UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

_________________________________ 

ROCKHILL INSURANCE COMPANY, 

 Plaintiff - Counter Defendant - 

 Appellee 

v. 

CFI-GLOBAL FISHERIES 

MANAGEMENT; HEIRLOOM I, LLC., 

 Defendant - Counterclaimant - 

 Appellant. 

Nos. 18-1201 & No. 18-1207 

(D.C. No. 1:16-CV-02760-RM-MJW) 

(D. Colo.) 

_____________________________ 

ORDER AND JUDGMENT*

_________________________________ 

Before BRISCOE, LUCERO, and MORITZ, Circuit Judges. 

_________________________________ 

 CFI-Global Fisheries Management (“CFI”) and Heirloom I, LLC., 

(“Heirloom”) appeal a district court order granting summary judgment in favor of 

Rockhill Insurance Company (“Rockhill”). The district court concluded that an 

exclusion in CFI’s professional liability policy for faulty workmanship barred 

recovery for damages related to poor design and construction of a river enhancement 

project. It further ruled that CFI’s bad faith claims failed because the company did 

 * This order and judgment is not binding precedent, except under the doctrines 

of law of the case, res judicata, and collateral estoppel. It may be cited, however, for 

its persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. 

FILED 

United States Court of Appeals 

Tenth Circuit 

July 24, 2019

Elisabeth A. Shumaker 

Clerk of Court
2 

not show Rockhill caused a business loss. We affirm the district court’s order as to 

CFI’s common law bad faith claim. However, we conclude the faulty workmanship 

exclusion does not apply to damages caused by negligent design work. We reverse 

the district court’s rulings on coverage under the professional liability policy and 

CFI’s statutory bad faith claim. Exercising jurisdiction under 28 U.S.C. § 1291, we 

affirm in part, reverse in part, and remand for further proceedings consistent with this 

order and judgment. 

I 

 Heirloom owned property in southwestern Colorado. In 2012, it contracted 

with CFI to design and construct a fisheries enhancement project on the property. 

CFI completed the project, but its work was defective and the project was destroyed 

by natural processes four times in three years. Heirloom paid more than $800,000 to 

CFI under the contract. 

On July 20, 2015, Heirloom initiated arbitration proceedings against CFI for 

breach of contract and negligence related to the design and execution of the project. 

CFI requested that Rockhill, its professional and general liability insurer, defend it in 

the arbitration. CFI had taken out an insurance policy with Rockhill, which included 

three coverage components: (1) commercial general liability coverage, which 

generally applies to “‘bodily injury’ or ‘property damage’” but excludes coverage for 

liability arising from professional services; (2) contractor’s pollution liability 

coverage; and (3) professional liability coverage. The professional liability coverage 

form applies to damages arising from a “[p]rofessional services incident,” defined as 
3 

“any negligent act, error or omission” in “your rendering, or your failing to render, 

‘professional services’” that “results in injury or damage.” It also states that “your 

work” means: “(1) Work or operations performed by you or on your behalf; and (2) 

Materials, parts or equipment furnished in connection with such work or operations.”

On August 21, 2015, Rockhill sent CFI a letter agreeing to defend the 

arbitration but reserving its right to deny coverage. In outlining Rockhill’s coverage 

position, the insurer implied some of the damages could fall within the policy, but 

discussed several exclusions that might apply. Rockhill identified Exclusion M of 

the professional liability policy, which reads in full: 

M. Faulty Workmanship 

Based upon, arising out of or for any loss, cost or expense incurred to 

withdraw, recall, inspect, repair, replace, adjust, remove or dispose of 

“your work”. This includes, but is not limited to, the cost to investigate 

“your work”, or the cost of any materials, parts, labor or equipment 

furnished in connection with such withdrawal, recall, inspection, repair, 

replacement, adjustment, removal or disposal.

Rockhill also noted Exclusion P of the professional liability policy, which states: 

P. Expressed or Implied Warranties 

Based upon, as a consequence of or arising out of: 

(1) Any expressed or implied warranties or guarantees, or 

(2) Any cost or other estimates for construction, renovation, removal or 

demolition being exceeded or inaccurate. 

However, this exclusion does not apply to a warranty or guaranty by you 

that your “professional services” are in conformity with generally 

accepted architectural or engineering standards. 

The letter states that Heirloom’s “allegations relative to CFI’s designs potentially 

implicate a ‘professional services incident’ that would trigger coverage” but “[t]o the 

extent that the damages sought arise out of . . . faulty workmanship apart from your 
4 

professional services . . . the [Professional Liability] Form will not provide coverage 

for such damages.” 

 In November 2015, Rockhill offered to settle with Heirloom for $15,000. 

Heirloom promptly rejected this offer, demanding $990,000. A year passed with no 

additional settlement offers. On October 3, 2016, two weeks before the arbitration 

was set to begin, Rockhill wrote to CFI that the entirety of the damages claimed were 

excluded from coverage. The insurer proposed CFI agree to fund a settlement with 

Heirloom in which CFI would pay 75% of settlement costs up to $500,000, with 

Rockhill paying the remaining 25%. CFI responded on October 11, stating 

Rockhill’s proposal was a breach of its duties as an insurer and demanding Rockhill 

immediately pursue and fund settlement with Heirloom. Three days later, Heirloom 

made a settlement proposal of $750,000. CFI asked Rockhill to accept and fund the 

offer. Rockhill responded that it would be willing to pay $150,000 towards the 

settlement. 

The arbitration proceeded from October 17 to 21, 2016. During the 

arbitration, Rockhill informed CFI it had offered an updated settlement of $260,000 

to Heirloom, after CFI explained it could contribute only $10,000 to a settlement 

offer. Internal communications indicate Rockhill authorized a potential offer up to 

$400,000. The arbitrators awarded Heirloom $609,994.91 plus pre-judgment interest. 

The parties subsequently stipulated to an additional $265,000 award of attorney’s 

fees and costs. Neither party requested the arbitrators’ decision be accompanied by 

an explanation of reasoning. However, attached to the final award is a spreadsheet 
5 

identifying invoices paid to third party contractors who worked on the river 

enhancement project following CFI’s failures, and a line item for remaining 

construction. 

Rockhill filed a declaratory-judgment action against CFI and Heirloom prior to 

the issuance of the award. It sought a declaration that it had no duty to defend and 

indemnify CFI in connection with the Heirloom arbitration. CFI and Heirloom 

asserted counterclaims for declaratory judgment and breach of contract. CFI also 

asserted statutory and common law bad faith claims against Rockhill based upon its 

failure to timely settle. The district court granted summary judgment for Rockhill, 

holding the entirety of the damages awarded to Heirloom were excluded under the 

policy’s Faulty Workmanship exclusion, along with the attorneys’ fees and costs. On 

CFI’s bad faith claims, the court held that CFI failed to present any evidence to prove 

any business loss caused by non-settlement. CFI and Heirloom timely appealed. 

II 

We review de novo the grant of summary judgment. MarkWest Hydrocarbon, 

Inc. v. Liberty Mut. Ins. Co., 558 F.3d 1184, 1189 (10th Cir. 2009). In doing so, we 

view the facts in the light most favorable to the non-moving party. Id. at 1189-90. 

Summary judgment is proper if “there is no genuine dispute as to any material fact 

and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). 

We apply Colorado substantive law in this diversity action. See Specialty 

Beverages, L.L.C. v. Pabst Brewing Co., 537 F.3d 1165, 1175 (10th Cir. 2008). We 

“look to the rulings of the highest state court” to guide our interpretation of state law. 
6 

Stickley v. State Farm Mut. Auto. Ins. Co., 505 F.3d 1070, 1077 (10th Cir. 2007) 

(quotation omitted). If the highest state court has not addressed a question, we 

predict how it would rule after giving “proper regard to relevant rulings of other 

courts of the State.” Id. (quotation omitted). 

A 

Under Colorado law, “[a]n insurance contract is subject to the general rules of 

contract interpretation.” Am. Family Mut. Ins. Co. v. Hansen, 375 P.3d 115, 120 

(Colo. 2016). “It is axiomatic that a contract must be construed to ascertain and 

effectuate the intent of the parties as determined primarily from the language of the 

contract.” E. Ridge of Fort Collins, LLC v. Larimer & Weld Irr. Co., 109 P.3d 969, 

974 (Colo. 2005). We apply “the plain and generally accepted meaning of the words 

used,” id., but “ascertain the meaning of the contract by examining the entire 

instrument and not by viewing clauses or phrases in isolation.” Copper Mountain, 

Inc. v. Indus. Sys., Inc., 208 P.3d 692, 697 (Colo. 2009) (quotation omitted). 

We agree with the district court that the damages awarded by the arbitrators 

resulted from a “professional services incident.” Thus, the only issue is whether an 

exclusion places the damages award outside of otherwise available coverage. 

“Exclusions must be clear and specific to be enforceable.” Hoang v. Assurance Co. 

of Am., 149 P.3d 798, 802 (Colo. 2007). In determining whether the Faulty 

Workmanship exclusion barred coverage, the district court focused on a broad 

definition of “work” as an “activity involving mental or physical effort done in order 

to achieve a purpose or result.” New Oxford American Dictionary 1990 (3d ed. 
7 

2010). It thus held the Faulty Workmanship exclusion’s references to “your work” 

applied to both design and construction. 

We disagree, and conclude the district court failed to assess the context in 

which the term work is used. “A word may take on a variety of meanings in different 

contexts. Dictionaries can inform us of all the accepted meanings, but not which of 

those meanings fits in a particular context.” Pompa v. Am. Family Mut. Ins. Co., 520 

F.3d 1139, 1143 (10th Cir. 2008). And we pay particular attention to context when a 

term has some definitions that are “virtually boundless.” See Reg’l Bank of Colo., 

N.A. v. St. Paul Fire & Marine Ins. Co., 35 F.3d 494, 498 (10th Cir. 1994) (quotation 

omitted). Three contextual guideposts convince us that the Faulty Workmanship 

exclusion was not intended to cover design failings. 

First, the clause appears in a professional liability policy. As a general matter, 

such policies cover damages arising from professional services rendered—in this 

case, CFI’s professional design service in providing a plan for the stream 

modification. Professional services are those “arising out of a vocation, calling, 

occupation, or employment involving specialized knowledge, labor, or skill, and the 

labor or skill involved is predominantly mental or intellectual, rather than physical or 

manual.” Zurich Am. Ins. Co. v. O’Hara Reg’l Ctr. for Rehab., 529 F.3d 916, 924 

(10th Cir. 2008) (quotation omitted). Thus, the overall purpose of the professional 

liability coverage was for CFI to obtain insurance for its “mental or intellectual” 

undertakings rather than its “physical or manual” work. Accordingly, the cases 
8 

Rockhill cites construing similar exclusions in commercial general liability policies 

do not govern our interpretation of a professional liability policy. 

Second, the heading “Faulty Workmanship” clearly evinces the narrower scope 

of the exclusion.1

 As Rockhill itself stated to CFI: “To the extent that the damages 

sought arise out of . . . faulty workmanship apart from your professional services . . . 

the [Professional Liability] Form will not provide coverage for such damages.” The 

term “workmanship” typically refers to “the art or skill of a workman,” which is an 

individual “employed or skilled in some form of manual, mechanical or industrial 

work.” See Random House Webster’s College Dictionary (2d ed. 2000). Consistent 

with the general purpose of professional liability coverage, the term distinguishes 

manual and physical work from professional undertakings. See Mack Trucks Inc. v. 

BorgWarner Turbo Systems, Inc., 508 F. App’x 180, 184 (3d Cir. 2012) 

(unpublished) (holding that design services fall outside the ordinary definition of 

workmanship). 

Finally, the words in the body of the exclusion are more naturally read as 

relating to construction, rather than design. The exclusion removes coverage for the 

costs to “withdraw, recall, inspect, repair, replace, adjust, remove or dispose of” 

work, including “any materials, parts, labor or equipment furnished.” Read as a 

 1

 The district court did not give any weight to this phrase, concluding it was 

merely a heading. But Colorado courts refer to headings in interpreting contracts. 

See, e.g., Fed. Deposit Ins. Corp. v. Fisher, 292 P.3d 934, 937 (Colo. 2013). And 

CFI correctly notes that the exclusion is incoherent absent the “Faulty Workmanship” 

heading. Without those words, the policy would read: “This insurance does not 

apply to: . . . Based upon, arising out of or for any loss . . . .” 
9 

whole and in the context of the coverage agreements, we thus conclude the parties 

intended the Faulty Workmanship exclusion to distinguish non-covered construction 

work from covered professional services. 

The district court should not have granted summary judgment to Rockhill as to 

the design components of CFI’s work for Heirloom. Because the district court 

concluded otherwise, it did not consider whether the entire arbitration award 

(including attorney’s fees and costs) is covered under a correct reading of the 

exclusion or whether the damages should or can be apportioned between design and 

construction. We thus leave that issue for the district court to consider in the first 

instance.2

 

B 

 CFI challenges the district court’s dismissal of its bad faith claim on two 

grounds. First, it argues that statutory damages are available. Per Colorado statute, 

an insurer may not “unreasonably delay or deny payment of a claim for benefits 

owed.” Colo. Rev. Stat. § 10-3-1115(1)(a). An insured “whose claim for payment of 

benefits has been unreasonably delayed or denied may bring an action in a district 

court to recover reasonable attorney fees and court costs and two times the covered 

benefit.” § 10-3-1116(1). 

 2

 Rockhill also argues in the alternative that the exclusion for “Expressed or 

Implied Warranties” bars coverage. It points to statements by Heirloom that CFI 

failed to warranty and repair work and thus breached its contract and/or warranty. As 

the district court explained, Rockhill failed to identify any particular warranty or 

show that the arbitration damages were related to the unidentified warranty. It again 

fails to do so before this court. 
10 

Because the district court concluded that the arbitration award was not 

covered, it did not consider whether Rockhill unreasonably denied or delayed 

coverage. See State Farm Mut. Auto. Ins. Co. v. Fisher, 418 P.3d 501, 506 (Colo. 

2018) (“[S]ection 10-3-1115’s plain language is clear, and it imposes the duty it says 

it imposes—that is, an insurer can’t unreasonably delay or deny paying a covered 

benefit without a reasonable basis for doing so.”). Instead, the bulk of the district 

court’s analysis looked to whether Rockhill caused CFI a business loss. But the 

statute contains no requirement that an insured provide evidence of specific business 

loss or damages. See Hansen v. Am. Family Mut. Ins. Co., 383 P.3d 28, 38 (Colo. 

App. 2013), rev’d on other grounds, 375 P.3d 115 (Colo. 2013). Accordingly, the 

district court should not have dismissed CFI’s claim for statutory bad faith damages 

for failure to demonstrate evidence of business loss. We remand so the district court 

may consider whether CFI’s statutory claim meets the required reasonableness 

standard in light of our coverage holding. 

Second, CFI challenges the dismissal of its common law bad faith claim. CFI 

alleges that Rockhill’s refusal to settle with Heirloom caused the destruction of its 

business. An insurer’s bad faith breach of an insurance contract can give rise to tort 

liability. Nunn v. Mid-Century Ins. Co., 244 P.3d 116, 119 (Colo. 2010). “For an 

insured to prevail on a bad faith claim against an insurer, the insured must establish 

the insurer acted unreasonably, causing damages to the insured.” Bankr. Estate of 

Morris v. COPIC Ins. Co., 192 P.3d 519, 523 (Colo. App. 2008). 
11 

The district court held CFI failed to adduce evidence indicating that nonsettlement caused CFI a business loss. We agree. To prevail on a common law bad 

faith claim, CFI must show that both its business declined and Rockhill’s alleged bad 

faith actions during settlement negotiations caused the decline. Although CFI 

presented evidence that its business declined precipitously after the dispute with 

Heirloom arose, it provided no evidence that Rockhill’s actions caused that lost 

business. And mere assertions that the timing of its business decline aligned with the 

settlement negotiations are insufficient. See Norris v. Baxter Healthcare Corp., 397 

F.3d 878, 885 (10th Cir. 2005) (“[C]orrelation does not equal causation.”). Without 

evidence of a causational (not correlational) link, CFI’s non-settlement claim 

necessarily fails.3

III 

 For the forgoing reasons, we AFFIRM the district court’s dismissal of CFI’s 

common law bad faith claim based on non-settlement. However, we REVERSE the 

district court’s grant of summary judgment on the application of the Faulty 

 3

 CFI also argues Rockhill inappropriately advanced a recoupment claim 

without having reserved its right to do so. See Colo. Rev. Stat. § 13-20-

808(7)(b)(III). However, the district court correctly held CFI failed to support its 

assertion that the company expended resources defending that claim, which was later 

abandoned. 
12 

Workmanship exclusion to CFI’s design work and its grant of summary judgment on 

CFI’s claim of statutory bad faith. We REMAND for further proceedings consistent 

with this order and judgment. 

Entered for the Court 

Carlos F. Lucero 

Circuit Judge