UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

________________ _________________ AUTO-OWNERS INSURANCE COMPANY, a Michigan corporation, Plaintiff - Counter-Defendant - Appellee,

v. GEORGE FLEMING, an individual; JANIS FLEMING, an individual, Defendants - Counterclaimants - Third-Party Plaintiffs - Appellants,

v. CHARTER OAK FIRE INSURANCE COMPANY, a Connecticut corporation, Third-Party Defendant - Appellee, and TIMBERSMITH, INC., a Utah corporation, Defendant. No. 16-4118 (D.C. No. 2:12-CV-00786-CW) (D. Utah)

________________ _________________ ORDER AND JUDGMENT *

________________ _________________ Before TYMKOVICH , Chief Judge, LUCERO , and MORITZ , Circuit Judges.

________________ _________________

* This order and judgment is not binding precedent, except under the doctrines of law of the case, res judica ta, and collateral estoppel. It may be cited, however, for its persuasive value consiste nt with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1. FILED United States Court of Appeals Tenth Circuit 

### July 13, 2017
Elisabeth A. Shumaker Clerk of Court2 George and Janis Fleming appeal a di strict court order granting summary judgment to The Charter Oak Fire Insura nce Company (“Charter Oak”) and AutoOwners Insurance Company (“Auto-Owner s”). Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.
I The parties are familiar w ith the facts of this case, which we do not recite in detail. The Flemings hired Timbersmith, In c. in 2008 to build a residential property in Utah. During construction, LC Build ers, Inc., working with Timbersmith, incorrectly framed the house, and both Ti mbersmith and LC Builders ultimately abandoned the project before construction was completed. The Flemings filed a state-court action against LC Builders and an arbitration action against Timbersmith, asserting various claims for negligence and breach of contract. The Flemings prevailed in both actions and were awarde d $1,113,780.63 against LC Builders and $1,109,642.50 against Timbersmith. The owners of both companies filed for bankruptcy before satisfying the judgments against them. During the relevant period, LC Bu ilders was insured by Charter Oak and Timbersmith was insured by Auto-Owners. Charter Oak was made aware of the litigation against LC Builders but determined that its policy did not cover the alleged damages. Accordingly, it declined to defend LC Build ers. The parties dispute whether Auto-Owners received adequate notice of the arbi tration proceedings against Timbersmith. However, af ter final judgment was entere d, the Flemings contacted Auto-Owners and requested payment on be half of Timbersmith. Auto-Owners3 subsequently filed this d eclaratory judgment action against Timbersmith and the Flemings in state court, asserting that it had no duty to defend or indemnify Timbersmith against the Flem ings’ claims. After removi ng the case to federal court on the basis of diversity jurisdiction, the Flemings filed a count erclaim against AutoOwners and a third-party complaint against Charter Oak, arguing that both insurance companies are obligated to pay the judgments against thei r insured. The parties filed cross-motions for summary judgment. The district court granted summary judgment in favor of Charter Oak and Auto-Owner s. The Flemings timely appealed.
II We review a grant of summary judgment de novo, viewing the evidence in the light most favorable to the non-moving part y. Yousuf v. Cohlmia, 741 F.3d 31, 37 (10th Cir. 2014). Summary j udgment is warranted if “there is no genuine dispute as to any material fact and the movant is entitl ed to judgment as a ma tter of law.” Fed. R. Civ. P. 56(a). Because th is is a diversity action, we apply the substantive law of the forum state, Utah. Signature Dev. Co s. v. Royal Ins. Co. of Am., 230 F.3d 1215, 1218 (10th Cir. 2000).
A The Flemings argue that because Charte r Oak and Auto-Owner s breached their respective duties to defend LC Builders and Timbersmith, they are now estopped from challenging coverage. In rejecting this argument, the district court determined the insurance companies are entitled to contest coverage under Utah law because the issue was not adjudicated in the prior litigation. We agree.4 Utah law provides that, “as a general ru le[,] when an insu rer, whose policy requires it to defend its insure d, receives notice of a suit ag ainst [the insured] and is allowed an opportunity to defend, but refuse s, [the insurer] is bound by the findings and judgment therein.” McCarty v. Pa rks, 564 P.2d 1122, 1123 (Utah 1977). However, this general rule “ does not extend to matters colla teral or immaterial to the essential issues involved in the case, but is limited to those necessary to determination of the controversy between the immediate parties.” Id. Thus, an insurer whose liability for a judgment wa s not litigated or necessarily decided “should be afforded an opportunity to raise and have determined the issue as to its own liability, so long as doing so is not in consistent with the findings on material issues which were determined between th e plaintiff and defendant.” Id. These principles were recently reaffirmed by th e Utah Supreme Court. See Speros v. Fricke, 98 P.3d 28, 31, 34-39 (Utah 2004) (holding that insurer had “forfeited its opportunity to dispute the underlying facts” giving rise to insured’s liability by breaching duty to defend, but consideri ng insurer’s argument challenging policy coverage (emphasis added) (citi ng McCarty, 564 P.2d at 1123-24)). 1

1 The Flemings’ citation to Summerhaze Co., L.C. v. Federal Deposit Insurance Corp., 332 P.3d 908 (Utah 2014), doe s not alter our interpretation of Utah law. The issue presented in that case was whether the court had subject matter jurisdiction over the plaintiffs ’ claims, despite their failure to exhaust administrative remedies. Id. at 911. The pl aintiffs asserted that the administrative claims review process did not apply because the agency had “tendered de fense of the claim[s] to BancInsure and thus lost authority to reso lve the claims.” Id. at 920. It was in rejecting this argument—and considering the effect of a tender of defense on the rights of the agency—that the Utah Supr eme Court discussed estoppel and an insurer’s duty to defend. See id. at 920- 21. However, that discussion was only5 The underlying litigation between th e Flemings and the construction companies addressed the comp anies’ liability for neglig ence and the damages owed. “[T]here was no necessity fo r any adjudication as to wh ether” the damages were covered under the relevant insurance po licies. McCarty, 564 P.2d at 1123. Accordingly, neither insurer is estopped from chal lenging coverage. 2
B We must next consider whether the Charter Oak or Auto-Owners insurance policies (collectively, “Polic ies”) provide coverage for th e damage awards against LC Builders and Timbersmith. The district cour t concluded that neither Policy applies. Again, we agree. Under Utah law, “[a]n insurance polic y is merely a contract between the insured and the insurer and is construed pursuant to the same rules applied to ordinary contracts.” Alf v. State Farm Fire & Cas. Co., 850 P.2d 1272, 1274 (Utah 1993); see also Houston Gen. Ins. Co. v. Am. Fence Co., 115 F.3d 805, 806 (10th Cir. 1997) (interpretation of insurance cont ract governed by state law). The parties do not contend that any provisions in the Policies are ambiguous. Thus, there is no

intended to provide context to the jurisdicti onal analysis and was not necessary to the ultimate resolution of the ca se. Such dicta should not be taken to overrule the express holdings of McCarty and Speros, which were not cited. Cf. Alexander v. Sandoval, 532 U.S. 275, 282 (2 001) (the court “is bound by holdings, not language”).

2 Our conclusions on this and on the issu e of coverage, infra, obviate the need to address whether Auto-Own ers received adequate notice of the arbitration against Timbersmith or whether either insu rer breached its duty to defend.6 presumption in favor of the insured, and “the policy language is construed according to its usual and ordinary mean ing.” Alf, 850 P.2d at 1274. Both Policies are Commercial Gene ral Liability (“CGL”) policies with substantially similar coverage. 3 The Policies cover “pr operty damage” caused by an “occurrence,” which is defined as “an accid ent, including continuous or repeated exposure to substantially the same general harmful conditi ons.” “[A]ccident” is not further defined by the Policies. However, Utah law has consistently construed the term in the insurance policy context as being descriptive of means which produce effects which are not their natural and probable consequences. . . . An effect which is the natural and probable consequence of an act or c ourse of action is not an accident, nor is it produced by accidental means. It is either the result of actual design, or it falls under the maxim th at every man must be held to intend the natural and probable consequence of his deeds. N.M. ex rel. Caleb v. Dani el E., 175 P.3d 566, 569 (Uta h 2008) (quotation omitted). Under this definition, “harm or damage is not accidental if it is the natural and probable consequence of the insured’s act or should have been expected by the insured.” Id. (footnote omitted). Applying Utah law, this court has prev iously determined that “the natural results of an insured’s negligent and unwo rkmanlike construction do not constitute an occurrence triggering covera ge under a CGL policy.” Emp’rs Mut. Cas. Co. v. Bartile Roofs, Inc., 618 F.3d 1153, 1174 (10th Cir. 2010) (b rackets and quotation omitted); see also Farmington Cas. Co. v. Duggan, 417 F.3d 11 41, 1142 (10th Cir.

3 The one substantive difference between the Policies, whic h relates to the “your work” coverage exclusion, does not affect the outcome of this appeal.7 2005) (“Most policies of [CGL] insurance exclude the insured’s faulty workmanship from coverage. The rationale for such exclus ions is that faulty workmanship is not an insurable ‘fortuitous even t,’ but a business risk to be borne by the insured.” (quoting Lee R. Russ & Thomas F. Segalla , 9 Couch on Insurance § 129:11 (3d ed. 1995 & Supp. 2005))). 4 Two exceptions to this gene ral rule might exist “where defective workmanship causes damage to property other than the work product itself,” Cincinnati Ins. Co. v. AMSCO Wi ndows, 921 F. Supp. 2d 1226, 1260 (D. Utah 2013), or where damage is caused by “the negligent acts of [the insured’s] subcontractors,” Great Am. Ins. Co. v. Woodside Homes Corp., 448 F. Supp. 2d 1275, 1281 (D. Utah 2006). 5 Pursuant to these rules, we conclude the Flemings have failed to provide sufficient evidence that the judgments against LC Builder s and Timbersmith include a covered “occurrence” under the Policies. The Flemings allege only faulty

4 To the extent the Flemings disagree w ith this reading of Utah law, we are “bound by our own prior interpretations of state law,” absent “an intervening decision of the state’s highest court.” K okins v. Teleflex, Inc., 621 F.3d 1290, 1295 (10th Cir. 2010) (q uotation omitted).

5 The Utah Supreme Court has not di rectly addressed whether these two scenarios constitute an “o ccurrence” under a CGL policy. In diversity cases, “[w]here no controlling state decision exists, the federal c ourt must attempt to predict what the state’s highest court would do.” Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th Cir. 2003). Both Cinci nnati Insurance Co. and Great American Insurance Co.—District of Utah cases—predicted that Utah courts would likely endorse a definition of “occu rrence” that includes damage to property other than the work product itself or damage caused by a subcontractor’s negligence. See 921 F. Supp. 2d at 1260; 448 F. Supp. 2d at 1281. Because the Flemings have failed to demonstrate a coverable occurre nce even applying such a definition, we will assume without deciding that these are accurate predictions.8 construction causing damage to the insureds ’ own work. There are no allegations in the pleadings, nor factual findings in the fina l judgments against th e insured, that the “defective workmanship cause[d ] damage to property other than the work product itself.” Cincinnati Ins. Co., 921 F. Supp. 2d at 1260. 6 The Flemings’ vague assertions, without citations to record ev idence, that LC Builders and Timbersmith caused “latent defects” or “dangerous,” “unsafe,” and “hazardous” conditions in the home are insufficient to demons trate coverage. MacKenzie v. City & Cty. of Denver, 414 F.3d 1266, 1273 (10th Cir. 2005) (“Unsupported conclu sory allegations . . . do not create an issue of fact.”). Further, the Flemings have failed to present evidence that any of the faulty workmanship was performed by subcontractors of Timbersmith or LC Builders. In the arbitration petition against Timbersmith, the Flemings expressl y alleged that Cory Lowder—owner of LC Builders—worked on their home as an employee of Timbersmith. They now reverse course and assert that Lowder and LC Builders were Timbersmith’s subcontractors. However, they offer no record evidence supporting this contention or rebutting the subs tantial evidence provided by defendants confirming Lowder and LC Builders’ employ ee status. Accordingly, the Flemings have failed to demonstrate a genuine dispute of fact on this issue.

6 The district court noted evidence th at part of the foundation had to be chiseled out to move piping that was inco rrectly placed due to defective framing. The Flemings argued below that this evidence was irreleva nt and inadmissible. To the extent they now assert this is admissible evidence demonstrating coverage, we decline to consider the argum ent as it was addressed onl y summarily in their reply brief. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 67 9 (10th Cir. 1998) (“Arguments inadequately briefed in th e opening brief are waived . . . .”).9 There is a similar lack of evidence that LC Build ers’ defective work was performed by subcontractors. The Flemings did not allege in their state-court complaint that LC Builders employed any subcontractors, and although the final judgment against LC Builders cursorily conc luded that LC Builders and “their subcontractors” were negligent, the issue wa s immaterial to a de termination of LC Builders’ liability in thos e proceedings. See McCarty, 564 P.2d at 1123. Even assuming we are bound by the court’s statemen t, the Flemings have failed to specify which portions of the work were perfo rmed by LC Builders and which were performed by a subcontractor on LC Builders’ behalf, making it im possible for us to determine what—if any—dama ge might be covered. As the party asserting a loss under an in surance policy, the Flemings have the burden of demonstrating coverage. See Utah Farm Bureau Ins. Co. v. Dairyland Ins. Co., 634 F.2d 1326, 1328 (10th Cir. 1980); Ci ncinnati Ins. Co., 921 F. Supp. 2d at 1233. They have failed to do so. 7
III For the foregoing reasons, the district court is AFFIRMED

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Entered for the Court

Carlos F. Lucero Circuit Judge

7 In light of this conclusion, we n eed not address whether the Policies’ coverage exclusions would also bar the Flemings’ recovery.