Phoenix Insurance Company, The et al v. Cantex, Inc. et al
ORDER That Third-Party Defendant Scottsdale Insurance Companys Motion for Summary Judgment 278 , filed September 17, 2015, is granted; That Cantexs third-party claim for breach of contract against third-party defendant Scottsdale is dismissed with prejudice; That Cantexs third-party claim for bad faith against third-party defendant Scottsdale is dismissed without prejudice pursuant to my Order Overruling Objections to and Adopting Recommendation of United States Magistrate Judge 3.a. at 3 269 , filed September 2, 2015; That Scottsdales counterclaim for declaratory relief against CIC and CCC asserted in Scottsdale Insurance Companys Answer and Counterclaim to Third-party Complaint of Cantex, Inc. 31-39 at 6-7 276 , filed Septe mber 16, 2015, is dismissed as moot; Denying as moot, 273 Cantex Inc.s Motion To Strike the Expert Report and Preclude Testimony of Allan D. Windt Pursuant to Fed. R. Evid. 403 & 702 ; and 338 Motion To Dismiss of Third-Party Defendants Contin ental Casualty Company and Continental Insurance Company; That the combined Final Pretrial Conference and Trial Preparation Conference set November 12, 2015, at 11:00 a.m., and the trial set to commence on November 30, 2015, are vacated, by Judge Robert E. Blackburn on 11/9/2015.(evana, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Robert E. Blackburn
Civil Action No. 13-cv-00507-REB-NYW
THE PHOENIX INSURANCE COMPANY,
THE TRAVELERS INDEMNITY COMPANY, and
THE TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA,
CONCRETE MANAGEMENT CORP.,
LANDMARK AMERICAN INSURANCE COMPANY,
CONTINENTAL INSURANCE COMPANY, and
AMERISURE INSURANCE COMPANY,
SCOTTSDALE INSURANCE COMPANY, and
CONTINENTAL CASUALTY COMPANY,
ORDER GRANTING MOTION FOR SUMMARY JUDGMENT OF THIRD-PARTY
The matter before me is Third-Party Defendant Scottsdale Insurance
Company’s Motion for Summary Judgment [#278],1 filed September 17, 2015. I
grant the motion and dismiss the corresponding apposite third-party breach of contract
I have jurisdiction over this matter pursuant to 28 U.S.C. § 1332 (diversity of
II. STANDARD OF REVIEW
Summary judgment is proper when there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a);
Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265
(1986). A dispute is “genuine” if the issue could be resolved in favor of either party.
Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586,
106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Farthing v. City of Shawnee, 39 F.3d
1131, 1135 (10th Cir. 1994). A fact is “material” if it might reasonably affect the outcome
of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505,
2510, 91 L.Ed.2d 202 (1986); Farthing, 39 F.3d at 1134.
A party who does not have the burden of proof at trial must show the absence of
a genuine factual dispute. Concrete Works, Inc. v. City & County of Denver, 36 F.3d
1513, 1517 (10th Cir. 1994), cert. denied, 115 S.Ct. 1315 (1995). Once the motion has
“[#278]” is an example of the convention I use to identify the docket number assigned to a
specific paper by the court’s case management and electronic case filing system (CM/ECF). I use this
convention throughout this order.
been properly supported, the burden shifts to the nonmovant to show, by tendering
depositions, affidavits, and other competent evidence, that summary judgment is not
proper. Id at 1518. All the evidence must be viewed in the light most favorable to the
party opposing the motion. Simms v. Oklahoma ex rel Department of Mental Health
and Substance Abuse Services, 165 F.3d 1321, 1326 (10th Cir.), cert. denied, 120
S.Ct. 53 (1999). In either case, once the motion has been properly supported, the
burden shifts to the nonmovant to show, by tendering depositions, affidavits, and other
competent evidence, that summary judgment is not proper. Concrete Works, 36 F.3d
at 1518. All the evidence must be viewed in the light most favorable to the party
opposing the motion. Simms v. Oklahoma ex rel Department of Mental Health and
Substance Abuse Services, 165 F.3d 1321, 1326 (10th Cir.), cert. denied, 120 S.Ct.
53 (1999). However, conclusory statements and testimony based merely on conjecture
or subjective belief are not competent summary judgment evidence. Rice v. United
States, 166 F.3d 1088, 1092 (10th Cir.), cert. denied, 120 S.Ct. 334 (1999); Nutting v.
RAM Southwest, Inc., 106 F.Supp.2d 1121, 1123 (D. Colo. 2000).
This lawsuit arises from defects in concrete work that occurred in connection with
the construction of a manufacturing and distribution facility in Kingman, Arizona, for
third-party plaintiff Cantex, Inc. (“Cantex”). RBR Construction, Inc. (“RBR”) served as
construction manager and general contractor for the property. The project ultimately
involved the installation of some 480,000 square feet of exterior concrete.
However, beginning in mid-2007, the concrete began to “crack excessively, spall,
and otherwise deteriorate.” (Third-Party Complaint Against Scottsdale ¶ 3 at 1-2
[#174], filed October 21, 2014.) Alleging that these damages were due to defective
workmanship to the exterior concrete and supporting structures, Cantex sued RBR in
Arizona state court in January 2011. Following a bench trial in September 2013, the
court found in favor of Cantex on its claims against RBR for breach of contract, breach
of warranty, and breach of the implied covenant of good faith and fair dealing, and
entered judgment in favor of Cantex in excess of 5.7 million dollars, including some two
million dollars in attorney fees.
As a result of post-judgment negotiations, RBR assigned its indemnity rights
under its applicable insurance policies to Cantex. Pursuant to that assignment, Cantex
has asserted a third-party claim for breach of contract against Scottsdale Insurance
Company (“Scottsdale”) under a second level excess insurance policy issued to RBR
covering the period from November 1, 2007, to November 1, 2008.2 Scottsdale, as a
third-party defendant, now seeks summary judgment as to this claim.
However, before considering the substantive issues, I must address the choice of
law question implicated by the motion. A federal court sitting in diversity applies the
substantive law, including the choice of law rules, of the state in which it sits. Klaxon
Co. v. Stenter Electrical Manufacturing Co., 313 U.S. 487, 495-97, 61 S.Ct. 1020,
1021-22, 85 L.Ed.2d 1477 (1941); Pepsi–Cola Bottling Co. of Pittsburg, Inc. v.
Cantex’s breach of contract claim under a second Scottsdale policy has been dismissed (see
Order Overruling Objections to and Adopting Recommendation of United States Magistrate
Judge ¶ 3.a. at 3 [#269], filed September 2, 2015), and its claim for bad faith was dismissed by
stipulation of the parties (see Stipulation for Dismissal Without Prejudice of Cantex Inc.’s
Bad Faith Claim Against Scottsdale Insurance Company [#247], filed June 18, 2015).
Pepsico, Inc., 431 F.3d 1241, 1255 (10th Cir. 2005). In breach of contract cases,
Colorado courts employ the “most significant relationship” test enunciated in section 188
of the Restatement (Second) of Conflict of Laws. Berry & Murphy, P.C. v. Carolina
Casualty Insurance Co., 586 F.3d 803, 808 (10th Cir. 2009). That standard requires
the court to consider a number of factors in making this determination, including, “(a) the
place of contracting; (b) the place of negotiation of the contract; (c) the place of
performance; (d) the location of the subject matter of the contract; and (e) the domicile,
residence, nationality, place of incorporation and place of business of the parties.”
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188(2) (1969). “These contracts are
to be evaluated according to their relative importance with respect to the particular
Cantex maintains that its third-party claim for breach of contract should be
interpreted in accordance with Arizona law, as the insured facility was located there. In
this regard, it points to section 193 of the Restatement, which provides:
The validity of a contract of fire, surety or casualty insurance
and the rights created thereby are determined by the local
law of the state which the parties understood was to be the
principal location of the insured risk during the term of the
policy, unless with respect to the particular issue, some other
state has a more significant relationship under the principles
stated in § 6 to the transaction and the parties, in which
event the local law of the other state will be applied.
Id. § 193. However, because I disagree with Cantex’s premise, I reject its conclusion.
Assuming arguendo that this section is even applicable to a policy that does not
qualify as a “contract of fire, surety or casualty insurance,” the insured risk under this
excess insurance policy was not the workmanship of the underlying construction work
but the danger, in the event a claim was made under the underlying policies, that
coverage would be insufficient. See International Risk Management Institute (“IRMI”)
Online, Glossary of Insurance & Risk Management Terms, Terms, Excess Liability
Policy (excess insurance policy is “[a] policy issued to provide limits in excess of an
underlying liability policy. . . . [I]ts sole purpose is to provide additional limits of
insurance.”) (available at
accessed November 5, 2015.) That risk bears no direct relationship to the work
performed on the Arizona facility. The court therefore returns to the most significant
relationship test, as specifically contemplated by Restatement section 193 itself.
Considering the relevant factors of Restatement section 188, I find and conclude
that Texas bears the most significant relationship to Scottsdale’s excess insurance
policy. The Restatement provides that “[i]f the place of negotiating the contract and the
place of performance are in the same state, the local law of this state will usually be
applied.” RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188(3) (1969). See also
Budd v. American Excess Insurance Co., 928 F.2d 344, 347 (10th Cir. 1991)
("Insurance policies generally are interpreted under the law of the state where the policy
was issued."). Here, the contract indisputably was negotiated in Texas, where RBR is
located, and any payment thereunder plainly was intended to inure to the benefit of
RBR at its principal location.3 Thus Texas law should govern resolution of Cantex’s
breach of contract claim.
In addition, the policy includes two Texas-specific notices. (See Scottsdale Motion App., Exh.
2 at 16 of 47, 44 of 47.)
Under Texas law, insurance contracts are construed according to the plain
meaning of their terms. Puckett v. U.S. Fire Insurance Co., 678 S.W.2d 936, 938
(Tex. 1984); Emscor, Inc. v. Alliance Insurance Group, 804 S.W.2d 195, 197 (Tex.
App. – Houston [14th Dist.] 1991, no writ). The Scottsdale policy provides that
This Policy is excess insurance and, except as otherwise
stated in this Policy, follows the terms, conditions,
exclusions, definitions and endorsements of the "Underlying
Insurance" described in ITEM 5. of the Declarations.
A. We will pay on behalf of the insured those sums in excess
of the "Underlying Insurance" which the insured becomes
legally obligated to pay as damages arising out of an
occurrence or accident during the policy period stated in
ITEM 2. of the Declarations (the POLICY PERIOD).
(Scottsdale Motion App., Exh. 2 ¶¶ I & I.A. at 6 of 47.) “‘Underlying Insurance’ means
any policy or policies of insurance as listed in ITEM 5. of the Declarations
including any renewal or replacement of such policies.” (Id. ¶ III at 7 of 47.) The
Underlying Insurance on Scottsdale’s excess policy includes the primary policy issued
by Continental Casualty Company (“CCC), with policy limits of two million dollars, and
an umbrella policy written by Continental Insurance Company (“CIC”), with policy limits
of one million dollars. (See id. at 3 & 5 of 47.) The excess insurance available under
the policy “will apply after the insured or the insured’s underlying insurer has paid or has
been held to pay the full amount of the underlying limits of insurance.” (Id. ¶ V.G. at 8
of 47.) In addition,
[i]f there is any other collectible insurance available to the
insured (whether such insurance is stated to be primary,
contributing, excess or contingent) that covers a loss that is
also covered by this Policy, the insurance provided by this
Policy will apply in excess of, and shall not contribute with,
(Id. ¶ V.I at 9 of 47.)
Scottsdale maintains that its duty to indemnify RBR has not been triggered
because the limits of the underlying insurance have not yet been exhausted.4 I concur.
Cantex suggests that, because the “other insurance” provision of the policy
contemplates the insurance “will apply,” inter alia, “after the insured . . . has been held
to pay the full amount of the underlying limits of insurance” (id. ¶ V.G. at 8 of 47), the
Scottsdale policy does not require underlying insurance be exhausted. I reject this
argument. The provisions of the policy must be read together, to the fullest extent
possible, “without isolating or giving priority to any one phrase, sentence or section.”
Emscor Manufacturing, 879 S.W.2d at 905-06. Thus, Cantex cannot read out the
policy provision contemplating that coverage will be in excess of any other collectible
insurance available to RBR. (Id. ¶ V.I. at 9 of 47.)
Moreover, Cantex’s argument would require the court to ignore the “unique”
purpose of excess insurance: “to pick up where primary coverages end, providing
extended protection in a time when verdicts can be exceedingly high.” Carrabba v.
Employers Casualty Co., 742 S.W.2d 709, 714 (Tex, App. – Houston [14th Dist.] 1987,
no writ). In conformity with this understanding of the nature of excess insurance, Texas
courts abide by the majority rule that
I reject Cantex’s implicit suggestion that Scottsdale’s motion is infirm as merely a reiteration of
its prior motion to dismiss, which was denied. The standard for resolution of Cantex’s claim at the
summary judgment stage is quite different, and more exacting in terms of the quantum of proof Cantex
must come forward with, than those applicable to a motion under Rule 12(b), as learned counsel
where an umbrella policy provides coverage for a loss in
excess of the underlying policies listed in its schedule and in
excess of the applicable limits of any other underlying
insurance collectible by the insured, all such other collectible
insurance must be exhausted before liability attaches under
the umbrella policy.
Id. at 715. Applying that rule, there is no genuine dispute of material fact regarding
whether the limits of the underlying insurance identified in the Scottsdale policy have
been exhausted – they have not.5 “Texas case law is clear that all primary policies must
be exhausted before excess policies become liable.” St. Paul Mercury Insurance Co.
v. Lexington Insurance Co., 888 F. Supp. 1372, 1381 (S.D. Tex. 1995). Thus it makes
no difference whether exhaustion under the Scottsdale policy is “horizontal” or “vertical,”6
since under either rubric, the failure to exhaust the full limits of the underlying primary
insurance policies identified in the Scottsdale excess policy dooms Cantex’s claim.
Scottsdale Insurance Co. v. National Union Fire Insurance Co. of Pittsburgh,
Pennsylvania, 577 Fed. Appx. 854, 857 (10th Cir. Sept. 2, 2014).7
Nor has Cantex substantiated its argument that the attorney fees awarded against
RBR erode (and thus ostensibly exhaust) the limits of primary coverage. As explained
The underlying policies collectively provided coverage of $3 million. CIC and CCC paid Cantex
$1 million to settle the claims against them.
Under Texas law “[h]orizontal 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,” while “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.’” Scottsdale
Insurance Co. v. National Union Fire Insurance Co. of Pittsburgh, Pennsylvania, 577 Fed. Appx. 854,
856-57 (10th Cir. Sept. 2, 2014) (interpreting Texas law; internal citations omitted).
For this same reason, the recent settlement of Cantex’s crossclaim against Amerisure
Insurance Company for an as-yet undisclosed amount (see Notice of Settlement [#335], filed November
2, 2015) does not alter the resolution of the instant motion, as it does not change the fact that the limits of
all underlying primary insurance have not been exhausted.
by the United States Court of Appeals for the Fifth Circuit, interpreting Texas law,
[l]iability insurance policies often have two components:
defense and indemnity. In many liability policies, the policy
limits refer only to the indemnity obligation (i.e., the duty to
pay covered claims), and the obligation to defend a liability
suit is not capped by the policy limits. In an eroding policy,
by contrast, the insurer's payments to defense counsel to
defend the liability suit count against the policy limits.
North American Specialty Insurance Co. v. Royal Surplus Lines Insurance Co.,
541 F.3d 552, 559 (5th Cir. 2008). Thus, to determine whether any attorney fees
awarded against RBR would be counted toward the policy limits of the underlying
insurance, the court would have to know the relevant provisions of those policies. Yet
Cantex has not submitted copies of either of the underlying policies – nor any other
evidence which might assist the court in making this crucial determination. As Cantex
has failed to come forward with any such relevant evidence to support its claim,
Scottsdale is entitled to summary judgment.8
THEREFORE, IT IS ORDERED as follows:
1. That Third-Party Defendant Scottsdale Insurance Company’s Motion for
Summary Judgment [#278], filed September 17, 2015, is granted;
2. That Cantex’s third-party claim for breach of contract against third-party
My determination in this regard moots Scottsdale’s recently filed “counterclaim” against CIC
and CCC, whereby Scottsdale seeks a declaration that it did not breach the contract of insurance and an
order dismissing Cantex’s third-party complaint. That relief having been granted herein, the Motion To
Dismiss of Third-Party Defendants Continental Casualty Company and Continental Insurance
Company [#338], filed November 4, 2015, will be denied as moot and that claim dismissed.
defendant Scottsdale is dismissed with prejudice;
3. That Cantex’s third-party claim for bad faith against third-party defendant
Scottsdale is dismissed without prejudice pursuant to my Order Overruling Objections
to and Adopting Recommendation of United States Magistrate Judge ¶ 3.a. at 3
[#269], filed September 2, 2015;
4. That Scottsdale’s “counterclaim” for declaratory relief against CIC and CCC
asserted in Scottsdale Insurance Company’s Answer and Counterclaim to ThirdParty Complaint of Cantex, Inc. ¶¶ 31-39 at 6-7 [#276], filed September 16, 2015, is
dismissed as moot;
5. That the following motions are denied as moot:
a. Cantex Inc.’s Motion To Strike the Expert Report and Preclude
Testimony of Allan D. Windt Pursuant to Fed. R. Evid. 403 &
702 [#273], filed September 11, 2015; and
b. Motion To Dismiss of Third-Party Defendants Continental
Casualty Company and Continental Insurance Company [#338], filed
November 4, 2015;
6. That the combined Final Pretrial Conference and Trial Preparation
Conference set November 12, 2015, at 11:00 a.m., and the trial set to commence on
November 30, 2015, are vacated;
7. That at the time judgment enters,9 judgment shall enter on behalf of third-party
Judgment shall enter after as soon as practicable after receipt of the dismissal documents
memorializing the settlement of Cantex’s cross-claims against Amerisure Insurance Company.
(See Minute Order [#336], filed November 3, 2015.)
defendant, Scottsdale Insurance Company, and against third-party plaintiff, Cantex,
Inc., as follows:
a. That judgment with prejudice shall enter on Cantex’s third-party claim
against Scottsdale for breach of contract; and
b. That judgment without prejudice shall enter on Cantex’s third-party
claim against Scottsdale for bad faith; and
8. That at the time judgment enters, third-party defendant Scottsdale is awarded
its costs, to be taxed by the clerk of the court pursuant to Fed. R. Civ. P. 54(d)(1) and
Dated November 9, 2015, at Denver, Colorado.
BY THE COURT:
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