## 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 br ief), Rhodes, Heironymus, Jones, Tucker & Gable, Tulsa, Oklahoma, for Defendants-Appellees.1 Three individuals have also been named as plaintiff s because of their capacity within VBF. For ease of reference, this o pinion will refer only to VBF. -2- Before EBEL , ANDERSON , and MURPHY , Circuit Judges.

MURPHY , Circuit Judge.



### I. INTRODUCTION Plaintiff VBF, Inc. (“VBF”) filed suit against Defe ndants, 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 insuranc e policies issued by Defendants required Defendants to defend and indemn ify VBF from a lawsuit filed against VBF by a third party. VBF later amen ded its complaint to also allege that Defendants had violated the duty of goo d faith and fair dealing. Both VBF and Defendants filed motions for summary judgme nt. The district court concluded that Defendants had no duty to defend or indemnify because VBF’s insurance claim fell within an exclusion in the pol icies; the district court thus granted Defendants’ motion for summary judgment anddenied VBF’s motion. VBF has appealed the grant of Defendants’ motion; j urisdiction to consider the appeal arises under 28 U.S.C. § 1291. Because VBF’ s insurance claim was not2 At oral argument to this court, VBF attempted to ar gue that Brand Export

was a subcontractor employed by Foster Wheeler. Th is is directly contrary to the facts alleged in VBF’s amended complaint and motionfor 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). -3- covered under one policy and excluded under the oth er policy, this court affirms the district court’s grant of Defendants’ motion fo r summary judgment. 

### II. FACTS AND PROCEDURAL HISTORY The district court found the following facts undisp uted, and neither party contests them on appeal. VBF contracted with Foste r Wheeler USA Corp. (“Foster Wheeler”) to sell electrical equipment fo r a Foster Wheeler job in China. After VBF manufactured the electrical equip ment, it was packaged by Brand Export Packing of Oklahoma, Inc. (“Brand Expo rt”), who was a subcontractor of VBF. 2 The electrical equipment was then shipped to Chin a. During shipment, however, the electrical equipment was damaged because of the containers provided by Brand Export. As a r esult of the damage, Foster Wheeler had to replace the electrical equipment. F oster Wheeler filed a lawsuit against VBF to recover its costs in replacing the e lectrical 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 lawsuitpursuant to two insurance-4-

policies issued by Defendants to VBF. Defendants d enied VBF’s claim, giving two reasons. First, Defendants maintained that VBF was not entitled to coverage because the Foster Wheeler lawsuit was for breach o f contract and thus not covered under the policies. Second, Defendants cla imed that VBF’s claim fell under a coverage exclusion for “Damage To Your Prod uct.” After Defendants rejected VBF’s claim, Foster Wheeler amended its co mplaint against VBF to assert a claim for negligently failing to follow co ntract specifications. In light of Foster Wheeler’s amended complaint, VBF renewed its request to have Defendants defend and indemnify VBF in its suit aga inst Foster Wheeler. Defendants, however, have continued to reject VBF’s claim. VBF filed suit in district court seeking (1) a decl aration that VBF’s claim for indemnity and defense in the Foster Wheeler law suit is covered under the insurance policies provided to VBF by Defendants an d (2) an award for the costs of defending the Foster Wheeler lawsuit and the cos ts of bringing the present lawsuit. VBF later amended its suit to also seek a ctual and punitive damages because of Defendants’ alleged bad faith. Both parties filed motions for summary judgment. The district court granted Defendants’ m otion for summary judgment and entered judgment in favor of Defendants. The d istrict court determined that Defendants had no duty under the policies to defendVBF in the Foster Wheeler-5-

lawsuit because the recovery sought by Foster Wheel er from VBF is excluded from coverage by reason of the “Damage To Your Prod uct” exclusion. 

### III. DISCUSSION This court reviews the grant or denial of summary judgment de novo , applying the same legal standard employed by the di strict 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 ju dgment is appropriate if “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, i f 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 defen d 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 liab ility policy (the “Umbrella-6-

policy”) that were in effect at the time of the eve nts underlying this lawsuit. Both parties assume that Defendants’ duty under the poli cies to defend VBF depends on whether Defendants would be required to indemnif y 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 th e potential of indemnification under the policies. See id. at 303 & nn.13-14. In interpreting the policies, this court applies Ok lahoma rules of construction. Under Oklahoma law, an unambiguous i nsurance policy is interpreted according to the plain meaning of the l anguage 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 ag ainst the insurer. See id. at 865. In addition, Oklahoma recognizes the “rea sonable expectations doctrine” when the policy is ambiguous or contains “unexpected exclusions arising from technical or obscure langua ge or which are hidden in policy provisions.” Id. at 868. In these situations, coverage exists if t he insurer or its agent has created a reasonable expectation i n the insured that coverage exists. See id. at 864, 870. The interpretation of an insurance p olicy, including whether the policy is ambiguous, is a matter of law

. See id. at 869. A. The CGL Policy-7-

The CGL policy has the following coverage language: We will pay damages the insured becomes legally obl igated to pay by reason of liability imposed by law or assumed underan 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 “liabili ty 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 & Tho mas F. Segalla, 7 Couch on Insurance §103:14 (3rd ed. 2000). Foster Wheele r’s suit against VBF was based on contract, not tort. Although Foster Wheel er amended its complaint to assert a claim against VBF for negligently failing to follow contract specifications, this clever drafting does not chang e 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 dama ge 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.-8-

Super. Ct. 1996) (“While [the third parties] have e mployed 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] so lely as a result of the contract between [the insured and the third parties].”). Therefore, coverage under the CGL policy exists forthe Foster Wheeler claim only if the contract between Foster Wheeler a nd 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 w ith vehicle or pedestrian private railroad crossings at grade; 4. any other easement agreement, except in connecti on 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 agreemen t is made prior to the bodily injury or property damage . Tort liability means a liability that would be imposed by law in the absen ce of any contract or agreement[.] Provision seven is the only provision arguably appl icable to the contract between Foster Wheeler and VBF. The contract betwe en Foster Wheeler and VBF contains a clause in which VBF assumes Foster Wheeler’s tort liability for-9-

claims arising from the electrical equipment. Fost er Wheeler’s suit against VBF, however, did not seek indemnification for Foster Wh eeler’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, Fo ster Wheeler’s contractual claim was not brought pursuant to an “insured contr act” 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 liabilityof 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 cov erage 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 recor d 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 workexcept: a. products that are still in your physical possess ion; or b. work that has not yet been completed or abandone d. “Products—completed operations hazard” is not, howe ver, mentioned in the CGL policy provisions extending coverage. It is clear that Defendants are correct to-10-

argue that “products—completed operations hazard” w as 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 pro vision, has great import in this case. The removal of the “products—completed operations hazard” exclusion did not create additional coverage beyond that prov ided for in the coverage provisions. As discussed above, the Foster Wheelerlawsuit 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 Fost er Wheeler suit. B. The Umbrella Policy Defendants also issued to VBF a commercial excess u mbrella liability policy. The Umbrella policy has two coverage provi sions. The first coverage provision offers coverage under the same terms as the CGL policy for damages that exceed the CGL policy limits. Because there i s no coverage under the CGL policy, there is no coverage under the first covera ge provision in the Umbrella policy. The second coverage provision in the Umbrella polic y provides separate coverage if there is no underlying insurance. It s tates:-11-

We will pay [] damages when liability is imposed onthe 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 t he 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 co ntract” 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 oradvertising injury to a third person or organization where the contra ct or agreement is made prior to the injury. As explained above, the contract between Foster Whe eler 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 CGL3 The definition of “insured contract” in the Umbrel la policy applies to “any

written or oral agreement.” In contrast, the defin ition of “insured contract” in the CGL policy applies only to “that part” of a contrac t in which the insured assumes the tort liability of another. -12- 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 Whee ler’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 exclusio n 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 workarising out of the work or out of materials, parts or equipment furnished with such work. “Your product” is defined as “[a]ny goods or produc ts, other than real property, manufactured, sold, handled, distributed or dispose d 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 produ ct sold by VBF to Foster Wheeler. For the “OWNED PROPERTY AND DAMAGE TO YOU R PRODUCTS OR WORK” exclusion to apply, the damage ha d to be “caused by-13-

such products or any of their parts.” It is undisp uted that the damage to the electrical equipment was caused by the containers p rovided by Brand Export. Thus, for the exclusion to apply, the containers mu st also fit the definition of “your product.” VBF maintains that the containers were not “furnish ed in connection” with the electrical equipment, and thus not within the t erm “your product,” because they were provided by a subcontractor. This argume nt ignores the plain meaning of the policy language. “Furnished in connection” in no way implies that the containers must have been manufactured or construct ed by the insured. This is evident when the entire definition of “your product ” is considered. The definition differentiates between “goods or products,” which m ust be “manufactured, sold, handled, distributed, or disposed of by” the insure d, and “containers,” which need only be “furnished in connection with such goods orproducts.” The containers were clearly “furnished in connection” with the ele ctrical equipment; the containers were thus within the term “your product. ” The “OWNED PROPERTY AND DAMAGE TO YOUR PRODUCTS OR WORK” exclusion appl ies because VBF seeks indemnification for damage to “ your products [the electrical4 VBF also argues that the relationship between the “ your product”

exclusion, the “your work” exclusion, and the “prod ucts—completed operations hazard” exclusion creates an ambiguity. This argum ent, however, is directed towards the CGL policy and not the Umbrella policy. -14- equipment] caused by such products [the containers] .” Because the exclusion applies, there is no coverage under the second prov ision 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 f aith, 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 legitimat e 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 ba d faith claim against Defendants. D. Reasonable Expectations Doctrine VBF argues that the reasonable expectations doctrin e applies in this case to preclude a grant of summary judgment for Defendants . Because the policy provisions necessary to resolve this case are unamb iguous and do not contain “unexpected exclusions arising from technical or ob scure language or which are-15-

hidden in policy provisions,” the reasonable expect ations 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.