Court Opinion

ID: 2722689
Source: CourtListenerOpinion
Date Created: 2014-09-02 16:00:32.149456+00
Date Added: 2024-06-11T10:08:23.950219
License: Public Domain

FILED
                                                      United States Court of Appeals
                       UNITED STATES COURT OF APPEALS         Tenth Circuit

                                    TENTH CIRCUIT                           September 2, 2014

                                                                           Elisabeth A. Shumaker
                                                                               Clerk of Court

 SCOTTSDALE INSURANCE
 COMPANY,

        Plaintiff-Appellant,
                                                              No. 12-1513
 v.                                                  (D.C. No. 1:10-CV-01092-RPM)
                                                                (D. Colo.)
 NATIONAL UNION FIRE INSURANCE
 COMPANY OF PITTSBURGH, PA,

        Defendant-Appellee.

                               ORDER AND JUDGMENT*

Before MATHESON, MCKAY, and EBEL, Circuit Judges.

       Plaintiff-Appellant Scottsdale Insurance Company (Scottsdale) and Defendant-

Appellee National Union Fire Insurance Company of Pittsburgh, PA, (National Union),

two excess liability insurers, disagree over National Union’s obligation to reimburse

Scottsdale for any of the $4.35 million that Scottsdale paid to cover the settlement of

claims against their common insured general contractor, Northwest Construction

       *This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. It may be cited, however, for its
persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
Company (Northwest). The ability of Scottsdale to obtain reimbursement from National

Union turns on whether the primary policy underlying the excess insurance provided by

National Union’s excess policy had been “exhausted.” The district court granted

summary judgment to National Union because Scottsdale did not provide sufficient

evidence to show that the primary policy underlying National Union’s excess coverage

was exhausted. We agree with the district court and affirm.

                                             I.

       Viewed in a light most favorable to the non-moving party, Scottsdale, the facts are

as follows.

       Northwest was the general contractor on the Coyote Ranch Apartments project in

Arapahoe County, Colorado, constructed over the years 2001 to 2004. Scottsdale and

National Union provided consecutive excess insurance policies to Northwest: Scottsdale

from April 2002 to April 2003 for $10 million and National Union from April 2003 to

April 2004 for $5 million and from April 2004 to April 2005 for $10 million.1 A primary

insurance policy underlay each excess policy: a Transcontinental Commercial General

Liability (Transcontinental) policy from April 2002 to April 2003, a Valley Forge

Commercial General Liability (Valley Forge) policy from April 2003 to April 2004, and

an American Zurich Insurance Company (Zurich) policy from April 2004 to April 2005.

       1
        An “excess” or “umbrella” insurance policy is a policy that only pays out if the
primary insurance policies underlying it are exhausted—that is, if the coverage limits for
the types of liabilities covered during the time period for the primary policy are satisfied.

                                              2
Transcontinental and Valley Forge are both owned by CNA Financial Corporation

(CNA). All of these primary policies had a coverage limit of $1 million for each

occurrence and a $2 million general aggregate limit.

       Construction flaws in the Coyote Ranch Apartments project became apparent in

2002 while construction remained ongoing. In 2003, Northwest and others were sued in

Colorado state court by the owners of the project, Simpson Cherry Creek Limited

Partnership (the Simpson suit). As the policies issued through Transcontinental and

Valley Forge provided primary coverage during construction, CNA provided a defense to

the Simpson suit, pursuant to a full reservation of rights. While the Simpson suit was

ongoing, Transcontinental and Valley Forge brought a declaratory judgment action

against Northwest and its associates in the United States District Court for the Northern

District of Texas, claiming their policies contained an exclusion that relieved them of the

duty to insure construction claims on the Coyote Ranch Apartment project.2

       The parties to the Simpson suit settled that suit in 2008 for $8.5 million. The

Simpson suit parties agreed that the Transcontinental and Valley Forge policies would

pay out $2 million each, Scottsdale would pay $4.35 million, and Zurich and Northwest

would each pay $75,000. National Union contributed nothing to the settlement.

       In a related agreement (the Declaratory Judgment Agreement), Northwest,

Scottsdale, and CNA agreed that Scottsdale would pay $500,000 to CNA to facilitate the

       2
        Such an exclusion in the primary coverage would render the excess carriers liable
for coverage if the excess policy covered the construction claims at issue.

                                             3
resolution of a Declaratory Judgment action in the Northern District of Texas. Northwest

agreed that “payment by Scottsdale to CNA in the amount of $500,000 as reallocation of

their respective shares of the Settlement Amount for the Underlying Action [the Simpson

suit] further reduces the limits of liability of the Scottsdale Policy.” (R. Aplt. App. at 65,

¶6.) These three parties also agreed that Transcontinental and Valley Forge had

exhausted their limits of insurance with respect to Northwest. Further, the parties agreed

that any amounts recovered from National Union would replenish the limits of insurance

for the Valley Forge and Transcontinental policies.

       In 2010, Scottsdale sued National Union for at least $2,283,911 under theories of

equitable judgment regarding coverage, equitable contribution, contractual subrogation,

and equitable subrogation.3 The district court granted summary judgment to National

Union because Scottsdale did not bring forth sufficient evidence to meet its burden to

prove exhaustion of the primary policies underlying National Union’s excess policy

exposure. Scottsdale appeals.

                                                II.

   A. Standard of Review

       “We review the district court’s order granting summary judgment de novo.”

Koessel v. Sublette Cnty. Sheriff's Dep’t, 717 F.3d 736, 742 (10th Cir. 2013). Summary

judgment is available if “there is no genuine dispute as to any material fact and the

       3
           At the district court, the parties agreed that Texas law applies to this dispute.

                                                 4
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “There is no

genuine issue of material fact unless the evidence, construed in the light most favorable

to the non-moving party, is such that a reasonable jury could return a verdict for the non-

moving party.” Koessel, 717 F.3d at 742. In order to survive summary judgment, “[f]or

dispositive issues on which the plaintiff will bear the burden of proof at trial, he must go

beyond the pleadings and designate specific facts so as to make a showing sufficient to

establish the existence of an element essential to his case . . . .” Cardoso v. Calbone, 490
F.3d 1194, 1197 (10th Cir. 2007) (alterations omitted) (internal quotation marks omitted).

The nonmovant must “do more than simply show that there is some metaphysical doubt

as to the material facts.” Champagne Metals v. Ken-Mac Metals, Inc., 458 F.3d 1073,

1084 (10th Cir. 2006). The relevant inquiry is “whether the evidence presents a sufficient

disagreement to require submission to a jury or whether it is so one-sided that one party

must prevail as a matter of law.” Simpson v. Univ. of Colo. Boulder, 500 F.3d 1170,

1179 (10th Cir. 2007).

       Here, it was up to Scottsdale to bring forth evidence such that a reasonable jury

could find for it because under Texas law, the insured “must prove the exhaustion of

underlying insurance as a condition precedent to recovery against the excess carrier,” and

Scottsdale is stepping into the shoes of the insured attempting to show that National

Union must provide excess coverage. Dresser Indus., Inc. v. Underwriters at Lloyd’s,

London, 106 S.W.3d 767, 771 (Tex. App. 2003). See also D.R. Horton, Inc. v. Am.

Guarantee & Liab. Ins. Co., 864 F. Supp. 2d 541, 564 (N.D. Tex. 2012), appeal dismissed
                                              5
(Oct. 22, 2012) (“[T]he court is satisfied that in order to carry its burden under Texas law

to establish a payment obligation under defendant's policy for any property damage that

took place . . . [plaintiffs] had the burden to establish that the limits of liability of the

[primary policies] had been exhausted by payment of claims covered by those policies

during that policy year.”).

       On appeal, the parties dispute whether “horizontal exhaustion” or “vertical

exhaustion” applies. “‘Horizontal exhaustion’ means that each primary insurance

triggered by a continuous loss must indemnify the policyholder to the full extent of its

policy limits before any excess insurer can be required to pay.” LSG Techs., Inc. v. U.S.

Fire Ins. Co., No. 2:07-CV-399-DE, 2010 WL 5646054 at *10 (E.D. Tex. Sept. 2, 2010)

(unpublished decision) (citing 23–145 Appleman on Insurance § 145.4; Thomas M.

Jones, An Introduction to Insurance Allocation Issues in Multiple Trigger Cases, 10 Vill.

Envtl. L.J. 25, 33 (1999)). On the other hand, “vertical exhaustion provides that each

excess policy in a triggered year is required to contribute to indemnification as soon as its

particular underlying coverage is exhausted, even if other triggered primary policies

(covering other periods) remain ‘untapped.’” Id. (citing 23–145 Appleman on Insurance

§ 145.4). We need not decide which exhaustion applies because with Zurich’s mere

$75,000 payment, Scottsdale cannot show either horizontal exhaustion, and it likewise

cannot show vertical exhaustion because it has failed to show exhaustion of the primary

policy underlying National Union’s ‘03-‘04 excess policy.

                                                6
   B. Scottsdale’s evidence to avoid summary judgment

       This case’s resolution is straightforward. Although Scottsdale showed convincing

evidence of its own intentions, it showed no evidence of CNA’s intentions or evidence

from CNA’s perspective about how the $500,000 Declaratory Judgment Agreement

payment from Scottsdale was to be applied or distributed, and thus, Scottsdale can make

no showing of vertical exhaustion of the primary policy underlying National Union’s

excess coverage policy. Without any limitation in the settlement agreements on CNA and

absent evidence about CNA’s intentions, CNA could have applied this $500,000 in any

number of ways. Scottsdale easily could have prevented such a state of affairs. First, it

could have negotiated the Declaratory Judgment Agreement to provide that CNA would

not apply the $500,000 to the ‘03-‘04 policy. Second, it could have discovered in

litigation what CNA did with the $500,000 and presented that information to the district

court. Scottsdale did neither; it has no other evidence to create a genuine issue of material

fact; and consequently it cannot survive summary judgment.

       Scottsdale nevertheless contends that it has presented four pieces of evidence that

show a genuine dispute of material fact. It first points to the deposition of Stephanie

Petras, a Scottsdale representative who participated in the negotiations that led to the

Declaratory Judgment Agreement, who testified:

       Q:             . . . But just so that we’re clear, the—the—when you’re
       talking about the declaratory judgment action that CNA had filed, it wasn’t
       just on the ’02, ’03 policy.
                                              7
       [Petras]:     I understand that. But our risk and our agreement to resolve
       the issue was on the—was based on the ’02, ’03 residential exclusion
       because that’s where Scottsdale’s policy sat.

(R. Aplt. App. at 62.) Scottsdale concludes from this statement that the payment was only

applicable to the CNA ‘02-‘03 Transcontinental policy, i.e. if it “replenished” any policy

at all, it only replenished the ‘02-‘03 Transcontinental policy. This deposition, however,

fails to solve Scottsdale’s evidentiary problem. The deposition evidence about

Scottsdale’s pecuniary motivation for its payment to CNA does not provide any

information about how CNA allocated the $500,000 between the policies or elsewhere,

nor does it control CNA’s actions. Without any evidence, the $500,000 could fairly be

said to have replenished either or both CNA policies because it was paid to CNA without

restriction.

       Second, Scottsdale makes arguments about the nature of the Declaratory Judgment

Agreement. Scottsdale first states that agreement reduced Scottsdale’s limits of insurance

by $500,000 and provided that replenishment of ’02-’03 and ’03-’04 CNA policies would

result from a recovery from National Union. Scottsdale thus concludes that any money

paid by Scottsdale to CNA cannot replenish the ’03-’04 CNA policy underlying National

Union’s policy. However, this off-point language about recoveries from National Union

going to replenish the CNA policies’ limits and the lack of such direct language with

respect to the $500,000 do not impose any limits to replenishment from the $500,000 that

would bind CNA. Scottsdale further claims that National Union and the District Court

                                             8
failed to specify the provision of the Declaratory Judgment Agreement that required or

even provided for replenishment of the policy underlying National Union’s excess policy.

Scottsdale points this court to the language stating that monies recovered from National

Union would replenish CNA’s limits of insurance and that no such language existed

about the $500,000 payment from Scottsdale. Scottsdale contends that this discrepancy

indicates that the $500,000 in question could not have gone to replenish the CNA policy

underlying National Union’s policy. But in demanding that National Union identify the

Declaratory Judgment Agreement provision that provided for replenishment of the CNA

policy underlying National Union’s policy, Scottsdale attempted to shift the burden to

prove exhaustion of the ‘03-‘04 CNA policy to National Union when it is Scottsdale that

bears that burden.

       Third, Scottsdale argues that a plain reading of its policy provisions leads to the

conclusion that Scottsdale was only responsible for occurrences of damage within its

April ‘02-April ‘03 policy period. Scottsdale contends that because it only intended to

settle the declaratory judgment action to protect itself from a risk that it would have to

pay out under its ‘02-‘03 excess policy, a reasonable jury could find that the $500,000

payment to CNA did not apply to the ‘03-‘04 CNA policy underlying National Union’s

policy. However, the character of Scottsdale’s liability under its policy and the limits to

liability to the ‘02-‘03 year does not change the fact that Scottsdale paid CNA in an

agreement without specifying any limit on the $500,000 going to replenish CNA’s ‘03-

‘04 policy.
                                              9
       Fourth, Scottsdale contends that the $500,000 payment could only have

replenished the CNA policy underlying Scottsdale’s claim because the only viable claim

in the declaratory judgment action was the apartment building exclusion in the CNA ‘02-

‘03 policy underlying Scottsdale’s excess policy. According to Scottsdale, if solely the

‘02-‘03 declaratory judgment claims had merit, then the payment of $500,000 could not

be applied to replenish the ‘03-‘04 policy underlying National Union. This argument

ignores that the merits of the declaratory judgment action do not bear on the Scottsdale’s

ability to prove that the ‘03-‘04 policy was exhausted in light of the $500,000 payment to

CNA without conditions attached.

                                     CONCLUSION

       Without evidence showing any limitation of CNA’s treatment of the $500,000

payment—either from the Declaratory Judgment Agreement or from CNA itself—there is

insufficient evidence for Scottsdale to avoid summary judgment. We thus affirm the

district court’s grant of summary judgment.

                                          ENTERED FOR THE COURT

                                          David M. Ebel
                                          Circuit Judge

                                              10