FILED

United States Court of Appeals

Tenth Circuit

March 11, 2008

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

Elisabeth A. Shumaker
Clerk of Court

CHIMERA INVESTMENT COMPANY,

Plaintiff - Appellant,
No. 06-4268
D.C. No. 2:05-CV-114-TC
District of Utah

v.
STATE FARM FIRE & CASUALTY
COMPANY,
Defendant - Appellee.

ORDER AND JUDGMENT*

Before LUCERO, HOLLOWAY and TYMKOVICH, Circuit Judges.

This appeal arises from a liability insurance coverage dispute. Plaintiff-Appellant

Chimera Investment Company brought this action to recover under a business liability
insurance policy issued by Defendant-Appellee State Farm Fire & Casualty Company.
Jurisdiction in the district court was based on diversity of citizenship and amount in
controversy.
Both parties moved for summary judgment. The district court granted summary
judgment to State Farm, holding that the delay in notifying State Farm of the claim had

This order and judgment is not binding precedent, except under the doctrines of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.

caused it prejudice and so had nullified its duties under the policy. Alternatively the
district court held that the underlying claims were not within the coverage of the
insurance policy.
Chimera appeals. Jurisdiction in this court is based on 28 U.S.C. 1291.
I. Background
A. Underlying facts.
At the bottom of the entire controversy is a condominium unit in Park City, Utah,
unit 2 of seven in the Coalition Lodge Condominiums. The condominiums had an
owners association called Coalition Lodge Condominium Association of United Owners
(the Association or the Insured). The Association had a liability insurance policy
issued by State Farm.
Marguerite Johnson was the former owner of unit 2. She also owned Coalition
Condos, a management company that rented out the units at Coalition Lodge.
Marguerites son, Max Johnson, and their attorney, Ruth Wagner, acted as members of
the management committee.
Beneficial Mortgage Company had made a loan to Marguerite Johnson secured by
a deed of trust on unit 2. She defaulted and Beneficial foreclosed. Fidelity Funding
Company (Fidelity) purchased unit 2 at a foreclosure sale in February 2000. When
Fidelity tried to take possession, it found the unit occupied, and the locksmith Fidelity had
sent was told that he could not change the locks. About a month later, on March 27,
2000, Fidelity found the unit unoccupied and changed the locks. Fidelity had possession
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of unit 2 for about the next nine weeks, during which time Max Johnson repeatedly
demanded that he be given a key to the unit. On June 3, 2000, Fidelity found that the
door to the unit had been broken open, damaging the door frame, and that Max Johnson
or someone associated with him had a key.
Fidelity wrote to Ruth Wagner protesting the fact that the Johnsons had a key to
unit 2 and warning of trespass charges. The letter also said that Fidelity would manage
the unit for itself unless and until its problems with the Johnsons were resolved. Shortly
after that there was a discussion between the parties during which Max Johnson and Ruth
Wagner claimed that the Associations bylaws authorized them to manage all of the
condominium units, including unit 2. Fidelity and its lawyer asserted that Utah law
invalidated any provision of the condominium associations agreement or bylaws that
would purport to divest them of the right to exclusive ownership and possession of their
property.1
B. The state court lawsuit against the insured.
About three months after the discussion just described, Fidelity filed suit. Fidelity
sued the Johnsons, Wagner, Coalition Lodge Condominiums, Coalition Condos (the
management company owned by Marguerite Johnson), and the Association. The lawsuit
alleged eleven claims, including unlawful detainer, trespass, private nuisance, conversion
(of rents received), quiet title, breach of fiduciary duty, and slander of title. The present
1

The reference was presumably to Utah Code Ann. 57-8-6, part of the Utah
Condominium Ownership Act, which provides: Each unit owner shall be entitled to the
exclusive ownership and possession of his unit.
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suit concerns whether that suit by Fidelity was within the liability insurance coverage of
the policy issued to the Association by State Farm.
Ruth Wagner filed an answer on behalf of most of the defendants but did not
continue to actively defend the case. Eventually, due to the failure of the defendants
(including at least the Johnsons, Wagner, and the Association) to comply with discovery
orders and to respond to Fidelitys motion for summary judgment, Fidelity obtained a
judgment by default.
C. Demand under the policy.
It was only after judgment that Fidelity learned of the Associations liability policy
with State Farm. Demand was made on the policy. State Farm retained counsel who
entered an appearance in the case. State Farm provided counsel under a reservation of
rights and with the stated purpose of analyzing the claim to see if there was potential
coverage under the policy.
State Farm quickly decided to deny coverage and instructed the lawyers to
withdraw from the representation. The letter to the insured said that coverage was denied
because of both the late notice and the independent determination that the claims against
the insured were not covered.
Chimera makes its claim under the policy in the instant action as assignee of the
insured and of the judgment creditor of the insured. Chimeras right to pursue the claim
as assignee is not disputed in these proceedings.

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II. The District Courts Opinion

The district court only analyzed the issue of whether the delay in giving notice to
State Farm should relieve it of any duties it would otherwise have had to its insured on
the Fidelity claim and lawsuit. It is undisputed that the insured Association did not
provide timely notice as required under the policy. State Farm did not receive notice until
almost a year after the lawsuit had been filed and, as noted, after judgment by default had
been entered against the insured and the other state court defendants.
Citing FDIC v. Oldenburg, 34 F.3d 1529, 1545-46 (10th Cir. 1994), the district
judge said that noncompliance with the notice provision may defeat coverage if there is a
showing of substantial prejudice to the insurer. The district judge concluded that in this
case unquestionably there was substantial prejudice to State Farm. The judge
concluded that Johnston v. Sweany, 68 S.W.3d 398 (Mo. 2002), was persuasive. In that
case, as in the instant case, the insurer had not been given notice until judgment by default
had been given against the insured. The Missouri court said that the insurer had been
presented with a fait accompli. Similarly, the district judge said, in this case the
insureds delay deprived State Farm of the opportunity to bring a declaratory judgment
action to determine coverage before final judgment, and also deprived State Farm of the
opportunity to dispute the amount of damages or to investigate the claim before entry of
judgment. Therefore, she said, prejudice was clear on its face. In a footnote, she said
that because of the insureds dilatory conduct in the underlying state court action brought
by Fidelity, it would be difficult, if not impossible to convince the state court to set
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aside the default judgment.

As an alternative ground for granting State Farms motion for summary judgment,
the district judge said that even if notice had been given, the allegations of Fidelitys state
court suit did not give rise to a covered claim for the reasons set for in State Farms
briefs. No discussion or analysis followed this conclusion.
III. Analysis
A. Standard of Review and Governing Law.
We review the district courts grant of summary judgment de novo. The parties
agree that this case is controlled by Utah law. The primary issues involve interpretation
of the liability insurance policy. Courts interpret words in insurance policies according
to their usually accepted meanings and in light of the insurance policy as a whole. 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)
(internal citation omitted). We decide this appeal on the alternative ground for the district
courts ruling, concluding that the policy does not provide coverage for the claims at
issue.2
B. The coverage for personal injury.
2

Notwithstanding the surface appeal of the rationale employed by the district court
that a liability insurer which is not notified of an action against its insured until after a
default judgment has been entered has necessarily been prejudiced by the untimely notice
we find significant obstacles to affirming the judgment on this basis. Counter
arguments have been raised by Chimera, and the correct resolution under Utah law of the
issues raised in these arguments is less than clear. Consequently we find it prudent to
decide the coverage issues.
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The definition of personal injury in the policy includes injury arising out of one
or more of the following offenses: . . . wrongful eviction from, wrongful entry into, or
invasion of the right of private occupancy of a room, dwelling or premises that a person
occupies, by or on behalf of its owner, landlord or lessor . . . .
Chimera argues that Fidelitys state court complaint against the Insured clearly
alleged unlawful entry, trespass, and wrongful eviction from unit 2 and that the
undisputed facts show that the Insured Association was liable to Fidelity on those claims.3
Fidelity was entitled to possess its own property. Persons acting on behalf of the Insured
ousted Fidelity from possession (a wrongful eviction); leased unit 2 to tenants of their
choosing who occupied it over Fidelitys objection (a wrongful entry); and did so in
derogation of Fidelitys right to exclusive use of unit 2 (an invasion of Fidelitys right of
private occupancy). These were personal injuries within the policys definitions,
Chimera contends.
We disagree. The coverage extends to wrongful entry or eviction (and so forth)
by or on behalf of the owner. Here, Fidelity was the owner. The wrongful entry was
not on behalf of Fidelity but was actually in defiance of Fidelitys rights. Giving the
terms of the policy their usually accepted meanings, see Utah Farm Bureau, 980 P.2d
at 686, we conclude that the policy did not cover these offenses.
3

The parties disagree as to whether the coverage analysis should be based only on
the allegations of the pleadings in the case against the insured or whether the court may
consider other evidence. We need not and do not decide the point. None of the extrinsic
evidence cited by Chimera is sufficient, we conclude, to establish coverage, assuming
arguendo that such evidence is properly to be considered.
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Another part of the definition of personal injury on which Plaintiff Chimera relies
describes another offense that may give rise to a covered injury: oral or written
publication of material that slanders or libels a person or organization or disparages a
persons or organizations goods, products or services . . . . Chimeras argument for
coverage under this policy provision is strained and unpersuasive. Chimera asserts that
the Association, acting through the management company, advertised unit 2 for lease.
The Association, however, had the duty to enforce all provisions of its agreement and
bylaws, as well as the duty to enforce Utahs statute providing that each unit owner must
have the exclusive ownership and use of his unit. By offering unit 2 for lease through the
management company, the advertisements disparaged the Associations services by
showing that it was not living up to its required duty to enforce Fidelitys right to lease
unit 2, Chimera asserts.
We conclude that no reasonable person would have understood this policy
provision to provide coverage to an insured for slandering the insureds own services.
This is a liability policy. Even if we were to accept, for arguments sake, the notion that
one can disparage ones own services, we do not see where liability insurance would
come into play in such a scenario. Liability is by definition, an obligation owed to a third
party, not to ones self. Chimera apparently argues, however, that this was not a case of
self-slander, that it was the management company which slandered the Associations
services to Fidelity. (Reply brief at 17.) Because the management company was
purporting to act on behalf of the Association, we do not see that this makes a difference.
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Most importantly, however, even if we were to assume that the two entities had no
relationship, two factors would still defeat Chimeras argument. First, the Association
was the insured under the policy. To the extent that the management company acted
independently, the insured Association would not be subject to liability in any event.
And, all else aside, the injuries for which Fidelity sought to recover in its state court
lawsuit were manifestly not the purported injuries to the Association resulting from the
disparagement of its services.
C. The coverage for advertising injury.
Chimeras argument for coverage under the separate policy provision covering
advertising injury is akin to the argument we have just rejected concerning the personal
injury of slander or libel of the Associations services. The policy provided this pertinent
definition: [A]dvertising injury means injury arising out of one or more of the following
offenses: a. oral or written publication of material that slanders or libels a person or
organization or disparages a persons or organizations . . . services . . . . (Brief of the
Appellant at 5.)
As in the previous argument, Chimera contends that the advertising for lease of
unit 2 by the management company constituted a slander or libel of the Associations
services (because one of the legal duties of the Association was to support Fidelitys right
to exclusive possession of unit 2). The injuries suffered by Fidelity (loss of right of
occupancy, loss of right to choose to whom the unit would be leased, loss of rental
income, etc.) arose from this disparagement of the Associations services, Chimera
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argues, because the phrase arising out of imparts a broad meaning under Utah law,
requiring only some causal connection between the injury and the risk for which coverage
is provided.4
We conclude that this purported connection between the offense of the
slandering of the Associations services and the injuries sustained by Fidelity is far too
indirect to come within the coverage of the policy. Construing the policy as a whole and
giving the terms their ordinary meaning, we conclude that the liability against which State
Farm insured was liability to the person or organization whose services were slandered,
and not to Fidelity, which had no direct connection to this alleged advertising injury.
D. Evidentiary issue.
Chimera also contends that the district court abused its discretion by considering
evidence that State Farm allegedly had withheld during discovery. We believe that the
issue would be more accurately framed as whether the district court abused its discretion
by allowing State Farm to supplement its discovery disclosures and responses after
Chimera had filed a motion in limine to restrict State Farm to the witnesses and
documents it had disclosed in a timely manner. The district court also allowed State Farm
to supplement its filings in support of its motion for summary judgment after finding that
certain evidence submitted by State Farm had not been properly authenticated.
We see no abuse of discretion. In the first place, Chimeras briefs leave us

Chimera cites National Farmers Union v. Western Cas. & Surety Co., 577 P.2d
961, 963 (Utah 1978), for this proposition.
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uncertain as to just what evidence it contends should have been excluded. To the extent
we can discern the subject of Chimeras dispute, we see nothing to even suggest that there
was an abuse of discretion. For example, Chimera complains that tardy disclosure
deprived it of a meaningful opportunity to conduct follow-up discovery, but we are not
told what testimony or documents merited follow-up discovery in Chimeras view, much
less what Chimera might have been able to establish with more discovery.
In fact, the record is replete with statements that rebut the contention that Chimera
has been unfairly prejudiced. Every witness that was disclosed after State Farms original
disclosures and discovery responses was a person whose identity was already known to
Chimera, it appears.5 And counsel for Chimera expressly stated that he intended to await
a ruling on the cross-motions for summary judgment before deposing these persons.6 At
the hearing on the cross-motions for summary judgment, counsel for Chimera stated: I
dont think that there are any genuine disputes raised as to any of the material facts raised
by either side. And so I would think that . . . this case should be resolved as a result of
these motions one way or the other. II App. 614.
As best we can determine, Chimeras complaints were primarily focused on State
Farms efforts to establish the date that it received notice. Thus, at the hearing on the
motions for summary judgment, soon after making the statement quoted above about the
5

For example, see Supp. App. of Aple. at 16 (transcript of hearing on Chimeras

motion in limine), where counsel for Chimera acknowledges that the witnesses had been
named by Chimera in its Rule 26(a)(1) disclosures.
6

Supp. App. of Aple. at 20.

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absence of any issues of fact, counsel for Chimera made it clear that his position was that
State Farm should not be allowed to establish this basic fact because of procedural
missteps, such as submitting a document in support of its summary judgment motion
which had not been properly authenticated. But as far as the record and appellate
arguments reveal, Chimera has never contended that there is a genuine issue of material
fact about the date.
Our resolution of this appeal on the issue of the coverage of the policy, rather than
the untimely notice to State Farm, would appear to moot this issue. In any event, we
conclude that the district court was well within its discretion in permitting State Farm to
file additional affidavits to authenticate the documents on which it relied. Indeed, the
courts exercise of discretion in State Farms favor appears to be entirely consistent with
the over-arching directive of Fed. R. Civ. P. 1: These rules . . . shall be construed and
administered to secure the just, speedy, and inexpensive determination of every action.
Conclusion
The judgment of the district court is AFFIRMED.

Entered for the Court

William J. Holloway, Jr.
Circuit Judge

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