Pa. 1978); Esse·x 

House v. St. Paul Fire & Marine Ins. Co., 404 F. Supp. at 994. 

First Presbyterian Church controls the decision in this case. The 

trial court's ruling was correct. 

B. Jury Instructions 

The trial court granted partial summary judgment on the issue 

of whether the loss, if fortuitous, was covered, but reserved the 

fortuitousness question for the jury. The jury received the following instructions: 

"The District has the burden of proving b~ a preponderance of the evidence that ••• a fortuitous loss took 

place •••• Continental has the burden of proving~ a 

preponderance of the evidence its affirmative defense 

that the District had knowledge, either actual or 

Imputed, before _!!c>5tained its insurance policy," ~hat a 

substantial risk already existed that the roof deck 

would collapse because of corrosion." 

R. Vol.Vat 326~27 (emphasis added). The substance of the jury 

instructions in a diversity case is a matter of state law, but the 

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question of whether an error is harmless is one of federal law. 

Brownlow v. Aman, 740 F.2d 1476, 1490 (10th Cir. 1984). 

An insurer bears the burden of proving an affirmative defense 

which will enable it to avoid a policy. Commercial Ins. Co. v. 

Smith, 417 F.2d 1330, 1336 (10th Cir. 1969) (citing Olinger Mut. 

Ben. Ass'n v. Christy, 342 P.2d 1000 (Colo. 1959)). If, however, 

Continental's claim of the District's knowledge was not an 

affirmative defense, but was interposed only to prevent the 

District from meeting its burden of proving fortuitousness, then 

Continental did not bear the burden of proof on the knowledge 

issue. Lockwood v. Travelers Ins. Co., 498 P.2d 947, 950 (Colo. 

1972) (where plaintiff had the burden of proving that insured's 

death was accidental, it was erroneous to place on the insurer the 

burden of proving its rebuttal argument that the death was a 

suicide). 

In its answer, Continental stated that the District's loss 

was "not the result of a fortuitous event," Answer, R. Vol. I at 

Tab 3, p. 3, but did not make any reference to the District's alleged knowledge. The pretrial order is similar. See Pretrial 

Order, April 11, 1986, R. Vol. I at Tab 5, p. 2. 5 We feel that 

5 The District's first motion in limine, to which Continental 

did not object, stated that "Continental has raised as a defense 

to coverage" that the District knew or suspected, when It obtained 

the insurance policy, that the roof deck would collapse because of 

corrosion. R. Vol. III at 9-10; Plaintiff's First Motion In 

Limine, R. Vol. I at Tab 11, p. 2 (emphasis added). The District 

contends that Continental's failure to object to either the motion 

or the making of such introductory remarks to the jury precludes· 

Continental from now appealing the issue. We disagree. The 

statement is ambiguous. Stating that Continental has raised the 

issue as "a defense" is not the same as stating that it is an 

affirmative defense upon which Continental bears the burden of . [footnote continued ••• ] 

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Continental did not plead Adams-Arapahoe's alleged knowledge of 

the increased risk of corrosion as an affirmative defense. The 

argument was raised merely to rebut the District's claim that the 

loss was fortuitous. The affirmative defense instruction should 

not have been given. Even if Continental ~ere asserting the 

District's knowledge both as an affirmative defense and as a 

rebuttal, the instruction, without further delineation, would have 

been erroneous. Britt v. Travelers Ins. Co., 556 F.2d 336 (5th 

Cir. 1977), cert. denied, 434 U.S. 1016, modified, 566 F.2d 1020, 

1022-23 (5th Cir. 1978). 

We will not reverse the judgment unless the error prejudiced 

Continental. Lusby v. T.G. & Y. Stores, Inc., 796 F.2d 1307, 1310 

(10th Cir.), cert. denied, 479 U.S. 884 (1986). We must decide, 

then, whether the fortuitousness instruction, which was correct, 

rendered harmless the improper affirmative defense instruction. 

In Britt v. Travelers Insurance Co., the life insurance 

policy on plaintiff's husband paid double indemnity for an accidental death, and had an exclusion for death caused by a mental 

or physical infirmity. Decedent died under circumstances which 

may have been accidental, and may have been caused by a mental or 

physical infirmity. The insurer raised decedent's infirmities 

both to contest plaintiff's claim that the death was accidental, 

[ ••• footnote continued] 

proof. 

Besides, Continental made a specific objection to the 

affirmative defense instruction. See R. Vol.Vat 304-306. 

Nothing more is necessary to preserve the right to appeal the 

instruction. Weir v. Federal Ins. Co., 811 F.2d 1387, 1390 (10th 

Cir. 1987). 

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and to show that the infirmity exclusion applied. The insurer 

bore the burden of proof on the second issue, but not on the 

first. 

The jury instruction correctly allocated the burden of proof 

regarding whether the death was accidental, but then stated that 

the insurer bore the burden of proving a mental or physical 

infirmity, without distinguishing between the two ways the insurer 

was using that argument. This was held to be a prejudicial error. 

Britt v. Travelers Ins. Co., 566 F.2d at 1022-23 & n.3. 

The trial court in Britt, by failing to distinguish between a 

rebuttal and an affirmative defense, shifted part of the 

plaintiff's burden of proving that the death was accidental onto 

the defendant. The affirmative defense instruction in the instant 

case had the same effect. In both cases, the error was 

prejudicial. 

We realize that jury instructions are to be reviewed as a 

whole, and that '"only in those cases where the reviewing court 

has a substantial doubt whether the jury was fairly guided in its 

deliberations should the judgment be disturbed.'" Lutz v. Weld 

County School Dist. No. 6, 784 F.2d 340, 341 (10th Cir. 1986) 

(quoting Mid-Texas Communications v. American Tel. & Tel. Co., 615 

F.2d 1372, 1390 n.16 (5th Cir.), cert. denied, 449 U.S. 912 (1980) 

(citations omitted)), cert. denied, 108 s. Ct. 774 (1988). Still, 

the chance that the jury was misled is too great for us to assume 

that the fortuitousness instruction undid the harm done by the 

affirmative def~nse instruction. See Great W. Sugar Co. v. Mrs. 

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Alison's Cookie Co., 749 F.2d 516, 522 (8th Cir. 1984); see also 

Campbell v. Otis Elevator Co., 808 F.2d 429, 433 (5th Cir. 1987). 

This case differs from Fox v. Ford Motor Co., 575 F.2d 774 

(10th Cir. 1978). In that case, the trial court correctly 

instructed the jury on the standard by which to determine if the 

defendant was negligent, but then gave an instruction on the 

implied warranty of merchantability which imposed absolute liability for defects. The applicable state law required negligence 

to violate the warranty. 

On appeal from a verdict for the plaintiff, the warranty 

instruction was found to be erroneous, but not prejudicial. The 

error was harmless because the trial court had not treated 

negligence and warranty as separate issues: "It blended both of 

these in with the extensive charge on negligence and reasonableness." Id. at 786 (emphasis added). Because of this blending, 

''the jury very probably gave effect to the negligence charge ••• 

since there was no statement by the court that the warranty was a 

separate basis for recovery." Id. Unlike in Fox, we have no 

reason in this case to believe that the jury did not give effect 

to the improper instruction. 

Finally, the District argues that the error was harmless 

because the evidence would not have supported any other verdict. 

However, there was enough evidence of the District's knowledge to 

support a verdict by a properly instructed jury that the loss was 

not fortuitous. 6 Theref6re, "'the jury might have based its 

6 The exhibits included a letter from the roofing subcontractor to the general contractor that the manufacturer of the 

[footnote continued .•• ] 

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verdict"' on the erroneously given instruction. Farrell v. Klein 

Tools, Inc., 866 F.2d 1294, 1300 (10th Cir. 1989) (quoting 

McMurray v. Deere & Co., 858 F.2d 1436, 1444 (10th Cir. 1988) 

(emphasis added)). Even if that possibility is "very unlikely," 

reversal is required. Farrell v. Klein Tools, Inc., 866 F.2d at 

1301. 

c. Other issues 

Adams-Arapahoe filed a cross-appeal in this matter, challenging the trial court's application of the federal post-judgment 

interest rate, pursuant to 28 U.S.C. § 1961, instead of the state 

post-judgment interest rate. Since then, this court decided in 

Everaard v. Hartford Accident & Indemnity Co., 842 F.2d 1186, 

1193-94 (10th Cir. 1988), that the federal rate applies, even in 

diversity actions. The trial court applied the correct rate. 

The District also challenged our jurisdiction, because 

Continental filed this appeal more than thirty days after judgment 

was entered (but within thirty days of the resolution of 

plaintiff's motion for pre-judgment interest). This argument 

subsequently was foreclosed by the Supreme Court's holding in 

Osterneck v. 'Ernst & Whinney, 109 s. ct. 987, 991 (1989), that a 

[ ••• footnote continued] 

gypsum-based concrete had withdrawn its recommendation of the 

material as roof fill because of problems with corrosion. R. Vol. 

IV at 225; Attachment to Opening Brief of Appellant at 16. There 

was evidence that this letter was forwarded to the project 

architect, R. Vol. IV at 235-36; Attachment to Opening Brief of 

Appellant at 19, and that such issues would be discussed among the 

architect, the general contractor, and a representative of the 

District. R. Vol. VI at 11. The jury could conclude that the 

District had either direct or imputed knowledge of an abnormal 

risk of corrosion. 

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motion for pre-judgment interest is a Rule 59(e) motion to alter 

or amend the judgment. Continental's notice of appeal was timely. 

III. CONCLUSION 

The trial court correctly granted partial summary judgment in 

favor of the School District. If fortuitous, the loss (which 

included the entire corroded area) was insured against because 

. defective design and/or construction was a covered risk, and the 

corrosion exclusion did not operate to exclude corrosion brought 

about by a covered risk. The judgment against Continental must be 

reversed and remanded, however, because the jury instructions erroneously and prejudicially shifted part of the District's burden 

of proving fortuitousness. 

The judgment is AFFIRMED in part, and REVERSED and REMANDED 

in part for a new trial limited to the question of whether or not 

the loss was fortuitous. 

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