## F I L E D United States Court of Appeals Tenth Circuit 

### DEC 30 2004 

### PATRICK FISHER Clerk PUBLISH
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

SOUTHERN HOSPITALITY, INC.; AUGUSTA HOTEL LIMITED PARTNERSHIP; BA HOTEL LIMITED PARTNERSHIP; CHARLOTTESVILLE HOTEL FUND LIMITED PARTNERSHIP; COCOA BEACH HOTEL FUND LIMITED PARTNERSHIP; COLUMBIA HOTEL LIMITED PARTNERSHIP; DIAMOND BAR HOTEL FUND LIMITED PARTNERSHIP; LUBBOCK HOTEL FUND LIMITED PARTNERSHIP; NOVI HOTEL FUND LIMITED PARTNERSHIP; LAKE BUENA VISTA VILLAGE HOTEL FUND LIMITED PARTNERSHIP; PHOENIX METROCENTER HOTEL LIMITED PARTNERSHIP; UNION CITY HOTEL FUND LIMITED PARTNERSHIP,

Plaintiffs-Appellants,

v. ZURICH AMERICAN INSURANCE COMPANY, Defendant-Appellee. No. 03-6294* The Honorable John L. Kane, Senior District Judge, United States District

Court for the District of Colorado, sitting by desi gnation. -2- APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA

(D.C. No. 02-CV-923-C)

SUBMITTED ON THE BRIEFS: Timothy D. DeGiusti and Bobbie T. Shell of Holladay , Chilton & DeGiusti, Oklahoma City, Oklahoma, for Plaintiffs-Appellants. William D. Perrine and Jennifer L. Struble of Perri ne, McGivern, Redemann, Reid, Berry & Taylor, PLLC, Tulsa, Oklahoma, for De fendant-Appellee.

Before SEYMOURand ANDERSON , Circuit Judges, and KANE , * Senior District Judge.

SEYMOUR , Circuit Judge.

This case arises from the denial of insurance claim s after the events of September 11, 2001. The district court granted sum mary judgment in favor of defendant insurance company, Zurich American Insura nce (Zurich), on plaintiffs’ claims that their loss of business income was cover ed by their Zurich policy. The losses were sustained because customers canceled th eir visits to hotels plaintiffs operated when the Federal Aviation Administration ( FAA) grounded all airplane1 After examining the briefs and appellate record, th is panel has determined

unanimously that oral argument would not materially assist the determination of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). T he case is therefore ordered submitted without oral argument. -3- flights in the United States. We exercise jurisdic tion under 28 U.S.C. § 1291 and affirm. 1
I Plaintiffs, who will be referred to collectively as “Southern Hospitality,” manage a number of hotels throughout the United States that are highly dependent on air travel. Southern Hospitality’s fee is based on the hotels’ gross room revenues. Those revenues, and therefore Southern H ospitality’s profits, plummeted following the events of September 11 beca use the cancellation of flights meant that Southern Hospitality’s customers could not travel by air to its hotels.Southern Hospitality filed a claim with Zurich seek ing coverage for its business income losses under two provisions of the policy. One provision covers losses “caused by action of civil authority that pr ohibits access to the described premises.” Aplt. App., vol. II, at 243. The otherprovision covers losses caused by damages to “dependent property,” as defined in t he policy. Id. at 248-49. Zurich denied the claim, contending the losses were not covered by the policy.-4-

Southern Hospitality filed the underlying lawsuit f or breach of the insurance contract, including a request for damages based on Zurich’s bad faith. The district court granted Zurich’s motion for summ ary judgment, holding that the policy does not apply to the situation here and denying the bad-faith claim. Southern Hospitality appeals. We review de novo the district court’s grant of summary judgment, vie wing the record in the light most favorable to the party opposing summary judgment. McKnight v. Kimberly Clark Corp. , 149 F.3d 1125, 1128 (10th Cir. 1998). Summary judgment is appropriate if there is no genu ine issue of material fact and the moving party is entitled to judgment as a matte r of law. Celotex Corp. v.
Catrett , 477 U.S. 317, 322 (1986); F ED
. R. C IV
. P. 56(c). The underlying facts are undisputed in this case. Because Oklahoma law cont rols this diversity action, we endeavor to reach the same conclusion the state’s h ighest court would reach. See Blanke v. Alexander , 152 F.3d 1224, 1228 (10th Cir. 1998).

II Under Oklahoma law, an insurance policy is a contra ct. First Bank of Turley v. Fid. & Deposit Ins. Co. of Md. , 928 P.2d 298, 302 n.6 (Okla. 1996). “If language of a contract is clear and free of ambigui ty the court is to interpret it as a matter of law, giving effect to the mutual intentof the parties at the time of-5-

contracting.” Pitco Prod. Co. v. Chaparral Energy, Inc. , 63 P.3d 541, 545 (Okla. 2003) (footnote omitted). Whether the contract is ambiguous is for the court to decide, considering the contract as a whole. Id. at 545-46. “The test for ambiguity is whether the language is susceptible to two interpretations on its face . . . from the standpoint of a reasonably prud ent lay person, not from that of a lawyer.” Spears v. Shelter Mut. Ins. Co. , 73 P.3d 865, 869 (Okla. 2003) (quotation omitted). “The mere fact the parties di sagree or press for a different construction does not make an agreement ambiguous.” Pitco Prod. Co. , 63 P.3d at 545. In the absence of an ambiguity, the court must enforce an insurance contract according to its express terms, giving the policy’s language its plain and ordinary meaning. Id. at 546 & n.22. In making this determination, we d o not search for unusual or tortured meanings. See Bituminous Cas. Corp. v. Cowen Constr., Inc. , 55 P.3d 1030, 1035 (Okla. 2002).
A. “Civil Authority” Clause Southern Hospitality first contends its losses were covered by the following policy provision: Civil Authority. We will pay for the actual loss of Business Incom e you sustain and necessary Extra Expense caused by action of civil authority that prohibits access to the described pr emises due to direct physical loss of or damage to property, othe r than at the described premises, caused by or resulting from anyCovered Cause-6-

of Loss. This coverage will apply for a period of up to two consecutive weeks from the date of that action. Aplt. App., vol. II, at 243 (emphasis added). Ther e is no dispute that the FAA’s order prohibiting the flying of airplanes qualified as an “action of civil authority.” Rather, Southern Hospitality argues that the words “prohibits access” apply because its customers were prevented by the FAA ord er from coming to its hotels by air. It does not dispute, however, that its hot els remained open for business at all relevant times. Zurich counters that the flyin g restrictions did not prohibit access to Southern Hospitality’s hotels because the hotels themselves were accessible, and therefore the policy does not apply

. Southern Hospitality contends the term “prohibits a ccess” should be interpreted to provide coverage because it is ambig uous and the acceptable definitions include meanings that result in coverag e. We are not persuaded. The plain and ordinary meaning of “prohibit” is to “for mally forbid, esp. by authority” or “prevent.” Oxford American Dictionary and Language Guide 795 (1999). “Access” means “a way of approaching or reaching orentering.” Id. at 6. The FAA order prohibited access to airplane flights; itdid not prohibit access to hotel operations. As the district court noted: Substitution of “prohibit” with any of the words su ggested by Plaintiffs does not change the result as it does no t alter the meaning of the policy. For example, if “hinder” is used, t he order must still hinder access to Plaintiffs’ property. Under the f acts of this case, that requirement was not met.-7-

Aplt. App., vol. II, at 442-43. Cases applying the “prohibits access” language in s imilar policies have reached the same conclusion. In Abner, Herrman & Brock, Inc. v. Great Northern
Ins. Co. , 308 F. Supp. 2d 331, 333 (S.D.N.Y. 2004), access to the plaintiff’s business premises in New York City was prohibited b y civil authority following the September 11, 2001 attacks. The court held the “civil authority” provision was unambiguous and was applicable only to the fourdays access to the premises was completely prohibited by the order. Id. at 336-37. After the no-access order was lifted, pedestrian access to the premises was p ermitted and public transit was available. Id. at 333. The court held coverage was not available for the time after the civil authority lifted the no-access order, eve n though vehicular traffic was restricted in the area and “put a crimp in the abil ity of [the plaintiff’s] Chairman to use his car and driver, and walking and public t ransportation were not palatable alternatives.” Id. at 333-34, 336. In a case much like the present one, the plaintiffs sought coverage for business losses resulting from the FAA’s September 11 order and the subsequent cancellation of flights. 730 Bienville Partners, Ltd. v. Assurance Co. of Am

. , 2002 WL 31996014, at *1 (E.D. La. Sept. 30, 2002) ( unpublished). There, as here, the plaintiff lost business when its intended guests could not travel to its hotels. Id. at *2. Finding the policy language unambiguous, t he court denied-8-

coverage because the FAA’s action did not prohibit access to the hotels. Id. “While the FAA’s closure of the airports and cancel lation of flights may have prevented many guests from getting to New Orleans a nd ultimately to plaintiff’s hotels, the FAA hardly ‘prohibited’ access to the h otels.” Id. Coverage under a “civil authority” provision was si milarly denied in the following cases where the civil authority order had only the indirect effect of restricting or hampering access to the business pre mises. 54th St. Ltd. Partners, L.P. v. Fid. & Guar. Ins. Co. , 763 N.Y.S.2d 243, 244 (N.Y. App. Div. 2003) (no coverage where “vehicular and pedestrian traffic in the area was diverted, [but] access to the restaurant was not denied; the restau rant was accessible to the public, plaintiff’s employees and its vendors”); St. Paul Mercury Ins. Co. v. Magnolia Lady, Inc. , 1999 WL 33537191, at *3 (N.D. Miss. Nov. 4, 1999) (unpublished) (no coverage when state authorities h ampered access to claimant’s casino-hotel by closing damaged bridge, because “ca sino-hotel was accessible during the period of time the bridge was under repa ir”); Syufy Enters. v. Home Ins. Co. of Ind. , 1995 WL 129229, at *2-3 (N.D. Cal. Mar. 21, 1995) (unpublished) (no coverage where theater access was never specifically foreclosed by civil authority order imposing dawn-to-dusk curf ews in response to rioting following Rodney King verdict).-9-

On the other hand, courts have found that access wa s prohibited where the order of a civil authority required the insured’s p remises to close, thereby invoking coverage for business losses. Assurance Co. of Am. v. BBB Serv. Co. , 593 S.E.2d 7, 7-9 (Ga. Ct. App. 2003) (county orderto evacuate as Hurricane Floyd approached required closure of Plaintiff’s re staurant); Narricot Indus., Inc. v. Fireman’s Fund Ins. Co. , 2002 WL 31247972, at *4 (E.D. Pa. Sept. 30, 2002) (unpublished) (order of town authorities directed P laintiff to suspend plant operations due to Hurricane Floyd); Southlanes Bowl, Inc. v. Lumbermen’s Mut.
Ins. Co. , 208 N.W.2d 569, 570 (Mich. Ct. App. 1973) (govern or mandated closure of all places of amusement, including plaintiff’s b owling alleys, restaurants, taverns and motels, due to rioting after assassinat ion of Dr. Martin Luther King, Jr.). The FAA’s order stopped airplanes from flying; it d id not close hotels. Considering the policy as a whole, we agree with th e district court’s conclusion that the policy was intended to cover losses from a n order directly affecting the hotels, not one tangentially affecting them as here . As we see it, the policy requires a direct nexus between the civil authority order and the suspension of the insured’s business. That nexus is missing here. W e hold that the civil authority provision does not apply because the FAA’s order gr ounding flights did not itself2 Given our conclusion that access was not prohibited by the civil-authority

order and there was therefore no coverage for busin ess losses, we need not decide whether there was a qualifying “direct physical los s of or damage to property, other than at the described premises,” which is als o required under the civil authority provision. See generally Andrew B. Downs & Sean K. Hungerford, Business Interruption Coverage: A Primer On The Ph ysical Loss Requirements , 12-J UN N EV
. L AW
. 12, 12-13 (2004) (discussing cases addressing physi cal damage requirement in standard “civil authority” policy pr ovision); Seth B. Schafler & Marjorie Han, Civil Authority Coverage and Related Coverages , 674 PLI/Lit 59, 61-71 (2002) (same).

-10- prevent, bar, or hinder access to Southern Hospital ity’s hotels in a manner contemplated by the policies. 2
B. “Dependent Property” Clause Southern Hospitality also claims coverage under the “dependent property” clauses, which apply as follows: A. We will pay for the actual loss of Business Incom e you sustain due to the necessary suspension of your “operations ” during the “period of restoration.” The suspension must be caused by direct physical loss of or damage to “dependent property” at a premises described in the Schedule caused by or resulting from any Covered Cause of Loss. * * * C. . . . Miscellaneous Locations. We will pay for t he actual loss of Business Income you sustain due to direct physical loss or damage at the premises of a “dependent property” not descr ibed in the Schedule caused by or resulting from any Covered Cause of Lo ss.-11-

Aplt. App., vol. II, at 248 (emphasis added). “Dep endent Property” is defined in pertinent part as “property operated by others whom you depend on to . . . [d]eliver materials or services to you . . . [a]cce pt your products or services . . . [m]anufacture products for delivery to your custome rs . . . [a]ttract customers to your business.” Id. at 249. As the district court noted, Southern Hospitality d id not offer evidence to controvert Zurich’s contention that there was no pr oof of physical loss or damage to a dependent property, a necessary component of c overage. Southern Hospitality now contends the district court address ed only part A of the policy’s provisions pertaining to “dependent property” becau se it was the only provision referenced by Zurich’s motion for summary judgment, and that the court erred by failing to address part C

. But Southern Hospitality does not demonstrate that its chosen clause provides coverage, and we do not see that it does. Both parts A and C require physical loss or damage to dependent property, and, as Zurich has pointed out, “Southern Hospitality has not identifi ed any scheduled contributing property which was damaged by a covered cause or lo ss, nor any unscheduled dependent property which sustained physical damage from a covered cause of loss.” Aple. Br. at 24. Southern Hospitality’s fa ilure of proof in this regard applies equally to both provisions.-12-

Moreover, Southern Hospitality has not shown that this specific issue was brought to the district court’s attention. Souther n Hospitality raised it only as a challenge to Zurich’s statement of facts in its sum mary-judgment motion, but did not argue that this particular clause provided cove rage even if the other dependent property clause did not. “Where a litigant changes to a new theory on appeal that falls under the same general category as an argumen t presented [to the trial court] or presents a theory that was discussed in a vague and ambiguous way[,] the theory will not be considered on appeal.” Bancamerica Commercial Corp. v. Mosher Steel of Kan., Inc. , 100 F.3d 792, 798-99 (10th Cir. 1996) (quotations omitted), amended on other grounds , 103 F.3d 80 (10th Cir. 1996). Accordingly, we will not disturb the district court’s judgment.
III Finally, we address Southern Hospitality’s claim th at Zurich failed to deal fairly and in good faith. Under Oklahoma law, “an insurer has an implied duty to deal fairly and act in good faith with its insured and . . . the violation of this duty gives rise to an action in tort.” Christian v. Am. Home Assurance Co. , 577 P.2d 899, 904 (Okla. 1977); accord Wathor v. Mut. Assurance Adm’rs, Inc. , 87 P.3d 559, 561-62 (Okla. 2004). Southern Hospitality ass erts that Zurich’s bad faith was demonstrated by its internal policy decision to deny all claims under the-13-

“civil authority” provision related to the Septembe r 11 events, except for certain property located in New York City. If there is a legitimate dispute about coverage, an insurer’s decision to refuse to pay a claim or to litigate a dispute is n ot a breach of the duty of good faith where the insurer’s position is “reasonable a nd legitimate.” Oulds v. Principal Mut. Life Ins. Co. , 6 F.3d 1431, 1436 (10th Cir. 1993) (quotation omitted) (applying Oklahoma law). Given our determ ination that the insurance policy does not provide coverage to Southern Hospit ality, we conclude that Zurich had a reasonable basis for denying coverage and can not reasonably be seen as acting in bad faith. Accordingly, summary judgmenton this issue was correct.
See Willis v. Midland Risk Ins. Co. , 42 F.3d 607, 612 (10th Cir. 1994) (summary judgment appropriate where insurer’s conduct cannotreasonably be perceived as tortious) (applying Oklahoma law).
We AFFIRM the judgment of the district court.