Court Opinion

ID: 3185206
Source: CourtListenerOpinion
Date Created: 2016-03-14 17:09:04.008171+00
Date Added: 2024-06-11T11:11:07.204558
License: Public Domain

FILED
                                                           United States Court of Appeals
                                PUBLISH                            Tenth Circuit

               UNITED STATES COURT OF APPEALS                     March 14, 2016

                                                              Elisabeth A. Shumaker
                      FOR THE TENTH CIRCUIT                       Clerk of Court
                      _________________________________

BOARDWALK APARTMENTS,
L.C.,

      Plaintiff Counter Defendant-
      Appellee,

v.                                                  No. 15-3070

STATE AUTO PROPERTY AND
CASUALTY INSURANCE CO.,

      Defendant Counterclaimant-
      Appellant.
                    _________________________________

             Appeal from the United States District Court
                      for the District of Kansas
                   (D.C. No. 2:11-CV-02714-JAR)
                     _________________________________

Matthew Jon Smith, Smith Rolfes & Skavdahl, Cincinnati, Ohio, for
Defendant Counterclaimant-Appellant.

Mark G. Arnold, Husch Blackwell LLP, St. Louis, Missouri (William A.
Lynch, Kirsten A. Byrd, and Stacey M. Bowman, Husch Blackwell, LLP,
Kansas City, Kansas, with him on the brief), for Plaintiff Counter
Defendant-Appellee.
                      _________________________________

Before GORSUCH, EBEL, and BACHARACH, Circuit Judges.
                  _________________________________

BACHARACH, Circuit Judge.
                  _________________________________
      Boardwalk Apartments, L.C. sued State Auto Property and Casualty

Insurance Co. for breach of an insurance policy, contending that State Auto

had underpaid on the policy after one of Boardwalk’s eight apartment

buildings (Building 1) was destroyed in a fire. 1 In district court, State Auto

contended that Boardwalk was underinsured under the policy’s coinsurance

provision. Under this provision, Boardwalk’s insurance benefits were

reduced if the value of the Boardwalk apartment complex exceeded the

policy limit.

      Before trial, the district court issued two rulings that underlie this

appeal. First, the court held that for purposes of the policy’s coinsurance

provision, the value of the apartment complex did not include the cost of

complying with laws and ordinances regulating the construction and repair

of buildings. (We refer to these costs as “law-and-ordinance costs.”)

Second, the district court excluded reference at trial to either the

coinsurance provision or the possibility that Boardwalk was underinsured.

      At trial, the jury valued the Boardwalk complex below the policy

limit. Based on this valuation, the district court concluded that Boardwalk

was not underinsured under the coinsurance provision. In addition to

valuing the apartment complex, the jury found that State Auto had

1
     Boardwalk also sued for misrepresentation and negligence. These
claims are not involved in the appeal.
                                       2
underpaid for the loss of Building 1. As a result, the court awarded

damages to Boardwalk.

     State Auto appeals, and we conclude that the district court

          abused its discretion by excluding reference to the coinsurance
           provision and

          incorrectly construed the coinsurance provision.

In light of these errors, we reverse and remand for a new trial.

I.   This appeal turns on the meaning and effect of the coinsurance
     provision in the Boardwalk policy.

     Central to the appeal is the meaning and application of the

coinsurance provision.

     A.    After Boardwalk submitted its claim for the loss of Building
           1, State Auto asserted that Boardwalk was underinsured,
           triggering the coinsurance provision.

     The coinsurance provision requires Boardwalk to purchase enough

insurance to fully cover the value of the apartment complex. If the value of

the apartment complex exceeded the policy limit ($7.4 million), Boardwalk

would be considered underinsured and the coinsurance provision would

require a reduction in the amount owed for a covered loss.

     State Auto invoked this provision, claiming that Boardwalk was

underinsured, which would reduce the amount owed to Boardwalk for the

loss of Building 1. With this reduction, State Auto paid roughly $2.1

                                      3
million to Boardwalk. 2 Boardwalk alleged that it was owed more and

denied that it was underinsured.

       The dispute resulted in two suits between Boardwalk and State Auto.

The first was a declaratory judgment action brought by State Auto in the

Western District of Missouri. That suit ended in 2009 after an appeal to the

Eighth Circuit Court of Appeals. See State Auto Prop. & Cas. Ins. Co. v.

Boardwalk Apartments, L.C. (Boardwalk I), 572 F.3d 511 (8th Cir. 2009).

The second suit, which resulted in this appeal, was brought by Boardwalk

in the District of Kansas.

       B.   The district court disallowed reference to coinsurance or the
            effect of underinsurance.

       In the second suit, Boardwalk claimed that State Auto had breached

the insurance contract by failing to fully pay for the loss of Building 1. In

response, State Auto maintained its earlier position that Boardwalk was

underinsured, triggering the coinsurance provision and reducing the

amount owed to Boardwalk under the policy. But the district court

excluded reference to coinsurance and the effect of underinsurance.

       Without knowing why underinsurance would matter, the jury found

that

2
      Boardwalk asserts that State Auto relied on a Kansas insurance
statute rather than the coinsurance provision to calculate the amount of the
policy benefits; State Auto maintains that the coinsurance provision and
the Kansas statute provided alternative grounds for the payment amount.
This dispute is immaterial to our decision.
                                      4
          the replacement cost of Building 1 was $3.9 million, $1.8
           million more than State Auto’s original payment and

          the value of the Boardwalk complex was $6.7 million, which
           was below the policy limit of $7.4 million. 3

Based on these jury findings, the district court declined to apply the

coinsurance provision and awarded damages to Boardwalk.

     C.    The district court erred in excluding reference to the
           coinsurance provision and in adopting Boardwalk’s
           interpretation of the provision.

     State Auto appealed on numerous grounds. We agree with State Auto

on two of these grounds, concluding that the district court

          abused its discretion by excluding reference at trial to the
           coinsurance provision and the possibility that Boardwalk was
           underinsured and

          erred by ruling that for purposes of the coinsurance provision,
           the value of the apartment complex should not include the cost
           of complying with laws and ordinances.

     According to State Auto, the district court also erred by dismissing

State Auto’s affirmative defenses and counterclaims for fraud and

misrepresentation. We reject this contention.

3
     The jury also

          found that Boardwalk had sustained consequential damages
           totaling $2.6 million and

          made findings enabling the district court to calculate the
           insurance benefits for lost-business income.
                                      5
      State Auto’s remaining arguments involve alleged errors made during

or after the trial. Because we remand for a new trial, we need not address

these arguments.

II.   The district court abused its discretion by excluding reference to
      the coinsurance provision and the effect of underinsurance.

      Before trial, the district court granted Boardwalk’s motion in limine,

relying on Federal Rule of Evidence 403 to exclude reference to the

coinsurance provision and the effect of underinsurance. State Auto argues

that this ruling constituted an abuse of discretion.

      Because the coinsurance provision was highly probative and

presented only a minimal risk of unfair prejudice or confusion, we agree

with State Auto.

      A.      We review the district court’s ruling under Rule 403 for
              abuse of discretion, giving the excluded evidence its
              maximum reasonable probative value and minimum
              reasonable risk of unfair prejudice or jury confusion.

      The district court excluded any reference to the coinsurance

provision or the effect of underinsurance, relying on Federal Rule of

Evidence 403. This rule permits the district court to exclude relevant

evidence if the probative value of the evidence is substantially outweighed

by the danger of unfair prejudice or jury confusion. Fed. R. Evid. 403. We

review the district court’s exclusion of evidence under Rule 403 for an

abuse of discretion. Eller v. Trans Union, LLC, 739 F.3d 467, 474 (10th

Cir. 2013).

                                       6
     Under the abuse-of-discretion standard, we will not reverse an

evidentiary ruling “absent a distinct showing it was based on a clearly

erroneous finding of fact or an erroneous conclusion of law or manifests a

clear error of judgment.” Cartier v. Jackson, 59 F.3d 1046, 1048 (10th Cir.

1995). Nevertheless, we regard the power to exclude relevant evidence as

extraordinary, to be exercised sparingly. K-B Trucking Co. v. Riss Int’l

Corp., 763 F.2d 1148, 1155 (10th Cir. 1985). In deciding whether to

exercise this extraordinary power, the district court must give the evidence

its maximum reasonable probative force and the minimum reasonable risk

of unfair prejudice or confusion. Deters v. Equifax Credit Info. Servs.,

Inc., 202 F.3d 1262, 1274 (10th Cir. 2000); SEC v. Peters, 978 F.2d 1162,

1171 (10th Cir. 1992).

     B.    The district court excluded reference to the coinsurance
           provision and the effect of underinsurance.

     Invoking Rule 403, the district court excluded reference to the

coinsurance provision and the effect of underinsurance. In excluding these

references, the court reasoned that the jury did not need to know about

coinsurance or underinsurance to decide the two ultimate issues at trial:

     1.    the cost of replacing Building 1, which was the amount of
           Boardwalk’s loss under the policy, and

     2.    the value of the entire apartment complex, which would
           determine whether Boardwalk was underinsured for purposes of
           the coinsurance provision.

                                      7
If the jury valued the apartment complex above the policy limit of $7.4

million, the district court would apply the coinsurance provision to

determine the amount owed by State Auto. The court explained that it was

adopting this approach to avoid confusing the jury with the complexities of

the coinsurance provision.

     C.    The district court abused its discretion by excluding
           reference to the coinsurance provision or the effect of
           underinsurance.

     In our view, the district court’s explanation for its ruling does not

justify the exclusion of reference to the coinsurance provision or the effect

of underinsurance. The jury was asked to value the apartment complex

without knowing why this valuation mattered. The valuation was critical

because it directly affected the application of the coinsurance provision,

which would have significantly reduced the amount owed if Boardwalk

were underinsured. Thus, the parties had far different incentives in valuing

the apartment complex, incentives counter to what the jury would naturally

expect. In these circumstances, the exclusion of any evidence involving

coinsurance or underinsurance constituted an abuse of discretion. 4

4
       According to State Auto, exclusion of the coinsurance provision also
precluded any explanation of a good-faith basis for State Auto’s
calculation of the amount owed to Boardwalk. Because we reverse and
remand on the basis of State Auto’s alternative arguments about the
context of the coinsurance provision and Boardwalk’s incentive to urge a
low value for the complex, we need not address State Auto’s explanation
for its decision to pay roughly $2.1 million.
                                      8
         1.   The coinsurance provision was highly probative of State
              Auto’s defense.

         Applying Rule 403, the district court assigned minimal probative

weight to the coinsurance provision and concluded that the jury did not

need to know about the provision. But after giving the coinsurance

provision its maximum reasonable probative value, we respectfully

disagree with the district court’s assessment. See SEC v. Peters, 978 F.2d
1162, 1171 (10th Cir. 1992) (explaining that when reviewing the exclusion

of evidence under Rule 403, the court must give the excluded evidence its

maximum reasonable probative value).

         The coinsurance provision was highly probative regarding State

Auto’s contention that Boardwalk was underinsured. The district court may

well have been right that it could apply the coinsurance provision based on

the jury’s valuation of the apartment complex. But even so, the jury needed

to know about the coinsurance provision to understand why valuation of

the apartment complex would matter and why Boardwalk, the insured

party, had an incentive to value the complex below the $7.4 million policy

limit.

         When the jurors went about valuing the apartment complex, some

would inevitably be puzzled. Because insurers ordinarily pay based on the

value of the covered property, insurers usually have an incentive to assess

low values and insureds ordinarily have an incentive to claim high values.

                                        9
But because of the coinsurance provision, the incentives here were the

opposite of what the jury would have expected. As the insured, Boardwalk

had an incentive to urge a low value for the entire complex to avoid the

coinsurance penalty; and State Auto, as the insurer, had an incentive to

urge a high value to trigger the coinsurance provision. Surely the jury

wondered why the insured was insisting on a value for the complex that

was below the insurer’s valuation.

      But because of the district court’s ruling, State Auto could not

explain or address Boardwalk’s incentive in the presence of the jury.

Unaware of Boardwalk’s incentive to urge a low valuation, the jury could

not properly weigh Boardwalk’s assertion that the complex was worth only

$6.7 million.

      For example, State Auto contends that Boardwalk previously asserted

a value of $13.3 million for the apartment complex during the Missouri

litigation. But, State Auto maintains, Boardwalk then reduced its valuation

to $6.7 million during this litigation, after the Missouri litigation had

established the enforceability of the coinsurance provision. By excluding

reference to the coinsurance provision, the district court prevented State

Auto from using this discrepancy to show why a low valuation would

benefit Boardwalk.

      Because the jury did not learn about Boardwalk’s incentive for a low

valuation, Boardwalk was able to portray its valuation as generous and

                                      10
impartial. For example, in its closing argument, Boardwalk exploited the

jury’s lack of awareness about the coinsurance provision, arguing: “And

remember, it doesn’t do us any good for that number [the valuation of the

entire complex] to be higher than it is really. This is the number.

$6,697,509.” Appellant’s App’x at 5129. This argument was correct in a

literal sense: Boardwalk had no incentive to urge a high valuation for the

apartment complex. But Boardwalk had an enormous incentive, unknown to

the jury, to urge a low valuation.

      Boardwalk also alluded in its closing to State Auto’s incentive to

urge a valuation of the apartment complex that was artificially high.

Although Boardwalk boasted during its closing that it had no reason to

manipulate the apartment complex’s valuation, Boardwalk accused State

Auto of distorting the valuation because it “want[ed]” the valuation to be

“high.” Id. at 5130 (Boardwalk arguing in closing that State Auto

presented a figure of approximately $15 million for the value of the entire

complex, which “was like crazy” “[b]ecause they [State Auto] want it

high”). Thus, Boardwalk hinted at State Auto’s incentive to assert a high

valuation without acknowledging that Boardwalk had an equally strong

incentive to assert a low valuation.

      With the presence of a coinsurance provision excluded, the jury

never knew about the strong incentives that Boardwalk and State Auto had

to assert their respective valuations of the apartment complex. As a result,

                                       11
the jury was asked to value the apartment complex without any guidance on

why this valuation mattered, why State Auto might desire a high valuation,

or why Boardwalk might want a low valuation. The coinsurance provision

and the resulting incentives were essential for the jury to know in

assessing the parties’ valuations of the apartment complex.

     2.      The coinsurance provision presented only a minimal risk of
             unfair prejudice or confusion.

     The district court excluded reference to the coinsurance provision on

the ground that the probative value of this evidence was substantially

outweighed by the danger of unfair prejudice or jury confusion. In

reviewing this determination, we must assume that the excluded evidence

posed the least reasonable danger of unfair prejudice or confusion. See

SEC v. Peters, 978 F.2d 1162, 1171 (10th Cir. 1992) (explaining that when

reviewing exclusion of evidence under Rule 403, we must give excluded

evidence its minimum reasonable prejudicial value).

     The district court did not identify the danger of unfair prejudice or

confusion. But at various points, the court suggested two possible grounds

for confusion or prejudice: (1) the confusing nature of the coinsurance

provision and (2) the fact that the Missouri litigation had already resolved

some interpretative questions about the Boardwalk policy. In our view,

these grounds reflect only a minimal risk of unfair prejudice or jury

confusion.

                                     12
      First, in its ruling in limine, the district court suggested that it was

excluding the coinsurance provision in part because of the provision’s

“confusing nature.” Appellant’s App’x at 2110. Yet later, in denying State

Auto’s motion for a new trial, the district court explained that the

complexity of the “coinsurance concept” was not the reason for exclusion

of the coinsurance provision. Id. at 3480. We are unsure how to reconcile

these two statements.

      But whatever the district court meant, State Auto’s proposed use of

the coinsurance provision did not risk any meaningful jury confusion.

Calculating the amount owed under the coinsurance provision may have

been complex, but State Auto did not ask for the jury to make this

calculation. Instead, State Auto sought only to elicit evidence that there

was a coinsurance provision that would reduce the amount owed if

Boardwalk had been underinsured. There is nothing particularly complex

about this concept.

      Second, the district court pointed to “the degree to which [the

coinsurance provision] had been interpreted by this Court on summary

judgment and in accordance with the prior Missouri litigation.” Id. But

State Auto did not want to relitigate these interpretations or to address the

mechanics of the coinsurance provision. Instead, State Auto merely wanted

to use the coinsurance provision to establish context for the valuation of

the apartment complex and to show why Boardwalk wanted the jury to

                                      13
press for a low figure. These uses of the excluded evidence would not have

required discussion of any interpretations made in either the Missouri

litigation or the summary judgment ruling.

     The district court identified no other source of unfair prejudice or

jury confusion posed by the existence of a coinsurance provision, and we

can discern none in the record. In our view, the existence of the

coinsurance provision presented only minimal risk of unfair prejudice or

confusion.

     3.      Because the danger of unfair prejudice or jury confusion
             did not substantially outweigh the probative value, the
             district court abused its discretion by excluding reference to
             the coinsurance provision or the effect of underinsurance.

     Rule 403 permits the exclusion of relevant evidence only when the

risk of unfair prejudice or confusion “substantially outweigh[s]” the

evidence’s probative value. Fed. R. Evid. 403. In our view, the coinsurance

provision was highly probative and presented only minimal danger of

unfair prejudice or confusion. The district court thought differently, but

did not explain why it feared jury confusion from the mere mention of

coinsurance and the effect of underinsurance. In the absence of such an

explanation, we conclude that the district court abused its discretion.

                                     14
      D.     State Auto was prejudiced by the district court’s abuse of
             discretion, requiring us to reverse and remand for a new
             trial.

      Even if a district court abuses its discretion by improperly excluding

evidence under Rule 403, we will not reverse on this ground unless the

error affected a party’s substantial right. Eller v. Trans Union, LLC, 739
F.3d 467, 474 (10th Cir. 2013). In our view, the district court’s error

substantially prejudiced State Auto, requiring reversal and remand for a

new trial.

      Boardwalk argues that any error would have been harmless because

State Auto did not prove that Boardwalk was underinsured. But even if

Boardwalk is right about State Auto’s evidentiary proffer at trial, the

district court’s ruling could have affected State Auto’s strategy, causing

State Auto to withhold evidence showing Boardwalk’s failure to fully

insure the apartment complex. We will not fault State Auto for failing to

develop a defense that was improperly constrained by the district court’s

ruling.

      The ruling was prejudicial, not harmless, because it

            impeded State Auto in its cross-examinations of Boardwalk
             witnesses about their possible motivation to minimize the value
             of the apartment complex,

            limited State Auto’s ability to explain Boardwalk’s reduction in
             its valuation of the apartment complex from $13.3 million to
             $6.7 million, and

                                      15
           allowed Boardwalk to tout its own credibility regarding the
            value of the apartment complex while preventing State Auto
            from calling Boardwalk’s credibility into question.

As a result of these constraints, Boardwalk was able to appear generous,

modestly valuing the apartment complex to a jury unaware that a low

valuation would help Boardwalk obtain a larger payout.

       In these circumstances, we conclude that the district court’s

erroneous ruling prejudiced State Auto. Accordingly, we reverse the

district court’s decision to exclude reference to the existence of a

coinsurance provision and the effect of underinsurance. Based on this

reversal, we remand for a new trial.

III.   The district court erred by construing the coinsurance provision
       to exclude law-and-ordinance costs from the apartment complex’s
       replacement cost.

       In awarding partial summary judgment to Boardwalk, the district

court interpreted the coinsurance provision to exclude law-and-ordinance

costs from the value of the apartment complex. State Auto correctly argues

that the value of the apartment complex should include law-and-ordinance

costs. Because the district court’s erroneous interpretation prejudiced State

Auto, we reverse the district court’s award of partial summary judgment to

Boardwalk on the interpretation of the coinsurance provision.

                                       16
      A.    We apply Kansas law and engage in de novo review of the
            district court’s interpretation of the policy.

      The district court’s interpretation of the coinsurance provision

involves a conclusion of law that we review de novo. See In re Universal

Serv. Fund Tel. Billing Practice Litig., 619 F.3d 1188, 1211 (10th Cir.

2010) (“Contract interpretation is a question of law, which we . . . review

de novo.”). The parties agree that Kansas law governs our interpretation of

the policy. See Carolina Cas. Ins. Co. v. Nanodetex Corp., 733 F.3d 1018,

1022 (10th Cir. 2013) (applying the state law that both parties agreed was

applicable). Under Kansas law, we must ascertain what the parties

intended. Liggatt v. Emp’r’s Mut. Cas. Co., 46 P.3d 1120, 1125 (Kan.

2002). When we can determine this intent from the written insurance

contract, we go no further. Id.

      B.    Under Boardwalk I, the coinsurance provision’s definition of
            “value” incorporates the terms of the optional coverage for
            replacement cost, which in turn includes law-and-ordinance
            costs.

      The coinsurance provision states that the amount owed to Boardwalk

is reduced if the value of the apartment complex exceeds the policy limit

of $7.4 million. Appellant’s App’x at 84. But the policy does not define

the term “value” or otherwise indicate whether the “value” of the complex

includes law-and-ordinance costs. Thus, we must decide whether the term

“value” in the coinsurance provision includes law and ordinance costs. We

conclude that it does.

                                     17
      The parties agree that the term “value” refers to the replacement cost,

rather than the actual cash value, of the apartment complex. 5 But the

parties disagree about whether the replacement cost of the apartment

complex includes law-and-ordinance costs. Boardwalk contends that the

replacement cost of the apartment complex should not include law-and-

ordinance costs, and State Auto disagrees. Boardwalk’s interpretation

would make it less likely that Boardwalk was underinsured, thereby

avoiding the coinsurance provision and a reduction in the amount owed

under the policy.

      The district court agreed with Boardwalk, concluding that the

“value” of the complex under the coinsurance provision means the

replacement cost of the apartment complex without law-and-ordinance

costs. We respectfully disagree, for Boardwalk’s interpretation is

foreclosed by the policy’s text as construed in light of the Eighth Circuit’s

opinion in Boardwalk I. 572 F.3d 511 (8th Cir. 2009). 6

      There the Eighth Circuit made two critical holdings:

5
     The parties agree that “value” means replacement cost because
Boardwalk purchased additional replacement cost coverage. See
Appellant’s App’x at 64 (declaration page of the policy showing that
Boardwalk had replacement cost coverage).
6
      The parties agree that Boardwalk I controls. We too agree,
concluding that Boardwalk I binds us under the doctrine of issue
preclusion. See Taylor v. Sturgell, 553 U.S. 880, 892 (2008).
                                     18
     1.    The term “value” in the coinsurance provision incorporates the
           policy’s replacement-cost coverage, which is furnished by
           Section G.3 of the policy.

     2.    Exclusion of law-and-ordinance costs from the policy’s
           replacement-cost coverage is void because the exclusion
           violates Kansas public policy.

Boardwalk I, 572 F.3d at 517-18. In our view, these two holdings jointly

require us to define “value” under the coinsurance provision as the

replacement cost with law-and-ordinance costs.

     1.    Boardwalk I held that the term “value” in the coinsurance
           provision incorporates the policy’s replacement-cost
           coverage; thus, “replacement cost” means the same thing for
           both loss calculation and the coinsurance provision.

     Replacement cost matters under the Boardwalk policy in two separate

contexts: (1) for calculating covered losses sustained by Boardwalk, and

(2) for calculating the value of the apartment complex for purposes of the

coinsurance provision. The district court thought that the term

“replacement cost” could mean different things in each context. On this

basis, the district court construed “replacement cost” to include law-and-

ordinance costs for loss calculation, but excluded these costs under the

coinsurance provision. Boardwalk I, however, held that the coinsurance

provision incorporates the same replacement-cost provision that the policy

uses for loss calculation. Boardwalk I, 572 F.3d at 517. Thus, the district

court’s construction cannot be reconciled with Boardwalk I.

                                     19
      The policy’s text states that Section G.3, the policy’s replacement-

cost provision, applies to the calculation of Boardwalk’s covered losses.

The policy states that loss is calculated based on “actual cash value” when

the insured does not purchase optional replacement-cost coverage. 7 But

Boardwalk did purchase replacement-cost coverage. In light of this

purchase, the covered loss must be determined by replacement cost rather

than actual cash value. 8

      By contrast, the policy’s text does not expressly apply the

replacement-cost provision to the valuation of the apartment complex

under the coinsurance provision; the replacement-cost provision states only

that replacement cost “replaces Actual Cash Value” in the policy’s loss-

calculation provision. In addition, the coinsurance provision is located in a

different part of the policy and uses the term “value” rather than “actual

cash value.” Therefore, the policy’s text does not clarify whether the term

“value” in the coinsurance provision means “replacement cost” (as

provided by Section G.3) or some other measure of “value.”

7
      Section E.7 of the policy, titled “Valuation,” provides that State Auto
“will determine the value of Covered Property in the event of loss or
damage . . . [a]t actual cash value as of the time of loss or damage.”
Appellant’s App’x at 84.
8
      Section G.3 of the policy, the replacement-cost provision, provides
that “Replacement Cost . . . replaces Actual Cash Value in [Section E.7,
the loss-calculation provision]” when the insured purchases optional
replacement-cost coverage. Appellant’s App’x at 86.
                                     20
      In Boardwalk I, the Eighth Circuit Court of Appeals resolved this

ambiguity by holding that under Kansas law, the coinsurance provision

incorporates the policy’s replacement-cost coverage. Thus, “value” under

the coinsurance provision means “replacement cost” for purposes of loss

calculation.

      In reaching this conclusion, the Eighth Circuit followed a Kansas

Court of Appeals case, Wenrich v. Employers Mutual Insurance Cos., that

addressed a virtually identical coinsurance provision. Boardwalk I, 572
F.3d 511, 517 (8th Cir. 2009) (citing Wenrich, 132 P.3d 970, 975 (Kan. Ct.

App. 2006)). Like Boardwalk, the insured in Wenrich had purchased

replacement-cost coverage. Wenrich, 132 P.3d at 973-74. And, like the

Boardwalk coinsurance provision, the coinsurance provision in Wenrich

used the term “value” rather than “actual cash value,” leaving it unclear

whether the coinsurance provision turned on replacement cost or actual

cash value. Id.

      In those circumstances, the Wenrich court held that “the replacement

cost optional coverage must be construed as altering the methodology for

determining ‘the value of Covered Property in the event of loss’ and is

therefore incorporated into the coinsurance provisions.” Id. at 975.

      In Boardwalk I, the Eighth Circuit adhered to Wenrich and

incorporated the Boardwalk policy’s replacement-cost coverage into the

coinsurance provision. “The Wenrich court [had] held that there [was] no

                                     21
ambiguity in the contract,” the Eighth Circuit explained, “because the

replacement cost coverage is ‘inherently incorporated’ into the coinsurance

provision.” Boardwalk I, 572 F.3d at 517 (quoting Wenrich, 132 P.3d at

975). As a result, the Eighth Circuit concluded that “the term ‘value’ in the

coinsurance provision means replacement cost.” Id. at 516-17.

     Like Wenrich, Boardwalk I incorporated the Boardwalk policy’s

replacement-cost coverage into the coinsurance provision in place of the

term “value.” Section G.3 of the policy defines the term “replacement

cost” and sets out the policy’s replacement-cost coverage. In light of

Boardwalk I, the term “value” in the coinsurance provision means

“replacement cost” as delineated by Section G.3.

     Consequently, we must apply the same meaning of “replacement

cost” in calculating Boardwalk’s covered losses and in determining

whether Boardwalk was underinsured for purposes of the coinsurance

provision.

     2.      Under Boardwalk I, replacement cost must include law-and-
             ordinance costs.

     Given our holding that the term “value” in the coinsurance provision

means the policy’s replacement-cost coverage as provided by Section G.3

of the policy, we must decide whether that coverage includes law-and-

ordinance costs. But Boardwalk I resolves this question, rejecting any

                                     22
construction of the policy that excludes law-and-ordinance costs from

replacement cost as void against Kansas public policy.

      As written, Section G.3 purports to exclude law-and-ordinance costs

from replacement cost. 9 But in Boardwalk I, the Eighth Circuit Court of

Appeals held that withholding coverage for law-and-ordinance costs would

violate Kansas public policy. Boardwalk I, 572 F.3d at 517-18. Because the

parties could not lawfully exclude law-and-ordinance costs from coverage,

the Eighth Circuit concluded that replacement cost for purposes of loss

calculation had to include those costs. Id.

      Under Boardwalk I, the term “value” in the coinsurance provision

bears the same meaning as “actual cash value” in the loss-calculation

provision: “replacement cost” as provided by Section G.3 of the policy.

Because Boardwalk I requires replacement cost for purposes of loss

calculation to include law-and-ordinance costs, replacement cost under the

coinsurance provision must also include those costs. The district court’s

conclusion to the contrary was incorrect.

9
      Section G.3 of the policy provides that “replacement cost” “does not
include the increased cost attributable to enforcement of any ordinance or
law regulating the construction, use or repair of any property.” Appellant’s
App’x at 87.
                                      23
     3.    We reject the district court’s reasons for excluding law-and-
           ordinance costs from the replacement cost of the apartment
           complex.

     The district court gave three reasons for its interpretation of the

coinsurance provision, and Boardwalk defends these reasons on appeal:

     1.    The term “replacement cost” can mean different things in
           different parts of the policy.

     2.    Because the written policy provides additional coverage for
           law-and-ordinance costs, inclusion of these costs in the
           coinsurance provision would render the policy ambiguous,
           requiring construction in favor of Boardwalk as the insured.

     3.    The parties’ intent would be frustrated by including law-and-
           ordinance costs within replacement cost under the coinsurance
           provision.

We respectfully disagree with each of these three reasons.

      a.    In light of Boardwalk I and the structure of the policy, the
            term “replacement cost” cannot mean different things in
            different parts of the policy.

     First, the district court assumed that the term “replacement cost” can

mean different things in different parts of the policy. Based on this

assumption, the district court interpreted “replacement cost” differently in

two separate contexts: (1) for the apartment complex under the coinsurance

provision and (2) for Building 1 alone to determine the amount of the loss.

The district court concluded that

          for application of the coinsurance provision, the apartment
           complex’s “replacement cost” excludes law-and-ordinance
           costs and

                                     24
          for calculation of covered losses, “replacement cost” includes
           law-and-ordinance costs.

     We disagree, for the policy does not support different interpretations

of the term “replacement cost” in different contexts. As we have explained,

Boardwalk I held that the term “value” in the coinsurance provision means

“replacement cost” as defined by Section G.3, the policy’s replacement-

cost provision. And Boardwalk I held that “replacement cost” (as defined

by Section G.3) must include law-and-ordinance costs. As a result, the

term “value” in the coinsurance provision must also include law-and-

ordinance costs.

      b.    Use of the term “replacement cost” to include law-and-
            ordinance costs does not render the optional coverage
            superfluous.

     Second, the district court observed that Section A.4 of the policy

allows the insured to buy additional coverage for law-and-ordinance costs,

which the written policy otherwise purports to withhold. “If replacement

cost now includes law and ordinance costs” in light of Boardwalk I, the

district court determined, “then the additional coverage provision is

superfluous.” Appellant’s App’x at 1716. As a result, the district court

concluded that the policy was ambiguous, requiring construction in favor

of the insured under Kansas law.

     But the policy is not ambiguous, for Boardwalk I bars any

interpretation of the replacement-cost provision that excludes law-and-

                                     25
ordinance costs. Under Kansas law, “[a]mbiguity in a written contract does

not appear until the application of pertinent rules of interpretation to the

face of the instrument leaves it generally uncertain which one of two or

more meanings is the proper meaning.” Simon v. Nat’l Farmers Org., 829

P2d 884, 888 (Kan. 1992). Boardwalk I leaves no uncertainty; it requires

the court to interpret the apartment complex’s “replacement cost” to

include law-and-ordinance costs. Even if this interpretation renders Section

A.4’s optional law-and-ordinance coverage redundant, this redundancy

would not justify adopting a different interpretation that is foreclosed by

Boardwalk I.

      c.    Because the terms of the policy (as reformed by Boardwalk
            I) are unambiguous, the parties’ intent does not dictate
            exclusion of law-and-ordinance costs.

      Finally, the district court reasoned that the parties had not intended

to include law-and-ordinance costs when valuing the apartment complex.

For two reasons, however, we disagree.

      First, the written policy, when construed in light of Boardwalk I,

does not create an ambiguity. When the parties’ intent is clear from the

policy, we need not go further. Osterhaus v. Toth, 249 P.3d 888, 896 (Kan.

2011). As we have explained, Boardwalk I construed

           “replacement cost,” for purposes of loss calculation, to include
            law-and-ordinance costs and

           the coinsurance provision to incorporate the same replacement-
            cost coverage used for loss calculation.
                                      26
Boardwalk I, 572 F.3d at 517-18. Under these holdings, replacement cost

under the coinsurance provision must include law-and-ordinance costs.

Even if the parties originally intended to exclude law-and-ordinance costs

from replacement cost in one or both of these contexts, Boardwalk I

already reformed the policy in a way that deviated from the parties’

impermissible intent. See Nat’l Bank of Andover v. Kan. Bankers Sur. Co.,

225 P.3d 707, 715 (Kan. 2010) (“[C]ompetent parties may make contracts

on their own terms, provided such contracts are neither illegal nor contrary

to public policy.”).

      Second, even if the policy itself were not conclusive, we conclude

that the district court misinterpreted the intent reflected in the policy

language. Based on the policy’s structure and the purpose of coinsurance,

the most likely intent underlying the policy’s valuation scheme was to use

the same measure of value in the contexts of both loss calculation and

coinsurance, for the only meaningful way to determine whether Boardwalk

was underinsured is to compare the policy limit to the amount that

Boardwalk would recover in the event of a covered loss.

      But the district court’s interpretation introduces two separate

measures of value for loss calculation and coinsurance. An example

illustrates the problem with this apples-and-oranges approach. Suppose

that each of the eight buildings had a replacement cost of $750,000 and

                                      27
law-and-ordinance costs of $200,000. If all of the buildings were

destroyed, the covered losses would total $7,600,000, exceeding the policy

limit. Boardwalk would be underinsured. But under the district court’s

reading of the policy, the coinsurance provision would not be triggered

because the value of the apartment complex would exclude the $1,600,000

in law-and-ordinance costs—even though these costs would be fully

reimbursable for a loss that was only partial. In this hypothetical situation,

Boardwalk would be underinsured, but it would not be subject to the

coinsurance provision. We doubt that the parties would have intended this

outcome, but it is the unavoidable result of using different measures of

value for a damaged building and the entire apartment complex. 10

      C.    The district court’s error in interpreting the coinsurance
            provision constitutes a second ground for reversal.

      The district court erred in its summary judgment order by holding

that the “value” of the apartment complex under the coinsurance provision

means replacement cost without law-and-ordinance costs. Based on this

error, the district court instructed the jury to determine the replacement

10
       We recognize that parties may sometimes expressly choose different
measures to value the covered loss and to determine whether the covered
property is underinsured under the coinsurance provision. See Carley
Capital Grp. v. Fireman’s Fund Ins. Co., 877 F.2d 78, 82 (D.C. Cir. 1989)
(“Like other components of the policy contract, liability and coinsurance
stipulations are whatever the parties choose to make them.”). But here the
parties did not expressly use different measures to calculate covered losses
and to determine whether Boardwalk was underinsured. Before Boardwalk
I’s reformation of the policy to conform to Kansas public policy, the same
measure was used in both contexts: “value.”
                                      28
cost of the complex without law-and-ordinance costs. Instead, the court

should have instructed the jury to include law-and-ordinance costs in the

apartment complex’s replacement cost. Had the jury included these costs, it

might have found that the complex’s replacement cost exceeded the policy

limit of $7.4 million, triggering the coinsurance provision and reducing the

amount owed by State Auto.

      As a result, the district court’s error prejudiced State Auto at trial.

Because the error was prejudicial, we reverse the summary judgment ruling

on interpretation of the coinsurance provision. With this reversal, we

remand for a new trial with instructions to include law-and-ordinance costs

when determining the apartment complex’s replacement cost.

IV.   We vacate the district court’s imposition of attorneys’ fees and
      expenses against State Auto.

      Because the jury found for Boardwalk, the district court granted

Boardwalk’s motion for attorneys’ fees and expenses. In light of our

reversal, we vacate the district court’s imposition of attorneys’ fees and

expenses against State Auto.

V.    We reject State Auto’s allegations of error in the district court’s
      disposition of counterclaims and affirmative defenses, and we
      need not address State Auto’s remaining arguments.

      State Auto also challenges the rulings on its affirmative defenses and

counterclaims. We reject this challenge. Because State Auto’s other

                                      29
arguments on appeal may not arise in the retrial, we decline to consider

these arguments.

      A.    We uphold the district court’s dismissal of State Auto’s
            defenses and counterclaims because State Auto has made no
            persuasive argument for reversal.

      State Auto raised multiple affirmative defenses and counterclaims for

fraud and misrepresentation, alleging that Boardwalk had provided

misleading information about the claim. The district court dismissed the

counterclaims under Federal Rule of Civil Procedure 12(b)(6) and struck

the defenses under Rule 12(f). State Auto argues that in doing so, the

district court erroneously applied a common law fraud standard to these

claims and defenses. According to State Auto, the correct standard required

only that it plead falsehood and materiality.

      In our view, State Auto has failed to develop a sufficient argument

for reversal. For the sake of argument, we can assume without deciding

that Kansas law does require State Auto to plead only falsehood and

materiality for the misrepresentation defenses and counterclaims. Even so,

the district court concluded that State Auto had failed to adequately allege

materiality. In its opening brief, State Auto does not give any reason to

disturb the district court’s ruling on materiality. 11

11
     The district court’s analysis of materiality turned in part on the
Boardwalk tax returns referenced in State Auto’s pleading. State Auto
vaguely asserts that the district court’s reliance on those returns was
“improper” without any further explanation. Appellant’s Opening Br. at 52.
                                       30
      We “will not consider issues that are raised on appeal but not

adequately addressed.” Wilburn v. Mid-South Health Dev., Inc., 343 F.3d
1274, 1281 (10th Cir. 2003). Because State Auto has failed to sufficiently

contest the district court’s dismissal of its affirmative defenses and

counterclaims, we decline to disturb this part of the district court’s ruling.

      B.    We need not address State Auto’s remaining arguments on
            appeal because they may not arise in the retrial.

      State Auto also challenges seven other rulings:

      1.    the exclusion of the Statement of Values document signed by a
            Boardwalk principal,

      2.    the exclusion of testimony by Mr. Brent Vincent, State Auto’s
            underwriter,

      3.    the exclusion of a valuation report prepared by Boardwalk’s
            expert in the Missouri litigation,

      4.    the introduction of evidence regarding violation of the Kansas
            Unfair Claims Settlement Practices Act,

      5.    the introduction of evidence about Boardwalk’s consequential
            damages and the denial of State Auto’s motion to separate the
            consequential damages issue from the other issues,

      6.    the denial of a new trial based on the cumulative impact of
            evidentiary errors, and

      7.    the denial of State Auto’s motion for judgment as a matter of
            law on its affirmative defense involving Boardwalk’s failure to
            cooperate.

As a result, this appeal point is not adequately developed for meaningful
review. See United States v. Mike, 632 F.3d 686, 696 n.4 (10th Cir. 2011)
(declining to address an argument because the proponent did “not develop
[the] argument” or “cite any authority in support of it”).
                                      31
Because a new trial is necessary, these potential issues may not arise on

remand or may arise in different ways. As a result, we decline to address

State Auto’s challenges to these seven rulings.

VI.   Disposition

      We reverse and vacate the judgment because the district court

           abused its discretion by excluding reference to the coinsurance
            provision and the effect of underinsurance and

           incorrectly construed the coinsurance provision to exclude law-
            and-ordinance costs from the value of the apartment complex. 12

We affirm the dismissal of State Auto’s affirmative defenses and

counterclaims alleging fraud and misrepresentation.

      The action is remanded to the district court for a new trial consistent

with this opinion. 13 With this reversal and remand, we vacate the award of

attorneys’ fees and expenses against State Auto.

12
     Though we reverse, we recognize that the district court had to
confront a number of difficult issues and did so exceptionally well.
13
      The district court’s errors call the jury’s valuation of the apartment
complex into question, requiring vacatur of the judgment for Boardwalk on
the award of unpaid insurance benefits. The jury also made findings on
Boardwalk’s lost business income and consequential damages, but it is less
clear whether the district court’s errors affect these findings.

     We can remand for a new trial limited to specific issues, but only
when “a new trial on less than all the issues could . . . be had without
confusion and uncertainty.” Malandris v. Merrill Lynch, Pierce, Fenner &
Smith Inc., 703 F.2d 1152, 1178 (10th Cir. 1981). Otherwise, a new trial on
fewer than all the issues “would amount to a denial of a fair trial.” Id.

                                     32
      We decline to restrict the scope of the retrial, for neither party has
addressed the possibility of a retrial limited to specific issues. Given the
significance of the coinsurance provision, we cannot be certain about the
potential effect of the district court’s errors on the jury’s other findings.
Thus, we vacate the entire judgment and remand for a new trial without
parceling out the claims for lost business income and consequential
damages.
                                      33