Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-15-03070/USCOURTS-ca10-15-03070-0/pdf.json

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

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PUBLISH 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

_________________________________ 

BOARDWALK APARTMENTS, 

L.C., 

 Plaintiff Counter Defendant- 

 Appellee, 

v. 

STATE AUTO PROPERTY AND 

CASUALTY INSURANCE CO., 

 Defendant Counterclaimant- 

 Appellant. 

No. 15-3070 

_________________________________ 

Appeal from the United States District Court 

for the District of Kansas 

(D.C. No. 2:11-CV-02714-JAR)

_________________________________ 

Matthew Jon Smith, Smith Rolfes & Skavdahl, Cincinnati, Ohio, for 

Defendant Counterclaimant-Appellant. 

Mark G. Arnold, Husch Blackwell LLP, St. Louis, Missouri (William A. 

Lynch, Kirsten A. Byrd, and Stacey M. Bowman, Husch Blackwell, LLP, 

Kansas City, Kansas, with him on the brief), for Plaintiff Counter 

Defendant-Appellee. 

_________________________________ 

Before GORSUCH, EBEL, and BACHARACH, Circuit Judges. 

_________________________________ 

BACHARACH, Circuit Judge. 

_________________________________ 

FILED 

United States Court of Appeals

Tenth Circuit 

March 14, 2016

Elisabeth A. Shumaker 

Clerk of Court

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Boardwalk Apartments, L.C. sued State Auto Property and Casualty 

Insurance Co. for breach of an insurance policy, contending that State Auto 

had underpaid on the policy after one of Boardwalk’s eight apartment 

buildings (Building 1) was destroyed in a fire.1

 In district court, State Auto 

contended that Boardwalk was underinsured under the policy’s coinsurance 

provision. Under this provision, Boardwalk’s insurance benefits were 

reduced if the value of the Boardwalk apartment complex exceeded the 

policy limit. 

Before trial, the district court issued two rulings that underlie this 

appeal. First, the court held that for purposes of the policy’s coinsurance 

provision, the value of the apartment complex did not include the cost of 

complying with laws and ordinances regulating the construction and repair 

of buildings. (We refer to these costs as “law-and-ordinance costs.”) 

Second, the district court excluded reference at trial to either the 

coinsurance provision or the possibility that Boardwalk was underinsured. 

At trial, the jury valued the Boardwalk complex below the policy 

limit. Based on this valuation, the district court concluded that Boardwalk 

was not underinsured under the coinsurance provision. In addition to 

valuing the apartment complex, the jury found that State Auto had 

 

1

 Boardwalk also sued for misrepresentation and negligence. These 

claims are not involved in the appeal. 

Appellate Case: 15-3070 Document: 01019586100 Date Filed: 03/14/2016 Page: 2 
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underpaid for the loss of Building 1. As a result, the court awarded 

damages to Boardwalk. 

State Auto appeals, and we conclude that the district court 

 abused its discretion by excluding reference to the coinsurance 

provision and 

 incorrectly construed the coinsurance provision. 

In light of these errors, we reverse and remand for a new trial. 

I. This appeal turns on the meaning and effect of the coinsurance 

provision in the Boardwalk policy. 

Central to the appeal is the meaning and application of the 

coinsurance provision. 

A. After Boardwalk submitted its claim for the loss of Building 

1, State Auto asserted that Boardwalk was underinsured, 

triggering the coinsurance provision.

The coinsurance provision requires Boardwalk to purchase enough 

insurance to fully cover the value of the apartment complex. If the value of 

the apartment complex exceeded the policy limit ($7.4 million), Boardwalk 

would be considered underinsured and the coinsurance provision would 

require a reduction in the amount owed for a covered loss. 

State Auto invoked this provision, claiming that Boardwalk was 

underinsured, which would reduce the amount owed to Boardwalk for the 

loss of Building 1. With this reduction, State Auto paid roughly $2.1 

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million to Boardwalk.2

 Boardwalk alleged that it was owed more and 

denied that it was underinsured. 

The dispute resulted in two suits between Boardwalk and State Auto. 

The first was a declaratory judgment action brought by State Auto in the 

Western District of Missouri. That suit ended in 2009 after an appeal to the 

Eighth Circuit Court of Appeals. See State Auto Prop. & Cas. Ins. Co. v. 

Boardwalk Apartments, L.C. (Boardwalk I), 572 F.3d 511 (8th Cir. 2009). 

The second suit, which resulted in this appeal, was brought by Boardwalk 

in the District of Kansas. 

B. The district court disallowed reference to coinsurance or the 

effect of underinsurance. 

In the second suit, Boardwalk claimed that State Auto had breached 

the insurance contract by failing to fully pay for the loss of Building 1. In 

response, State Auto maintained its earlier position that Boardwalk was 

underinsured, triggering the coinsurance provision and reducing the 

amount owed to Boardwalk under the policy. But the district court 

excluded reference to coinsurance and the effect of underinsurance. 

Without knowing why underinsurance would matter, the jury found 

that 

 

2

 Boardwalk asserts that State Auto relied on a Kansas insurance 

statute rather than the coinsurance provision to calculate the amount of the 

policy benefits; State Auto maintains that the coinsurance provision and 

the Kansas statute provided alternative grounds for the payment amount. 

This dispute is immaterial to our decision. 

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 the replacement cost of Building 1 was $3.9 million, $1.8 

million more than State Auto’s original payment and 

 the value of the Boardwalk complex was $6.7 million, which 

was below the policy limit of $7.4 million.3

Based on these jury findings, the district court declined to apply the 

coinsurance provision and awarded damages to Boardwalk. 

C. The district court erred in excluding reference to the 

coinsurance provision and in adopting Boardwalk’s 

interpretation of the provision. 

State Auto appealed on numerous grounds. We agree with State Auto 

on two of these grounds, concluding that the district court 

 abused its discretion by excluding reference at trial to the 

coinsurance provision and the possibility that Boardwalk was 

underinsured and

 erred by ruling that for purposes of the coinsurance provision, 

the value of the apartment complex should not include the cost 

of complying with laws and ordinances.

According to State Auto, the district court also erred by dismissing 

State Auto’s affirmative defenses and counterclaims for fraud and 

misrepresentation. We reject this contention. 

 

3

 The jury also 

 found that Boardwalk had sustained consequential damages 

totaling $2.6 million and 

 made findings enabling the district court to calculate the 

insurance benefits for lost-business income. 

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State Auto’s remaining arguments involve alleged errors made during 

or after the trial. Because we remand for a new trial, we need not address 

these arguments. 

II. The district court abused its discretion by excluding reference to 

the coinsurance provision and the effect of underinsurance. 

Before trial, the district court granted Boardwalk’s motion in limine, 

relying on Federal Rule of Evidence 403 to exclude reference to the 

coinsurance provision and the effect of underinsurance. State Auto argues 

that this ruling constituted an abuse of discretion. 

Because the coinsurance provision was highly probative and 

presented only a minimal risk of unfair prejudice or confusion, we agree 

with State Auto. 

A. We review the district court’s ruling under Rule 403 for 

abuse of discretion, giving the excluded evidence its 

maximum reasonable probative value and minimum 

reasonable risk of unfair prejudice or jury confusion. 

The district court excluded any reference to the coinsurance 

provision or the effect of underinsurance, relying on Federal Rule of 

Evidence 403. This rule permits the district court to exclude relevant 

evidence if the probative value of the evidence is substantially outweighed 

by the danger of unfair prejudice or jury confusion. Fed. R. Evid. 403. We 

review the district court’s exclusion of evidence under Rule 403 for an 

abuse of discretion. Eller v. Trans Union, LLC, 739 F.3d 467, 474 (10th 

Cir. 2013). 

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Under the abuse-of-discretion standard, we will not reverse an 

evidentiary ruling “absent a distinct showing it was based on a clearly 

erroneous finding of fact or an erroneous conclusion of law or manifests a 

clear error of judgment.” Cartier v. Jackson, 59 F.3d 1046, 1048 (10th Cir. 

1995). Nevertheless, we regard the power to exclude relevant evidence as 

extraordinary, to be exercised sparingly. K-B Trucking Co. v. Riss Int’l 

Corp., 763 F.2d 1148, 1155 (10th Cir. 1985). In deciding whether to 

exercise this extraordinary power, the district court must give the evidence 

its maximum reasonable probative force and the minimum reasonable risk 

of unfair prejudice or confusion. Deters v. Equifax Credit Info. Servs., 

Inc., 202 F.3d 1262, 1274 (10th Cir. 2000); SEC v. Peters, 978 F.2d 1162, 

1171 (10th Cir. 1992). 

B. The district court excluded reference to the coinsurance 

provision and the effect of underinsurance. 

Invoking Rule 403, the district court excluded reference to the 

coinsurance provision and the effect of underinsurance. In excluding these 

references, the court reasoned that the jury did not need to know about 

coinsurance or underinsurance to decide the two ultimate issues at trial: 

1. the cost of replacing Building 1, which was the amount of 

Boardwalk’s loss under the policy, and 

2. the value of the entire apartment complex, which would 

determine whether Boardwalk was underinsured for purposes of 

the coinsurance provision. 

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If the jury valued the apartment complex above the policy limit of $7.4 

million, the district court would apply the coinsurance provision to 

determine the amount owed by State Auto. The court explained that it was 

adopting this approach to avoid confusing the jury with the complexities of 

the coinsurance provision. 

C. The district court abused its discretion by excluding 

reference to the coinsurance provision or the effect of 

underinsurance. 

In our view, the district court’s explanation for its ruling does not 

justify the exclusion of reference to the coinsurance provision or the effect 

of underinsurance. The jury was asked to value the apartment complex 

without knowing why this valuation mattered. The valuation was critical 

because it directly affected the application of the coinsurance provision, 

which would have significantly reduced the amount owed if Boardwalk 

were underinsured. Thus, the parties had far different incentives in valuing 

the apartment complex, incentives counter to what the jury would naturally 

expect. In these circumstances, the exclusion of any evidence involving 

coinsurance or underinsurance constituted an abuse of discretion. 4

 

4

 According to State Auto, exclusion of the coinsurance provision also 

precluded any explanation of a good-faith basis for State Auto’s 

calculation of the amount owed to Boardwalk. Because we reverse and 

remand on the basis of State Auto’s alternative arguments about the 

context of the coinsurance provision and Boardwalk’s incentive to urge a 

low value for the complex, we need not address State Auto’s explanation 

for its decision to pay roughly $2.1 million. 

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1. The coinsurance provision was highly probative of State 

Auto’s defense. 

Applying Rule 403, the district court assigned minimal probative 

weight to the coinsurance provision and concluded that the jury did not 

need to know about the provision. But after giving the coinsurance 

provision its maximum reasonable probative value, we respectfully 

disagree with the district court’s assessment. See SEC v. Peters, 978 F.2d 

1162, 1171 (10th Cir. 1992) (explaining that when reviewing the exclusion 

of evidence under Rule 403, the court must give the excluded evidence its 

maximum reasonable probative value). 

The coinsurance provision was highly probative regarding State 

Auto’s contention that Boardwalk was underinsured. The district court may 

well have been right that it could apply the coinsurance provision based on 

the jury’s valuation of the apartment complex. But even so, the jury needed 

to know about the coinsurance provision to understand why valuation of 

the apartment complex would matter and why Boardwalk, the insured 

party, had an incentive to value the complex below the $7.4 million policy 

limit. 

When the jurors went about valuing the apartment complex, some 

would inevitably be puzzled. Because insurers ordinarily pay based on the 

value of the covered property, insurers usually have an incentive to assess 

low values and insureds ordinarily have an incentive to claim high values. 

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But because of the coinsurance provision, the incentives here were the 

opposite of what the jury would have expected. As the insured, Boardwalk 

had an incentive to urge a low value for the entire complex to avoid the 

coinsurance penalty; and State Auto, as the insurer, had an incentive to 

urge a high value to trigger the coinsurance provision. Surely the jury 

wondered why the insured was insisting on a value for the complex that 

was below the insurer’s valuation. 

But because of the district court’s ruling, State Auto could not 

explain or address Boardwalk’s incentive in the presence of the jury. 

Unaware of Boardwalk’s incentive to urge a low valuation, the jury could 

not properly weigh Boardwalk’s assertion that the complex was worth only 

$6.7 million. 

For example, State Auto contends that Boardwalk previously asserted 

a value of $13.3 million for the apartment complex during the Missouri 

litigation. But, State Auto maintains, Boardwalk then reduced its valuation 

to $6.7 million during this litigation, after the Missouri litigation had 

established the enforceability of the coinsurance provision. By excluding 

reference to the coinsurance provision, the district court prevented State 

Auto from using this discrepancy to show why a low valuation would 

benefit Boardwalk. 

Because the jury did not learn about Boardwalk’s incentive for a low 

valuation, Boardwalk was able to portray its valuation as generous and 

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impartial. For example, in its closing argument, Boardwalk exploited the 

jury’s lack of awareness about the coinsurance provision, arguing: “And 

remember, it doesn’t do us any good for that number [the valuation of the 

entire complex] to be higher than it is really. This is the number. 

$6,697,509.” Appellant’s App’x at 5129. This argument was correct in a 

literal sense: Boardwalk had no incentive to urge a high valuation for the 

apartment complex. But Boardwalk had an enormous incentive, unknown to 

the jury, to urge a low valuation. 

Boardwalk also alluded in its closing to State Auto’s incentive to 

urge a valuation of the apartment complex that was artificially high.

Although Boardwalk boasted during its closing that it had no reason to 

manipulate the apartment complex’s valuation, Boardwalk accused State 

Auto of distorting the valuation because it “want[ed]” the valuation to be 

“high.” Id. at 5130 (Boardwalk arguing in closing that State Auto 

presented a figure of approximately $15 million for the value of the entire 

complex, which “was like crazy” “[b]ecause they [State Auto] want it 

high”). Thus, Boardwalk hinted at State Auto’s incentive to assert a high 

valuation without acknowledging that Boardwalk had an equally strong 

incentive to assert a low valuation.

With the presence of a coinsurance provision excluded, the jury 

never knew about the strong incentives that Boardwalk and State Auto had 

to assert their respective valuations of the apartment complex. As a result, 

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the jury was asked to value the apartment complex without any guidance on 

why this valuation mattered, why State Auto might desire a high valuation, 

or why Boardwalk might want a low valuation. The coinsurance provision 

and the resulting incentives were essential for the jury to know in 

assessing the parties’ valuations of the apartment complex. 

2. The coinsurance provision presented only a minimal risk of 

unfair prejudice or confusion. 

The district court excluded reference to the coinsurance provision on 

the ground that the probative value of this evidence was substantially 

outweighed by the danger of unfair prejudice or jury confusion. In 

reviewing this determination, we must assume that the excluded evidence 

posed the least reasonable danger of unfair prejudice or confusion. See 

SEC v. Peters, 978 F.2d 1162, 1171 (10th Cir. 1992) (explaining that when 

reviewing exclusion of evidence under Rule 403, we must give excluded 

evidence its minimum reasonable prejudicial value). 

The district court did not identify the danger of unfair prejudice or 

confusion. But at various points, the court suggested two possible grounds 

for confusion or prejudice: (1) the confusing nature of the coinsurance 

provision and (2) the fact that the Missouri litigation had already resolved 

some interpretative questions about the Boardwalk policy. In our view, 

these grounds reflect only a minimal risk of unfair prejudice or jury 

confusion. 

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 First, in its ruling in limine, the district court suggested that it was 

excluding the coinsurance provision in part because of the provision’s 

“confusing nature.” Appellant’s App’x at 2110. Yet later, in denying State 

Auto’s motion for a new trial, the district court explained that the 

complexity of the “coinsurance concept” was not the reason for exclusion 

of the coinsurance provision. Id. at 3480. We are unsure how to reconcile 

these two statements. 

But whatever the district court meant, State Auto’s proposed use of 

the coinsurance provision did not risk any meaningful jury confusion. 

Calculating the amount owed under the coinsurance provision may have 

been complex, but State Auto did not ask for the jury to make this 

calculation. Instead, State Auto sought only to elicit evidence that there 

was a coinsurance provision that would reduce the amount owed if 

Boardwalk had been underinsured. There is nothing particularly complex 

about this concept. 

Second, the district court pointed to “the degree to which [the 

coinsurance provision] had been interpreted by this Court on summary 

judgment and in accordance with the prior Missouri litigation.” Id. But 

State Auto did not want to relitigate these interpretations or to address the 

mechanics of the coinsurance provision. Instead, State Auto merely wanted 

to use the coinsurance provision to establish context for the valuation of 

the apartment complex and to show why Boardwalk wanted the jury to 

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press for a low figure. These uses of the excluded evidence would not have 

required discussion of any interpretations made in either the Missouri 

litigation or the summary judgment ruling. 

The district court identified no other source of unfair prejudice or 

jury confusion posed by the existence of a coinsurance provision, and we 

can discern none in the record. In our view, the existence of the 

coinsurance provision presented only minimal risk of unfair prejudice or 

confusion. 

3. Because the danger of unfair prejudice or jury confusion 

did not substantially outweigh the probative value, the 

district court abused its discretion by excluding reference to 

the coinsurance provision or the effect of underinsurance.

Rule 403 permits the exclusion of relevant evidence only when the 

risk of unfair prejudice or confusion “substantially outweigh[s]” the 

evidence’s probative value. Fed. R. Evid. 403. In our view, the coinsurance 

provision was highly probative and presented only minimal danger of 

unfair prejudice or confusion. The district court thought differently, but 

did not explain why it feared jury confusion from the mere mention of 

coinsurance and the effect of underinsurance. In the absence of such an 

explanation, we conclude that the district court abused its discretion. 

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D. State Auto was prejudiced by the district court’s abuse of 

discretion, requiring us to reverse and remand for a new 

trial. 

Even if a district court abuses its discretion by improperly excluding 

evidence under Rule 403, we will not reverse on this ground unless the 

error affected a party’s substantial right. Eller v. Trans Union, LLC, 739 

F.3d 467, 474 (10th Cir. 2013). In our view, the district court’s error 

substantially prejudiced State Auto, requiring reversal and remand for a 

new trial. 

Boardwalk argues that any error would have been harmless because 

State Auto did not prove that Boardwalk was underinsured. But even if 

Boardwalk is right about State Auto’s evidentiary proffer at trial, the 

district court’s ruling could have affected State Auto’s strategy, causing 

State Auto to withhold evidence showing Boardwalk’s failure to fully 

insure the apartment complex. We will not fault State Auto for failing to 

develop a defense that was improperly constrained by the district court’s 

ruling. 

The ruling was prejudicial, not harmless, because it 

 impeded State Auto in its cross-examinations of Boardwalk 

witnesses about their possible motivation to minimize the value 

of the apartment complex, 

 limited State Auto’s ability to explain Boardwalk’s reduction in 

its valuation of the apartment complex from $13.3 million to 

$6.7 million, and 

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 allowed Boardwalk to tout its own credibility regarding the 

value of the apartment complex while preventing State Auto 

from calling Boardwalk’s credibility into question. 

As a result of these constraints, Boardwalk was able to appear generous, 

modestly valuing the apartment complex to a jury unaware that a low 

valuation would help Boardwalk obtain a larger payout. 

In these circumstances, we conclude that the district court’s 

erroneous ruling prejudiced State Auto. Accordingly, we reverse the 

district court’s decision to exclude reference to the existence of a 

coinsurance provision and the effect of underinsurance. Based on this 

reversal, we remand for a new trial. 

III. The district court erred by construing the coinsurance provision 

to exclude law-and-ordinance costs from the apartment complex’s 

replacement cost. 

In awarding partial summary judgment to Boardwalk, the district 

court interpreted the coinsurance provision to exclude law-and-ordinance 

costs from the value of the apartment complex. State Auto correctly argues 

that the value of the apartment complex should include law-and-ordinance 

costs. Because the district court’s erroneous interpretation prejudiced State 

Auto, we reverse the district court’s award of partial summary judgment to 

Boardwalk on the interpretation of the coinsurance provision. 

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A. We apply Kansas law and engage in de novo review of the 

district court’s interpretation of the policy. 

The district court’s interpretation of the coinsurance provision 

involves a conclusion of law that we review de novo. See In re Universal 

Serv. Fund Tel. Billing Practice Litig., 619 F.3d 1188, 1211 (10th Cir. 

2010) (“Contract interpretation is a question of law, which we . . . review 

de novo.”). The parties agree that Kansas law governs our interpretation of 

the policy. See Carolina Cas. Ins. Co. v. Nanodetex Corp., 733 F.3d 1018, 

1022 (10th Cir. 2013) (applying the state law that both parties agreed was 

applicable). Under Kansas law, we must ascertain what the parties 

intended. Liggatt v. Emp’r’s Mut. Cas. Co., 46 P.3d 1120, 1125 (Kan. 

2002). When we can determine this intent from the written insurance 

contract, we go no further. Id.

B. Under Boardwalk I, the coinsurance provision’s definition of 

“value” incorporates the terms of the optional coverage for 

replacement cost, which in turn includes law-and-ordinance 

costs. 

The coinsurance provision states that the amount owed to Boardwalk 

is reduced if the value of the apartment complex exceeds the policy limit 

of $7.4 million. Appellant’s App’x at 84. But the policy does not define 

the term “value” or otherwise indicate whether the “value” of the complex 

includes law-and-ordinance costs. Thus, we must decide whether the term 

“value” in the coinsurance provision includes law and ordinance costs. We 

conclude that it does. 

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The parties agree that the term “value” refers to the replacement cost, 

rather than the actual cash value, of the apartment complex.5

 But the 

parties disagree about whether the replacement cost of the apartment 

complex includes law-and-ordinance costs. Boardwalk contends that the 

replacement cost of the apartment complex should not include law-andordinance costs, and State Auto disagrees. Boardwalk’s interpretation 

would make it less likely that Boardwalk was underinsured, thereby 

avoiding the coinsurance provision and a reduction in the amount owed 

under the policy. 

The district court agreed with Boardwalk, concluding that the 

“value” of the complex under the coinsurance provision means the 

replacement cost of the apartment complex without law-and-ordinance 

costs. We respectfully disagree, for Boardwalk’s interpretation is 

foreclosed by the policy’s text as construed in light of the Eighth Circuit’s 

opinion in Boardwalk I. 572 F.3d 511 (8th Cir. 2009).6

There the Eighth Circuit made two critical holdings: 

 

5

 The parties agree that “value” means replacement cost because 

Boardwalk purchased additional replacement cost coverage. See

Appellant’s App’x at 64 (declaration page of the policy showing that 

Boardwalk had replacement cost coverage). 

6

 The parties agree that Boardwalk I controls. We too agree, 

concluding that Boardwalk I binds us under the doctrine of issue 

preclusion. See Taylor v. Sturgell, 553 U.S. 880, 892 (2008). 

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1. The term “value” in the coinsurance provision incorporates the 

policy’s replacement-cost coverage, which is furnished by 

Section G.3 of the policy.

2. Exclusion of law-and-ordinance costs from the policy’s 

replacement-cost coverage is void because the exclusion 

violates Kansas public policy.

Boardwalk I, 572 F.3d at 517-18. In our view, these two holdings jointly 

require us to define “value” under the coinsurance provision as the 

replacement cost with law-and-ordinance costs. 

1. Boardwalk I held that the term “value” in the coinsurance 

provision incorporates the policy’s replacement-cost 

coverage; thus, “replacement cost” means the same thing for 

both loss calculation and the coinsurance provision.

Replacement cost matters under the Boardwalk policy in two separate 

contexts: (1) for calculating covered losses sustained by Boardwalk, and 

(2) for calculating the value of the apartment complex for purposes of the 

coinsurance provision. The district court thought that the term 

“replacement cost” could mean different things in each context. On this 

basis, the district court construed “replacement cost” to include law-andordinance costs for loss calculation, but excluded these costs under the 

coinsurance provision. Boardwalk I, however, held that the coinsurance 

provision incorporates the same replacement-cost provision that the policy 

uses for loss calculation. Boardwalk I, 572 F.3d at 517. Thus, the district 

court’s construction cannot be reconciled with Boardwalk I. 

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The policy’s text states that Section G.3, the policy’s replacementcost provision, applies to the calculation of Boardwalk’s covered losses. 

The policy states that loss is calculated based on “actual cash value” when 

the insured does not purchase optional replacement-cost coverage.7

 But 

Boardwalk did purchase replacement-cost coverage. In light of this 

purchase, the covered loss must be determined by replacement cost rather 

than actual cash value.8

By contrast, the policy’s text does not expressly apply the 

replacement-cost provision to the valuation of the apartment complex 

under the coinsurance provision; the replacement-cost provision states only 

that replacement cost “replaces Actual Cash Value” in the policy’s losscalculation provision. In addition, the coinsurance provision is located in a 

different part of the policy and uses the term “value” rather than “actual 

cash value.” Therefore, the policy’s text does not clarify whether the term 

“value” in the coinsurance provision means “replacement cost” (as 

provided by Section G.3) or some other measure of “value.” 

 

7

 Section E.7 of the policy, titled “Valuation,” provides that State Auto 

“will determine the value of Covered Property in the event of loss or 

damage . . . [a]t actual cash value as of the time of loss or damage.” 

Appellant’s App’x at 84. 

8

 Section G.3 of the policy, the replacement-cost provision, provides 

that “Replacement Cost . . . replaces Actual Cash Value in [Section E.7, 

the loss-calculation provision]” when the insured purchases optional 

replacement-cost coverage. Appellant’s App’x at 86. 

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In Boardwalk I, the Eighth Circuit Court of Appeals resolved this 

ambiguity by holding that under Kansas law, the coinsurance provision 

incorporates the policy’s replacement-cost coverage. Thus, “value” under 

the coinsurance provision means “replacement cost” for purposes of loss 

calculation. 

In reaching this conclusion, the Eighth Circuit followed a Kansas 

Court of Appeals case, Wenrich v. Employers Mutual Insurance Cos., that 

addressed a virtually identical coinsurance provision. Boardwalk I, 572 

F.3d 511, 517 (8th Cir. 2009) (citing Wenrich, 132 P.3d 970, 975 (Kan. Ct. 

App. 2006)). Like Boardwalk, the insured in Wenrich had purchased 

replacement-cost coverage. Wenrich, 132 P.3d at 973-74. And, like the 

Boardwalk coinsurance provision, the coinsurance provision in Wenrich

used the term “value” rather than “actual cash value,” leaving it unclear 

whether the coinsurance provision turned on replacement cost or actual 

cash value. Id. 

In those circumstances, the Wenrich court held that “the replacement 

cost optional coverage must be construed as altering the methodology for 

determining ‘the value of Covered Property in the event of loss’ and is 

therefore incorporated into the coinsurance provisions.” Id. at 975. 

In Boardwalk I, the Eighth Circuit adhered to Wenrich and 

incorporated the Boardwalk policy’s replacement-cost coverage into the 

coinsurance provision. “The Wenrich court [had] held that there [was] no 

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ambiguity in the contract,” the Eighth Circuit explained, “because the 

replacement cost coverage is ‘inherently incorporated’ into the coinsurance 

provision.” Boardwalk I, 572 F.3d at 517 (quoting Wenrich, 132 P.3d at 

975). As a result, the Eighth Circuit concluded that “the term ‘value’ in the 

coinsurance provision means replacement cost.” Id. at 516-17. 

Like Wenrich, Boardwalk I incorporated the Boardwalk policy’s 

replacement-cost coverage into the coinsurance provision in place of the 

term “value.” Section G.3 of the policy defines the term “replacement 

cost” and sets out the policy’s replacement-cost coverage. In light of 

Boardwalk I, the term “value” in the coinsurance provision means 

“replacement cost” as delineated by Section G.3. 

Consequently, we must apply the same meaning of “replacement 

cost” in calculating Boardwalk’s covered losses and in determining 

whether Boardwalk was underinsured for purposes of the coinsurance 

provision. 

2. Under Boardwalk I, replacement cost must include law-andordinance costs. 

Given our holding that the term “value” in the coinsurance provision 

means the policy’s replacement-cost coverage as provided by Section G.3 

of the policy, we must decide whether that coverage includes law-andordinance costs. But Boardwalk I resolves this question, rejecting any 

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construction of the policy that excludes law-and-ordinance costs from 

replacement cost as void against Kansas public policy. 

As written, Section G.3 purports to exclude law-and-ordinance costs 

from replacement cost.9

 But in Boardwalk I, the Eighth Circuit Court of 

Appeals held that withholding coverage for law-and-ordinance costs would 

violate Kansas public policy. Boardwalk I, 572 F.3d at 517-18. Because the 

parties could not lawfully exclude law-and-ordinance costs from coverage, 

the Eighth Circuit concluded that replacement cost for purposes of loss 

calculation had to include those costs. Id. 

Under Boardwalk I, the term “value” in the coinsurance provision 

bears the same meaning as “actual cash value” in the loss-calculation 

provision: “replacement cost” as provided by Section G.3 of the policy. 

Because Boardwalk I requires replacement cost for purposes of loss 

calculation to include law-and-ordinance costs, replacement cost under the 

coinsurance provision must also include those costs. The district court’s 

conclusion to the contrary was incorrect.

 

9

 Section G.3 of the policy provides that “replacement cost” “does not 

include the increased cost attributable to enforcement of any ordinance or 

law regulating the construction, use or repair of any property.” Appellant’s 

App’x at 87. 

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3. We reject the district court’s reasons for excluding law-andordinance costs from the replacement cost of the apartment 

complex. 

The district court gave three reasons for its interpretation of the 

coinsurance provision, and Boardwalk defends these reasons on appeal: 

1. The term “replacement cost” can mean different things in 

different parts of the policy. 

2. Because the written policy provides additional coverage for 

law-and-ordinance costs, inclusion of these costs in the 

coinsurance provision would render the policy ambiguous, 

requiring construction in favor of Boardwalk as the insured. 

3. The parties’ intent would be frustrated by including law-andordinance costs within replacement cost under the coinsurance 

provision. 

We respectfully disagree with each of these three reasons. 

a. In light of Boardwalk I and the structure of the policy, the 

term “replacement cost” cannot mean different things in 

different parts of the policy. 

First, the district court assumed that the term “replacement cost” can 

mean different things in different parts of the policy. Based on this 

assumption, the district court interpreted “replacement cost” differently in 

two separate contexts: (1) for the apartment complex under the coinsurance 

provision and (2) for Building 1 alone to determine the amount of the loss. 

The district court concluded that 

 for application of the coinsurance provision, the apartment 

complex’s “replacement cost” excludes law-and-ordinance 

costs and 

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 for calculation of covered losses, “replacement cost” includes 

law-and-ordinance costs. 

We disagree, for the policy does not support different interpretations 

of the term “replacement cost” in different contexts. As we have explained,

Boardwalk I held that the term “value” in the coinsurance provision means 

“replacement cost” as defined by Section G.3, the policy’s replacementcost provision. And Boardwalk I held that “replacement cost” (as defined 

by Section G.3) must include law-and-ordinance costs. As a result, the 

term “value” in the coinsurance provision must also include law-andordinance costs. 

b. Use of the term “replacement cost” to include law-andordinance costs does not render the optional coverage 

superfluous. 

Second, the district court observed that Section A.4 of the policy 

allows the insured to buy additional coverage for law-and-ordinance costs, 

which the written policy otherwise purports to withhold. “If replacement 

cost now includes law and ordinance costs” in light of Boardwalk I, the 

district court determined, “then the additional coverage provision is 

superfluous.” Appellant’s App’x at 1716. As a result, the district court 

concluded that the policy was ambiguous, requiring construction in favor 

of the insured under Kansas law. 

But the policy is not ambiguous, for Boardwalk I bars any 

interpretation of the replacement-cost provision that excludes law-andAppellate Case: 15-3070 Document: 01019586100 Date Filed: 03/14/2016 Page: 25 
26 

ordinance costs. Under Kansas law, “[a]mbiguity in a written contract does 

not appear until the application of pertinent rules of interpretation to the 

face of the instrument leaves it generally uncertain which one of two or 

more meanings is the proper meaning.” Simon v. Nat’l Farmers Org., 829 

P2d 884, 888 (Kan. 1992). Boardwalk I leaves no uncertainty; it requires 

the court to interpret the apartment complex’s “replacement cost” to 

include law-and-ordinance costs. Even if this interpretation renders Section 

A.4’s optional law-and-ordinance coverage redundant, this redundancy 

would not justify adopting a different interpretation that is foreclosed by 

Boardwalk I. 

c. Because the terms of the policy (as reformed by Boardwalk 

I) are unambiguous, the parties’ intent does not dictate 

exclusion of law-and-ordinance costs. 

Finally, the district court reasoned that the parties had not intended 

to include law-and-ordinance costs when valuing the apartment complex. 

For two reasons, however, we disagree. 

First, the written policy, when construed in light of Boardwalk I, 

does not create an ambiguity. When the parties’ intent is clear from the 

policy, we need not go further. Osterhaus v. Toth, 249 P.3d 888, 896 (Kan. 

2011). As we have explained, Boardwalk I construed 

 “replacement cost,” for purposes of loss calculation, to include 

law-and-ordinance costs and 

 the coinsurance provision to incorporate the same replacementcost coverage used for loss calculation. 

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Boardwalk I, 572 F.3d at 517-18. Under these holdings, replacement cost 

under the coinsurance provision must include law-and-ordinance costs. 

Even if the parties originally intended to exclude law-and-ordinance costs 

from replacement cost in one or both of these contexts, Boardwalk I

already reformed the policy in a way that deviated from the parties’ 

impermissible intent. See Nat’l Bank of Andover v. Kan. Bankers Sur. Co., 

225 P.3d 707, 715 (Kan. 2010) (“[C]ompetent parties may make contracts 

on their own terms, provided such contracts are neither illegal nor contrary 

to public policy.”). 

Second, even if the policy itself were not conclusive, we conclude 

that the district court misinterpreted the intent reflected in the policy 

language. Based on the policy’s structure and the purpose of coinsurance, 

the most likely intent underlying the policy’s valuation scheme was to use 

the same measure of value in the contexts of both loss calculation and 

coinsurance, for the only meaningful way to determine whether Boardwalk 

was underinsured is to compare the policy limit to the amount that 

Boardwalk would recover in the event of a covered loss. 

But the district court’s interpretation introduces two separate 

measures of value for loss calculation and coinsurance. An example 

illustrates the problem with this apples-and-oranges approach. Suppose 

that each of the eight buildings had a replacement cost of $750,000 and 

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law-and-ordinance costs of $200,000. If all of the buildings were 

destroyed, the covered losses would total $7,600,000, exceeding the policy 

limit. Boardwalk would be underinsured. But under the district court’s 

reading of the policy, the coinsurance provision would not be triggered 

because the value of the apartment complex would exclude the $1,600,000 

in law-and-ordinance costs—even though these costs would be fully 

reimbursable for a loss that was only partial. In this hypothetical situation, 

Boardwalk would be underinsured, but it would not be subject to the 

coinsurance provision. We doubt that the parties would have intended this 

outcome, but it is the unavoidable result of using different measures of 

value for a damaged building and the entire apartment complex.10

C. The district court’s error in interpreting the coinsurance 

provision constitutes a second ground for reversal. 

The district court erred in its summary judgment order by holding 

that the “value” of the apartment complex under the coinsurance provision 

means replacement cost without law-and-ordinance costs. Based on this 

error, the district court instructed the jury to determine the replacement 

 

10 We recognize that parties may sometimes expressly choose different 

measures to value the covered loss and to determine whether the covered 

property is underinsured under the coinsurance provision. See Carley 

Capital Grp. v. Fireman’s Fund Ins. Co., 877 F.2d 78, 82 (D.C. Cir. 1989) 

(“Like other components of the policy contract, liability and coinsurance 

stipulations are whatever the parties choose to make them.”). But here the 

parties did not expressly use different measures to calculate covered losses 

and to determine whether Boardwalk was underinsured. Before Boardwalk 

I’s reformation of the policy to conform to Kansas public policy, the same 

measure was used in both contexts: “value.” 

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cost of the complex without law-and-ordinance costs. Instead, the court 

should have instructed the jury to include law-and-ordinance costs in the 

apartment complex’s replacement cost. Had the jury included these costs, it 

might have found that the complex’s replacement cost exceeded the policy 

limit of $7.4 million, triggering the coinsurance provision and reducing the 

amount owed by State Auto. 

As a result, the district court’s error prejudiced State Auto at trial. 

Because the error was prejudicial, we reverse the summary judgment ruling 

on interpretation of the coinsurance provision. With this reversal, we 

remand for a new trial with instructions to include law-and-ordinance costs 

when determining the apartment complex’s replacement cost. 

IV. We vacate the district court’s imposition of attorneys’ fees and 

expenses against State Auto. 

Because the jury found for Boardwalk, the district court granted 

Boardwalk’s motion for attorneys’ fees and expenses. In light of our 

reversal, we vacate the district court’s imposition of attorneys’ fees and 

expenses against State Auto.

V. We reject State Auto’s allegations of error in the district court’s 

disposition of counterclaims and affirmative defenses, and we 

need not address State Auto’s remaining arguments. 

 State Auto also challenges the rulings on its affirmative defenses and 

counterclaims. We reject this challenge. Because State Auto’s other 

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arguments on appeal may not arise in the retrial, we decline to consider 

these arguments. 

A. We uphold the district court’s dismissal of State Auto’s 

defenses and counterclaims because State Auto has made no 

persuasive argument for reversal. 

State Auto raised multiple affirmative defenses and counterclaims for 

fraud and misrepresentation, alleging that Boardwalk had provided 

misleading information about the claim. The district court dismissed the 

counterclaims under Federal Rule of Civil Procedure 12(b)(6) and struck 

the defenses under Rule 12(f). State Auto argues that in doing so, the 

district court erroneously applied a common law fraud standard to these 

claims and defenses. According to State Auto, the correct standard required 

only that it plead falsehood and materiality. 

In our view, State Auto has failed to develop a sufficient argument 

for reversal. For the sake of argument, we can assume without deciding 

that Kansas law does require State Auto to plead only falsehood and 

materiality for the misrepresentation defenses and counterclaims. Even so, 

the district court concluded that State Auto had failed to adequately allege 

materiality. In its opening brief, State Auto does not give any reason to 

disturb the district court’s ruling on materiality.11

 

11 The district court’s analysis of materiality turned in part on the 

Boardwalk tax returns referenced in State Auto’s pleading. State Auto 

vaguely asserts that the district court’s reliance on those returns was 

“improper” without any further explanation. Appellant’s Opening Br. at 52. 

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We “will not consider issues that are raised on appeal but not 

adequately addressed.” Wilburn v. Mid-South Health Dev., Inc., 343 F.3d 

1274, 1281 (10th Cir. 2003). Because State Auto has failed to sufficiently 

contest the district court’s dismissal of its affirmative defenses and 

counterclaims, we decline to disturb this part of the district court’s ruling. 

B. We need not address State Auto’s remaining arguments on 

appeal because they may not arise in the retrial. 

State Auto also challenges seven other rulings: 

1. the exclusion of the Statement of Values document signed by a 

Boardwalk principal, 

2. the exclusion of testimony by Mr. Brent Vincent, State Auto’s 

underwriter, 

3. the exclusion of a valuation report prepared by Boardwalk’s 

expert in the Missouri litigation, 

4. the introduction of evidence regarding violation of the Kansas 

Unfair Claims Settlement Practices Act, 

5. the introduction of evidence about Boardwalk’s consequential 

damages and the denial of State Auto’s motion to separate the 

consequential damages issue from the other issues, 

6. the denial of a new trial based on the cumulative impact of 

evidentiary errors, and 

7. the denial of State Auto’s motion for judgment as a matter of 

law on its affirmative defense involving Boardwalk’s failure to 

cooperate. 

 

As a result, this appeal point is not adequately developed for meaningful 

review. See United States v. Mike, 632 F.3d 686, 696 n.4 (10th Cir. 2011) 

(declining to address an argument because the proponent did “not develop 

[the] argument” or “cite any authority in support of it”). 

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Because a new trial is necessary, these potential issues may not arise on 

remand or may arise in different ways. As a result, we decline to address 

State Auto’s challenges to these seven rulings. 

VI. Disposition 

We reverse and vacate the judgment because the district court 

 abused its discretion by excluding reference to the coinsurance 

provision and the effect of underinsurance and 

 incorrectly construed the coinsurance provision to exclude lawand-ordinance costs from the value of the apartment complex.12

We affirm the dismissal of State Auto’s affirmative defenses and 

counterclaims alleging fraud and misrepresentation. 

The action is remanded to the district court for a new trial consistent 

with this opinion.13 With this reversal and remand, we vacate the award of 

attorneys’ fees and expenses against State Auto. 

 

12 Though we reverse, we recognize that the district court had to 

confront a number of difficult issues and did so exceptionally well. 

13 The district court’s errors call the jury’s valuation of the apartment 

complex into question, requiring vacatur of the judgment for Boardwalk on 

the award of unpaid insurance benefits. The jury also made findings on 

Boardwalk’s lost business income and consequential damages, but it is less 

clear whether the district court’s errors affect these findings. 

We can remand for a new trial limited to specific issues, but only 

when “a new trial on less than all the issues could . . . be had without 

confusion and uncertainty.” Malandris v. Merrill Lynch, Pierce, Fenner & 

Smith Inc., 703 F.2d 1152, 1178 (10th Cir. 1981). Otherwise, a new trial on 

fewer than all the issues “would amount to a denial of a fair trial.” Id. 

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33 

 

 

We decline to restrict the scope of the retrial, for neither party has 

addressed the possibility of a retrial limited to specific issues. Given the 

significance of the coinsurance provision, we cannot be certain about the 

potential effect of the district court’s errors on the jury’s other findings. 

Thus, we vacate the entire judgment and remand for a new trial without 

parceling out the claims for lost business income and consequential 

damages. 

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