PUBLISH 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

 

C.L. FRATES & COMPANY, 

an Oklahoma corporation, 

 Plaintiff-Appellee, 

v. 

WESTCHESTER FIRE INSURANCE 

COMPANY, a Pennsylvania corporation, 

 Defendant-Appellant. 

No. 12-6274 

 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF OKLAHOMA 

(D.C. No. 5:11-CV-01020-L) 

 

Thomas Rowe Kendrick, Timothy L. Martin of Durbin, Larimore & Bialick, 

Oklahoma City, Oklahoma; Joseph K. Powers of Sedgwick LLP, New York, 

New York, for Defendant - Appellant. 

Ryan S. Wilson, Elizabeth A. Price, Michael L. Brooks of Hartzog Conger Cason & 

Neville, Oklahoma City, Oklahoma, for Plaintiff - Appellee. 

 

Before HOLMES, BACHARACH, and PHILLIPS, Circuit Judges.1

 

 

 

1

 The Defendant has requested oral argument to clarify certain legal standards. 

But in their briefs, the parties have sufficiently presented their positions on the legal 

standards. As a result, the Court has decided the appeal based on the briefs. See

Tenth Cir. R. 34(a)(2)(C). 

FILED 

United States Court of Appeals 

Tenth Circuit 

September 4, 2013

Elisabeth A. Shumaker 

Clerk of Court
- 2 - 

BACHARACH, Circuit Judge. 

 

 This action involves a dispute over the interpretation of an errors-andomissions policy issued by Westchester Fire Insurance Company to C.L. Frates & 

Company. The policy excludes coverage for claims “arising out of” bankruptcy or 

insolvency. 

 The dispute grew out of a stop-loss policy issued by United Re to a company 

that had hired Frates as a broker. After issuance of the policy, United filed for 

bankruptcy protection. When Frates learned of the bankruptcy, it investigated and 

learned that United was not an insurance company, had been sued in Ohio, and had 

filed bankruptcy to stall the Ohio litigation. Ultimately, Frates recommended to its 

client that it move the stop-loss insurance to another insurer. The client agreed. 

However, Frates had to reimburse the client for what it lost through higher 

deductibles. 

 Saddled with the cost of this reimbursement, Frates sued Westchester 

under the errors-and-omissions policy. In cross-motions for summary judgment, 

Westchester contended that Frates’s claim “arose out of” United’s bankruptcy or 

insolvency. In turn, Frates contends that the claim “arose out of” United’s deception. 

The district court agreed with Frates and granted its motion for summary judgment. 

In this appeal, we are asked: Could a reasonable trier of fact conclude that Frates’s 

claim arose out of United’s bankruptcy or insolvency? We think so. As a result, we 

reverse the award of summary judgment to Frates. 
- 3 - 

Elements of the Decision 

 In considering the award of summary judgment, we must examine the standard 

applicable in the district court proceedings, the meaning of the phrase “arising out 

of,” and the possible inferences that could be drawn by a rational fact-finder. 

Standard for Summary Judgment 

 To begin, we consider the summary-judgment standard. In reviewing the 

award of summary judgment, we view the evidence in the light most favorable to 

Westchester. See Justice v. Crown Cork & Seal Co., Inc., 527 F.3d 1080, 1085 

(10th Cir. 2008). When the evidence could lead a rational fact-finder to resolve the 

dispute in favor of either party, summary judgment is improper. SCO Grp., Inc. v. 

Novell, Inc., 578 F.3d 1201, 1215 (10th Cir. 2009). 

Reasonableness of a Finding for Frates 

 We must apply this standard against the backdrop of the underlying question, 

the meaning of the phrase “arising out of.” Under Oklahoma law,2

 we broadly 

interpret the phrase “arising out of” as requiring only some connection to the injury. 

See Fed. Ins. Co. v. Tri-State Ins. Co., 157 F.3d 800, 804 (10th Cir. 1998) 

(interpreting Oklahoma law). Viewing the evidence in the light most favorable to 

Westchester, a reasonable fact-finder could conclude that Frates’s injury had at least 

some connection to United’s bankruptcy or insolvency. 

 

2

 Both parties rely on Oklahoma law. 
- 4 - 

I. A Potential Connection to United’s Bankruptcy 

 Frates’s vice-president contends that United changed insurers for reasons 

unrelated to the bankruptcy. Appellant’s App. at A-105 ¶ 10. Even so, a fact-finder 

could reasonably conclude that Frates’s loss bore at least some connection to 

United’s bankruptcy. After all, Frates’s investigation was prompted by news of 

United’s bankruptcy and the insured referred to the bankruptcy when following 

Frates’s advice to switch insurers. Id. at A-104, A-137. 

II. A Potential Connection to United’s Insolvency 

 The fact-finder could also infer at least some connection between Frates’s 

injury and United’s insolvency (apart from its bankruptcy). To address this part of 

the exclusion, we must know what the term “insolvency” means. Under Oklahoma 

law, the term “insolvency” refers to an inability to pay debts as they become due. 

Illinois Ref. Co. v. Illinois Oil Co., 264 P. 904, 906 (Okla. 1928). 

 With this definition of “insolvency,” a reasonable trier of fact could regard 

United as insolvent. This conclusion could be supported, in part, by the stipulation 

that United had filed bankruptcy to stall the Ohio lawsuit. Appellant’s App. at A-104 

¶ 8. The bankruptcy filing could suggest insolvency, for “debtors do not generally 

file for bankruptcy unless they are insolvent.” See Dumont v. Ford Motor Credit Co. 

(In re Dumont), 581 F.3d 1104, 1116 (9th Cir. 2009). This seems to be true of 

United, as it submitted bankruptcy schedules reflecting assets of $505,000 and 
- 5 - 

liabilities exceeding $2,000,000. Appellant’s App. at A-90. Thus, a fact-finder could 

reasonably find that United was insolvent. 

 This insolvency could also be linked to Frates’s injury. Presumably, Frates did 

not see United’s bankruptcy schedules. But under the stipulated facts, Frates 

ultimately learned that United had filed for bankruptcy protection. Id. at A-104 ¶ 8. 

With knowledge of the bankruptcy filing, Frates could reasonably have inferred that 

United was unable to pay its debts as they became due. 

 The resulting question is whether United’s insolvency bore at least some 

connection to Frates’s loss. A fact-finder could reasonably infer this connection from 

the contentions by a Frates executive that he: (1) would not have recommended 

United if he had known of its financial problems associated with the Ohio litigation, 

and (2) recommended a switch in insurers in part because he questioned United’s 

“financial status.” Id. at A-105 ¶¶ 9-10. Together, concerns about United’s 

“financial problems” and “financial status” could supply the required connection 

between its insolvency and Frates’s loss. 

Conclusion 

 A fact-finder could reasonably infer that Frates’s injury arose out of United’s 

bankruptcy or insolvency based on: (1) evidence that Frates’s investigation was 

precipitated by news of the bankruptcy, (2) the insured’s reference to United’s 

bankruptcy when following the recommendation to change insurers, and (3) the 

stipulation regarding the effect of United’s financial problems on Frates’s 
- 6 - 

recommendation to switch insurers. As a result, we reverse the award of summary 

judgment to Frates and remand to the district court for further proceedings.