FILED

United States Court of Appeals

Tenth Circuit

September 12, 2008

Elisabeth A. Shumaker

Clerk of Court

PUBLISH

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

JOHN F. MULLIN; DIANE L.

MULLIN,

Plaintiffs - Appellees,

v. No. 07-4100

TRAVELERS INDEMNITY

COMPANY OF CONNECTICUT, a

Delaware Corporation,

Defendant - Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF UTAH

(D.C. NO. 2:05-CV-971-TS)

Michael W. Homer (Jesse C. Trentadue, with him on the briefs), of Suitter

Axland, Salt Lake City, Utah, for Defendant - Appellant.

Vincent C. Rampton, Jones, Waldo, Holbrook & McDonough, P.C., Salt Lake

City, Utah, for Plaintiffs - Appellees.

Before TACHA, BRISCOE, and HARTZ, Circuit Judges.

HARTZ, Circuit Judge.

Travelers Indemnity Company of Connecticut insured High Mountain, LLC,

which managed two condominium units in Utah owned by John F. and Diane L.
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Mullin. The Mullins sued High Mountain for renting the units for discounted

rates without permission, theft of property from the condominiums owned by the

Mullins, failure to forward rental income, and theft of property from a rental unit

that the Mullins occupied. They obtained a default judgment against High

Mountain, which then declared bankruptcy. The bankruptcy led the Mullins to

bring this direct action against Travelers for a declaratory judgment that they are

entitled to recover from Travelers the full amount owed on their judgment against

High Mountain. See 28 U.S.C. § 1332 (diversity jurisdiction); Utah Code Ann.

§ 31A-22-201 (allowing direct action against insurers of bankrupt insureds). 

After the parties filed cross-motions for summary judgment, the district court

ruled in favor of the Mullins.

On appeal Travelers argues that it is not obligated to pay the default

judgment because (1) the judgment against High Mountain is for losses not

covered by the Travelers insurance policy and (2) High Mountain’s failure to

provide prompt notification of the default judgment was prejudicial and bars

recovery under the policy. We have jurisdiction under 28 U.S.C. § 1291 and

reverse and remand. Travelers is entitled to summary judgment with respect to

three of the alleged losses. The Mullins abandoned at oral argument their claim

that the Travelers policy covers the loss from discounted rents. The failure to

forward rental income is not a loss included within the policy coverage for loss of

use of tangible property. And the theft from the condominiums owned by the
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Mullins is not covered by the policy because it predated the policy coverage

period. We agree with the Mullins, however, that the Travelers policy covered

the theft—allegedly caused by High Mountain’s negligence—from the

condominium they occupied. But Travelers may still escape liability for that loss

if recovery under the policy is barred by High Mountain’s failure to give proper

notice to Travelers. Although the district court granted the Mullins summary

judgment on Travelers’ claim of inadequate notice, we think that disputed facts

precluded that judgment. We therefore remand for further proceedings on the

issue. 

I. BACKGROUND

The Mullins owned two rental condominiums in Park City, Utah, which

High Mountain began managing for them in 2000. From October 1, 2002, until

October 1, 2003, High Mountain had a general commercial liability policy with

Travelers. The Mullins sent letters to High Mountain in late 2002 and throughout

2003 complaining of (1) the loss of $15,728.28 in rental income because High

Mountain had discounted the rents for the Mullins’ units without their permission;

(2) High Mountain’s failure to forward $32,989.36 in rental income to the

Mullins; (3) the theft of property valued at $1,306 from their two rental

condominiums; and (4) the theft of property valued at $70,000 from a rental unit

where they were staying in December 2002 because their own units had been

rented. 
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On October 28, 2003, the Mullins filed suit against High Mountain in Utah

federal district court, alleging that High Mountain was liable for the abovementioned losses of rental income and thefts. They claimed that High Mountain

had breached its contract by allowing the thefts to happen, discounting the rental

rate, and failing to forward rents; that its agents and employees had stolen at least

$71,300 of the Mullins’ property; that it was liable for gross negligence in

permitting the various thefts to occur; and that High Mountain had been unjustly

enriched by retaining the Mullins’ property.

After High Mountain failed to file a timely answer, default judgment was

entered in the Mullins’ favor on January 8, 2004, and they were awarded

$120,017.64 plus interest, attorney fees, and costs. High Mountain filed an

answer to the complaint four days later, on January 12, and filed for bankruptcy

in February. 

Travelers had begun representing High Mountain by April 2004, but it did

not file a motion for relief from judgment until November 23, 2004. The district

court denied the motion. It noted that the Mullins would be prejudiced by

reopening the case because High Mountain had dismissed its employees and

ceased doing business, making it almost impossible to reconstruct what had

happened. In addition, the court found no excuse for High Mountain’s delay in

seeking relief. It indicated, however, that it would have set aside the default
1

The Mullins initially sued “St. Paul Travelers Insurance Company,” but

Travelers was later substituted as the defendant.

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judgment if High Mountain had so moved when it filed its answer on January 12. 

We affirmed the denial of relief on June 2, 2006.

In the meantime, on November 28, 2005, the Mullins had filed the suit

before us in the United States District Court for the District of Utah.1

 The

Mullins filed a motion for summary judgment in which they argued that Travelers

had to pay the entire amount of the default judgment. Travelers filed a motion for

summary judgment as well, in which it argued that none of the losses was covered

by High Mountain’s insurance policy and that, in any event, it was freed of

liability by High Mountain’s failure to provide it with timely notice regarding the

Mullins’ suit.

The district court granted summary judgment in favor of the Mullins and

denied Travelers’ motion. It ruled that all the Mullins’ losses were covered by

High Mountain’s policy with Travelers, and it held that Travelers was not

prejudiced by any failure of High Mountain to provide notice because Travelers

“accepted tender of its insured’s defense, effective January 15, 2004,” in ample

time to file a successful motion for relief from the default judgment. Mullins v.

Travelers, No. 2:05-CV-971 TS, Mem. Decision & Order Granting Pls.’ Mot.

Summ. J. (D. Utah Mar. 26, 2007) (Opinion) at 8. The court entered judgment in
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the amount of $134,312.37, which was the amount of the Mullins’ judgment

against High Mountain, plus costs, fees, and interest.

II. DISCUSSION

For Travelers to be liable for the default judgment, it is necessary that (1)

the Mullins “obtained, but w[ere] unable to satisfy, a judgment against” High

Mountain; and (2) “the damages arising from” High Mountain’s actions “were

covered by the [Travelers] policy.” Speros v. Fricke, 98 P.3d 28, 34 (Utah 2004). 

Travelers does not contest that the Mullins obtained a judgment against High

Mountain that they were unable to satisfy, so we need consider only the second

issue, whether High Mountain’s alleged wrongdoings were covered by the

Travelers policy. 

A. Standard of Review

We review de novo a district court’s grant of summary judgment, viewing

the evidence in the light most favorable to the nonprevailing party. Navair, Inc.

v. IFR Americas, Inc., 519 F.3d 1131, 1137 (10th Cir. 2008). Summary judgment

is appropriate if “there is no genuine dispute over any material fact, and a party is

entitled to prevail as a matter of law.” Id.; see Fed. R. Civ. P. 56(c). Because the

parties’ arguments rely on Utah law, we will assume that Utah law governs. See

St. Anthony Hosp. v. U.S. Dep’t of Health & Human Servs., 309 F.3d 680, 703

(10th Cir. 2002) (assuming that Oklahoma law applies because parties assumed

that it did). When the Utah Supreme Court has not addressed “specific issues
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raised in this appeal, . . . we must predict how that court would rule.” Pompa v.

Am. Family Mut. Ins. Co., 520 F.3d 1139, 1142 (10th Cir. 2008). We consider

each alleged loss in turn. 

B. Unpaid and Discounted Rent

The Mullins argued below that the property-damage provision in the

Travelers policy covered High Mountain’s liability to the Mullins arising from

renting their units at a discount and failing to forward rental income received by

High Mountain on the Mullins’ units. At oral argument the Mullins explicitly

abandoned their claim with respect to the discounted rentals, so we need not

address it.

To assess the Mullins’ claim based on failure to forward rental income, we

begin with the pertinent policy language. The Travelers policy covers only “those

sums that the insured becomes legally obligated to pay as damages because of

‘bodily injury’ or ‘property damage’ to which this insurance applies.” Aplee.

Supp. App. at 757 (Travelers Prop. Cas. Policy No. I-660-303C2211-TCT-02

(Policy) § I.1.a). The policy defines “property damage” as:

a. Physical injury to tangible property, including all resulting loss of

use of that property. All such loss of use shall be deemed to occur at

the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All

such loss of use shall be deemed to occur at the time of the

“occurrence” that caused it.
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Policy § V.15.a–b. The Mullins do not claim that paragraph (a) provides

coverage. The issue, therefore, is whether the Mullins suffered a “[l]oss of use of

tangible property that [was] not physically injured” when High Mountain did not

forward the rental payments to them. The Mullins contend that the “rental dollars

due [them] . . . constitute tangible property.” Aplee. Br. at 16 (internal quotation

marks omitted). We think not.

The Mullins’ Rental Management Agreement with High Mountain states:

[High Mountain] will provide a monthly accounting to the [Mullins]

which reflects all adjusted gross rental revenue, adjustments thereto

and expenses earned and incurred by the individual UNIT. This

accounting will be provided no later than 30 days after the end of

each month. The net rental income shall be mailed to the [Mullins]

with the monthly accounting. [High Mountain] may use advance

deposit funds obtained in connection with any unit as working capital

for its operations and to pay all expenses incurred with regard to the

UNIT(S).

Aplt. App. Vol. 1 at 69 (Rental Agreement). Thus, High Mountain was not

supposed to send the Mullins any tangible items (cash, checks, or the like) that it

received. Rather, it would collect (and presumably deposit) rental income and

send the Mullins the net rental income (presumably a check) after High

Mountain’s fees and expenses were deducted. High Mountain’s misconduct was

not a refusal to deliver tangible property, but simply a failure to pay a debt. 

There was no “property damage” within the meaning of the policy, because the

“money” not forwarded to the Mullins was not tangible property. See Johnson v.

Amica Mut. Ins. Co., 733 A.2d 977, 979 (Me. 1999) (bank-account funds are not
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tangible property, but merely represent value; therefore, conversion of bankaccount funds was not a loss of use of tangible property); Mack v. Nationwide

Mut. Fire Ins. Co., 517 S.E.2d 839, 840 (Ga. Ct. App. 1999) (money is tangible

property “only when there is a matter relating to specific coins or notes”);

Houston Petroleum Co. v. Highlands Ins. Co., 830 S.W.2d 153, 156 (Tex. App.

1991) (“‘the loss of use of tangible property’” does not include “the loss of initial

investments, subscription funds, and profits”); Travelers Indem. Co. v. State, 680

P.2d 1255, 1256–57 (Ariz. Ct. App. 1984) (neither investment certificates nor

deposit of money in a bank is tangible property); cf. Capitol Indem. Corp. v.

Wright, 341 F. Supp. 2d 1152, 1153–54, 1159 (D. Nev. 2004) (when employee of

nursing home stole over $450,000 from nursing home resident, the money was

property that the victim lost the use of because it was “hard currency”—which the

court inferred from the fact that the victim signed for the money at a bank). See

generally 2 Allan D. Windt, Insurance Claims & Disputes: Representation of

Insurance Companies & Insured § 11:1 at 11-3 to 11-4 (5th ed. 2007); (“property

that does not have intrinsic value, but rather is merely representative or evidence

of value,” such as a stock certificate, is intangible property, not tangible

property); id. at 11-5 (“[A]lthough ‘the destruction of a stack of currency could

certainly be considered a destruction of tangible property,’ the destruction or loss

of a check or investment certificate is not . . . .”). 
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It seems obvious to us that failure to pay money owed as a debt is not the

deprivation of use of tangible property. And in light of the authority supporting

that proposition, we are comfortable that the Utah Supreme Court would adopt the

same view. See Pompa, 520 F.3d at 1142 (in diversity case we must predict how

state’s highest court would rule). Accordingly, High Mountain’s liability to the

Mullins for failure to forward rent payments was not covered by the Travelers

policy, and Travelers is entitled to summary judgment on this claim.

C. Theft of Property Valued at $1,300

Travelers argues that the theft of $1,300 in property was not covered by its

policy because the record does not show that it occurred within the policy period

of October 1, 2002, to October 1, 2003. Travelers is correct that the Mullins bore

the burden to prove that the loss occurred within the policy period, see Speros, 98

P.3d at 34, and that they failed to satisfy that burden. The Mullins’ complaint

against High Mountain broadly states that the theft of the $1,300 in property

occurred “[d]uring the calendar year 2002.” Aplt. App. Vol. 1 at 59. But a letter

to High Mountain from Mr. Mullin on October 23, 2002, states that certain

property (later valued at $1,306) was discovered missing from their

condominiums “[o]ver the Labor Day holiday.” Aplt. App. Vol. 1 at 160. And a

letter to High Mountain by the Mullins’ counsel on September 23, 2003, states: 

“[The] Mullins have lost other items from their units incident to High Mountain’s

maintenance thereof prior to October of 2002. These items, itemized on the
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enclosed list, total $1,306.” Aplt. App. Vol. 1 at 91 (emphasis added). No

evidence in the record supports a different date for the theft. Not only does the

record not support summary judgment in favor of the Mullins on this $1,300

claim, but it shows that Travelers was entitled to summary judgment. 

D. Theft of Property Valued at $70,000

The Mullins’ complaint against High Mountain alleged that in December

2002 property of theirs worth $70,000 was stolen by High Mountain employees

from a condominium where the Mullins were staying. Travelers argues that the

theft is not covered by the policy. It points out that (1) the policy excludes

coverage for damage to “personal property in the care, custody or control of the

insured,” Aplt. Br. 25 (internal quotation marks omitted); (2) it is liable under

the policy only for losses that are the result of an “occurrence,” that is, an

accident, id. at 23; and (3) the policy excludes coverage for property damage

“intended from the standpoint of the insured,” id. (internal quotation marks

omitted). In our view, however, none of these policy provisions assists Travelers

in this case. 

First, we consider the policy exclusion for damage to “[p]ersonal property

in the care, custody or control of the insured.” Policy § I.2.j.(4). The property at

issue here was personal property of the Mullins that they left in the condominium

they were occupying while their own condominiums were rented out. High
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Mountain’s care, custody, or control would have to derive from its management

of the condominiums. 

The Travelers policy does not define “care, custody, or control.” 

According to one leading treatise, however, to determine whether property is

under the “care, custody, or control” of an insured, courts consider

whether the property is realty or personalty, the location, size, and

other characteristics of the property, and the insured’s relationship to

the property, including the insured’s duties with respect to the

property, nature and extent of the insured’s control over the property,

and any interest the insured may have in the property.

9 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 126:22 (3d ed. 2007)

(footnote omitted). “The great majority of the cases,” states the treatise, “support

the view that property in the care, custody, or control of the insured refers to

possessory handling of the property as distinguished from proprietary control.” 

Id. Thus, “property stored on the insured’s premises” usually qualifies, but not

when “the insured lets locked storage space to a third party.” Id. 

We infer that a landlord who has no special responsibility toward the

belongings of a tenant does not have “care, custody, or control” of the tenant’s

property on the rented premises. This common-sense view of the policy language

undermines Travelers’ argument. High Mountain appears to have been merely the

landlord’s agent for living quarters occupied by the Mullins. Absent additional

evidence of High Mountain’s control of the premises or responsibility for an

occupant’s property, which Travelers has not provided, the only reasonable
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conclusion is that High Mountain did not have the possessory interest in the

Mullins’ property necessary to establish the exclusion. Although there is no

controlling Utah law in point, we see no reason to believe that the Utah Supreme

Court would adopt a peculiar view of the policy language. See Overson v. U.S.

Fid. & Guar. Co., 587 P.2d 149, 150 (Utah 1978) (the phrase “care, custody, or

control” is “clear and unambiguous” in most contexts).

Second, the Travelers policy “applies to . . . ‘property damage’ only if . . .

[it] is caused by an ‘occurrence.’” Policy § I.1.b. The policy defines occurrence

as “an accident, including continuous or repeated exposure to substantially the

same general harmful conditions.” Id. § V.12. We reject Travelers’ contention

that this limitation bars recovery for the December 2002 theft. Although the

Mullins’ complaint against High Mountain alleges intentional theft (for which

High Mountain was allegedly liable under the doctrine of respondeat superior), it

also alleges that High Mountain was grossly negligent for “(a) failing to secure

the Rental Unit and the Condominium Units through re-keying following a prior

burglary thereof; (b) making keys to the Units available to third parties; and/or (c)

failing to supervise personnel entering or leaving the Units.” Aplt. App. Vol. 1 at

62–63. 

Ordinarily, the intentional acts of a third party do not prevent a loss from

being an “accident” if the insured’s negligence was also a cause. For example, in

Nationwide Mutual Fire Insurance Co. v. Pipher, 140 F.3d 222, 225–26 (3d. Cir.
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1998), Ms. Pipher’s tenant was murdered by a man whom Ms. Pipher had hired to

paint the apartment, id. at 223–24. Ms. Pipher’s insurance company sought a

declaratory judgment that it had no duty to defend her because the killing was

intentional, and thus did not result from an “accident.” Id. at 224. But the Third

Circuit held that there was policy coverage because the complaint alleged that

Ms. Pipher had been negligent in failing to reinstall apartment doors, failing to

provide safe premises, and hiring the painter. Id. at 225. The court said, “The

rule seems to be well-settled . . . that it is the intentional conduct of the insured

which precludes coverage, not the acts of third parties.” Id. at 226. It also noted

that “many courts have expressly held in favor of the insured in coverage disputes

involving the intentional conduct of third parties.” Id.; see also id. at 228–29

(Alito, J., concurring). We are confident that Utah would concur with this

prevailing view. 

Third, the Travelers policy has a provision entitled “Expected or Intended

Injury,” which excludes coverage for “‘Bodily injury’ or ‘property damage’

expected or intended from the standpoint of the insured. . . .” Policy § I.2.a. But,

as just discussed, the Mullins had a claim against High Mountain for

unintentional conduct (gross negligence) that caused the theft. It appears that

Travelers does not rely on this exclusion with respect to the negligence claim. In

any event, we do not see, and Travelers does not explain, how the exclusion

would apply to that claim. See Pipher, 140 F.3d at 227 (explaining meaning of
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such an exclusion). To escape liability with respect to that claim, Travelers must

therefore rely on its failure-of-notice argument.

E. Failure to Notify Travelers of Mullins’ Lawsuit

Travelers’ final argument is that it was relieved of any liability under the

policy because it was prejudiced by High Mountain’s failure to provide prompt

notice regarding the Mullins’ lawsuit against High Mountain—in particular,

notice of the default judgment. Because this argument is fact dependent, we

begin by reciting what the record reveals. 

The Mullins filed suit against High Mountain on October 28, 2003. Default

judgment was entered in their favor on January 8, 2004. High Mountain filed its

answer to the complaint four days later and declared bankruptcy the following

month. Travelers admits that it had begun representing High Mountain by April

2004, but it did not file a motion to set aside the default judgment until November

23, 2004. The motion was denied, and we affirmed on appeal.

Travelers’ agent received notice of the Mullins’ claim against High

Mountain on January 6, 2004, and Travelers acknowledged receipt of the

summons and complaint in a letter to High Mountain on January 15, 2004. 

(Although the Mullins contend that Travelers had earlier notice of the claim, they

rely on an affidavit from their attorney that provides only hearsay evidence—a

statement by High Mountain’s attorney—that Travelers knew of the claim. Such

hearsay cannot be considered on a motion for summary judgment. See Riggs v.
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AirTran Airways, Inc., 497 F.3d 1108, 1121 (10th Cir. 2007).) The Mullins

asserted below, and the district court agreed, that Travelers announced its

decision to defend High Mountain in the January 15 letter. The language of the

letter does not support this proposition. Travelers wrote:

The Travelers Indemnity Company of Connecticut (“Travelers”) has

received the Summons and Complaint John F. Mullin and Diane L.

Mullin have filed against High Mountain, LLC dba High Mountain

Properties (“Mountain Properties”) in the United States District

Court, District of Utah, Central Division (Civil No. 2:03 CV00952

DS).

Travelers is conducting an investigation to determine what our rights,

duties and obligations are to Mountain Propert[ies] under the policy

of insurance, number 660-303C2211-TCT from October 1, 2002 to

October 1, 2003.

This investigation is being done under a reservation of rights which

should not be construed as an admission of coverage or liability. We

do not waive any of our rights under the policy of insurance issued to

Mountain Properties.

We understand you retained counsel who has filed a response on

Mountain Properties’ behalf.

We will advise you of our coverage position once we have had an

opportunity to complete our investigation. Should you have any

questions, please contact me at . . . .

Aplt. App. Vol. 1 at 261. This letter appears to communicate a reservation of

rights, not a tender of defense. Indeed, it notes that High Mountain already has

retained counsel to answer the complaint.

The Travelers policy requires that High Mountain “[i]mmediately send

[Travelers] copies of any demands, notices, summonses or legal papers received
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in connection with the claim or ‘suit.’” Policy § IV.2.c.(1). Travelers contends

that High Mountain failed in this regard by not providing notice of the suit until

the default was entered and never providing notice of the default or the default

judgment. It asserts that it did not learn of the default or default judgment until

advised by the Mullins’ attorney in April 2004, three months after judgment was

entered. Under Utah law, however, failure to provide notice to an insurer “does

not bar recovery under the policy if the insurer fails to show it was prejudiced by

the failure.” Utah Code Ann. § 31A-21-312(2). 

In our view, whether Travelers was prejudiced by lack of notice from High

Mountain could depend on a variety of factors. To avoid doing the parties’ work

for them, we choose not to canvass the possibilities. But the district court

apparently found one fact to be dispositive. It said that Travelers “accepted

tender of its insured’s defense, effective January 15, 2004.” Opinion at 8. And it

then concluded that Travelers “had actual notice in time to have affected the

outcome of the case,” id., apparently relying on the statement by the district judge

in that case that he would have granted a motion for relief from the default

judgment if the motion had been filed with High Mountain’s answer on

January 12, 2004. We cannot affirm summary judgment for the Mullins on this

basis. The district court’s statement that Travelers “accepted the tender of its

insured’s defense” on January 15, 2004, is, at the least, highly questionable. 

Accordingly, we remand to the district court for further proceedings regarding
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whether Travelers was substantially prejudiced by failure of timely notice from

High Mountain. 

III. CONCLUSION

We REVERSE the district court’s grant of summary judgment. We

REMAND to the district court with instructions to enter summary judgment in

favor of Travelers on all claims except the claim based on the December 2002

theft of the Mullins’ property. With respect to that claim, we REMAND for

further proceedings regarding whether Travelers was prejudiced by untimely

notice from High Mountain concerning the Mullins’ lawsuit against High

Mountain.