F I L E D

United States Court of Appeals

Tenth Circuit

AUG 28 2001

PATRICK FISHER

Clerk

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

VBF, INC.; an Oklahoma corporation;

VERNON LAWSON; BILL CODAY;

FRED SMITH,

Plaintiffs-Appellants, 

v.

CHUBB GROUP OF INSURANCE

COMPANIES,

 Defendant,

GREAT NORTHERN INSURANCE

COMPANY; FEDERAL INSURANCE

COMPANY; CHUBB & SON, INC.,

Defendants-Appellees. 

No. 99-5223

Appeal from the United States District Court

for the Northern District of Oklahoma

(D.C. No. 97-CV-535-H)

Bill V. Wilkinson, (Andrew P. DeCann, with him on the briefs), Wilkinson Law

Firm, Tulsa, Oklahoma, for Plaintiffs-Appellants.

John H. Tucker, (Kerry R. Lewis, with him on the brief), Rhodes, Heironymus,

Jones, Tucker & Gable, Tulsa, Oklahoma, for Defendants-Appellees.
1Three individuals have also been named as plaintiffs because of their

capacity within VBF. For ease of reference, this opinion will refer only to VBF.

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Before EBEL, ANDERSON, and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

I. INTRODUCTION

Plaintiff VBF, Inc. (“VBF”) filed suit against Defendants, various

insurance companies, in the United States District Court for the Northern District

of Oklahoma.1

 Jurisdiction was based on diversity of citizenship under 28 U.S.C.

§ 1332. VBF sought a judgment declaring that two insurance policies issued by

Defendants required Defendants to defend and indemnify VBF from a lawsuit

filed against VBF by a third party. VBF later amended its complaint to also

allege that Defendants had violated the duty of good faith and fair dealing. Both

VBF and Defendants filed motions for summary judgment. The district court

concluded that Defendants had no duty to defend or indemnify because VBF’s

insurance claim fell within an exclusion in the policies; the district court thus

granted Defendants’ motion for summary judgment and denied VBF’s motion. 

VBF has appealed the grant of Defendants’ motion; jurisdiction to consider the

appeal arises under 28 U.S.C. § 1291. Because VBF’s insurance claim was not
2At oral argument to this court, VBF attempted to argue that Brand Export

was a subcontractor employed by Foster Wheeler. This is directly contrary to the

facts alleged in VBF’s amended complaint and motion for summary judgment. 

VBF cannot on appeal revise the facts presented to the district court in its

complaint and motion for summary judgment. See John Hancock Mut. Life Ins.

Co v. Weisman, 27 F.3d 500, 506 (10th Cir. 1994); Walker v. Mather (In re

Walker), 959 F.2d 894, 896 (10th Cir. 1992).

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covered under one policy and excluded under the other policy, this court affirms

the district court’s grant of Defendants’ motion for summary judgment.

II. FACTS AND PROCEDURAL HISTORY

The district court found the following facts undisputed, and neither party

contests them on appeal. VBF contracted with Foster Wheeler USA Corp.

(“Foster Wheeler”) to sell electrical equipment for a Foster Wheeler job in

China. After VBF manufactured the electrical equipment, it was packaged by

Brand Export Packing of Oklahoma, Inc. (“Brand Export”), who was a

subcontractor of VBF.2

 The electrical equipment was then shipped to China.

During shipment, however, the electrical equipment was damaged because

of the containers provided by Brand Export. As a result of the damage, Foster

Wheeler had to replace the electrical equipment. Foster Wheeler filed a lawsuit

against VBF to recover its costs in replacing the electrical equipment, asserting

claims for breach of contract and breach of express and implied warranties.

VBF filed a timely insurance claim with Defendants requesting that

Defendants defend VBF in the Foster Wheeler lawsuit pursuant to two insurance
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policies issued by Defendants to VBF. Defendants denied VBF’s claim, giving

two reasons. First, Defendants maintained that VBF was not entitled to coverage

because the Foster Wheeler lawsuit was for breach of contract and thus not

covered under the policies. Second, Defendants claimed that VBF’s claim fell

under a coverage exclusion for “Damage To Your Product.” After Defendants

rejected VBF’s claim, Foster Wheeler amended its complaint against VBF to

assert a claim for negligently failing to follow contract specifications. In light of

Foster Wheeler’s amended complaint, VBF renewed its request to have

Defendants defend and indemnify VBF in its suit against Foster Wheeler. 

Defendants, however, have continued to reject VBF’s claim.

VBF filed suit in district court seeking (1) a declaration that VBF’s claim

for indemnity and defense in the Foster Wheeler lawsuit is covered under the

insurance policies provided to VBF by Defendants and (2) an award for the costs

of defending the Foster Wheeler lawsuit and the costs of bringing the present

lawsuit. VBF later amended its suit to also seek actual and punitive damages

because of Defendants’ alleged bad faith. Both parties filed motions for summary

judgment. The district court granted Defendants’ motion for summary judgment

and entered judgment in favor of Defendants. The district court determined that

Defendants had no duty under the policies to defend VBF in the Foster Wheeler
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lawsuit because the recovery sought by Foster Wheeler from VBF is excluded

from coverage by reason of the “Damage To Your Product” exclusion.

III. DISCUSSION

This court reviews the grant or denial of summary judgment de novo ,

applying the same legal standard employed by the district court pursuant to Rule

56(c) of the Federal Rules of Civil Procedure. See Cent. Kan. Credit Union v.

Mut. Guar. Corp. , 102 F.3d 1097, 1102 (10th Cir. 1996). Summary judgment is

appropriate if “the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show that there is no

genuine issue as to any material fact and that the moving party is entitled to a

judgment as a matter of law.” Fed. R. Civ. P. 56(c). This court construes the

evidence in the light most favorable to the nonmoving party, which is VBF. See

Cent. Kan. Credit Union , 102 F.3d at 1102.

Under Oklahoma law the duty of the insurer to defend the insured is a

contractual obligation. See First Bank of Turley v. Fid. & Deposit Ins. Co. of

Md., 928 P.2d 298, 302 (Okla. 1996). Thus, Defendants’ duty to defend VBF in

the Foster Wheeler lawsuit is controlled by the two insurance policies issued to

VBF by Defendants.

Defendants issued to VBF both a commercial general liability policy (the

“CGL policy”) and a commercial excess umbrella liability policy (the “Umbrella
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policy”) that were in effect at the time of the events underlying this lawsuit. Both

parties assume that Defendants’ duty under the policies to defend VBF depends

on whether Defendants would be required to indemnify VBF for any recovery

awarded in the Foster Wheeler suit. Thus, Defendants had a duty to defend if the

facts of the Foster Wheeler lawsuit gave rise to the potential of indemnification

under the policies. See id. at 303 & nn.13-14.

In interpreting the policies, this court applies Oklahoma rules of

construction. Under Oklahoma law, an unambiguous insurance policy is

interpreted according to the plain meaning of the language in the policy. See Max

True Plastering Co. v. United States Fid. & Guar. Co., 912 P.2d 861, 869 (Okla.

1996). “Insurance contracts are ambiguous only if they are susceptible to two

constructions.” Id. If a policy is ambiguous, it will be construed against the

insurer. See id. at 865. In addition, Oklahoma recognizes the “reasonable

expectations doctrine” when the policy is ambiguous or contains “unexpected

exclusions arising from technical or obscure language or which are hidden in

policy provisions.” Id. at 868. In these situations, coverage exists if the insurer

or its agent has created a reasonable expectation in the insured that coverage

exists. See id. at 864, 870. The interpretation of an insurance policy, including

whether the policy is ambiguous, is a matter of law. See id. at 869.

A. The CGL Policy
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The CGL policy has the following coverage language:

We will pay damages the insured becomes legally obligated to pay by

reason of liability imposed by law or assumed under an insured

contract because of:

bodily injury or property damage caused by an occurrence;

or personal injury or advertising injury

to which this insurance applies.

This insurance applies:

1. to bodily injury or property damage which occurs during the

policy period; and

2. to personal injury or advertising injury only if caused by an

offense committed during the policy period.

The phrases “legally obligated to pay” and “liability imposed by law” refer

only to tort claims and not contract claims. See Natol Petroleum Corp. v. Aetna

Ins. Co., 466 F.2d 38, 39-42 (10th Cir. 1972); Action Ads, Inc. v. Great Am. Ins.

Co., 685 P.2d 42, 42-45 (Wyo. 1984); Lee R. Russ & Thomas F. Segalla, 7 Couch

on Insurance §103:14 (3rd ed. 2000). Foster Wheeler’s suit against VBF was

based on contract, not tort. Although Foster Wheeler amended its complaint to

assert a claim against VBF for negligently failing to follow contract

specifications, this clever drafting does not change the underlying nature of the

Foster Wheeler suit. See Waggoner v. Town & Country Mobile Homes, Inc., 808

P.2d 649, 652-53 (Okla. 1990) (reiterating the well-established rule that tort

products liability suits cannot be brought for damage to the product itself and

explaining that a consumer is protected from damage to the defective product only

by contract law); Redevelopment Auth. v. Int’l Ins. Co., 685 A.2d 581, 589 (Pa.
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Super. Ct. 1996) (“While [the third parties] have employed negligence concepts in

drafting their complaint, it cannot be disputed that their claims arise out of and

are based upon duties imposed upon the [insured] solely as a result of the contract

between [the insured and the third parties].”).

Therefore, coverage under the CGL policy exists for the Foster Wheeler

claim only if the contract between Foster Wheeler and VBF is an “insured

contract” under the policy. The CGL policy defines an “insured contract”

as:

1. a lease of premises;

2. a sidetrack agreement;

3. an easement or license agreement in connection with vehicle or

pedestrian private railroad crossings at grade;

4. any other easement agreement, except in connection with

construction or demolition operations on or within 50 feet of a

railroad;

5. an indemnification of a municipality as required by ordinance,

except in connection with work for a municipality;

6. an elevator maintenance agreement;

7. that part of any other contract or agreement pertaining to your

business under which you assume the tort liability of another to pay

damages because of bodily injury or property damage to a third

person or organization, if the contract or agreement is made prior to

the bodily injury or property damage. Tort liability means a

liability that would be imposed by law in the absence of any contract

or agreement[.]

Provision seven is the only provision arguably applicable to the contract

between Foster Wheeler and VBF. The contract between Foster Wheeler and

VBF contains a clause in which VBF assumes Foster Wheeler’s tort liability for
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claims arising from the electrical equipment. Foster Wheeler’s suit against VBF,

however, did not seek indemnification for Foster Wheeler’s tort liability to a third

party; Foster Wheeler’s suit sought recovery for expenses it incurred by having to

replace the damaged electrical equipment. Thus, Foster Wheeler’s contractual

claim was not brought pursuant to an “insured contract” under the CGL policy

because it was not brought pursuant to “that part” of the Foster Wheeler-VBF

contract under which VBF assumes the tort liability of Foster Wheeler.

VBF makes one other argument for coverage under the CGL policy. VBF

argues that coverage exists under what it describes as an “endorsement for

completed products operations hazard.” Defendants, however, contend that

“products—completed operations hazard” is not a coverage provision but rather is

an exclusion to the CGL policy that can be removed through additional premiums,

which they concede VBF paid. A review of the record indicates that Defendants

are correct. “Products—Completed Operations Hazard” is defined in the policy to

include

all bodily injury and property damage occurring away from

premises you own or rent and arising out of your product or your

work except:

a. products that are still in your physical possession; or

b. work that has not yet been completed or abandoned.

“Products—completed operations hazard” is not, however, mentioned in the CGL

policy provisions extending coverage. It is clear that Defendants are correct to
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argue that “products—completed operations hazard” was an exclusion to coverage

under the CGL policy that was removed by increased premium payments by VBF.

That “products—completed operations hazard” was an exclusion removed

by increased premiums, as opposed to a coverage provision, has great import in

this case. The removal of the “products—completed operations hazard” exclusion

did not create additional coverage beyond that provided for in the coverage

provisions. As discussed above, the Foster Wheeler lawsuit is not covered under

the coverage provisions of the CGL policy because the Foster Wheeler suit was

not based on tort or an “insured contract.” Thus, the removal of the

“products—completed operations hazard” exclusion is irrelevant because the CGL

policy coverage provisions do not apply to the Foster Wheeler suit.

B. The Umbrella Policy 

Defendants also issued to VBF a commercial excess umbrella liability

policy. The Umbrella policy has two coverage provisions. The first coverage

provision offers coverage under the same terms as the CGL policy for damages

that exceed the CGL policy limits. Because there is no coverage under the CGL

policy, there is no coverage under the first coverage provision in the Umbrella

policy.

The second coverage provision in the Umbrella policy provides separate

coverage if there is no underlying insurance. It states:
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We will pay [] damages when liability is imposed on the insured by

law or assumed by the insured under an insured contract because

of bodily injury or property damage which occurs during the

policy period and is caused by an occurrence; and we will pay []

damages when liability is imposed on the insured by law or assumed

by the insured under an insured contract because of personal

injury or advertising injury to which this coverage applies, caused

by an offense committed during the policy period.

As explained above, “imposed on the insured by law” refers to tort claims; the

Foster Wheeler suit was a contract claim, despite the allegation for negligently

failing to follow contract specifications. See Natol Petroleum Corp., 466 F.2d at

39-42; Redevelopment Auth., 685 A.2d at 589. The contract between Foster

Wheeler and VBF is, however, an “insured contract” for purposes of the Umbrella

policy. The Umbrella policy defines an “insured contract” as:

Any written or oral agreement entered into by the insured in the

usual course of the business operations of the insured in which the

insured assumes tort liability of another to pay damages because of

bodily injury, personal injury, property damage or advertising

injury to a third person or organization where the contract or

agreement is made prior to the injury.

As explained above, the contract between Foster Wheeler and VBF contains a

provision in which VBF assumes Foster Wheeler’s tort liability for claims arising

from the electrical equipment. Though the Foster Wheeler suit was not based on

the exact contract provision in which VBF assumes the tort liability of Foster

Wheeler, the policy language in the Umbrella policy (as opposed to the CGL
3

 The definition of “insured contract” in the Umbrella policy applies to “any

written or oral agreement.” In contrast, the definition of “insured contract” in the

CGL policy applies only to “that part” of a contract in which the insured assumes

the tort liability of another.

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policy) does not make this distinction.3

 The contract between Foster Wheeler and

VBF was thus an “insured contract” for purposes of the Umbrella policy. This

court will assume without deciding that Foster Wheeler’s contractual suit against

VBF is a suit for liability “assumed by the insured” for “property damage” caused

by an “occurrence.”

The Umbrella policy, however, has an exclusion for “OWNED PROPERTY

AND DAMAGE TO YOUR PRODUCTS OR WORK.” The exclusion applies to

property damage to or loss of use of:

a. property owned by you or purchased by you under installment sales

contract or property on consignment to you;

b. your products caused by such products or any of their parts;

c. your work arising out of the work or out of materials, parts or

equipment furnished with such work.

“Your product” is defined as “[a]ny goods or products, other than real property,

manufactured, sold, handled, distributed or disposed of by . . . you . . . and

containers (other than vehicles), materials, parts or equipment furnished in

connection with such goods or products.” The electrical equipment fits the

definition of “your product” because it was a product sold by VBF to Foster

Wheeler. For the “OWNED PROPERTY AND DAMAGE TO YOUR

PRODUCTS OR WORK” exclusion to apply, the damage had to be “caused by
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such products or any of their parts.” It is undisputed that the damage to the

electrical equipment was caused by the containers provided by Brand Export. 

Thus, for the exclusion to apply, the containers must also fit the definition of

“your product.”

VBF maintains that the containers were not “furnished in connection” with

the electrical equipment, and thus not within the term “your product,” because

they were provided by a subcontractor. This argument ignores the plain meaning

of the policy language. “Furnished in connection” in no way implies that the

containers must have been manufactured or constructed by the insured. This is

evident when the entire definition of “your product” is considered. The definition

differentiates between “goods or products,” which must be “manufactured, sold,

handled, distributed, or disposed of by” the insured, and “containers,” which need

only be “furnished in connection with such goods or products.” The containers

were clearly “furnished in connection” with the electrical equipment; the

containers were thus within the term “your product.” The “OWNED PROPERTY

AND DAMAGE TO YOUR PRODUCTS OR WORK” exclusion applies because

VBF seeks indemnification for damage to “your products [the electrical
4VBF also argues that the relationship between the “your product”

exclusion, the “your work” exclusion, and the “products—completed operations

hazard” exclusion creates an ambiguity. This argument, however, is directed

towards the CGL policy and not the Umbrella policy.

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equipment] caused by such products [the containers].” Because the exclusion

applies, there is no coverage under the second provision of the Umbrella policy.4

C. VBF’s Bad Faith Claim

Oklahoma provides for tort claims against insurers when “there is a clear

showing that the insurer unreasonably, and in bad faith, withholds payment of the

claim of its insured.” McCorkle v. Great Atl. Ins. Co., 637 P.2d 583, 587 (Okla.

1981) (quotation and emphasis omitted). “There is no bad faith when the

insurer’s denial of a claim is based on a legitimate dispute between the insurer

and the insured.” Claborn v. Wash. Nat’l Ins. Co., 910 P.2d 1046, 1051 (Okla.

1996). As the policies did not cover VBF’s claim, Defendants’ denial of the

claims was clearly legitimate. Thus, VBF has no bad faith claim against

Defendants.

D. Reasonable Expectations Doctrine

VBF argues that the reasonable expectations doctrine applies in this case to

preclude a grant of summary judgment for Defendants. Because the policy

provisions necessary to resolve this case are unambiguous and do not contain

“unexpected exclusions arising from technical or obscure language or which are
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hidden in policy provisions,” the reasonable expectations doctrine does not apply. 

Max True Plastering, 912 P.2d at 869.

IV. CONCLUSION

For the reasons stated above, this court AFFIRMS the district court’s grant

of Defendants’ motion for summary judgment.