F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
DEC 1 2000
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
CHARLES F. ADAMS; MARION E.
ADAMS; EDWARD YENKINSON;
ALAN WATTS; GERTRUDE
NICHOLSON; BENJAMIN No. 99-1511
FRIEDMAN; EDWARD J.
LACKNER; ALICE GALLAHER;
DONALD GALLAHER; DONALD
SAFER; ALAN WATTS PENSION
PLAN AND TRUST; EDWARD J.
LACKNER INDIVIDUAL
RETIREMENT ACCOUNT;
CASEWORK SYSTEMS, INC.
PROFIT SHARING PLAN AND
TRUST,
Plaintiffs - Appellants,
vs.
AMERICAN GUARANTEE AND
LIABILITY INSURANCE
COMPANY,
Defendant - Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
(D.C. No. 98-WY-938-CB)
Bradley S. Freedberg, Denver, Colorado, for Plaintiffs - Appellants.
Laurence M. McHeffey, McElroy, Deutsch & Mulvaney, Denver, Colorado, for
Defendant - Appellee.
Before BRORBY, MCWILLIAMS, and KELLY, Circuit Judges.
KELLY, Circuit Judge.
Plaintiffs-Appellants, various investors in financial transactions dependent
on future insurance commissions, appeal from the district court’s order granting
summary judgment for the Defendant-Appellee, American Guarantee and
Liability Insurance Company (“American Guarantee”). Our jurisdiction arises
under 28 U.S.C. § 1291, and we affirm.
Background
Plaintiffs’ claim against American Guarantee arises out of a complicated
series of dealings between Plaintiffs and James Patrick Gregory, an insurance
agent that American Guarantee insured under an Errors and Omissions (“E&O”)
Policy. As the parties are familiar with the facts, we will only briefly restate
them here.
A. The Financial Transactions
The Plaintiffs are investors in First Capital Network, Inc. First Capital and
Gregory’s business, Gregory & Associates, Inc., engaged in a series of financial
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transactions, known as “factoring arrangements,” in which First Capital would
pay Gregory & Associates 65 to 70 percent of its expected insurance
commissions up front, and in return, First Capital would receive the rights to the
commissions paid over time. Gregory and his wife, Linda, the majority
shareholders of Gregory & Associates, personally guaranteed payment of the
commissions to First Capital. First Capital assigned the rights it had purchased
from Gregory & Associates to certain of its investors, including the Plaintiffs.
By 1994, the factoring arrangement between Gregory & Associates and
First Capital had become less stable. The factoring arrangement began to include
not only commissions payable on insurance contracts Gregory & Associates had
already obtained, but also commissions on insurance contracts that Gregory &
Associates hoped to obtain in the future. When Gregory & Associates failed to
obtain these future insurance contracts, the factoring arrangement began to falter
and by April 1995, Gregory & Associates could not pay First Capital all the
money it was owed. By December 1995, Gregory & Associates ceased making
any payments to First Capital. Gregory & Associates still owed Plaintiffs
approximately $968,000.
B. The Insurance Policies
Until October 1, 1995, Gregory & Associates had a professional liability
insurance policy (an E&O policy) from Employers Reinsurance Corporation
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(“Employers”). Gregory & Associates never notified Employers of its ongoing
financial difficulties because Gregory did not think that the Employers’ E&O
coverage applied to the factoring arrangements between his company and First
Capital. When the Employers’ coverage expired, Gregory tried to negotiate a
renewal contract over the next several months. Gregory and Employers never
reached agreement and the Employers’ coverage was not renewed. Gregory
finally obtained claims-made E&O coverage from American Guarantee, the
defendant in this case, effective May 1, 1996 to January 1, 1997. See Aplt. App.
at 2-09 (certificate of insurance).
C. The Litigation
In July 1996, plaintiffs filed a civil suit against Gregory & Associates,
Gregory, and Linda Gregory in Arapahoe County court for negligence, breach of
warranty, and breach of guaranty. See Aplt. App. at 2-46 (Plaintiffs’ original
complaint). Gregory did not inform Employers or American Guarantee of the suit
due to his belief that the E&O coverage did not apply to the financial transactions
at issue in the case. Plaintiffs’ lawyer contacted both Employers and American
Guarantee in August 1996 to inform them of the suit. See Aplt. App. at 2-44;
Aple. Supp. App. at 3-91. Employers denied coverage, stating that Gregory’s
actions towards Plaintiffs had no relation to the rendering of professional
services as an insurance agent. See Aple. Supp. App. at 3-91. American
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Guarantee contacted Gregory requesting information about the suit. See Aplt.
App. at 8-09. Gregory responded by reiterating his belief that Plaintiffs’ claims
had nothing to do with Gregory’s E&O coverage. See Aple. Supp. App. at 3-139.
American Guarantee did not tender a defense to Gregory in the Arapahoe County
suit.
In October 1996, Pat and Linda Gregory filed for bankruptcy. Soon after,
in November 1997, Gregory and the Plaintiffs entered into a Stipulation and
Settlement Agreement. See Aple. Supp. App. at 3-141. In return for Plaintiffs
agreeing to release Gregory & Associates from all claims asserted in Plaintiff’s
lawsuit, Gregory and his wife agreed to allow Plaintiffs to proceed against them
personally in the civil lawsuit in Arapahoe County court. Plaintiffs also agreed
they would not collect any judgment obtained against Gregory in the civil suit
from either Gregory or his wife but would proceed only against the E&O policy
issued by American Guarantee. Id. at 3-142. In March 1997, Plaintiffs released
both Gregory and Gregory & Associates from any and all causes of action for
fraud, bad-faith conduct, or for any other non-dischargeable claims under the
Bankruptcy Code. In return, Gregory assigned all his rights, if any, under the
American Guarantee E&O policy to the Plaintiffs. See Aplt. App. at 2-30.
In line with their agreement, the Plaintiffs continued to proceed only
against Gregory personally in the civil lawsuit. In March 1998, after filing a
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motion for summary judgment, the Plaintiffs obtained a judgment against
Gregory in the Arapahoe County District Court. See Aplt. App. at 2-37. Gregory
did not actively defend himself but simply sent a letter to the court, reminding the
court that the judgment could not be used against him personally but would allow
the Plaintiffs to proceed against American Guarantee. See Aple. Supp. App. at 3-
173. The court’s final judgment in the case expressly stated this limitation. See
Aplt. App. at 2-43.
Plaintiffs filed suit against American Guarantee in state court in April
1998. See Aple. Supp. App. at 3-64. American Guarantee removed the case to
federal court based on diversity jurisdiction. See Aplt. App. at 3-1. Plaintiffs
argued that Gregory had been professionally negligent in his role as an insurance
agent and, therefore, that the American Guarantee E&O policy should cover
Plaintiffs’ losses. American Guarantee defended by arguing (1) the “known loss”
doctrine precluded coverage and (2) Gregory did not qualify for coverage
because he failed to meet the terms of the insurance contract that required him to
maintain continuous and uninterrupted E&O coverage from before the time the
acts or omissions giving rise to the suit occurred.
The trial court held that the known loss doctrine did not preclude Gregory
from coverage, but granted American Guarantee’s motion for summary judgment
on the issue that Gregory had let his E&O coverage lapse in violation of his
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American Guarantee insurance contract. See Aplt. App. at 7-01. On appeal,
Plaintiffs argue that the district court misapplied the standard for summary
judgment by disregarding Plaintiffs’ evidence that Gregory maintained
continuous E&O coverage. See Aplt. Br. at 12-14. In addition, Plaintiffs argue
that American Guarantee should be estopped from denying coverage as American
Guarantee had accepted an October 23, 1996 letter from Gregory as “proof” that
he had maintained continuous coverage. Id. at 18-19. Defendant-Appellee
American Guarantee asks this court not only to affirm the grant of summary
judgment on the basis of Gregory’s coverage lapse, but to consider the doctrine
of “known loss” as an alternative grounds for affirmance. See Aple. Br. at 17-18.
As we find the issue of the sufficiency of Plaintiffs’ evidence to be dispositive,
we decline to reach the “known loss” issue.
Discussion
Of Plaintiffs’ two arguments on appeal, we first address Plaintiffs’
argument that the district court misapplied the standard for summary judgment.
We review a grant of summary judgment de novo. Equal Employment
Opportunity Comm’n v. Horizon/CMS Healthcare Corp. , 220 F.3d 1184, 1190
(10th Cir. 2000). Summary judgment is appropriate only if “there is no genuine
issue as to any material fact and...the moving party is entitled to judgment as a
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matter of law.” F ED . R. C IV . P. 56(c). A fact is “material” if under the
substantive law it could have an effect on the outcome of the lawsuit.
Horizon/CMS Healthcare Corp. , 220 F.3d at 1190. An issue is “genuine” if “a
rational jur[or] could find in favor of the nonmoving party on the evidence
presented.” Id. In conducting our review, we view the factual record and draw
any reasonable inferences therefrom in the light most favorable to the nonmoving
party. Adler Wal-Mart Stores, Inc. , 144 F.3d 664, 670 (10th Cir. 1998).
The district court granted American Guarantee’s motion for summary
judgment on the lapse issue. The issue had been raised by American Guarantee
in response to a motion for partial summary judgment by Plaintiffs. Aplt. App. at
5-33. American Guarantee bears the burden of showing that no genuine issue of
material fact exists. Adler , 144 F.3d at 670. Because it does not bear the
ultimate burden of persuasion at trial, however, it does not have to negate the
nonmovant’s claim, but may meet its burden by “pointing out to the court a lack
of evidence for the nonmovant on an essential element of the nonmovant’s
claim.” Id. at 671. Once the movant meets its initial burden, the nonmovant
“must do more than refer to allegations of counsel contained in a brief to
withstand summary judgment. Rather, sufficient evidence (pertinent to the
material issue) must be identified by reference to an affidavit, a deposition
transcript or a specific exhibit incorporated therein.” Thomas v. Wichita Coca-
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Cola Bottling Co. , 968 F.2d 1022, 1024 (10th Cir. 1992). Evidence is sufficient
to withstand summary judgment if it is significantly probative and would enable a
trier of fact to find in the nonmovant’s favor.
In order to survive summary judgment, the content of the evidence that the
nonmoving party points to must be admissible . See Wright-Simmons v. City of
Oklahoma City , 155 F.3d 1264, 1268 (10th Cir. 1998) (“‘It is well settled in this
circuit that we can consider only admissible evidence in reviewing an order
granting summary judgment.’”) (quoting Gross v. Burggraf Constr. Co. , 53 F.3d
1531, 1541 (10th Cir. 1995)). The nonmoving party does not have to produce
evidence in a form that would be admissible at trial, but “‘the content or
substance of the evidence must be admissible.’” Wright-Simmons , 155 F.3d at
1268 (quoting Thomas v. Int’l Bus. Machines , 48 F.3d 478, 485 (10th Cir.
1995)). Hearsay testimony that would be inadmissible at trial cannot be used to
defeat a motion for summary judgment because “a third party’s description of a
witness’ supposed testimony is ‘not suitable grist for the summary judgment
mill.’” Wright-Simmons , 155 F.3d at 1268 (quoting Thomas , 48 F.3d at 485).
In this case, in order for Plaintiffs to prevail, Plaintiffs must make a
showing that American Guarantee’s E&O policy provides coverage for Gregory’s
acts or omissions that led to Plaintiffs’ financial losses. The American Guarantee
policy was effective from May 1, 1996 to January 1, 1997. See Aplt. App. at 2-
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09 (certificate of insurance). Section III of American Guarantee’s policy reads,
in pertinent part:
III. TERRITORY AND CLAIMS-MADE PROVISIONS
This Policy applies to acts, errors, omissions or PERSONAL INJURIES
which occur anywhere in the world provided that CLAIM is made against
the INSURED in the United States of America, its territories or
possessions and provided further that such acts, errors, omissions or
PERSONAL INJURIES occurred:
A. During the POLICY PERIOD, and then, only if CLAIM is first
made against the INSURED during the POLICY PERIOD and is
reported to the Company, in writing, during the POLICY PERIOD
....
B. Prior to the effective date of this Policy, provided that:
...
3. CLAIM is first made against the NAMED INSURED
during the POLICY PERIOD and is reported to the Company,
in writing, during the POLICY PERIOD. . . and,
4. the acts, errors, omissions or PERSONAL INJURY
occurred after the retroactive date indicated on the
Declarations page.
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See Aplt. App. at 2-12 to 2-13.
American Guarantee is obligated to provide E&O coverage under the plain
language of Section III(A) of the policy when both the act, error, or omission and
the claim itself occurred during the policy period. Gregory’s policy with
American Guarantee was effective from May 1, 1996 to January 1, 1997.
Plaintiffs do not contend that Gregory committed any act, error, or omission
during the policy period. See Aplt. App. at 2-52. Therefore, there is no coverage
under this section of the insurance contract.
Section III(B) of the insurance contract is at the heart of this disagreement.
For coverage to exist under Section III(B), not only must the claim be made
during the policy period, § III(B)(3), but Gregory’s act, error, or omission must
have occurred “after the retroactive date indicated on the Declarations page,” §
III(B)(4). In Endorsement No. 1 to the policy, this retroactive date is defined as
“[t]he inception date of the first continuous claims-made Life Insurance Agent’s
Errors and Omissions Liability Policy which has been maintained inforce without
interruption.” Aplt. App. at 2-20. This means that, assuming all other conditions
are met, Gregory has coverage under the American Guarantee policy back to the
date when Gregory first purchased E&O coverage, regardless of who issued the
policy, as long as Gregory experienced no breaks in coverage. If a lapse in
coverage occurs, the retroactive date shifts forward in time to the date Gregory
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once again obtained E&O coverage after the lapse.
There is no dispute that Plaintiffs notified American Guarantee of their
claim during the policy period, thus meeting the requirement of Section III(B)(3)
of the policy. The dispute centers around whether Gregory experienced a lapse in
coverage before obtaining coverage with American Guarantee. American
Guarantee points to evidence in the record that Gregory’s prior claims-made E&O
policy from Employers expired on October 1, 1995. Specifically, American
Guarantee relies on the October 23, 1996 letter Gregory sent to them in which he
states that his Employers coverage terminated retroactively to October 1, 1995.
See Aple. Br. at 20-21; Aplt. App. at 5-29; see also Aple. Supp. App. at 3-91
(letter from Employers stating coverage terminated October 1, 1995). Because
Gregory did not obtain coverage from American Guarantee until May 1, 1996,
American Guarantee asserts the following: Gregory experienced a lapse in
coverage from October 1, 1995 to May 1, 1996. This lapse has the effect of
setting the retroactive date for coverage under American Guarantee’s policy at
May 1, 1996, the date Gregory first obtained E&O coverage after the lapse.
Since Gregory’s acts, errors, or omissions that gave rise to the suit all occurred
well before May 1, 1996, American Guarantee’s policy affords no coverage under
§ III(B)(4). See Aple. Br. at 21-23.
Plaintiffs argue that Gregory did not experience a lapse in coverage and
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that the district court overlooked their evidence of continuous coverage when
granting American Guarantee’s motion for summary judgment. See Aplt. Br. at
12-14. Plaintiffs assert that during the months Gregory was attempting to
negotiate a renewal policy with Employers, the Employers agent represented to
Gregory that he still had E&O coverage. When Gregory and Employers failed to
reach an agreement on a renewal policy, Employers terminated his insurance
retroactively to October 1, 1995. Although Gregory maintains that coverage was
terminated retroactively, Plaintiffs argue that this does not change the fact that
Gregory had E&O insurance during the negotiations period and, therefore, did
not experience a break in coverage. See Aplt. Br. at 15-18.
Plaintiffs rely upon two pieces of evidence that they assert prove Gregory
maintained continuous E&O coverage. First, Plaintiffs point to Gregory’s
October 23, 1996 letter to American Guarantee in which Gregory states his
Employers policy was terminated retroactively to October 1, 1995, but also that
“[d]uring a few months of negotiation at renewal time, we had not terminated the
coverage, however since we did not renew, coverage was terminated
retroactively.” Aplt. App. at 5-29 (emphasis in original). Second, Plaintiffs rely
on Gregory’s deposition in which he states:
[D]uring that time, they said – they still covered us under E&O, according
to them, and we were trying to determine a new premium....[F]rom our
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perspective of them actually cancelling [sic], it was sometime probably in
the – end of the first quarter or second quarter of ‘96 before that was
actually determined.
Aplt. App. at 8-14. Mr. Gregory could not identify the name of the agent that led
him to believe he had continuous coverage during the negotiation period. Id. at
8-16 to 8-17.
Plaintiffs’ evidence is not sufficient to withstand summary judgment.
Regarding Gregory’s October 23, 1996 letter, Plaintiffs miss the point. The issue
is not whether Gregory thought he had insurance coverage, but whether Gregory
actually had coverage from October 1, 1995 to May, 1996. Gregory’s statement
that he believed he was covered during the negotiations period is irrelevant.
Plaintiffs’ other piece of evidence, Gregory’s deposition testimony that an
Employers agent told him that he was covered during the negotiations period, is
inadmissible hearsay. See F ED . R. E VID . 801 & 802. We understand Plaintiffs’
theory, developed in their reply brief, that coverage might have been extended
through an oral contract and/or based upon the apparent authority of unnamed
agents of another organization (NALU) brokering for Employers, but Employers
is not a party to this suit. See id. 801(d)(2) (admission of a party-opponent not
hearsay). Plaintiffs do not argue that the unnamed agents are unavailable and
have not suggested any other theory of admissibility. Assuming that an argument
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raised for the first time in a reply brief is sufficient, which it is not, Adler , 144
F.3d at 679 , Plaintiffs’ argument fails because it is not backed with admissible
evidence in the record. Therefore, summary judgment was proper.
Plaintiffs’ final argument on appeal is that American Guarantee should be
estopped from denying coverage as American Guarantee accepted an October 23,
1996 letter from Gregory as “proof” of continuous coverage. Plaintiffs contend
that estoppel should apply to the issue of continuous coverage because
“Defendant accepted as ‘satisfactory’ the proof [the October 23, 1996 letter]
Gregory supplied of his coverage history, and after denial and the inception of
the instant case, Defendant could no more challenge the Employers policy as it
could any other policy lying in the chain of policies from the date of loss until
the effective date of the policy with Defendant.” Aplt. Br. at 18-19. This is the
extent of Plaintiffs’ argument, made without benefit of authority on estoppel; it is
insufficiently developed for appeal. See Koch v. Koch Indus., Inc. , 203 F.3d
1202, 1238-39 (10th Cir.), cert. denied , 2000 WL 1201643 (Oct. 10, 2000);
Adler , 144 F.3d at 679 (stating “[a]rguments inadequately briefed in the opening
brief are waived”); F ED . R. A PP . P. 28(a)(9). Moreover, under Colorado law, the
doctrine of promissory estoppel requires the party to be estopped to make “[a]
promise which the promisor should reasonably expect to induce action or
forbearance on the part of the promisee....” Bd. of County Comm’rs of Summit
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County v. DeLozier , 917 P.2d 714, 716 (Colo. 1996) (en banc). To establish a
claim of equitable estoppel under Colorado law, the party to be estopped must
make a misstatement of fact. Id. Plaintiffs have failed to point to any promise or
misstatement of material fact made by American Guarantee in the record that led
to the insured’s detrimental reliance, let alone that of the Plaintiffs. Plaintiffs’
estoppel claim thus fails.
Plaintiffs have failed to raise a genuine issue of material fact regarding an
essential element of their prima facie case–whether there was coverage under the
American Guarantee E&O policy. The only admissible evidence in the record
reflects that Gregory’s Employers insurance contract expired October 1, 1995 and
that he did not obtain subsequent E&O coverage until May 1, 1996. Due to this
lapse in coverage, the American Guarantee policy only covers acts, errors, or
omissions that occurred after May 1, 1996 until the end of the policy period.
Because Gregory’s acts, errors, or omissions that led to Plaintiffs’ claims
occurred well before May 1, 1996, there is no coverage under the American
Guarantee policy.
AFFIRMED.
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