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

                             FOR THE TENTH CIRCUIT                          August 27, 2020
                         _________________________________
                                                                         Christopher M. Wolpert
                                                                             Clerk of Court
 INTERSTATE FIRE & CASUALTY
 COMPANY,

       Plaintiff - Appellant,

 v.                                                          No. 18-8058
                                                    (D.C. No. 2:13-CV-00278-ABJ)
 APARTMENT MANAGEMENT                                          (D. Wyo.)
 CONSULTANTS LLC,

       Defendant - Appellee.
                      _________________________________

                             ORDER AND JUDGMENT*
                         _________________________________

Before BRISCOE, LUCERO, and McHUGH, Circuit Judges.
                   _________________________________

      Interstate Fire & Casualty Company (“Interstate”) appeals the district court’s

grant of summary judgment in favor of Apartment Management Consultants, Inc.,

(“AMC”) declaring that Interstate must provide insurance coverage and indemnify

AMC under Interstate’s primary and excess insurance policies for compensatory and

punitive damages adjudged in an underlying lawsuit against AMC. Exercising

jurisdiction under 28 U.S.C. § 1291, we affirm.




      *
         This order and judgment is not binding precedent except under the doctrines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.
                                            I

      This case involves a dispute over who must pay a $1,950,000 punitive

damages award to Amber Lompe. Lompe was a young college student living in an

apartment managed by AMC in Casper, Wyoming, when she was injured by a

malfunctioning furnace in her apartment that exposed her to carbon monoxide gas.

See Lompe v. Sunridge Partners, LLC, 818 F.3d 1041, 1047, 1076 (10th Cir. 2016).

She prevailed in a lawsuit against her landlord, Sunridge Partners, LLC (“Sunridge”),

and its management company, AMC, and was awarded $3,000,000 in compensatory

damages and $25,500,000 in punitive damages, of which $22,500,000 was allocated

against AMC.1 Id. at 1046.

      Interstate provided primary and excess liability insurance coverage2 to AMC

and Sunridge. First, Interstate issued a general liability insurance policy (“Policy” or

“Primary Policy”) to Commercial Industrial Building Owner’s Alliance, Inc.

(“CIBA”) with $1 million per occurrence and $2 million aggregate policy limit for


      1
       The jury reduced the $3,000,000 compensatory damages award by 10% to
$2,700,000 to reflect Lompe’s share of fault for her injury, allocating $1,950,000 of
the remainder to AMC and $750,000 to Sunridge. Id. at 1053. Compensatory
damages are not at issue in this appeal. In the 2016 appeal, we vacated the punitive
damage award against Sunridge, which is not a party to this appeal, and reduced the
award against AMC to $1,950,000, which is the amount in dispute in this appeal.
2
 “[P]rimary insurance potentially attaches immediately upon the happening of an
occurrence or accident that gives rise to liability on the part of the insured”; whereas
excess insurance “is secondary insurance coverage that attaches only after a
predetermined amount of primary insurance . . . has been exhausted.” Scott M.
Seamana & Charlene Kittredge, Excess Liability Insurance: Law and Litigation, 32
Tort & Ins. L.J. 653, 655-56 (1997); see also Union Indem. Ins. Co. v. Certain
Underwriters, 614 F. Supp. 1015, 1017 (S.D. Tex. 1985).
                                            2
the period at issue. CIBA, in turn, issued Certificates of Insurance to AMC and

Sunridge as named insureds. This policy contained an explicit exclusion for punitive

or exemplary damages.3 Next, Interstate issued an Excess Liability Policy (“Excess

Policy”) with a $10 million per occurrence and $10 million aggregate limit, listing

CIBA, AMC, and Sunridge as named insureds. The Excess Policy followed the form

of the underlying Primary Policy,4 but did not include a specific punitive damages

exclusion.



      3
          The Primary Policy states:

      EXCLUSION - PUNITIVE OR EXEMPLARY DAMAGES

      This endorsement modifies Insurance provided under the following:

      COMMERCIAL GENERAL LIABILITY COVERAGE PART
      PRODUCTS/COMPLETED OPERATIONS COVERAGE PART

      This insurance does not apply to fines, penalties, punitive damages,
      exemplary damages, treble damages or the multiplication of
      compensatory damages.
      4
        A “following form” excess insurance policy “incorporates by reference the
terms, conditions, and exclusions of the underlying policy.” Douglas R. Richmond,
Rights and Responsibilities of Excess Insurers, 78 Denv. U. L. Rev. 29, 30 (2000).
“An excess policy that follows form is designed to match the coverage provided by
the underlying policy . . . .” Id. The “follows form” provision of Interstate’s Excess
Policy states:

      The definitions, terms, conditions, limitations, exclusions and
      warranties contained in the “underlying insurance” polic(ies) that are in
      effect at the inception date of this policy apply to this policy unless they
      are inconsistent with provisions of this policy, or relate to premium,
      subrogation, other insurance, an obligation to investigate or defend, the
      amount or limits of insurance, payment of expenses, cancellation or any
      renewal agreement.
                                           3
       Lompe filed her complaint against Sunridge and AMC on May 2, 2012, and

Interstate assumed the defense of Lompe’s claim on May 12, 2012. Although

Lompe’s complaint sought punitive damages at its inception, Interstate did not

reserve its right to disclaim coverage for punitive damages until November 20,

2013—eighteen months after the complaint was filed, one month after the district

court denied AMC and Sunridge’s motion for summary judgment, and just eleven

days before the jury trial began. Further, in the summary judgment briefing, the

counsel retained by Interstate on behalf of AMC and Sunridge advanced only a

single-sentence argument to dismiss the punitive damages claim as a matter of law:

“A claim for punitive damages is not a separate cause of action and cannot stand

without an underlying claim.”

       During the eighteen-month period between Lompe filing her complaint and

Interstate’s reservation of its rights, Lompe made a clear and unequivocal offer to

settle within the limits of the Primary Policy. AMC made three separate demands

that Interstate settle the case, but Interstate refused. After trial, the jury awarded

Lompe compensatory damages above the limits of the primary policy as well as

significant punitive damages. Interstate provided counsel for AMC and Sunridge to

appeal the jury verdict, and on appeal we vacated the punitive damages award against




       If any “underlying insurance” does not pay a loss, for reasons other than
       exhaustion of an aggregate limit of insurance, then we will not pay such
       loss.
                                             4
Sunridge and reduced the punitive damages award against AMC to $1,950,000.

Lompe, 818 F.3d at 1046.

      On December 24, 2013, two days before judgment was entered in the

underlying Lompe action against AMC and Sunridge, Interstate sued for relief under

28 U.S.C. § 2201, seeking a declaration that Interstate had no coverage obligation

under either the Primary Policy or the Excess Policy “concerning any award of

punitive damage, and no duty to indemnify either AMC or Sunridge for any punitive

damages awards in the Lompe Action.” Interstate subsequently moved for judgment

on the pleadings, and AMC cross-moved for partial summary judgment, asking the

court to find that Interstate was estopped from relying on the Primary Policy’s

punitive damages exclusion. In opposition to AMC’s summary judgment motion,

Interstate argued that: (1) estoppel was inapplicable, (2) that AMC had failed to show

prejudice, and (3) that a ruling on the issue would be premature. The district court

disagreed and held that Interstate was estopped from relying on the Primary Policy’s

punitive damages exclusion because Interstate unconditionally assumed the defense

of AMC and did not reserve its right to disclaim coverage until shortly before trial.

As a result, the court determined that “Interstate under the Primary Policy must

provide coverage and indemnification, having failed to defend with a timely

reservation of rights, for sums the insured is legally obligated to pay.”

      Next, the district court held that, because the Excess Policy did not include a

specific exclusion for punitive damages, once the policy limits of the Primary Policy

were exhausted, “the excess insurers’ obligations are triggered and they must provide

                                            5
the agreed-upon excess liability coverage.” Interstate’s obligation under the Primary

Policy to provide coverage and indemnification for the damages owed to Lompe—

both punitive and compensatory—were damages that the insured was “legally

obligated to pay.” As a result, absent a specific exclusion within the Excess Policy,

Interstate was required to provide the agreed-upon excess liability coverage. After

further proceedings not relevant here, the district court reiterated its findings and

entered judgment for AMC on the coverage and indemnification issue.5 Interstate

appealed to challenge the district court’s ruling that it was estopped from denying

coverage to AMC.

                                              II

      “We review de novo the district court’s grant of summary judgment and apply

the same legal standard used by the district court.” Cornhusker Cas. Co. v. Skaj, 786

F.3d 842, 849 (10th Cir 2015) (quotation omitted). Summary judgment is

appropriate if “the movant shows that there is no genuine dispute as to any material



      5
          In its July 2018 order the district court held:

      [T]hat Interstate under the Primary Policy must provide coverage and
      indemnification, having failed to defend with a timely reservation of
      rights, for all sums the insureds are legally obligated to pay, which
      encompasses compensatory and punitive damages. If policy limits
      under the Primary Policy are exhausted, the excess insurers’ obligations
      are triggered under the applicable “follow form” policies and the excess
      insurers must provide the agreed-upon excess liability coverage. The
      excess policies contain no specific exclusion that is applicable to facts
      here. Interstate and the excess insurers (if necessary) must provide
      coverage and indemnification, as previously ordered. (footnote
      omitted).
                                              6
fact and the movant is entitled to judgment as a matter of law.” Id. at 850 (quoting

Fed. R. Civ. P. 56(a)). “We examine the record and all reasonable inferences that

might be drawn from it in the light most favorable to the non-moving party.” Berry

& Murphy, P.C. v. Carolina Cas. Ins. Co., 586 F.3d 803, 808 (10th Cir. 2009)

(quotation omitted).

      “Because this is a diversity action, we apply the substantive law of the forum

state, which, for purposes of this appeal, is Wyoming. In addition, we review the

district court’s interpretation and determination of state law de novo.” Cornhusker,

786 F.3d at 850 (citation and quotation omitted).

                                           III

      Interstate contends that the district court erred when it found that Interstate

was equitably estopped from denying coverage because it assumed the defense of the

underlying Lompe action without timely reserving its rights. Interstate asserts that

equitable estoppel is not available to expand insurance coverage under Wyoming law

and that the district court erroneously applied the doctrine. Finally, Interstate argues

that the district court erred when it determined that Interstate was liable under the

Excess Policy for any portion of the punitive damages award.

                                           A

      Interstate agrees with the district court’s statement of the general rule under

Wyoming law that “estoppel and waiver cannot be employed to expand policy

coverage.” It contends, however, that the court erred by recognizing an exception to

this default rule when an insurer—with full knowledge of noncoverage under the

                                            7
policy—assumes defense of a claim without reserving its right to deny coverage

under an existing exclusion. Interstate replows the same legal ground we considered

in Cornhusker to no avail—that decision controls this question.6

      As we have explained, “[i]n cases arising under a federal court’s diversity

jurisdiction, the task of the federal court is not to reach its own judgment regarding

the substance of the common law, but simply to ascertain and apply the state law.”

Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th Cir. 2003) (quotation

omitted). When a federal court predicts what a state’s highest court would do, it is

“performing [a] ventriloquial function . . . . Thus, when a panel of this Court has

rendered a decision interpreting state law, that interpretation is binding on district

courts in this circuit, and on subsequent panels of this Court, unless an intervening

decision of the state’s highest court has resolved the issue.” Id. Interstate points to

no such intervening cases, nor have we discovered any.

      In Cornhusker, we recognized that “[t]he Wyoming Supreme Court has not

addressed whether an insurer, having previously assumed the defense of an action

without a reservation of rights, may subsequently be estopped from asserting the

defense of noncoverage.” Id. at 852. To formulate our best Erie-guess on what the

Wyoming Supreme Court would decide, we evaluated our own precedent, other


      6
         Interstate’s motion to certify questions to the Wyoming Supreme Court is
denied. See Cornhusker, 786 F.3d at 852 (“Under our own federal jurisprudence, we
will not trouble our sister state courts every time an unsettled legal question in a
diversity action comes across our desks. When we see a reasonably clear and
principled course, we will seek to follow it ourselves.”) (quotation and alterations
omitted).
                                            8
federal precedent to determine the “general weight and trend of authority,” and

Wyoming case law. Id. at 852–54. After this extensive analysis, we concluded that

the Wyoming Supreme Court would recognize and apply an exception to the default

rule under the facts in Cornhusker. Id. at 854-55.

      Cornhusker considered and rejected the fundamental premise Interstate

advances in this appeal—that under Wyoming law equitable estoppel cannot be

employed to expand policy coverage. Id. at 855-57. Key to this was an examination

of Pendleton v. Pan American Fire and Casualty Co., 317 F.2d 96 (10th Cir. 1963),

and Braun v. Annesley, 936 F.3d 1005 (10th Cir. 1991), as well as Wyoming case

law concerning its default rule and equitable estoppel. In Cornhusker, we discussed

Pendleton’s consideration of an equitable-estoppel exception to the general rule

against expansion of insurance coverage under New Mexico law. We explained that

this exception applies when:

      a liability insurance carrier, which assumes and conducts the defense of
      an action . . . with knowledge of a ground of forfeiture or noncoverage
      under the policy, and without disclaiming liability or giving notice of a
      reservation of its right to deny coverage, is thereafter precluded in an
      action upon the policy from setting up the ground of forfeiture or
      noncoverage as a defense. In other words, the insurer’s unconditional
      defense of an action . . . constitutes a waiver of the terms of the policy
      and an estoppel of the insurer to assert the defense of noncoverage. . . .
      It is not necessary for the defended party to show prejudice in such a
      situation because he is presumed to have been prejudiced by virtue of
      the insurer’s assumption of the defense.


Cornhusker, 786 F.3d at 852-53 (quoting Pendleton, 317 F.2d at 99) (alterations

adopted). We also noted that we had applied the same exception in Braun under


                                          9
Oklahoma law despite Oklahoma’s rule that “estoppel cannot be used to create a

contract.” Id. at 854; see also Braun, 936 F.3d at 1110–11. Further explaining the

underlying rationale for applying the exception, we wrote:

      [I]n Pendleton we concluded that the insurer was estopped from denying
      coverage to the ostensible insured by its conduct in unconditionally
      assuming the defense without a reservation of rights, and that prejudice
      was presumed to flow from the insurer’s actions. . . . Notably, we
      reached this conclusion notwithstanding our agreement with the insurer
      that there was not in fact coverage under the policy. . . . We seemed to
      reason that, irrespective of the actuality of noncoverage, the insurer
      must accept the equitable consequences of its deliberate choice to
      assume full control of the litigation, without a reservation of rights,
      because the ostensible insured was induced to, and did, relinquish
      control of his defense . . . to the insurer. And those equitable
      consequences involved shouldering the burdens of any liability arising
      from the litigation that it deliberately elected to control.

Cornhusker, 786 F.3d at 853 (emphasis added) (citations and quotations omitted).

We concluded, “insurers should bear a specific consequence of such conduct: viz.,

they should be estopped from later denying coverage to an ostensible insured to

escape liability stemming from litigation over which they deliberately assumed

control without a reservation of rights.” Id. at 854. In so concluding, we also

recognized that the relinquishment of control over the defense was inherently

prejudicial to the defendant if the reservation of rights was untimely. Id. at 853.

Because Cornhusker specifically decided the legal issue raised by Interstate in this

appeal, the district court did not err when it followed Cornhusker to apply a

Pendleton-type estoppel exception to Wyoming’s general rule.

       The district court correctly determined that the facts here exemplify the

concerns that animated the equitable-estoppel exception applied in Pendleton, Braun,

                                           10
and Cornhusker. In its order, the district court held that AMC was “lulled into a false

sense of security when Interstate defended without a reservation of rights, although it

could have made an explicit reservation of rights and agreed to provide a conditional

defense as early as May of 2012.” This is apparent from the facts. Shortly after

AMC notified and tendered the defense of the Lompe claim to Interstate in May

2012, Interstate unconditionally assumed the defense of the case and hired counsel to

defend AMC and Sunridge. Throughout 2012 and 2013 Interstate did not reserve its

rights to deny coverage based on the punitive damage exclusion in the Primary

Policy, despite being on clear notice that Lompe’s suit sought punitive damages. In

March 2013, counsel filed a motion for summary judgment on all claims, including

Lompe’s punitive damages claims. However, rather than mount a full-bore assault on

the claims for punitive damages under Wyoming law, which creates significant

obstacles for obtaining a punitive damages award,7 counsel moved for their dismissal

with a one-sentence argument: “A claim for punitive damages is not a separate cause

of action and cannot stand without an underlying claim.”


      7
        For example, counsel did not argue in his motion that Wyoming law
disfavors punitive damages, allowing them only “in circumstances involving
outrageous conduct, such as intentional torts, torts involving malice and torts
involving willful and wanton misconduct”; Mayflower Rest. Co. v. Griego, 741 P.2d
1106, 1115 (Wyo. 1987); see also id. (“Punitive damages are not a favorite of the law
and are to be allowed with caution within narrow limits.”), nor that “punitive
damages are not appropriate in circumstances involving inattention, inadvertence,
thoughtlessness, mistake, or even gross negligence,” id. (quotation omitted). Counsel
also did not so much as mention that under Wyoming law “punitive damages are to
be awarded only for conduct involving some element of outrage, similar to that
usually found in crime.” Cramer v. Powder River Coal, LLC, 204 P.3d 974, 979
(Wyo. 2009).
                                          11
       Only after the district court denied AMC’s motion for summary judgment did

Interstate send a belated reservation of rights to disclaim coverage based on the

punitive damages exclusion in the Primary Policy: eighteen and one-half months

after the lawsuit began and only eleven days before the jury trial commenced.

Interstate argues that because AMC knew of the punitive damages exclusion no

prejudice resulted from its belated reservation of rights. But this argument ignores

the inherent nature of the prejudice that results from relinquishing control of the

defense to the insurer. As the district court found, even if punitive damages were

discussed in correspondence between Interstate and AMC, AMC did not know

Interstate’s intentions concerning reliance on the punitive damages exclusion.

       Though the facts here differ slightly from those in Cornhusker—where the

insurance company waited to disclaim coverage until sixteen months after default

judgment had been entered—the prejudice is the same. Id. at 848-49. In Cornhusker,

we concluded that the insurance company’s delayed disclaimer of coverage

       had the effect of lulling [the ostensible insured] into the belief that
       Cornhusker was representing him pursuant to the Policy. Cornhusker
       specifically retained counsel to represent him in state court and
       subsequently rendered a defense. During that time period, when
       Cornhusker had a plausible basis for reserving its rights . . . , it never took
       that critical step.
Id. at 855. In this case, it is uncontested that Interstate failed to reserve its rights

until eleven days before trial, past the point where AMC could have hired

independent counsel to represent its interests on the purportedly uncovered claims,

have them dismissed as a matter of law at summary judgment, or to attempt to settle


                                              12
them prior to trial. Both Cornhusker and this case implicate the same prejudice that,

as Pendleton recognized, flows when an ostensible insured “relinquish[es] control of

his defense . . . to the insurer.” Id. at 853; see also Pendleton, 317 F.2d at 99. And,

as recognized by the district court, “the prejudice to AMC . . . in these circumstances

cannot be missed and is writ large in the Judgment against the two defendants in the

Lompe action.”8 We see no error in the district court’s determination of prejudice or

its order requiring Interstate to “shoulder[] the burdens of any liability arising from

the litigation that it deliberately elected to control.” Cornhusker, 786 F.3d at 853; see

also Boston Old Colony Ins. Co. v. Lumbermens Mut. Cas. Co., 889 F.2d 1245, 1248

(2d Cir. 1989) (“In our view, notice [disclaiming liability] first provided on the verge

of trial . . . is untimely and prejudicial as a matter of law.”).9


       8
         Similarly, in its July 2018 order, the district court clearly articulated the
prejudice to AMC: “The facts that remain before this Court disclose that Interstate
controlled the defense of this litigation in its entirety through trial to the prejudice of
AMC and Sunridge, knowing that the policy contained language excluding coverage
for punitive damages and notwithstanding AMC’s and Sunridge’s several demands to
settle the litigation within the primary policy limits.”
       9
         We similarly reject Interstate’s assertion that the district court’s citation to
Doctors’ Co. v. Ins. Corp. of Am., 864 P.2d 1018 (Wyo. 1993), indicates that it failed
to distinguish between promissory estoppel, which it acknowledges is permissible
under Wyoming law, and equitable estoppel, which it asserts is not. The district
court’s order clearly shows it was analyzing AMC’s claims under the equitable
estoppel doctrine recognized in Cornhusker. Interstate’s contention that the district
court erred in its prejudice analysis is equally without merit. In its equitable estoppel
analysis, the district court clearly recognized the specific prejudice to AMC caused
by Interstate’s late reservation of rights and correctly determined that it arose from
the relinquishment of control of the defense during the relevant time frame when
AMC could have protected its interests. As it recognized, “It is equally plain that
Interstate exercised full control of the Lompe litigation, even to the extent that it
refused to settle within the policy limits contrary to the insureds’ repeated requests to
                                             13
                                           B

      Interstate also argues that the district court erred when it found that Interstate

had a duty to reserve its rights under the Excess Policy. But the district court made

no such finding. Instead, the district court determined that because Interstate had

failed to timely reserve its rights to disclaim coverage under the Primary Policy, it

was required to provide coverage and indemnification for the damages owed to

Lompe—both punitive and compensatory. These were damages that the insured was

“legally obligated to pay” under the Primary Policy. As to the excess coverage, the

district court determined that after the limits of the Primary Policy were exhausted,

the excess insurers’ obligations were triggered and “they must provide the agreed-

upon excess liability coverage.” The district court held that because the Lompe

judgment exhausted coverage under the Primary Policy, Interstate, as the first level

excess insurer, was required to provide coverage pursuant to the Excess Policy for

amounts in excess of the underlying Primary Policy limits. We agree.

      Under Wyoming law, “[w]hen summary judgment is based upon interpretation

of an insurance policy, the rules of contract interpretation apply.” Hurst v. Metro

Prop. & Cas. Ins. Co., 401 P.3d 891, 895 (Wyo. 2017). “Interpretation of the

contractual language is a matter of law for the court, provided the language is clear

and unambiguous.” Id. “The language of an insurance policy is ambiguous if it is

capable of more than one reasonable interpretation.” N. Fork Land & Cattle, LLLP


do so.” These determinations only underscore the prejudice suffered by AMC in the
relinquishment of its control of the defense to Interstate.
                                           14
v. First Am. Title Ins. Co., 362 P.3d 341, 346 (Wyo. 2015) (quotation omitted).

Finally, “[b]ecause insurance policies represent contracts of adhesion where the

insured has little or no bargaining power to vary the terms, if the language is

ambiguous, the policy is strictly construed against the insurer.” Hurst, 401 P.3d at

895 (quotation omitted).

      The Excess Policy coverage language states:

      I. EXCESS INSURING AGREEMENT
      Subject to the other provisions of this policy, we will pay on behalf of
      any “insured”, the “insured’s” “ultimate net loss” if such loss arises
      from:
      a. Injury or damage that occurs; or
      b. An offense committed
      during our Policy Period and is insured by “underlying insurance”
      designated in the Schedule of Underlying Insurance in ITEM SIX of the
      Declarations.

      The insurance afforded by this policy will apply only in excess of all
      “underlying insurance”; and only after all “underlying insurance” has
      been exhausted by payment of the limits of such insurance.

      The amount we will pay is limited as described in section II. B. and
      section III. LIMITS OF INSURANCE.

      The definitions, terms, conditions, limitations, exclusions and
      warranties contained in the “underlying insurance” polic(ies) that are in
      effect at the inception date of this policy apply to this policy unless they
      are inconsistent with provisions of this policy, or relate to premium,
      subrogation, other insurance, an obligation to investigate or defend, the
      amount or limits of insurance, payment of expenses, cancellation or any
      renewal agreement.

      If any “underlying insurance” does not pay a loss, for reasons other than
      exhaustion of an aggregate limit of insurance, then we will not pay such
      loss.
      ...
      IV. DEFINITIONS


                                           15
      A. “Ultimate net loss” means all sums actually paid or which an
      “insured” is legally obligated to pay, as damages in settlement or
      satisfaction of claims or “suits” for which insurance is afforded under
      this policy, after proper deduction for all recoveries, or salvage.

      The language of this insurance contract is clear. As the district court noted,

the Excess Policy provides that the excess insurer “will pay on behalf of any insured

those sums in excess of all underlying insurance that the insured becomes legally

obligated to pay as damages after the primary policy of insurance has been

exhausted.” Under the Excess Policy’s express terms, Interstate contracted to

provide coverage for the insured’s “ultimate net loss” arising from an injury, damage

or offense committed during the Policy period that “is insured by ‘underlying

insurance’ designated in the Schedule of Underlying Insurance in ITEM SIX of the

Declarations.” The Primary Policy is the designated underlying insurance. The loss

occurred during the Policy period and was “insured by the underlying insurance.”

Once Interstate was equitably estopped from disclaiming coverage under the Primary

Policy (because of its untimely reservation of rights), the entire judgment in the

Lompe action became “sums . . . which an ‘insured’ is legally obligated to pay, as

damages in settlement or satisfaction of claims or ‘suits’ for which insurance is

afforded under this policy.” Thus, the full Lompe judgment fell within the Excess

Policy’s unambiguous definition of “ultimate net loss” to be covered by the Excess

Policy when the Primary Policy was “exhausted by payment of the limits of such




                                          16
insurance.”10 The district court did not rely on any purported duty to defend as an

excess insurer to impose excess insurance liability on Interstate, but instead

determined that the terms of the Excess Policy had been met when the Primary Policy

limits were exhausted.11 We see no error in this determination under the

circumstances of this case.

       Finally, Interstate attempts to rely upon the “follows form” provision of the

contract to incorporate the Primary Policy’s punitive damages exclusion into the

Excess Policy because that exclusion was “in effect at the inception date of th[e

Excess] policy.” However, this “follows form” provision explicitly states that the

underlying policy’s exclusions apply to the Excess Policy “unless they are

inconsistent with provisions of this policy.” See also Ostrager & Newman,

Handbook on Insurance Coverage Disputes, § 13.01 (18th Ed. 2016) (“It is well

settled that the obligations of the following form excess insurers are defined by the


      10
          Supporting this conclusion is the additional language in the Excess Policy
that “[i]f any ‘underlying insurance’ does not pay a loss, for reasons other than
exhaustion of an aggregate limit of insurance, then we will not pay such loss.” Here,
the reason for the non-payment of the portion of the Lompe judgment in excess of $1
million was exhaustion of the Primary Policy’s aggregate limit of insurance, not the
punitive damages exclusion. In this case there was only one occurrence, resulting in
both the occurrence and aggregate limits being met when the $1 million per
occurrence limit in the Primary Policy was exceeded.
      11
         Its July 2018 order was clear: “The Court finds and concludes that Interstate
under the Primary Policy must provide coverage and indemnification, having failed
to defend with a timely reservation of rights, for all sums the insureds are legally
obligated to pay, which encompasses compensatory and punitive damages. If policy
limits under the Primary Policy are exhausted, the excess insurers’ obligations are
triggered under the applicable ‘follow form’ policies and the excess insurers must
provide the agreed-upon excess liability coverage.”
                                           17
language of the underlying policies, except to the extent that there is a conflict

between the two policies, in which case, absent excess policy language to the

contrary, the wording of the excess policy will control.”); 4 New Appleman on

Insurance Law Library Edition § 24.02 (2020) (“In the uncommon situation in which

the language of a primary policy and a following form excess policy differ, the terms

of the excess policy control where the excess coverage is implicated.”). Allowing a

retrograde application of the Primary Policy’s punitive damages exclusion to cancel

the clear coverage obligations of the Excess Policy to pay AMC’s “ultimate net loss”

above the Primary Policy’s aggregate limit would be inconsistent with the provisions

of the Excess Policy that explicitly agreed to provide such coverage. Therefore,

Interstate must indemnify AMC under the Excess Policy for the portion of the Lompe

judgment in excess of the payment limit of the Primary Policy.

                                           IV

AFFIRMED.




                                            Entered for the Court


                                            Carlos F. Lucero
                                            Circuit Judge




                                           18
