PUBLISH 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

_________________________________ 

SRM, INC., 

 Plaintiff - Appellant, 

v. 

GREAT AMERICAN INSURANCE 

COMPANY, 

 Defendant - Appellee. 

No. 14-6160 

_________________________________ 

Appeal from the United States District Court 

for the Western District of Oklahoma 

(D.C. No. 5:11-CV-01090-F)

_________________________________ 

Maurice G. Woods II (Michael G. McAtee, with him on the briefs), McAtee & Woods, 

Oklahoma City, Oklahoma, for Plaintiff-Appellant. 

Roger N. Butler, Jr. (Diane M. Black, with him on the brief), Secrest, Hill, Butler & 

Secrest, Tulsa, Oklahoma for Defendant-Appellee. 

 _________________________________ 

Before HARTZ, HOLMES, and MORITZ, Circuit Judges. 

_________________________________ 

MORITZ, Circuit Judge. 

_________________________________ 

Under Oklahoma law, a primary insurer owes its insured a duty to initiate 

settlement negotiations with a third-party claimant if the insured’s liability to the 

claimant is clear and the insured likely will be held liable for more than its insurance 

FILED 

United States Court of Appeals

Tenth Circuit 

August 25, 2015

Elisabeth A. Shumaker 

Clerk of Court

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will cover. Here the insured, SRM, Inc., seeks to extend this obligation to its excess 

liability insurer, Great American Insurance Company. Specifically, SRM claims that 

Great American breached its insurance policy and duty of good faith and fair dealing 

by not proactively investigating claims against SRM and by refusing to tender its 

policy limits to spur settlement negotiations. The district court granted Great 

American’s motion for summary judgment on SRM’s claims and denied SRM’s 

request to reconsider. We agree that Great American—SRM’s excess insurer—did 

not breach its duty to fairly and in good faith discharge its contractual obligations to 

SRM. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm. 

BACKGROUND

At a rail crossing in rural Canadian County, Oklahoma, a Union Pacific 

Railroad train t-boned an SRM1

 dump truck as the truck crossed the tracks in the path 

of the oncoming train. The collision killed the truck driver and derailed the train 

causing extensive damage to the train’s engines, its cars, and three of its workers. 

The three injured train workers sued Union Pacific, SRM, and SRM’s primary 

auto liability insurer, Bituminous Insurance Company, in state court. Union Pacific 

cross-claimed against SRM and SRM counter cross-claimed. As SRM’s excess 

liability insurer, Great American received notice of the claims and monitored the case 

for potential exposure under its umbrella policy. 

 1

 At the time, SRM, Inc. was Schwarz Ready Mix, Inc. SRM is Schwarz’s 

successor. We use “SRM” to refer to both Schwarz and SRM. 

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As SRM’s primary insurer, Bituminous defended SRM in the state action. At 

the outset, SRM’s defense team estimated potential damages to be $4.2 million and 

settlement value to be $2.25 million, with no chance for a defense verdict. 

About a year after the incident, SRM’s attorney Mike McAtee, whom SRM 

separately retained, demanded that Bituminous and Great American tender their 

respective liability policy limits to settle the case. He asserted that the injured train 

workers’ claims alone would exceed the $6 million in combined liability coverage. 

Bituminous responded that it was prepared to offer its $1 million liability limit to 

Union Pacific to settle that claim, or to tender its limit to SRM and Great American 

for their use in negotiating a settlement with Union Pacific and/or the other 

claimants. But Great American rejected that approach and urged an aggressive 

defense. 

After a pretrial hearing at which the trial court indicated that federal law 

preempted SRM’s cross-claim and best defense, McAtee renewed his demand that 

Great American tender its $5 million policy limit to settle the case. He warned that 

any delay in tendering the entire $6 million available for settlement might make it 

impossible to settle at a later date. Great American again declined, stating it required 

additional discovery to properly evaluate the claims and suggesting the claims would 

be resolved in mediation after discovery was complete. 

Before mediation, SRM’s Bituminous-retained defense team revised its 

estimate of potential exposure to be between $4-4.5 million and $7 million. A Great 

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American-retained attorney estimated economic damages at roughly $8 million, but 

estimated a jury would award between $2 and $4.65 million. 

At the mediation, the plaintiffs initially demanded $20 million but later in the 

day reduced their demand to $6.5 million. Great American countered with $450,000. 

At that point, over Great American’s objection, McAtee disclosed to the plaintiffs 

that SRM stood ready to contribute $500,000 in addition to the $6 million policy 

limits to settle the case. A week later, the case settled for $6.5 million with the parties 

agreeing to pay as follows: Bituminous, $1 million; Great American, $5 million; and 

SRM, $500,000.2

After the dust settled on the underlying litigation, SRM sued Great American 

in state court as part of a second round of litigation involving multiple other parties 

and claims. Following some procedural wrangling, the state court severed SRM’s 

claims against Great American, creating this independent action, which Great 

American removed to federal court. 

In this suit, SRM alleged that Great American breached its excess liability 

insurance contract and the implied covenant of good faith and fair dealing by failing 

to proactively investigate the railroad’s and railroad workers’ claims, and failing to 

initiate settlement negotiations. The district court granted Great American’s summary 

judgment motion, concluding, among other things, that Great American did not owe 

 2

 Eugene Schwarz, one of the three Schwarz brothers operating SRM, testified 

at his deposition that SRM had its own reasons for settling the case quickly—the 

lawsuit apparently was holding up a $70 million deal to sell SRM to an Australian 

company that was not interested in purchasing the potential liability SRM faced in 

the underlying litigation. 

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SRM a duty to investigate or to initiate settlement negotiations until Bituminous 

tendered its policy limits at the time of settlement. 

Citing new evidence and asserting a new legal argument, SRM sought 

reconsideration of the district court’s ruling. SRM contended that because the 

common law implies an independent duty of good faith and fair dealing, the district 

court erred in linking that duty to Great American’s contractual obligations. The 

district court also rejected this argument, reiterating that Great American had no 

implied duty to investigate claims or to initiate settlement negotiations until 

Bituminous exhausted its policy limits by paying claims. SRM appeals.

DISCUSSION

SRM blames Great American—its excess insurer—for forcing SRM to pay 

$500,000 out-of-pocket to settle Union Pacific’s and its injured workers’ claims. 

SRM argues that if Great American had investigated the claims and initiated 

settlement negotiations by tendering its policy limits earlier in the litigation, the case 

would have settled within the $6 million policy limits. SRM further contends that 

Great American’s failure to take these actions violated Great American’s implied 

duty of good faith and fair dealing.3

 3

 SRM’s appellate arguments present a moving target. In its opening brief, 

SRM did not challenge the district court’s interpretation of the Great American 

policy—that Great American unambiguously owed SRM no contractual duty to 

investigate, settle, or defend until after Bituminous had exhausted its policy limits by 

paying claims. But in its reply brief and again at oral argument, SRM argued the 

policy was ambiguous or unenforceable. See, e.g., SRM Reply Br. at 2-3 (arguing 

policy was basically illusory and contrary to SRM’s reasonable expectations, 

requiring Great American to do nothing to settle claims while tying SRM’s hands to 

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Under Oklahoma law, which we apply to this diversity action, primary insurers 

like Bituminous generally are immediately responsible for investigating and 

defending the insured against third-party claims. See U.S. Fid. & Guar. Co. v. 

Federated Rural Elec. Ins. Co., 286 F.3d 1216, 1217 & n.1, 1218 (10th Cir. 2002) 

(noting that primary insurer provides insured “‘immediate coverage’” (quoting U.S. 

Fid. & Guar. Co. v. Federated Rural Elec. Ins. Corp., 37 P.3d 828, 831 (Okla. 

2001)). In performing its contractual obligations a primary insurer owes its insured a 

duty of good faith and fair dealing. See Christian v. Am. Home Assurance Co., 577 

P.2d 899, 904 (Okla. 1977) (quoting Gruenberg v. Aetna Ins. Co., 510 P.2d 1032, 

1038 (Cal. 1973)). 

This implied duty includes “an affirmative duty to initiate settlement 

negotiations” if “an insured’s liability is clear and injuries of a claimant are so severe 

that a judgment in excess of policy limits is likely.” Badillo v. Mid Century Ins. Co., 

121 P.3d 1080, 1095 (Okla. June 21, 2005), as corrected, (June 22, 2005). In 

addition, any settlement decision must be “based on a thorough investigation of the 

underlying circumstances of the claim.” Id. But Oklahoma courts have yet to decide 

how this duty applies to an excess insurer like Great American, whose contractual 

 

settle claims); SRM Reply Br. at 4-5 (arguing Great American should be estopped 

from taking the position that it had no obligation to investigate claims against SRM 

because Great American did in fact investigate claims and participate in controlling 

settlement negotiations; contending that once Great American began investigating the 

claims it had an obligation to do so reasonably, which it did not do). We decline to 

consider these arguments. See Bronson v. Swensen, 500 F.3d 1099, 1104 (10th Cir. 

2007) (“[W]e routinely have declined to consider arguments that are not raised, or are 

inadequately presented, in an appellant’s opening brief.”). 

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duties to the insured are not triggered until the primary insurer’s policy limits have 

been exhausted. Our task is to predict how the Oklahoma Supreme Court would 

decide this question. Squires v. Breckenridge Outdoor Educ. Ctr., 715 F.3d 867, 875 

(10th Cir. 2013). 

In doing so, we review the district court’s grant of summary judgment de 

novo, viewing the facts in the light most favorable to the nonmoving party. Colony 

Ins. Co. v. Burke, 698 F.3d 1222, 1236-37 (10th Cir. 2012). Summary judgment is 

appropriate if there are no genuine issues of material fact and the moving party is 

entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); see also Artes-Roy v. 

City of Aspen, 31 F.3d 958, 961 & n.5 (10th Cir. 1994). We review for abuse of 

discretion the district court’s denial of SRM’s motion to reconsider under Fed. R. 

Civ. P. 59(e). Barber ex rel. Barber v. Colo. Dep’t of Revenue, 562 F.3d 1222, 1228 

(10th Cir. 2009) (finding no abuse of discretion when district court’s grant of 

summary judgment affirmed under de novo review). 

To determine Great American’s obligations to SRM, we start with the terms of 

the policy itself. Automax Hyundai S., L.L.C. v. Zurich Am. Ins. Co., 720 F.3d 798, 

804 (10th Cir. 2013). If a policy is not ambiguous, the plain language controls. See

Yaffe Cos. v. Great Am. Ins. Co., 499 F.3d 1182, 1185 (10th Cir. 2007). 

The “Coverage” section of SRM’s excess insurance policy states that Great 

American “will pay” when SRM “becomes legally obligated to pay by reason of 

liability imposed by law . . . because of ‘bodily injury,’ ‘property damage,’ ‘personal 

injury,’ or ‘advertising injury’ that takes place during the Policy Period and is caused 

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by an ‘occurrence’ happening anywhere.” Great Am. Policy § I, Doc. 69-4 at 33. The 

parties agree that the policy covered the train derailment and resulting property 

damage and personal injuries. 

The Great American policy represents a classic excess insurance policy: the 

policy limited Great American’s responsibility for damages to “that portion of 

damages . . . in excess of the ‘retained limit.’” Id. § II.G., Doc. 69-4 at 34. In this 

case, the applicable “retained limit” equaled “the total amounts stated as the 

applicable limits of the underlying policies listed in the Schedule of Underlying 

insurance and the applicable limits of any other insurance providing coverage to the 

‘Insured’ during the Policy Period.” Id. § II.G., Doc. 69-4 at 34. That is, Great 

American would pay for covered claims exceeding Bituminous’ $1 million policy 

limit. 

Consistent with this coverage obligation, the “Defense” section of the policy 

gave Great American “the right and duty to investigate any ‘claim’ and defend any 

‘suit’ seeking damages covered by the terms and conditions of this policy when” at 

least one of two conditions was met: (1) the “Limits of Insurance” of “any other 

insurance providing coverage to the ‘Insured’”—here, Bituminous’ $1 million 

primary insurance limit—“have been exhausted by actual payment of ‘claims’ for any 

‘occurrence’ to which this policy applies,” id. § III.A., Doc. 69-4 at 34; or 

(2) “damages are sought for any ‘occurrence’ which is covered by this policy but not 

covered by any . . . other insurance providing coverage to the ‘Insured,’” id. 

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The policy specifically reiterated that unless primary insurance limits were 

exhausted or SRM faced a claim not covered by a primary insurer’s policy, Great 

American would “not be obligated to assume charge of the investigation, settlement 

or defense of any ‘claim’ or ‘suit’ against the ‘Insured.’” Id. § III.D., Doc. 69-4 at 35. 

Great American retained, however, “the right and . . . the opportunity to participate in 

the settlement, defense and trial of any ‘claim’ or ‘suit’ relative to any ‘occurrence’ 

which, in [its] opinion, [might] create liability on [its] part under the terms of this 

policy.” Id. The policy also required SRM to obtain Great American’s consent before 

making any payment or entering any settlement for which SRM would seek 

reimbursement from Great American. See id. §§ VI.F.4., VI.H., Doc. 69-4 at 44. 

As the district court correctly concluded, the policy was unambiguous: Great 

American’s contractual duties to investigate, settle, or defend claims against SRM 

did not kick in until SRM’s primary insurer exhausted its policy limits by actually 

paying claims. This did not happen until Bituminous and Great American 

simultaneously paid their respective policy limits to settle the claims against SRM. 

See id. § III.A., Doc. 69-4 at 34; Steadfast Ins. Co. v. Agric. Ins. Co., 304 P.3d 747, 

750 (Okla. 2013); U.S. Fid. & Guar. Co., 37 P.3d at 833; 14 Couch on Insurance 

§ 200:51. So, at the same time that Great American’s contractual duties to SRM took 

effect, Great American fully discharged its contractual obligations by contributing its 

policy limits toward settling the case. 

But SRM tries to sidestep the policy it agreed to. It argues that because the 

duty of good faith and fair dealing is an implied duty, it is independent of policy 

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language, and therefore applies equally at all times to all insurers—whether primary 

or excess—regardless of when an insurer’s express contractual duties to the insured 

kick in. 

While the duty of good faith and fair dealing is an obligation “‘deemed to be 

imposed by the law,’” the insurer’s duty is to “‘act fairly and in good faith in 

discharging its contractual responsibilities.’” Christian, 577 P.2d at 904 (quoting 

Gruenberg, 510 P.2d at 1037) (emphasis added). Thus, an insurer’s “‘duty . . . to the 

insured to exercise skill, care, and good faith to the end of saving the insured 

harmless, as contemplated by the [insurance] contract,’” arises when an “‘insurance 

company . . . , pursuant to [a] contract, take[s] control of’” investigating, adjusting 

claims, and defending lawsuits. Nat’l Mut. Cas. Co. v. Britt, 200 P.2d 407, 411 (Okla. 

1948) (quoting Boling v. New Amsterdam Cas. Co., 46 P.2d 916, 919 (Okla. 1935)). 

“An excess insurer” like Great American “has a reasonable economic 

expectation that it will not be responsible on its policy until the insurance at the level 

lower to [it] has been exhausted in accordance with the express provisions and 

obligations in the insurance contract.” Steadfast, 304 P.3d at 750. Likewise, “the duty 

of an excess insurer to participate in the insured’s defense is triggered only by 

exhaustion of the primary policy,” even if the “claim against the insured is for a sum 

greater than the primary coverage.” U.S. Fid. & Guar., 37 P.3d at 833. 

Under its policy with SRM, Great American had no obligation to investigate, 

settle, or defend a claim until the primary insurer exhausted its policy limits by 

paying claims. It would be inappropriate for us to alter Great American’s obligations 

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or economic expectations, which are rooted in the unambiguous terms of its contract 

with SRM. See id. (noting that requiring excess carrier to pay for defense because 

claim exceeded primary coverage would have been “contrary to . . . policy’s 

provisions” and would have “reallocated risks . . . the parties had freely agreed to and 

[were] compensated to assume”). 

SRM cites no controlling authority for its position that excess insurers owe 

their insureds a duty to proactively investigate and initiate settlement negotiations by 

tendering their policy limits even before the policy requires them to take such 

actions. And none of the extra-jurisdictional cases it does cite concern the type of 

duty SRM seeks to impose on Great American in this case—to proactively 

investigate and initiate settlement negotiations contrary to unambiguous policy terms. 

See, e.g., Am. Alt. Ins. Corp. v. Hudson Specialty Ins. Co., 938 F. Supp. 2d 908, 917 

(C.D. Cal. 2013) (holding that primary insurer could maintain equitable subrogation 

claim against excess insurer for unwarranted costs when primary insurer was forced 

to continue to defend insured because excess insurer rejected reasonable, withinlimits settlement offers); Diamond Heights Homeowners Assn. v. Nat’l Am. Ins. Co., 

277 Cal. Rptr. 906, 916 (Ct. App. 1991) (holding that excess insurer might be liable 

for portion of settlement that exceeded primary limits but was within excess limits 

when excess insurer rejected within-excess-limits settlement demand); Kelley v. 

British Commercial Ins. Co., 34 Cal. Rptr. 564, 569 (Dist. Ct. App. 1963) (holding 

that excess insurer was liable for over-limits judgment when it rejected pre-trial 

within-limits offers); N. Am. Van Lines, Inc. v. Lexington Ins. Co., 678 So. 2d 1325, 

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1333-34 (Fla. Dist. Ct. App. 1996) (holding that excess insurer may be liable for 

insured’s out-of-pocket payment to settle case when excess insurer refused 

reasonable within-limits settlement offers). 

At most, these cases recognize that an excess insurer owes its insured a duty to 

act reasonably when evaluating a plaintiff’s settlement offer or a settlement 

agreement negotiated by the primary insurer. But here, the railroad and its workers 

made no settlement offers or demands until the mediation—just a week before Great 

American paid its policy limits to settle the case. And SRM’s primary insurer did not 

negotiate a settlement that Great American refused to join. 

Although the facts of the cases SRM cites vary, as do the legal questions they 

address, each of the cases involved an excess insurer that exposed its insured or a 

primary insurer to liability by rejecting within-limits settlement offers. Under those 

circumstances courts have held that excess insurers owe their insureds a duty to 

“exercise good faith . . . in considering any offer of compromise within the limits of 

[their] polic[ies].” Kelley, 34 Cal. Rptr. at 569 (emphasis added). Others have held 

more broadly that excess insurers owe their insureds a “duty of good faith in 

evaluating any settlement offers” coupled with a duty not to “arbitrarily reject a 

reasonable settlement.” N. Am. Van Lines, 678 So. 2d at 1333-34 (relying heavily on 

Diamond Heights, 277 Cal. Rptr. at 916) (emphasis added). 

These duties may require an excess insurer to consider various factors, 

including the maximum likely recovery at trial, costs of defense, and the burdens of 

trial “in evaluating the reasonableness of a settlement negotiated by the primary 

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insurer.” Diamond Heights, 277 Cal. Rptr. at 916 (emphasizing that an “excess 

insurer does not have the absolute right to veto arbitrarily a reasonable settlement”) 

(emphasis added). And “if an excess insurer, like a primary insurer, fails to accept a 

reasonable settlement offer within its policy limits, it may be liable to the other 

insurer for any excess liabilities” under a claim for equitable subrogation. Am. 

Alternative Ins. Corp., 938 F. Supp. 2d at 917 (emphasis added). 

But these cases do not suggest that an excess insurer must investigate, initiate 

settlement negotiations, or proactively tender its policy limits in the face of an 

unambiguous policy to the contrary and absent any settlement demand from the 

plaintiffs or proposed settlement agreement from the primary insurer. Yet that is 

exactly the burden SRM asks us to impose on Great American. We decline to do so. 

See 14 Couch on Insurance §§ 200:41 & 42 (noting that excess insurers are not 

obligated to participate in defense of insured until primary policy limits are 

exhausted, even if claim amount exceeds primary limits). 

Even assuming the Oklahoma Supreme Court would follow the approach taken 

in the out-of-state cases on which SRM relies, Great American would be entitled to 

summary judgment. Unlike the excess insurers in those cases, Great American did 

not arbitrarily reject or otherwise fail to consider and evaluate a reasonable, withinlimits settlement offer. Until the mediation, discovery remained ongoing and 

settlement negotiations had not begun: Great American had no settlement offers to 

consider, and even at mediation none of the offers were within policy limits. But 

once the plaintiffs placed the $6.5 million offer on the table and SRM offered to 

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contribute $500,000, Great American promptly contributed its $5 million policy limit 

to settle the litigation a week later. 

Granted, Oklahoma’s duty of good faith and fair dealing requires primary

insurers to do “more than . . . simply not refus[e] unconditional settlement offers 

within [its policy] limits.” Badillo, 121 P.3d at 1095. “[I]f an insured’s liability is 

clear and the injuries of a claimant are so severe that a judgment in excess of policy 

limits is likely,” a primary “insurer has an affirmative duty to initiate settlement 

negotiations.” Id. (citing Powell v. Prudential Prop. & Cas. Ins. Co., 584 So. 2d 12, 

14 (Fla. Dist. Ct. App. 1991)). But SRM has provided no basis for overriding the 

unambiguous terms of its excess insurance policy and extending this type of duty to 

Great American—an excess insurer—before Great American’s contractual 

obligations to investigate, settle, or defend kicked in. See Noonan v. Vt. Mut. Ins. 

Co., 761 F. Supp. 2d 1330, 1332, 1335 (M.D. Fla. 2010) (holding that excess insurer 

had no obligation to insured until primary insurer offered its policy limits to settle 

claim against insured). Accordingly, we affirm the district court’s grant of summary 

judgment in favor of Great American and its denial of SRM’s motion to reconsider.4

 4

 The court does not reach the district court’s alternative ruling that Great 

American would be entitled to summary judgment even if it owed SRM a duty to 

proactively investigate and initiate settlement negotiations before the mediation. We 

therefore need not decide the related questions of whether the district court erred in 

disregarding certain affidavits or in excluding various depositions that SRM relied on 

to support its argument that the case would have settled within the $6 million policy 

limits if Great American had made proactive efforts toward settlement earlier in the 

litigation. 

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