UNITED STATES COURT OF APPEALS TENTH CIRCUIT

SCOTTSDALE INSURANCE COMPANY, Plaintiff-Appellant,

v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant-Appellee. No. 12-1513 (D.C. No. 1:10-CV-01092-RPM) (D. Colo.)

ORDER AND JUDGMENT *

Before MATHESON , MCKAY , and EBEL , Circuit Judges.
Plaintiff-Appellant Scottsdale Insura nce Company (Scottsdale) and DefendantAppellee National Union Fire Insurance Comp any of Pittsburgh, PA , (National Union), two excess liability insurers, disagree over National Union’s obligation to reimburse Scottsdale for any of the $4. 35 million that Scottsdale paid to cover the settlement of claims against their common insured gene ral contractor, Northwest Construction

* This order and judgment is not binding pr ecedent, except under the doctrines of law of the case, res judicata, and collateral es toppel. It may be cited, however, for its persuasive value consistent with Fed. R. App. P. 32.1 and 10 th Cir. R. 32.1. FILED United States Court of Appeals Tenth Circuit 

### September 2, 2014
Elisabeth A. Shumaker Clerk of Court2 Company (Northwest). The ability of Scottsdale to obtain reimbursement from National Union turns on whether the primary policy un derlying the excess insurance provided by National Union’s excess policy had been “e xhausted.” The district court granted summary judgment to National Union becaus e Scottsdale did not provide sufficient evidence to show that the primary policy underlying National Union’s excess coverage was exhausted. We agree with the district court and affirm.
I. Viewed in a light most favorable to the non-moving party, Scottsdale, the facts are as follows. Northwest was the general contractor on the Coyote Ranch Apartments project in Arapahoe County, Colo rado, constructed over the years 2001 to 2004. Scottsdale and National Union provided consecutive excess in surance policies to No rthwest: Scottsdale from April 2002 to April 2003 for $10 milli on and National Union from April 2003 to April 2004 for $5 million a nd from April 2004 to April 2005 for $10 million. 1 A primary insurance policy underlay each excess policy: a Transcontinental Commercial General Liability (Transcontinental) policy from Ap ril 2002 to April 2003, a Valley Forge Commercial General Liability (V alley Forge) policy from Ap ril 2003 to April 2004, and an American Zurich Insuranc e Company (Zurich) policy from April 2004 to April 2005.

1 An “excess” or “umbrella” insurance policy is a policy that only pays out if the primary insurance policies underlying it are exha usted—that is, if the coverage limits for the types of liabilities covered during the time period for the primary policy are satisfied.3 Transcontinental and Valley Forge are bot h owned by CNA Financial Corporation (CNA). All of these primary policies had a coverage limit of $1 million for each occurrence and a $2 million ge neral aggregate limit. Construction flaws in the Coyote Ranch Apartments project became apparent in 2002 while construction remained ongoing. In 2003, Northwest and others were sued in Colorado state court by the owners of th e project, Simpson Cherry Creek Limited Partnership (the Simpson suit). As the po licies issued through Transcontinental and Valley Forge provided primary coverage duri ng construction, CNA pr ovided a defense to the Simpson suit, pursuant to a full reservat ion of rights. While the Simpson suit was ongoing, Transcontinental and Valley Forg e brought a declaratory judgment action against Northwest and its associ ates in the United States Dist rict Court for the Northern District of Texas, claiming their policies cont ained an exclusion that relieved them of the duty to insure construction claims on the Coyote Ranch Apartment project. 2 The parties to the Simpson suit settled th at suit in 2008 for $8.5 million. The Simpson suit parties agreed that the Tran scontinental and Valley Forge policies would pay out $2 million each, Scotts dale would pay $4.35 million, and Zurich and Northwest would each pay $75,000. Natio nal Union cont ributed nothing to the settlement. In a related agreement (the Declarat ory Judgment Agreement), Northwest, Scottsdale, and CNA agreed that Scottsdale would pay $500, 000 to CNA to facilitate the

2 Such an exclusion in the primary covera ge would render the excess carriers liable for coverage if the excess policy covere d the construction claims at issue.4 resolution of a Declaratory Judg ment action in the Northern District of Texas. Northwest agreed that “payment by Sco ttsdale to CNA in the amount of $500,000 as reallocation of their respective shares of the Settlement Am ount for the Underlying Action [the Simpson suit] further reduces the limits of liability of the Scottsdale Policy.” (R. Aplt. App. at 65, ¶6.) These three parties also agreed th at Transcontinental and Valley Forge had exhausted their limits of insura nce with respect to Northwest. Further, the parties agreed that any amounts recovered from National Unio n would replenish the limits of insurance for the Valley Forge and Tr anscontinental policies. In 2010, Scottsdale sued Na tional Union for at least $2, 283,911 under theories of equitable judgment regarding coverage, equita ble contribution, contractual subrogation, and equitable subrogation. 3 The district court granted summary judgment to National Union because Scottsdale did not bring forth sufficient evid ence to meet its burden to prove exhaustion of the primary policies underlying National Union’s excess policy exposure. Scottsdale appeals.
II. A. Standard of Review “We review the district court’s order granting summary judgment de novo.” Koessel v. Sublette Cnty. Sheriff's Dep’t, 717 F.3d 736, 742 (10th Cir. 2013). Summary judgment is available if “there is no genuine dispute as to any material fact and the

3 At the district court, the parties agreed that Texas law applies to this dispute.5 movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “There is no genuine issue of material fact unless the evid ence, construed in the light most favorable to the non-moving party, is such that a reas onable jury could return a verdict for the nonmoving party.” Koessel, 717 F.3d at 742. In order to survive summary judgment, “[f]or dispositive issues on which the plaintiff will bear the burden of proof at trial, he must go beyond the pleadings and designate specific fact s so as to make a showing sufficient to establish the existence of an el ement essential to his case . . . .” Cardoso v. Calbone, 490 F.3d 1194, 1197 (10th Cir. 2007) (alterations omitted) (internal quotation marks omitted). The nonmovant must “do more than simply sh ow that there is some metaphysical doubt as to the material facts.” Champagne Meta ls v. Ken-Mac Metals, Inc., 458 F.3d 1073, 1084 (10th Cir. 2006). The releva nt inquiry is “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-s ided that one party must prevail as a matter of law.” Simpson v. Univ. of Colo. Boulder, 500 F.3d 1170, 1179 (10th Cir. 2007). Here, it was up to Scottsdale to bring fort h evidence such that a reasonable jury could find for it because under Texas law, the insured “must prove the exhaustion of underlying insurance as a cond ition precedent to recovery ag ainst the excess carrier,” and Scottsdale is stepping into the shoes of th e insured attempting to show that National Union must provide excess coverage. Dresser Indus., Inc. v. Underwriters at Lloyd’s, London, 106 S.W.3d 767, 771 (Tex. App. 2003). See also D.R. Horton, Inc. v. Am. Guarantee & Liab. Ins. Co., 8 64 F. Supp. 2d 541, 564 (N.D. Tex. 2012), appeal dismissed6 (Oct. 22, 2012) (“[T]he court is satisfied that in order to carry its burden under Texas law to establish a payment obliga tion under defendant's policy fo r any property damage that took place . . . [plaintiffs] had the burden to establish that the limits of liability of the [primary policies] had been exhausted by pa yment of claims covered by those policies during that policy year.”). On appeal, the parties dispute whether “horizontal exhaustion” or “vertical exhaustion” applies. “‘Horizontal exhaus tion’ means that each primary insurance triggered by a continuous loss must indemnif y the policyholder to the full extent of its policy limits before any excess insurer can be required to pay.” LSG Techs., Inc. v. U.S. Fire Ins. Co., No. 2:07-CV-3 99-DE, 2010 WL 5646 054 at *10 (E.D. Tex. Sept. 2, 2010) (unpublished decision) (citing 23–145 Appl eman on Insurance § 145.4; Thomas M. Jones, An Introduction to Insurance Allocati on Issues in Multiple Trigger Cases, 10 Vill. Envtl. L.J. 25, 33 (1999)). On the other ha nd, “vertical exhausti on provides that each excess policy in a triggered year is required to contribute to indemnification as soon as its particular underlying coverage is exhausted, even if other triggered primary policies (covering other periods) remain ‘untapped.’” Id. (citing 23–145 Ap pleman on Insurance § 145.4). We need not decide which exhaus tion applies because with Zurich’s mere $75,000 payment, Scottsdale cannot show e ither horizontal exhaustion, and it likewise cannot show vertical exhaustion because it ha s failed to show exhaustion of the primary policy underlying National Unio n’s ‘03-‘04 excess policy.7 B. Scottsdale’s evidence to avoid summary judgment This case’s resolution is straightforward. Although Scottsdale showed convincing evidence of its own intentions, it showed no ev idence of CNA’s inte ntions or evidence from CNA’s perspective about how the $5 00,000 Declaratory Judgment Agreement payment from Scottsdale was to be applied or distributed, and thus, Scottsdale can make no showing of vertical exhaustion of the primary policy underl ying National Union’s excess coverage policy. Without any limitati on in the settlement agreements on CNA and absent evidence about CNA’s in tentions, CNA could have app lied this $500,000 in any number of ways. Scottsdale eas ily could have prevented such a state of affairs. First, it could have negotiated the Declaratory Judgme nt Agreement to provide that CNA would not apply the $500,000 to the ‘03-‘04 po licy. Second, it could have discovered in litigation what CNA did with the $500,000 and presented that information to the district court. Scottsdale did neither; it has no other evid ence to create a genuine issue of material fact; and consequently it cannot survive summary judgment. Scottsdale nevertheless contends that it ha s presented four pieces of evidence that show a genuine dispute of material fact. It first points to the deposition of Stephanie Petras, a Scottsdale representative who partic ipated in the negotiati ons that led to the Declaratory Judgment Agreement, who testified: Q: . . . But just so that we ’re clear, the—the—when you’re talking about the declaratory judgment action that CNA had filed, it wasn’t just on the ’02, ’03 policy.8 [Petras]: I understand that. But our risk and ou r agreement to resolve the issue was on the—was based on th e ’02, ’03 residential exclusion because that’s where Sc ottsdale’s policy sat. (R. Aplt. App. at 62.) Scottsdale concludes from this st atement that the payment was only applicable to the CNA ‘02-‘03 Transcontinental policy, i.e. if it “replenished” any policy at all, it only replenished th e ‘02-‘03 Transcontinental polic y. This deposition, however, fails to solve Scottsdale’s evidentiary problem. Th e deposition evidence about Scottsdale’s pecuniary motivation for its payment to CNA does not provide any information about how CNA a llocated the $500,000 between the policies or elsewhere, nor does it control CNA’s actions. Without a ny evidence, the $500,000 could fairly be said to have replenished either or both C NA policies because it was paid to CNA without restriction. Second, Scottsdale makes arguments about the nature of the Declaratory Judgment Agreement. Scottsdale first states that agre ement reduced Scottsdale’s limits of insurance by $500,000 and provided that replenishment of ’02-’03 and ’03-’04 CNA policies would result from a recovery from National Union. Sc ottsdale thus concludes that any money paid by Scottsdale to CNA cannot replenis h the ’03-’04 CNA polic y underlying National Union’s policy. However, this off-point lang uage about recoveries from National Union going to replenish the CNA policies’ limits a nd the lack of such direct language with respect to the $500,000 do not impose any limits to repl enishment from the $500,000 that
would bind CNA. Scottsdale fu rther claims that National Un ion and the District Court9 failed to specify the provision of the Declar atory Judgment Agreement that required or even provided fo r replenishment of the policy underly ing National Union’s excess policy. Scottsdale points this court to the language stating that monies recovered from National Union would replenish CNA’s limits of insu rance and that no such language existed about the $500,000 paym ent from Scottsdale. Scottsdale c ontends that this discrepancy indicates that the $500,000 in question could not have gone to replenish the CNA policy underlying National Union’s policy. But in demanding that National Union identify the Declaratory Judgment Agreement provision th at provided for replenishment of the CNA policy underlying National Union’ s policy, Scottsdale attempte d to shift the burden to prove exhaustion of the ‘03-‘0 4 CNA policy to National Union when it is Scottsdale that bears that burden. Third, Scottsdale argues that a plain r eading of its policy provisions leads to the conclusion that Scottsdale was only responsi ble for occurrences of damage within its April ‘02-April ‘03 policy period. Scottsdale contends that because it only intended to settle the declaratory judgment action to protect itself from a risk that it would have to pay out under its ‘02-‘03 excess policy, a re asonable jury could find that the $500,000 payment to CNA did not apply to the ‘03- ‘04 CNA policy underly ing National Union’s policy. However, the character of Scottsdale’s liability under its policy and the limits to liability to the ‘02-‘03 year doe s not change the fact that Scottsdale paid CNA in an agreement without specifying any limit on the $500,000 goi ng to replenish CNA’s ‘03- ‘04 policy.10 Fourth, Scottsdale contends that the $500,000 paymen t could only have replenished the CNA policy underlying Scottsda le’s claim because th e only viable claim in the declaratory judgment action was the apartment building excl usion in the CNA ‘02- ‘03 policy underlying Scottsdale ’s excess policy. According to Scottsdale, if solely the ‘02-‘03 declaratory judgment claims had mer it, then the payment of $500,000 could not be applied to replenish th e ‘03-‘04 policy underlying Na tional Union. This argument ignores that the merits of the declaratory ju dgment action do not bear on the Scottsdale’s ability to prove that the ‘03-‘0 4 policy was exhausted in light of the $500,000 payment to
CNA without conditions attached. CONCLUSION Without evidence showing any limitation of CNA’s treatment of the $500,000 payment—either from the Declaratory Judgme nt Agreement or from CNA itself—there is insufficient evidence fo r Scottsdale to avoid summary judgment. We thus affirm the district court’s grant of summary judgment.

ENTERED FOR THE COURT

David M. Ebel Circuit Judge