Wheeler v. Allstate Insurance Company

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

FOR THE TENTH CIRCUIT May 4, 2017
_________________________________
Elisabeth A. Shumaker
Clerk of Court
THOMAS WHEELER,

Plaintiff - Appellant,
No. 15-4159
v. (D.C. No. 2:12-CV-00193-BCW)
(D. Utah)
ALLSTATE INSURANCE COMPANY;
ALLSTATE INDEMNITY COMPANY,

Defendants - Appellees.
_________________________________

ORDER AND JUDGMENT*
_________________________________

Before PHILLIPS, McHUGH, and MORITZ, Circuit Judges.
_________________________________

I. INTRODUCTION

This appeal arises from a dispute between Plaintiff–Appellant Thomas Wheeler

and Defendants–Appellees Allstate Insurance Company and Allstate Indemnity Company

(together, “Allstate”) over the scope of coverage under a homeowners insurance policy.

After a water pipe burst and flooded Mr. Wheeler’s cabin, he filed a claim with Allstate,

seeking coverage for some (but not all) of the resulting damage. When Allstate denied the

claim, Mr. Wheeler sued for breach of contract and breach of the implied covenant of

good faith and fair dealing.

*
This order and judgment is not binding precedent, except under the doctrines of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.
 A magistrate judge issued an order granting Allstate’s motion for summary

judgment on both claims. Mr. Wheeler now appeals, arguing the magistrate judge erred

by granting summary judgment in the face of a genuine dispute of material fact. We agree

and therefore reverse.

II. BACKGROUND

A. Factual History

Mr. Wheeler owns a seasonal cabin in Duck Creek, Utah. He carried homeowners

insurance on the cabin through Allstate. In April 2011, while on a walk near the cabin, an

acquaintance of Mr. Wheeler stopped at the cabin for a drink of water. No one had visited

the cabin during the preceding winter months. Once inside, the acquaintance discovered

that “water was spraying out everywhere” from a pipe under a sink in the basement, and

four or five inches of standing water covered the basement floor. The damage to the cabin

was substantial. It later would be determined that the flooding began approximately two

months earlier, as the result of a failed valve.

Soon after the problem was discovered, Mr. Wheeler had his assistant call Allstate

to report it. The Allstate representative on the call informed the assistant that, based on

the information provided, Allstate likely would not cover the loss. On April 22, 2011,

Allstate sent an outside adjuster to examine the cabin. According to Mr. Wheeler’s

contractor, who met the adjuster there, the adjuster inspected the cabin for “ten minutes

tops” and “took like two or three pictures and left” without inspecting the source of the

water. The adjuster’s log of the inspection notes there was “extensive mold damage

throughout” the cabin, which constituted “the main loss.” It also states the adjuster

2
informed Mr. Wheeler’s contractor that “long-term water damage and loss was not

covered,” and indicates that the adjuster “[w]ill send out [a] denial letter and close the

file.”

Mr. Wheeler’s homeowners insurance policy (the “Policy”) contained several

provisions concerning coverage for water damage. The language relevant to this case

reads as follows:

Losses We Do Not Cover Under Coverage A, Coverage B and Coverage C

A. We do not cover loss to the property described in Coverage A—
Dwelling Protection or Coverage B—Other Structures Protection
consisting of or caused by the following:
....

3. Seepage, meaning continuous or repeated seepage or leakage over
a period of weeks, months, or years, of water, steam or fuel:
a) from a plumbing . . . system; or
b) from, within or around any plumbing fixtures, including, but
not limited to . . . sinks or other fixtures designed for the use
of water or steam.
....

7. a) wear and tear, aging, marring, scratching, deterioration,
inherent vice, or latent defect;
b) mechanical breakdown;
....

d) rust or other corrosion;
....

If any of a) through h) cause the sudden and accidental escape of
water or steam from a plumbing . . . system within your dwelling,
we cover the direct physical damage caused by the water or
steam. If loss to covered property is caused by water or steam not
otherwise excluded, we will cover the cost of tearing out and
replacing any part of your dwelling necessary to repair the
system or appliance. This does not include damage to the
defective system or appliance from which the water escaped.

3
For ease of understanding, we will refer to section A.3 as “Exclusion 3”; to section A.7 as

“Exclusion 7”; and to the final paragraph of section A.7 as the “Exception to Exclusion

7” or the “Exception.”

On April 26, 2011, Allstate sent Mr. Wheeler a letter denying his claim; the letter

cited to Exclusion 3.

B. Procedural History

After Allstate denied his claim, Mr. Wheeler filed a lawsuit in Utah state court,

alleging that Allstate breached the insurance contract and breached the implied covenant

of good faith and fair dealing. Allstate removed the case to federal court on the basis of

diversity, 28 U.S.C. § 1332, and the parties later consented to the jurisdiction of the

magistrate judge (the “trial court”), id. § 636(c)(1). After conducting some discovery,

Allstate moved for summary judgment on both claims, and Mr. Wheeler moved for

summary judgment on the breach of contract claim.

1. The Parties’ Positions in the Trial Court

On the breach of contract claim, Allstate argued it properly denied coverage under

Exclusion 3 of the Policy, which it claimed unambiguously excludes coverage of water

damage such as that sustained in Mr. Wheeler’s cabin. Mr. Wheeler’s response to this

argument was twofold. First, he argued that Exclusion 3 does not apply here at all. In

particular, he maintained that the terms “seepage” and “leakage” are ambiguous and that

it is unclear whether either term embraces the water forcefully spraying from the pipe

under his basement sink. Mr. Wheeler also argued the definition of “seepage” is

4
ambiguous for the additional reason that it includes the term “weeks,” which, he

maintained, the parties agreed is ambiguous in the context of Exclusion 3. Thus, Mr.

Wheeler took the position that Exclusion 3 is a generally ambiguous provision and

therefore should be construed in favor of coverage under the default rule.1

Alternatively, however, Mr. Wheeler argued that even if Exclusion 3 is

unambiguous, and the water release in his cabin generally could be considered “seepage

or leakage,” the exclusion does not apply to his specific claimed loss because that loss

was sustained within the first few days of flooding. He noted that, whatever the term

“weeks” might precisely mean, his and Allstate’s experts had agreed that it must at a

minimum mean 14 days. And because he claimed coverage only for damage which

occurred within 13 days of the water release, the loss would not be excluded because it

was not “caused by . . . seepage or leakage over a period of weeks.” According to Mr.

Wheeler, his expert had “demonstrated that the amount of flooding needed to cause the

damage that [Mr. Wheeler was claiming] would have happened [in] the first three days of

flooding,” and “[t]he damages were not greater because the flood continued longer than 3

days.”2 By contrast, Mr. Wheeler stressed he was not seeking to recover for damages that

1
Mr. Wheeler’s argument that the Policy is ambiguous was also offered to support
his claim that Allstate breached the implied covenant of good faith and fair dealing. The
expert Mr. Wheeler retained to evaluate Allstate’s handling of his claim opined that
Allstate acted in bad faith by relying on ambiguous policy language to deny coverage,
rather than fulfilling its alleged duty to search for coverage first.
2
In his report, Mr. Wheeler’s expert stated that “standing water must be removed
in no more than 3 days [or else] irreparable damage [will be] effected due to water
invading expansive or absorbing materials.” He further concluded that, here, “the water
5
were caused over a longer period of time or that “would have been exacerbated by a

delay in discovering the flood.” Thus, he asserted that, “even were [Allstate’s]

understanding of the policy to be accepted, [Allstate’s] understanding of the policy would

not cut off liability.”

Although he maintained that, ambiguous or not, Exclusion 3 does not apply to the

damages he sought to recover, Mr. Wheeler conceded those damages still would fall

within the reach of Exclusion 7 because the failure of the valve likely was attributable to

one or more of the causes listed in paragraphs (a), (b), and (d) of that provision.3 But he

argued the Exception to Exclusion 7 nonetheless provided coverage because the loss he

was claiming was “direct physical damage caused by” the “sudden and accidental escape

of water . . . from a plumbing . . . system.” Construing the provisions together, Mr.

Wheeler argued the Policy’s language and the caselaw addressed by the parties “support[]

the notion that certain damages could be caused by seepage and excluded while other

damages, arising from the same flood, could be caused by [the sudden and accidental

escape of water] and be covered.”

In response, Allstate acknowledged that its expert had agreed in her deposition

that there would be coverage for damage inflicted during the first 13 days. Specifically,

Allstate’s expert agreed that it is “accurate to say that any damage that would have

damage to walls, cabinets, and other water absorbing materials was beyond repair within
less than [a] week.”
3
These causes are “a) wear and tear, aging, marring, scratching, deterioration,
inherent vice, or latent defect”; “b) mechanical breakdown”; and “d) rust or other
corrosion.”
6
occurred during the first 13 days should be covered,” but only “[i]f there was a way to

determine [what damage occurred during the first 13 days] but there is not.” Allstate

argued, however, that the “reasoning for this conclusion” was that “damage which

occurred during the first 13 days . . . would not have become seepage”—and thus “would

not have implicated” Exclusion 3—if the water release had been stopped within that

timeframe. Allstate also noted that the expert had concluded there should be no coverage

here; that the various cases the parties analyzed in their discussions of Exclusion 3 and

the Exception to Exclusion 7 say nothing about discerning short-term versus long-term

damage; and that requiring an insurer to identify and separate short-term damage “would

be expensive and likely fruitless.” Allstate further contended that the Exception does not

apply in this case because “a continuous water loss that occurs over a 70-day period” is

not “sudden and accidental.”

On the claim for breach of the implied covenant of good faith and fair dealing,

Allstate argued it did not breach the covenant because it diligently investigated, fairly

evaluated, and promptly and reasonably rejected Mr. Wheeler’s insurance claim.

Alternatively, Allstate claimed it cannot have breached the covenant as a matter of law

because Mr. Wheeler’s claim was “fairly debatable.” Mr. Wheeler argued in response

that fact disputes precluded summary judgment on the implied covenant claim.

2. The Trial Court’s Decision

The trial court considered the parties’ motions together and, after conducting a

hearing, issued an order granting Allstate’s motion and denying Mr. Wheeler’s. At the

outset of its written analysis, the court acknowledged that Mr. Wheeler was seeking only

7
damages caused during the first week of flooding and was not requesting long-term

damages, such as mold.

The trial court first concluded Exclusion 3 is unambiguous, rejecting Mr.

Wheeler’s contrary argument and accepting as “in line with the plain meaning of the

[Policy]” Allstate’s counsel’s statement that “the only time [water damage is] not

covered, the only time [Exclusion 3] comes in is when we’re dealing with a long term

loss.” (Alteration omitted.) The trial court further determined that American Concept

Insurance Co. v. Jones, 935 F. Supp. 1220, 1225–27 (D. Utah 1996), which found a

similarly worded insurance-policy provision unambiguous, supported the conclusion that

Exclusion 3 is not ambiguous.

Next, the court turned to Mr. Wheeler’s arguments that “the Court should construe

what happened at his cabin” as being covered under the Exception to Exclusion 7 and

that its primary task was to determine whether the release of water here was “sudden,”

within the meaning of the phrase “sudden and accidental.” The court concluded “there is

no need as [Mr. Wheeler] suggests, to interpret whether the loss was ‘sudden’” because,

for reasons the court would “explain[] in more detail below, the Court finds [Exclusion] 3

excludes coverage of [Mr. Wheeler]’s claim and therefore [Exclusion] 7 does not apply.”

In reaching its conclusion that “the [E]xception is triggered only if no other

exclusion applies,” the court relied on Marsh v. American Family Mutual Insurance Co.,

8
218 P.3d 573 (Or. Ct. App. 2009).4 There, the Oregon Court of Appeals held that water

damage caused by continuous leakage over a period of at least several months, and more

likely years, was specifically excluded under a provision similar to Exclusion 3, even

though the policy provided coverage for other water damage under a provision similar to

the Exception to Exclusion 7. See id. at 574–75, 577–78. According to the trial court

here, the reasoning in Marsh aligned “with Allstate’s arguments . . . that if [Mr. Wheeler]

had discovered his loss in a more timely fashion, perhaps there would have been

coverage but because [Mr. Wheeler]’s loss was over an extended period of time, the

exclusionary language precludes [Mr. Wheeler]’s recovery. Therefore, like Marsh, the

exceptions do not apply.”

Finally, the trial court asserted that the fact Mr. Wheeler was “only claiming loss

for the first few days of water damage” had “no effect on the Court’s decision based upon

the facts of this case.” The court then elaborated:

Because the damage to [Mr. Wheeler]’s cabin was so extensive and was not
found for at least 60–70 days, it is difficult if not impossible for the Court
to determine exactly what amount of damage would have occurred in the
first few hours and days. In addition, the Court believes the interpretation
[Mr. Wheeler] wishes the Court to make is against the authority cited above
both in this District and others that found coverage to be specifically
excluded for long-term water damage. The policy language works to
preclude coverage for exactly the type of damage that occurred in this
case—water damage that was undiscovered or unattended for an extended
period of time regardless of the source.

4
It also relied on Schwartzenfeld v. Nationwide Mutual Fire Insurance Co., No.
296752, 2011 WL 1565466 (Mich. Ct. App. Apr. 26, 2011) (per curiam) (unpublished),
for the same proposition.
9
Thus, the trial court determined “the [Policy] is not ambiguous[,] . . . Allstate did not

breach the [Policy] by failing to cover [Mr. Wheeler]’s loss to his cabin,” and “[Mr.

Wheeler] is not entitled to recovery for the loss sustained to the cabin.” Nowhere in its

analysis did the court address Mr. Wheeler’s contentions that the parties’ experts agreed

damage fully inflicted during the first 13 days is not excluded under Exclusion 3 and that,

even if the Policy is unambiguous, he is entitled to recover his short-term damages

because they were caused by leakage over a period shorter than “weeks.”

Turning briefly to the implied covenant claim, the trial court again granted

summary judgment for Allstate, based largely on its conclusion that the damages Mr.

Wheeler sustained were excluded under Exclusion 3. The court noted that “[t]he damage

to [Mr. Wheeler]’s cabin was so extensive and by all accounts occurred over an extended

period of time.” For that reason, the court concluded it is “reasonable that Allstate’s

representatives . . . acted diligently, reasonably, fairly and promptly in denying [Mr.

Wheeler]’s claim.”

* * *

Mr. Wheeler now appeals, and we have jurisdiction to hear it under 28 U.S.C

§ 636(c)(3). “We review a grant of summary judgment de novo.” Savant Homes, Inc. v.

Collins, 809 F.3d 1133, 1137 (10th Cir. 2016). Summary judgment is appropriate only

where “the movant shows that 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).

10
 III. DISCUSSION

Mr. Wheeler argues there is a genuine dispute of material fact as to whether the

short-term damage (i.e., damage fully inflicted in 13 days or less) to his cabin can be

separated from the long-term damage (i.e., damage not fully inflicted until 14 days or

more) and that the trial court impermissibly resolved this factual dispute itself in granting

summary judgment for Allstate. From a coverage standpoint, Mr. Wheeler asserts the

severability of damages is material because, by its terms, Exclusion 3 applies only to

long-term damage, such that short-term damage is not excluded under that provision

unless it cannot reliably be established as distinct from long-term damage. And because

here he seeks to recover only short-term damages which his expert says are separable,

Mr. Wheeler’s position is that, contrary to the trial court’s conclusion, his damages are

not excluded. Rather, Mr. Wheeler contends, as he did below, that his short-term

damages are covered under the Exception to Exclusion 7. Mr. Wheeler also argues the

trial court erred in rejecting his implied covenant claim because its ruling on that claim

was premised on its erroneous conclusion that Exclusion 3 precludes Mr. Wheeler’s

recovery.

Allstate disagrees and argues the trial court properly granted summary judgment

on both claims. It concedes that the question of whether short-term damage can be

distinguished from long-term damage is a disputed issue of fact but argues that it is not

material and that the trial court’s finding on that issue is therefore harmless. Thus, the

central issue on appeal is whether the severability of short- and long-term damages is

material and, accordingly, should have precluded summary judgment. A fact is material if

11
it “might affect the outcome of the suit under the governing law.” Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986); accord Jones v. Norton, 809 F.3d 564, 573 (10th

Cir. 2015).

As we explain in detail below, we agree with Mr. Wheeler that the question of

whether he can reliably prove his alleged short-term damages, as distinct from any long-

term damages, is an issue of fact that might affect the outcome of this case. It is,

therefore, material. We further agree that this factual dispute is material not just to Mr.

Wheeler’s breach of contract claim, but also to his breach of the implied covenant of

good faith claim. It follows, then, that the trial court erred in disposing of these claims on

summary judgment. In explaining our reasoning, we address each of Mr. Wheeler’s

claims separately, beginning with breach of contract.

A. Breach of Contract

To decide whether the factual dispute over the divisibility of water damages is

material to Mr. Wheeler’s breach of contract claim, we must determine whether the

resolution of that dispute could affect the scope of coverage under the Policy. If the

alleged short-term damage is not covered under the Policy, then Allstate could not have

breached the Policy by denying coverage, regardless of whether the short-term damage

can be established independently. This issue therefore turns on the proper construction of

the parties’ insurance contract, which is a question of law. MarketWest Hydrocarbon, Inc.

v. Liberty Mut. Ins. Co., 558 F.3d 1184, 1190 (10th Cir. 2009). In this diversity case, we

apply the substantive law of Utah. See Barrett v. Tallon, 30 F.3d 1296, 1300 (10th Cir.

1994).

12
 1. Relevant Utah Law

“Under Utah law, insurance policies are construed using general contract

principles.” Utah Power & Light Co. v. Fed. Ins. Co., 983 F.2d 1549, 1553 (10th Cir.

1993). In interpreting insurance contracts, Utah courts “consider[] their meaning to a

person of ordinary intelligence and understanding, . . . in accordance with the usual and

natural meaning of the words, and in the light of existing circumstances, including the

purpose of the policy.” Lopez v. United Auto. Ins. Co., 274 P.3d 897, 902 (Utah 2012)

(internal quotation marks omitted). “Policy terms are harmonized with the policy as a

whole, and all provisions should be given effect if possible.” Utah Farm Bureau Ins. Co.

v. Crook, 980 P.2d 685, 686 (Utah 1999).

“Utah courts have long held that ‘insurance policies should be construed liberally

in favor of the insured . . . so as to promote and not defeat the purposes of insurance.’”

Fire Ins. Exch. v. Oltmanns, 285 P.3d 802, 805 (Utah Ct. App. 2012) (quoting U.S. Fid.

& Guar. Co. v. Sandt, 854 P.2d 519, 521 (Utah 1993)). As a result, “ambiguous or

uncertain language in an insurance contract . . . should be construed in favor of

coverage.” Sandt, 854 P.2d at 522. Courts must, however, “enforce an unambiguous

contract and may not rewrite an insurance contract if the language is clear.” Crook, 980

P.2d at 687 (alteration and internal quotation marks omitted). An insurer therefore may

include provisions barring coverage for certain losses; but even so, “provisions that limit

or exclude coverage should be strictly construed against the insurer.” Oltmanns, 285 P.3d

at 805 (quoting Sandt, 854 P.2d at 523). “In strictly construing exclusions, [Utah courts]

give them effect only when they use ‘language which clearly and unmistakably

13
communicates to the insured the specific circumstances under which the expected

coverage will not be provided.’” Id. (quoting Crook, 980 P.2d at 686).

2. Application

To begin, we acknowledge that neither the Policy nor the parties’ briefing in the

trial court or on appeal is a model of clarity. This imprecision is responsible for the

divergent views of the majority, the dissent, and the trial court concerning the issues and

arguments advanced, as well as the meaning of the Policy itself. Although each opinion

evidences a thoughtful look at the language of the Policy and the parties’ arguments, little

agreement has been reached. With that backdrop, we begin by outlining the few points of

consensus.

The parties agree on the general analytical framework applicable to the question of

whether Mr. Wheeler’s claimed loss is covered under the Policy. They assume that, even

if the loss does not also fall under Exclusion 3, it was caused by “wear and tear,”

“mechanical breakdown,” or “rust or other corrosion,” such that it falls under

Exclusion 7, unless the Exception to Exclusion 7 applies. Thus, both parties organize

their arguments around the premise that, for Mr. Wheeler’s loss to be covered under the

Policy, it must both (1) fall outside the scope of Exclusion 3 and (2) fall inside the scope

of the Exception to Exclusion 7. The trial court agreed with this general framework,

reasoning that it must decide, first, whether Exclusion 3 is ambiguous, and then, if it is

not, whether Mr. Wheeler’s loss falls under Exclusion 3 or, instead, the Exception to

Exclusion 7.

14
 Accordingly, we will analyze Mr. Wheeler’s claim under each of these provisions

in turn, discussing the trial court’s reasoning and the parties’ arguments as we go.

a. Exclusion 3

Under Exclusion 3 of the Policy, Allstate disclaimed responsibility for damage

“consisting of or caused by . . . [s]eepage, meaning continuous or repeated seepage or

leakage over a period of weeks, months, or years, of water . . . from, within or around any

plumbing fixtures, including . . . sinks.”

Despite Allstate’s assertion to the contrary, Mr. Wheeler does not challenge on

appeal the trial court’s conclusion that this provision is unambiguous. Rather, Mr.

Wheeler’s appellate position is consistent with his alternative position below that, even if

Exclusion 3 is deemed unambiguous, the short-term damages he is claiming do not fall

within its reach and instead fall within the Exception to Exclusion 7. In other words, Mr.

Wheeler accepts the trial court’s construction of the Policy—that Exclusion 3 eliminates

coverage for damage caused by the continuous leakage of water over a period of weeks

or longer, and that damage which is excluded under Exclusion 3 cannot be recovered

under the Exception to Exclusion 7. But he takes the position that this interpretation

simply does not speak to the short-term damages he seeks to recover, which are by policy

definition not caused by seepage. Mr. Wheeler further concedes that if, as the trial court

found, it is not possible to reliably distinguish short-term damage from long-term damage

to which Exclusion 3 does apply, then his short-term damages cannot be recovered. He

15
claims, however, that the trial court impermissibly made a factual finding on the

severability issue despite his expert’s testimony that severance is possible.5

Given that no party argues otherwise, we will assume for purposes of this appeal

that the language of Exclusion 3 is unambiguous. Cf. Am. Concept Ins. Co. v. Jones, 935

F. Supp. 1220, 1225–26 (D. Utah 1996) (finding materially identical provision

unambiguous under Utah law). What we cannot accept, however, is Allstate’s

assumption, clearly implicated in its arguments here and in the trial court, that if

Exclusion 3 of the Policy is deemed unambiguous, Mr. Wheeler cannot recover. These

5
In the dissent’s view, the trial court determined, as an independent conclusion of
law, that if a water release causes any damage that falls under the plain language of
Exclusion 3, then Exclusion 3 bars recovery of all damage associated with that water
release, regardless of whether the damage was fully inflicted within a matter of days. And
because Mr. Wheeler does not explicitly articulate, and then refute, that supposed
conclusion, the dissent believes we must accept it as unchallenged and, here, dispositive.
But we do not see this conclusion expressed, let alone explained, anywhere in the
trial court’s order. To be sure, this view of the Policy would have led the trial court to the
result it reached, and it certainly is feasible that this conclusion, though unexpressed,
could have informed the reasoning the court did express. However, we think the better
reading of the trial court’s order—one which, at the very least, we cannot penalize Mr.
Wheeler for gleaning—is that the court’s finding that the short- and long-term damages
could not reliably be distinguished was central to its conclusion that Mr. Wheeler’s
damages are barred by Exclusion 3. Indeed, every time the trial court discussed
Exclusion 3’s application it referred to “long term loss,” “loss . . . over an extended
period of time,” or “long-term water damage.” Given the parties’ focus in their summary
judgment briefing on pre- and post-“weeks” damages, and Mr. Wheeler’s argument that
under the plain language of the Policy his short-term damages are covered, we consider
the trial court’s finding as to severability essential to its conclusion that Mr. Wheeler
suffered only long-term damages that fall under Exclusion 3.
And in any event, Mr. Wheeler clearly asserts here, as he did below, that his short-
term damages are not barred by Exclusion 3. Thus, Mr. Wheeler advocates an
interpretation of a contract that runs counter to the trial court’s interpretation of the same
contract, squarely presenting to us a legal issue that we review de novo. Under these
circumstances, we disagree with the dissent’s conclusion that Mr. Wheeler has waived
any argument critical to his ability to succeed on appeal.
16
are not equivalent, interchangeable conclusions—to say that Exclusion 3 is unambiguous

is not to say, automatically, that it embraces the damages Mr. Wheeler is claiming. To the

contrary, we agree with Mr. Wheeler, for the reasons set forth below, that Exclusion 3

does not apply to his short-term damages; and even if the exclusion could be interpreted

otherwise, we would be bound under Utah law to construe it in Mr. Wheeler’s favor. See

Oltmanns, 285 P.3d at 805; cf. Fla. Dep’t of Revenue v. Piccadilly Cafeterias, Inc., 554

U.S. 33, 41 (2008) (noting that state’s reading of a statute was “more natural” but

declining to decide whether the statute was ambiguous because, even if it was, the

ambiguity must be resolved in the state’s favor).

In interpreting Exclusion 3, we construe its language from the perspective of an

ordinary insurance purchaser, see Sandt, 854 P.2d at 523, mindful that exclusionary

provisions except only what they clearly and unmistakably embrace, see Oltmanns, 285

P.3d at 805. Exclusion 3 provides in relevant part that Allstate does not cover household

damage “caused by . . . [s]eepage, meaning continuous or repeated seepage or leakage

over a period of weeks, months, or years.” This language “clearly and unmistakably

communicates to the insured,” Crook, 980 P.2d at 686, that damage “caused by” weeks or

months of continuous leakage is excluded, and no party disagrees. But by extension, then,

it is equally plain that damage not “caused by” weeks or months of leakage—or, to

phrase it differently, damage “caused by” less than weeks of leakage—is not excluded.

And because the parties concur that “weeks,” plural, must at the very least mean two

weeks, we agree with Mr. Wheeler that, by its terms, Exclusion 3 does not clearly and

unmistakably apply to damage caused by less than 14 days of leakage.

17
 Allstate’s expert insurance adjuster agreed with this interpretation. As the trial

court stated, “in her deposition [Allstate’s expert] agreed with [Mr. Wheeler]’s counsel’s

question that any damage that would have occurred during the first 13 days would be

covered under [Mr. Wheeler]’s policy.”

Nonetheless, Allstate maintains on appeal that Mr. Wheeler’s claimed damages are

barred under Exclusion 3. First, Allstate asserts Mr. Wheeler cannot recover the damages

he alleges were beyond repair within 13 days because Exclusion 3 “does not state that

coverage is afforded for damages that occur in the first thirteen days.” But this contention

turns Utah’s rule of interpretation on its head. Under Utah law, exclusionary provisions

must explicitly define the circumstances under which coverage will be denied and are

“strictly construed against the insurer.” See Oltmanns, 285 P.3d at 805 (internal quotation

marks omitted). Thus, mere silence in an exclusion does not bar coverage.

And Allstate’s main line of reasoning misses the central point of Mr. Wheeler’s

position. As noted above, after wrongly asserting that Mr. Wheeler is claiming

Exclusion 3 is ambiguous, Allstate argues Exclusion 3 is unambiguous and assumes that

to reach that conclusion is to further conclude Exclusion 3 applies to all of Mr. Wheeler’s

damages. From this vantage point, Allstate contends the factual question of whether

short-term damages can be isolated and separately established, while disputed, is

immaterial. Allstate contrasts this “immaterial” factual dispute with what it describes as

“the undisputed material facts” which, in Allstate’s view, properly informed the trial

court’s conclusion that Exclusion 3 precludes coverage here. In sum, Allstate expresses

its view of the exclusion’s application in this case as follows:

18
 Exclusion [3] makes clear that the [P]olicy does not cover loss to property
caused by the seepage or leakage of water from a plumbing system
occurring over a period of weeks or months. The loss to Mr. Wheeler’s
cabin resulted from the leakage of water from a plumbing system . . . that
occurred over a period of weeks or months. Mr. Wheeler cannot, and has
not, disputed these material facts, or cited to a case anywhere in the country
to support his contention [that Exclusion 3 is ambiguous].

But while there is nothing particularly objectionable about the first of these sentences—in

that it fairly encapsulates the meaning of Exclusion 3 in general terms—the latter

sentences misapprehend Mr. Wheeler’s stance as to the central dispute in this case.

Mr. Wheeler’s position is that the loss he seeks to recover, as opposed to other loss

he admits he must absorb, did not “result from” weeks or months of leakage. Allstate

appears to contend that the water release here could not have caused discrete losses to

different components of Mr. Wheeler’s cabin, and must be treated as one cohesive loss.

That is, Allstate seemingly asserts the Policy terminates coverage when a long-term water

release occurs, even absent a causal link between the duration of the release and the

damages claimed. But the Policy does not support this position.

By its terms, the Policy eliminates coverage for damage, so long as that damage is

“caused by” any of the events listed in several enumerated exclusionary provisions, of

which Exclusions 3 and 7 are examples. Accordingly, Exclusion 3 operates to exclude

from coverage any damage that is caused by seepage, which, as discussed, means

continuous leakage over a period of 14 days or longer. Here, however, Mr. Wheeler

asserts the damage he seeks to recover was “complete within the first week of the

flooding.” Thus, assuming this assertion is correct as a factual matter, Mr. Wheeler’s

claimed damage was not caused by leakage over a period of 14 days or longer; it was

19
caused by leakage over a period of less than 14 days and thus was not caused by seepage.

As such, the damage does not clearly and unmistakably fall within Exclusion 3.

Accordingly, we depart from the reasoning of the trial court. As summarized at the

outset, the trial court determined that Exclusion 3 “excludes coverage of [Mr. Wheeler]’s

claim and therefore [the Exception to Exclusion 7] does not apply.” But it reached this

determination by concluding, in step with Allstate’s approach, that Exclusion 3 is

unambiguous, without explaining how it unambiguously excludes short-term damage.

Yet, the trial court agreed with Allstate’s counsel that the “only time [water damage is]

not covered, the only time [Exclusion 3] comes in is when we’re dealing with a long term

loss.” And the premise of Mr. Wheeler’s argument is that he is not, in fact, seeking

recovery for “long term loss.” Thus, the short-term loss sought by Mr. Wheeler, if

capable of being severed from the long-term loss, actually falls outside the trial court’s

interpretation of Exclusion 3.

Nor are we persuaded by the trial court’s reliance on decisions holding that, when

a provision like Exclusion 3 applies, it supersedes a provision like the Exception, and

coverage is excluded. See Schwartzenfeld v. Nationwide Mut. Fire Ins. Co., No. 296752,

2011 WL 1565466 (Mich. Ct. App. Apr. 26, 2011) (per curiam) (unpublished); Marsh v.

Am. Family Mut. Ins. Co., 218 P.3d 573 (Or. Ct. App. 2009).6 According to the trial

court, these cases’ “reasoning is in line with Allstate’s arguments . . . that if [Mr.

Wheeler] had discovered his loss in a more timely fashion, perhaps there would have

6
In their filings below and their briefs on appeal, the parties discuss a third case
that stands for the same proposition. See Hall v. Am. Indem. Grp., 648 So.2d 556 (Ala.
1994).
20
been coverage but because [Mr. Wheeler]’s loss was over an extended period of time, the

exclusionary language precludes [Mr. Wheeler]’s recovery.” “Therefore,” the court

stated, “the exception[] do[es] not apply.”

But this approach assumes the answer to the disputed issue here—namely, that

Exclusion 3 applies to Mr. Wheeler’s claimed loss. In order for the court to conclude that

Mr. Wheeler’s “loss was over an extended period of time” and thus barred under

Exclusion 3, it needed to reject Mr. Wheeler’s argument that he could meaningfully

distinguish between short-term and long-term water damage in a situation involving at

least some long-term damage. And the trial court did exactly that, stating

the Court finds [Mr. Wheeler]’s argument that they are [sic] only claiming
loss for the first few days of water damage to have no effect on the Court’s
decision based upon the facts of this case. Because the damage to [Mr.
Wheeler]’s cabin was so extensive and was not found for at least 60–70
days, it is difficult if not impossible for the Court to determine exactly what
amount of damage would have occurred in the first few hours and days.

(Emphases added.) As even Allstate concedes, however, the separability of short- and

long-term water damage is a disputed factual question in this case: Allstate’s insurance

expert opined that there was no way to determine these damages separately, but Mr.

Wheeler’s mechanical and plumbing expert reported that he could, in fact, make that

determination. Thus, this factual dispute was not “for the Court to determine” on

summary judgment.

The trial court’s reliance on authorities “that found coverage to be specifically

excluded for long-term water damage” under similar insurance provisions does not

convince us otherwise. Again, this statement assumes that Mr. Wheeler suffered only

21
“long-term water damage,” which all parties agree is unambiguously precluded by

Exclusion 3. More importantly, however, all of the cases cited in the trial court’s order

(and the parties’ briefs) involve claims for damage that was undisputedly caused by

leakage over a period of weeks, months, or years. See Am. Concept, 935 F. Supp. at 1223,

1226 (cracking and settling of walls and foundation caused by sustained saturation of soil

beneath home due to leak at connection in pipe that persisted for two years); Hall v. Am.

Indem. Grp., 648 So.2d 556, 558–59 (Ala. 1994) (structural damage to foundation and

basement walls caused by leak that continued for years and by water pressure from burst

pipe, involving policy with seepage exclusion and separate exclusion for damage to

foundation from water pressure); Schwartzenfeld, 2011 WL 1565466, at *1 (water

damage to downstairs ceilings caused by years of leakage through crevice around bath

tub that rotted subfloors of bathroom before showing through on ceilings); Marsh, 218

P.3d at 574–75, 577 (rotted floor under shower caused by leak in shower membrane that

persisted for at least months, and likely years). None involved a claim for damage caused

during the first week of leakage or an argument that such damage can be severed from the

long-term damages and therefore falls outside a provision like Exclusion 3. See Am.

Concept, 935 F. Supp. at 1225–26; Hall, 648 So.2d at 558–59; Schwartzenfeld, 2011 WL

1565466, at *1–3; Marsh, 218 P.3d at 574–75, 577–78. Thus, none of them supports the

notion that short-term water damage cannot be isolated and reliably proved, and none

suggests Exclusion 3 applies to the short-term loss Mr. Wheeler seeks to recover in this

case.

22
 It is also true, as discussed, that Exclusion 3 is silent on the issue, meaning it does

not clearly and unmistakably exclude damages caused by leakage or seepage for less than

weeks, month, or years. Accordingly, if Mr. Wheeler can segregate his short-term losses

from his long-term losses, the short-term losses are not barred by the unambiguous

language of Exclusion 3.

It follows from this discussion that Mr. Wheeler’s asserted factual dispute affects

whether Exclusion 3 applies. We must next determine, then, whether Mr. Wheeler’s

short-term damage, if he can separately establish it, would be covered under the

Exception to Exclusion 7.

b. Exception to Exclusion 7

The trial court concluded Mr. Wheeler’s damages were excluded under

Exclusion 3 and therefore did not construe the Exception to Exclusion 7 or analyze its

application to the present facts. Nonetheless, the parties address this issue in their briefs,

and we consider it to determine if we can affirm on this alternative ground.7

7
Mr. Wheeler assumed in his opening brief that the escape of water from the pipe
in his basement was undisputedly “sudden and accidental” within the meaning of the
Exception to Exclusion 7. It was only after Allstate argued to the contrary in its answer
brief that Mr. Wheeler, in his reply brief, provided substantive analysis on this point and
argued that whether the water’s release was “sudden and accidental” is a disputed issue of
fact. Although we usually choose not to consider arguments raised for the first time in a
reply brief, Stump v. Gates, 211 F.3d 527, 533 (10th Cir. 2000), we conclude the reasons
for applying this discretionary rule of abstention are not present here.
For one, the trial court expressly declined to decide whether the escape of water in
this case was sudden and accidental, so there was no determination contrary to Mr.
Wheeler’s position to which a response clearly was required. But more importantly, this
is not a situation in which the appellee has been deprived of an opportunity to respond to
a new argument or characterization of the record, or in which we need “protect[ion] . . .
from publishing an erroneous opinion” with respect to the law or the facts. Id.; see also
23
 There is no dispute that the damage at issue here falls within Exclusion 7 and

therefore must also be within the scope of the exception to that exclusion to be covered

under the Policy. The Exception states:

If any of a) through h) cause the sudden and accidental escape of water or
steam from a plumbing . . . system within your dwelling, we cover the
direct physical damage caused by the water or steam. If loss to covered
property is caused by water or steam not otherwise excluded, we will cover
the cost of tearing out and replacing any part of your dwelling necessary to
repair the system or appliance. This does not include damage to the
defective system or appliance from which the water escaped.

(Emphases added.)

Interpreting this language, Allstate says the Exception “provides coverage for

water loss if such loss was ‘sudden and accidental,’” and argues the fact that “Mr.

Wheeler does not dispute that it took him [60–70] days to discover the water loss . . .

compels the conclusion that the loss was not ‘sudden and accidental.’” Allstate then

references three cases in which this court interpreted the phrase “sudden and accidental,”

arguing they establish that the phrase is unambiguous and does not embrace Mr.

Wheeler’s loss here. See Quaker State Minit-Lube, Inc. v. Fireman’s Fund Ins. Co., 52

F.3d 1522 (10th Cir. 1995); Anaconda Minerals Co. v. Stoller Chem. Co., 990 F.2d 1175

id. (stating the reasons for the usual rule are to avoid “rob[bing] the appellee of the
opportunity to demonstrate that the record does not support an appellant’s factual
assertions and to present an analysis of the pertinent legal precedent that may compel a
contrary result”; and to “protect[] this court from publishing an erroneous opinion
because we did not have the benefit of the appellee’s response”). The parties’ appellate
arguments on this issue are the same as the ones they made before the trial court, and Mr.
Wheeler’s reply brief discusses only the cases addressed in Allstate’s answer brief, all of
which also were discussed below.
24
(10th Cir. 1993); Hartford Accident & Indem. Co. v. U.S. Fid. & Guar. Co., 962 F.2d

1484 (10th Cir. 1992).

Allstate is correct that, under controlling caselaw, the phrase “sudden and

accidental” is unambiguous. Contrary to Allstate’s reading, however, that precedent does

not support Allstate’s position that the Exception to Exclusion 7 is inapplicable here.

Indeed, one case in particular is substantially on point and firmly establishes that Mr.

Wheeler’s claimed loss, if provable, is covered under the Exception.

In Gridley Associates, Ltd. v. Transamerica Insurance Co., the plaintiff owned a

gas station which, from November 1985 to February 1986, recorded a shortfall of

approximately 12,000 gallons between the volume of gasoline actually sold and the

volume purchased and stored in the station’s underground tank. 828 P.2d 524, 524–25

(Utah Ct. App. 1992). Concerned, the plaintiff hired a company in early February 1986 to

inspect the station’s fuel system, and it concluded “there was a gasoline leak resulting

from a broken pipe which connected the gasoline storage tank with the gasoline

[pumps].” Id. at 525. The evidence established that “the break in the pipe was a ‘clean

break’ that ‘would have had to have been caused by an adjustment of the area in which it

is in.’” Id.

The plaintiff filed a claim with its general liability insurer for the cost of

environmental cleanup. Id. The policy contained a pollution exclusion which disclaimed

coverage for “property damage arising out of the discharge, dispersal, release or escape

of [various pollutants] into or upon land.” Id. But the exclusion contained the following

exception: “this exclusion does not apply if such discharge, dispersal, release or escape is

25
sudden and accidental.” Id. The insurer denied coverage under the exclusion, and the

plaintiff sued. Id. The trial court found the insurer liable under the exception to the

exclusion, and the insurer appealed. See id. at 525–26.

The sole issue on appeal was whether the gasoline leak was “sudden,” within the

meaning of the phrase “sudden and accidental.” Id. at 526. Like Allstate does here, the

insurer in Gridley maintained that the leak “was not ‘sudden’ because it continued for an

extended period of time.” Id. Casting the issue as one of first impression in Utah, the

Utah Court of Appeals determined that the word “sudden,” as used in the phrase “sudden

and accidental,” has an unambiguous meaning. Id. at 527. Reading the terms together, the

court concluded that for a “discharge, dispersal, release or escape” to have been “sudden

and accidental,” it must have been both quick or abrupt and unexpected or unintentional.

See id.

Applying this understanding to the facts of that case, the Gridley court concluded

that the gasoline leak was “sudden and accidental” and therefore fell within the exception

to the policy’s pollution exclusion. Id. The court noted that the evidence suggested the

break in the pipe was a “clean break,” which would have “resulted in an unexpected as

well as an immediate and abrupt flow of gasoline from the severed line,” as opposed to a

break slowly caused by corrosion “which would have resulted in a gradual drip or trickle

of gasoline from the line.” Id. Critical for our purposes here, the court had this to say of

the fact that the leak persisted for a long period of time:

[The insurer]’s argument that the discharge could not possibly have been
“sudden” because the spill lasted for an extended period of time is without
merit. While the record . . . indicates that although the break in the line

26
 occurred in approximately November 1985 and was not discovered by [the
plaintiff] until early February 1986, the explicit language of [the plaintiff]’s
policy only requires that the discharge itself be “sudden” in order to be
covered under the policy. The length of time that elapses before the leak is
discovered is irrelevant, as to the suddenness of the discharge. . . .
Accordingly, in the case at bar, where there was damage to a line which
caused an immediate spill of gasoline into the ground that remained
undiscovered by [the plaintiff] for some months, the discharge itself was
still “sudden” as contemplated by the exception to the pollution exclusion.

Id. at 527–28 (emphases added) (citations and internal quotation marks omitted).

One need only replace “gasoline” with “water” to know what Utah law prescribes

in the present case. Like the exception in Gridley, the “explicit language” of which

required that the “escape” itself be sudden and accidental, the Exception to Exclusion 7

plainly focuses on the escape itself: it states that damage caused by “the sudden and

accidental escape of water or steam from a plumbing . . . system” is exempt from

Exclusion 7. (Emphasis added.) Allstate’s argument that the loss caused by the escaped

water was not sudden and accidental is thus beside the point. Moreover, the undisputed

evidence shows that the escape of water into Mr. Wheeler’s cabin began when a pipe

under the basement sink burst due to a failed valve and that the release of water was

“immediate and abrupt,” rather than “a gradual drip or trickle”: when the leak was found,

“water was spraying out everywhere” and the spray shot out “about 2–3 feet.” Gridley

plainly instructs that, under these circumstances, the “escape of water” was “sudden and

accidental” within the meaning of the Exception, regardless of whether the leak went

undiscovered for 60–70 days.

The Quaker State / Anaconda / Hartford line of cases, in which this court applied

Utah law to pollution provisions similar to the one in Gridley, does not suggest otherwise.

27
In the first of those cases, Hartford, this court noted that the Utah Supreme Court had not

yet interpreted the phrase “sudden and accidental” in the context of an insurance

exclusion, and that it was therefore this court’s responsibility to “give the clause the

interpretation we believe the Utah [Supreme] [C]ourt would.” 962 F.2d at 1487.

Ultimately, we settled on the interpretation provided by the Utah Court of Appeals in

Gridley. Id. at 1490. The Anaconda and Quaker State decisions subsequently employed

that interpretation, too. Quaker State, 52 F.3d at 1528; Anaconda, 990 F.2d at 1177–79.

In all three cases, this court applied the interpretation “that ‘sudden and accidental’

unambiguously means ‘abrupt or quick and unexpected or unintended,’” e.g., Quaker

State, 52 F.3d at 1258, to largely analogous fact patterns: plaintiffs claiming that

numerous discharges of pollution over a decade or more should be covered under

exceptions to pollution exclusions in their insurance policies. E.g., id. at 1524–27. And in

each case, this court determined that such discharges were not covered because, “under

Utah law continuous, routine, or gradual discharges of pollutants are not ‘abrupt’ or

‘quick’ and thereby not ‘sudden’ within the meaning of ‘sudden and accidental.’” Id. at

1528 (citing Anaconda, 990 F.2d at 1179; Hartford, 962 F.2d at 1489, 1492).

Although the focus on “continuous” and “gradual” might otherwise have implied

that a single, lasting leak could not be “sudden and accidental,” in each case the court’s

holding was premised on, and limited to, long-term, repeated discharges attendant to the

routine business operations of the plaintiffs. E.g., id. at 1528–30; Hartford, 962 F.2d at

1489, 1492. Indeed, this court recently characterized Quaker State, Anaconda, and

28
Hartford as cases that hinged on “the routine commercial activities of the insured.”

Headwaters Res., Inc. v. Ill. Union Ins. Co., 770 F.3d 885, 896 (10th Cir. 2014).

And even if these cases could be read broadly to suggest leaks like the ones here

and in Gridley cannot be considered “sudden and accidental” as a categorical matter, the

Utah Supreme Court has subsequently foreclosed that reading. See Sharon Steel Corp. v.

Aetna Cas. & Sur. Co., 931 P.2d 127 (Utah 1997). In Sharon Steel, the Utah Supreme

Court expressly approved of and reaffirmed Gridley. Id. at 135. It also approved of the

Quaker State line of cases, but only after characterizing the reasoning of those cases as

“focused on whether the pollution was a ‘concomitant’ of regular business activity rather

than a series of unrelated accidents.” Id. at 136. Thus here, we need not parse our

precedent “to determine, as best we can, how this issue would be resolved by the Utah

Supreme Court.” Quaker State, 52 F.3d at 1527. The Utah Supreme Court has spoken,

and Gridley controls: because the escape here was sudden and accidental, it triggers the

Exception to Exclusion 7, even though it remained undetected for an extended period.

* * *

We therefore conclude that, if Mr. Wheeler can prove the damages he is seeking

were caused within the first 13 days of the release, then the damages fall outside

Exclusion 3 and inside the Exception to Exclusion 7. In that situation, the damages would

be covered under the Policy and Allstate would have breached the Policy by denying

coverage. Viewing the evidence in the light most favorable to Mr. Wheeler, a reasonable

jury could find that the short- and long-term damages are, in fact, separable. Accordingly,

29
we conclude there is a genuine dispute of material fact that should have precluded the

trial court’s grant of summary judgment on the breach of contract claim.

B. Breach of the Implied Covenant of Good Faith and Fair Dealing

Having determined summary judgment was not appropriate on the breach of

contract claim, we must next consider whether summary judgment was appropriate as to

the claim for breach of the implied covenant of good faith and fair dealing. The parties’

arguments here focus on whether Allstate in fact complied with its duty of good faith and,

alternatively, whether Mr. Wheeler’s insurance claim was “fairly debatable,” such that

Allstate could not have acted in bad faith in denying coverage.8 After stating the relevant

law, we address each of these questions in turn, concluding that summary judgment was

not warranted on this claim.

Under Utah law, the implied covenant of good faith in the insurance context

“contemplates, at the very least, that the insurer will diligently investigate the facts to

enable it to determine whether a claim is valid, will fairly evaluate the claim, and will

thereafter act promptly and reasonably in rejecting or settling the claim.” Prince v. Bear

River Mut. Ins. Co., 56 P.3d 524, 533 (Utah 2002) (internal quotation marks omitted).

These duties account for the fact that “the overriding requirement imposed by the implied

covenant is that insurers act reasonably, as an objective matter, in dealing with their

insureds.” Billings v. Union Bankers Ins. Co., 918 P.2d 461, 465 (Utah 1996). Thus, “[i]f

8
Allstate also asserts that the claim should fail because Mr. Wheeler’s complaint
“only made one general allegation” in support of it. But as Mr. Wheeler notes, this case is
at the summary judgment stage, where the parties must move beyond the pleadings. The
record shows Mr. Wheeler moved well beyond “one general allegation” at the summary
judgment stage.
30
an insurer acts reasonably in denying a claim, then the insurer did not contravene the

covenant.” Prince, 56 P.3d at 533. In Utah, “[w]hether there has been a breach of good

faith and fair dealing is a factual issue, generally inappropriate for decision as a matter of

law.” Blakely v. USAA Cas. Ins. Co., 500 F. App’x 734, 739 (10th Cir. 2012)

(unpublished) (alteration in original) (quoting Oman v. Davis Sch. Dist., 194 P.3d 956,

968 (Utah 2008)).

Applied here, these considerations lead us to conclude that the issue of Allstate’s

compliance with its duty of good faith is a question of fact best left for the jury. Although

the trial court’s statement that Allstate “acted diligently, reasonably, fairly and promptly

in denying [Mr. Wheeler]’s claim” tracks the language used to describe insurers’ duties

under Utah law, see Prince, 56 P.3d at 533, Mr. Wheeler correctly notes that the court did

not specifically discuss the parties’ evidence on the issues of diligent investigation and

fair evaluation. Rather, the trial court appears to have based its determination that

Allstate’s actions were reasonable largely on its prior conclusion that Mr. Wheeler’s loss

plainly falls under Exclusion 3 of the Policy. But because we have rejected that rationale,

and considering the evidence in the light most favorable to Mr. Wheeler, we cannot say

that no reasonable juror could find Allstate failed to diligently investigate and fairly

evaluate whether any damage in Mr. Wheeler’s cabin was covered. See Jones v. Farmers

Ins. Exch., 286 P.3d 301, 303–06 (Utah 2012).

To that end, Mr. Wheeler presented testimony from an insurance expert opining

that Allstate acted unreasonably in approaching Mr. Wheeler’s claim “from a position of

prematurely denying coverage.” Mr. Wheeler’s evidence also showed that Allstate’s

31
investigating adjuster “spent ‘ten minutes tops’ at the cabin and ‘took like two or three

pictures and left.’” Allstate, on the other hand, presented the adjuster’s report and the

rebuttal testimony of its own insurance expert, both of which support its claim that it

acted reasonably. In short, the evidence concerning the reasonableness of Allstate’s

actions was disputed.

That said, we must next consider whether summary judgment was nonetheless

appropriate because, as Allstate argues, Mr. Wheeler’s claim was “fairly debatable.”9

Under Utah law, “when an insured’s claim is fairly debatable, the insurer is entitled to

debate it and cannot be held to have breached the implied covenant [of good faith and fair

dealing] if it chooses to do so.” Billings, 918 P.2d at 465. In other words, “as long as the

appropriateness of coverage was ‘fairly debatable at the time it was denied,’ an insurer

does not breach the duty of good faith simply because a court later determines the insurer

wrongly denied coverage.” Blakely, 500 F. App’x at 738 (quoting Billings, 918 P.2d

at 465).

Allstate asserts that the “fairly debatable” defense bars Mr. Wheeler’s bad faith

claim because, at the very least, the evidence presented here “create[s] a factual issue as

to the validity of [Mr. Wheeler]’s water loss claim.” See also Prince, 56 P.3d at 535 (“[I]f

the evidence presented creates a factual issue as to the claim’s validity, there exists a

debatable reason for denial, . . . eliminating the bad faith claim.” (alteration in original)

9
Although Allstate argued this “fairly debatable” rationale below, the trial court’s
order did not address it.
32
(internal quotation marks omitted)). But Allstate misapprehends the Utah precedent

addressing the fairly-debatable defense.

In Jones v. Farmers Insurance Exchange, the Utah Supreme Court admonished

that the factual-issue-as-to-the-claim’s-validity standard for demonstrating that an

insurance claim is “fairly debatable” must be strictly applied at the summary judgment

stage. See 286 P.3d at 304. Jones involved a plaintiff who submitted a claim to his insurer

seeking $14,000 in dental treatment for an injury allegedly sustained in a car crash that

occurred four years earlier. Id. at 302–03. The plaintiff’s dentist sent the insurer a report

in which the dentist attributed the plaintiff’s injury (cracked teeth) to the car crash. Id.

The insurer, after noting that the plaintiff’s emergency-room report showed no facial

trauma at the time of the accident and that the insurer “would have expected multiple

fractured teeth to cause some pain or discomfort during the 4 years,” denied the claim. Id.

at 303. The plaintiff sued, and the insurer moved for summary judgment on the plaintiff’s

bad faith cause of action, arguing that the plaintiff’s insurance claim was fairly debatable.

Id. The trial court granted the insurer’s motion, but the Utah Supreme Court reversed.

The court cautioned that the fairly-debatable defense is all but precluded on

summary judgment where the alleged factual dispute as to coverage is premised not on

conflicting evidence, but on the quality of the insured’s claim, which by extension

implicates the insurer’s reasonableness in denying coverage. See id. at 304–05. In such

situations, summary judgment is proper only where “reasonable minds could not differ as

to whether the insurer’s conduct measured up to the required standard of care.” Id. at 305.

The Utah Supreme Court explained that to justify application of the fairly-debatable

33
defense at the summary judgment stage, there must be a legitimate factual dispute on

which coverage under the insurance policy hinges and on which the insurer actually

possessed conflicting evidence when it denied the claim. See id. at 305–06. The Jones

court identified Prince and Callioux v. Progressive Insurance Co., 745 P.2d 838 (Utah

Ct. App. 1987), as cases in point.

Comparing the facts of these cases to the facts here, we do not believe Mr.

Wheeler’s insurance claim was “fairly debatable” as a matter of law, so as to justify

summary judgment on the bad faith claim. While we agree with Allstate that coverage

under the policy hinges on a genuine dispute of fact on which the parties have submitted

evidence, none of that evidence was in hand at the time the claim was denied. Thus,

unlike the insurers in Prince and Callioux, both of which denied insureds’ claims after

receiving expert reports indicating there was no coverage, see Prince, 56 P.3d at 529;

Callioux, 745 P.2d at 839, 842, Allstate did not have any objective evidence indicating

there was no coverage at the time it denied the claim. Thus, Jones instructs that summary

judgment is not appropriate unless “reasonable minds could not differ” on whether

Allstate complied with its duties of diligent investigation, fair evaluation, and reasonable

and prompt disposition. 286 P.3d at 305. And as discussed above, we cannot conclude the

evidence on these questions is so lopsided that they may be determined as a matter of

law.

34
 IV. CONCLUSION

For the foregoing reasons, we reverse the trial court’s order granting summary

judgment for Allstate and remand for further proceedings consistent with this opinion.

Entered for the Court

Carolyn B. McHugh
Circuit Judge

35
15-4159, Wheeler v. Allstate Insurance Company, et al.

MORITZ, Circuit Judge, dissenting:

I read Wheeler’s opening brief to raise a single challenge to the district court’s

ruling that the Policy doesn’t cover the short-term damage to the cabin: Wheeler

asserts that the district court erred in overlooking a genuine dispute of material fact.

In support, Wheeler points to his expert’s opinion that “the water damage to walls,

cabinets, and other water[-] absorbing materials was beyond repair within less than a

week.” Aplt. App. 143. And in light of this evidence, Wheeler argues, the district

court erred when it concluded that it was impossible “to determine exactly what

amount of damage would have occurred in the first few hours and days” of the leak.

Id. at 153.

Wheeler is correct that the district court erred when it suggested a reasonable

jury would be unable to attribute at least some of the damage to the first 13 days of

the leak. But as I read the district court’s order, this erroneous factual finding is only

one of the two independent bases the district court provided for granting Allstate’s

motion for summary judgment. And while I agree with the majority that Wheeler

successfully challenges the first of these two independent bases for the district

court’s ruling, I would find that Wheeler fails to acknowledge—let alone challenge—

the second.

In granting Allstate’s motion for summary judgment, the district court began

by framing the question before it as whether the Policy “should cover any of the

damage to [the] cabin.” Aplt. App. 137 (emphasis added). The district court then
clarified its understanding of Wheeler’s position, stating, “[Wheeler] is only seeking

relief for the [short-term] damage” to the cabin. Id. at 145. Based on this language, it

is clear that the district court understood Wheeler to be arguing that Exclusion 3

doesn’t apply to damage that occurs within the first 13 days of a leak if that leak

ultimately persists for 14 days or more.

Critically, the district court then explicitly (and repeatedly) rejected this

interpretation of Exclusion 3 as a matter of law. For instance, the court stated that it

“disagree[d] with [Wheeler’s] attempt to persuade the [c]ourt to construe the

language [of Exclusion 3] in a more subtle, fine-tuned manner that favors . . .

recovery and ignores the contract’s plain language.” Id. at 146. And it ruled that

Exclusion 3 isn’t “fairly susceptible to the interpretation [Wheeler] suggest[ed].” Id.

at 148. In other words, the district court unambiguously ruled that when a leak lasts

14 days or more, Exclusion 3 applies to all of the damage the leak causes—even the

damage that occurs within the first 13 days: the district court stated, “The policy

language works to preclude coverage for exactly the type of damage that occurred in

this case . . . .” Id. at 153.

The majority correctly points out that the district court also stated that it found

it “difficult if not impossible . . . to determine exactly what amount of damage would

have occurred in the first few hours and days” of the leak. Maj. Op. 10 (quoting Aplt.

App. 153). But in my opinion, the district court made it clear that this factual finding

constituted an alternative basis for its ruling that Wheeler isn’t entitled to coverage.

See Aplt. App. 153 (reiterating that “[i]n addition” to its factual finding, the district

2
court was also granting Allstate’s motion based on its independent legal conclusion

that Exclusion 3 applies to all damage—including short-term damage—that occurs

when a leak ultimately lasts 14 days or more (emphasis added)).

Thus, I read the district court’s order to provide two independent bases for

granting Allstate’s motion for summary judgment: (1) a reasonable jury would be

unable to discern what damage occurred within the first 13 days of the leak, and

(2) even assuming that a reasonable jury could make such a factual finding,

Exclusion 3 would nevertheless unambiguously operate to preclude coverage for the

short-term damage.

But Wheeler doesn’t even acknowledge this second aspect of the district

court’s ruling in his opening brief, let alone attempt to challenge it.1 Accordingly,

1
The majority opinion nevertheless undertakes an analysis of the district
court’s legal conclusion that Exclusion 3 doesn’t apply to short-term damage when a
leak lasts at least 14 days. For instance, the majority reasons that any damage that
occurs within the first 13 days of such a leak isn’t “caused by leakage over a period
of 14 days or longer.” Maj. Op. 20. And the majority addresses and attempts to
distinguish the cases the district court relied on in rejecting Wheeler’s assertion that
Exclusion 3 doesn’t apply to short-term damage caused by a leak that ultimately lasts
at least 14 days. See id. at 20-23.
As discussed below, see infra at 5-6, I disagree with the majority’s
interpretation of Exclusion 3, see Maj. Op. 20. But more significantly, I disagree with
the majority’s decision to reach that interpretation (and to ultimately reverse the
district court’s decision) based on an analysis that doesn’t appear anywhere in
Wheeler’s opening brief. When an appellant fails to “explain what was wrong with
the reasoning that the district court relied on in reaching its decision,” we typically
decline to do that work on the appellant’s behalf. Nixon v. City & Cty. of Denver, 784
F.3d 1364, 1366 (10th Cir. 2015) (noting that “[t]he first task of an appellant is to
explain to us why the district court’s decision was wrong”; affirming judgment below
because “reasons that were given by the district court” for its ruling went
“unchallenged” by appellant); see Bronson v. Swensen, 500 F.3d 1099, 1104 (10th
Cir. 2007) (noting that we routinely decline “to consider arguments that are not
3
even assuming that the district court erred in finding that it would be impossible for a

jury to separate the short-term damage from the long-term damage, I would affirm

the district court’s order granting summary judgment to Allstate on Wheeler’s breach

of contract claim. See Bones v. Honeywell Int’l, Inc., 366 F.3d 869, 877 (10th Cir.

2004) (explaining that because plaintiff failed to challenge both of district court’s

two independent grounds for granting summary judgment to defendant, court didn’t

need to address plaintiff’s challenge to first of those two independent grounds; even

if plaintiff “prevail[ed] on that issue, the grant of summary judgment to [defendant]

would still stand on the alternative ground which was not appealed”).

Moreover, because Wheeler doesn’t adequately challenge the district court’s

ruling that Exclusion 3 applies to both the short- and long-term damage to the cabin, I

would affirm the district court’s order granting summary judgment to Allstate on

Wheeler’s breach of contract claim without ever asking whether Exclusion 7 also

applies to defeat coverage for the short-term loss.

Alternatively, even assuming that Wheeler has adequately challenged the

district court’s ruling that Exclusion 3 applies to preclude coverage for the short-term

loss to the cabin, I would nevertheless affirm. Exclusion 3 applies to property loss

“caused by . . . [s]eepage, meaning continuous or repeated seepage or leakage [of

water] over a period of weeks, months, or years.” Aplee. App. 312-13 (emphasis

added). This language unambiguously encompasses damage that occurs at any time

raised, or are inadequately presented”). I see no compelling reason to depart from
that typical practice here.
4
within that “period of weeks, months, or years”—including, critically, the first 13 days.

Id. at 313.

Wheeler’s interpretation of the Policy implicitly invites us to not only read out of

Exclusion 3 the language “over a period of,” id., but also to read into Exclusion 3

additional language that doesn’t appear there—i.e., language indicating that Exclusion 3

applies only to loss (caused by seepage or leakage) that occurs after the seepage or

leakage has lasted for at least two weeks.

I would decline this invitation. Instead, because Wheeler seeks coverage for

property loss caused by a leak that unquestionably occurred “over a period” of two

weeks or more, I would hold that Exclusion 3 unambiguously applies to all of the damage

the leak caused, including the damage that occurred during the first 13 days of the multi-

week “period” during which the leak ultimately persisted. Id. (emphasis added); see

Quaid v. U.S. Healthcare, Inc., 158 P.3d 525, 527 (Utah 2007) (explaining that when

language of exclusion is unambiguous, court will afford that language its ordinary

meaning, even if the result is to deny coverage).

Finally, because Wheeler fails to demonstrate that he was entitled to coverage,

I would hold that the district court didn’t err in granting summary judgment to

Allstate on Wheeler’s claim for breach of the covenant of good faith and fair dealing.

See Jones v. Farmers Ins. Exch., 286 P.3d 301, 304 (Utah 2012) (“[W]hen an

insured’s claim is fairly debatable, the insurer is entitled to debate it and cannot be

held to have breached the implied covenant [of good faith] if it chooses to do so.”

(second alteration in original) (quoting Billings ex rel. Billings v. Union Bankers Ins.

5
Co., 918 P.2d 461, 465 (Utah 1996))). Because Wheeler fails to demonstrate that he’s

entitled to coverage, the validity of his claim was necessarily “fairly debatable,” and

Allstate was therefore “entitled to debate it.” Id. (quoting Billings, 918 P.2d at 465).

6