                                                                        FILED
                                                                 United States Court of Appeals
                                                                         Tenth Circuit
                    UNITED STATES COURT OF APPEALS
                                                                       February 2, 2006
                                 TENTH CIRCUIT                       Elisabeth A. Shumaker
                                                                        Clerk of Court

 BRUCE R. ELWORTHY, and
 ANNE B. MARSHALL,

               Plaintiffs - Appellants,
                                                         No. 05-8009
          v.                                     (D. Ct. No. 04-CV-71-CAB)
                                                          (D. Wyo.)
 HAWKEYE-SECURITY INSURANCE
 COMPANY, an Iowa insurance
 company, also known as Homeland
 Central Insurance Company, also known
 as CGU Hawkeye Insurance Company;
 EMPLOYERS FIRE INSURANCE
 COMPANY, also known as CGU
 Insurance Company, a Massachusetts
 insurance company; ONE BEACON
 INSURANCE, a Massachusetts insurance
 company,

               Defendants - Appellees.


                            ORDER AND JUDGMENT *


Before TACHA, Chief Circuit Judge, ANDERSON, and KELLY, Circuit Judges.


      Plaintiffs-Appellants Bruce R. Elworthy and Anne B. Marshall (collectively

“the Elworthys”) are married and own a home in Sheridan, Wyoming. The


      *
       This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. This court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
Elworthys filed a diversity action in the District of Wyoming, see 28 U.S.C.

§ 1332, against Defendants-Appellees Hawkeye-Security Insurance Company,

Employers Fire Insurance Company, CGU Insurance Companies, and OneBeacon

Insurance Group LLC (collectively, “CGU”) 1 for breach of insurance contract and

other related claims. The Elworthys appeal from the District Court’s order

granting CGU’s motion for summary judgment. We take jurisdiction under 28

U.S.C. § 1291 and AFFIRM.

                               I. BACKGROUND

      In 1998, the Elworthys were sued in Wyoming state court by Cosner

Construction Company. The lawsuit (hereinafter “the Cosner suit”) asserted

breach of contract and unjust enrichment based on the Elworthys’ failure to pay

$132,136.32 for remodeling services and materials provided by Cosner. The

Elworthys filed an answer to Cosner’s complaint that included counterclaims

against Cosner and third-party claims against others for construction defects,

breaches of contract and warranties, and fraudulent billings, related to the

installation of hardwood and marble floors in the Elworthys’ home as part of

Cosner’s remodeling job. Cosner responded by amending its complaint to include


      1
          The Defendants-Appellees are various affiliated insurance companies.
Employers Fire Insurance Company originally issued to the Elworthys the policies
in dispute. The company was subsequently acquired by CGU. CGU has assigned
Hawkeye-Security Insurance Company as the regional insurance company to
manage, administer and process claims under any polices of insurance issued by
affiliated companies.

                                        -2-
federal RICO claims against the Elworthys, alleging that the Elworthys had

“engaged in acts or threats chargeable as extortion.”

      The Elworthys contacted their insurance provider, CGU, and asked that it

undertake their defense. Reserving the right to challenge whether it was liable for

indemnifying the Elworthys for any of the claims asserted, CGU agreed to defend

them. All parties became actively involved in settlement negotiations.

      On March 10, 2000, the parties negotiated a proposed “global settlement,”

which, if agreed upon, would have resolved all claims by all parties. Under the

proposed agreement, Cosner and the Elworthys would each receive $100,000 in

return for the release of all claims. CGU would have been responsible to pay all

the money owed to Cosner, in addition to $47,500 of the money owed to the

Elworthys; the balance was to be paid by other insurance companies involved in

the suit. The negotiations on March 10, however, failed to produce a final

agreement.

      Subsequently, CGU approached Cosner in an effort to reach a settlement of

the claims against the Elworthys. On March 13, Cosner’s attorney informed CGU

that Cosner would agree to a global settlement for $100,000 or, if the Elworthys’

counterclaims were not simultaneously resolved, it would agree to settle for

$120,000. Cosner’s lawyer explained that the additional money would be needed

to help cover Cosner’s costs associated with the continuing litigation. On March

14, Cosner and CGU agreed to a settlement that required Cosner to withdraw all

                                        -3-
of its claims against the Elworthys in return for $120,000. The settlement

agreement explicitly provided, however, that it would not affect the Elworthys’

right to pursue any of their remaining claims. The Elworthys did not approve this

agreement. 2

      In the meantime, the Elworthys filed a first-party claim with CGU seeking

payment for the same damages to the floors they alleged to be caused by Cosner,

as well as additional damages to Oriental rugs stemming from the remodeling.

CGU paid the Elworthys for the damages caused to their rugs, but it denied

payment for damages to their floors, citing a policy exclusion.

      The Elworthys then filed this suit against CGU, alleging breach of contract

and breach of the implied covenant of good faith and fair dealing related to both

CGU’s settlement of their claims with Cosner and in its refusal to pay for losses

caused by damages to their floors. The District Court granted summary judgment

in favor of CGU on all claims. This appeal followed.

                                II. DISCUSSION

A.    Standard of Review

      We review a district court’s decision granting summary judgment de novo.

See Simms v. Okla. ex rel. Dep’t of Mental Health & Substance Abuse Servs., 165

F.3d 1321, 1326 (10th Cir. 1999). Summary judgment is proper when there is no

      2
       The Elworthys’ remaining claims against Cosner and the third parties for
the damaged floors were later dismissed as part of discovery sanctions issued
against the Elworthys.

                                        -4-
genuine issue of material fact to be resolved by the trier of fact. Fed. R. Civ. P.

56(c). Wyoming law applies in this case. See Shell Rocky Mountain Prod., LLC

v. Ultra Resources, Inc., 415 F.3d 1158, 1165 (10th Cir. 2005) (citing Erie R.R.

Co. v. Tompkins, 304 U.S. 64 (1938)).

B.    Settlement of the Cosner Claims

      On appeal, the Elworthys do not dispute that CGU had a right under the

terms of the contract to enter into a settlement with Cosner to dispose of the

claims against them. 3 Rather, they argue that in settling the claims, CGU

damaged their ability to recover on their counterclaims against Cosner and thus

violated the duty of good faith and fair dealing. More specifically, they argue

that CGU (1) deprived them of $100,000 they would have received under the

proposed global settlement agreement; 4 (2) assisted Cosner in its defense of the

Elworthys’ affirmative claims by paying it $20,000 more than it would have

received under the proposed global settlement; and (3) breached its voluntarily

assumed duty to represent the Elworthys in their affirmative claims against



      3
        The policy provides that CGU “may investigate and settle any claim or suit
that we decide is appropriate.” Although the Elworthys list as one of the issues
presented for review as whether the insurance contract gave CGU the unfettered
right to settle the claims, they do not argue further that CGU breached any
explicit terms of the contract.
      4
       We note, as did the District Court, that the Elworthys were not entitled to
receive $100,000 from an unexecuted settlement agreement. When the global
settlement negotiations failed, the Elworthys were entitled to pursue their claims
in court, which they failed to do.

                                         -5-
Cosner.

      Wyoming recognizes a contract-based cause of action for breach of the

implied covenant of good faith and fair dealing. Scherer Constr., LLC v.

Hedquist Const., 18 P.3d 645, 652–53 (Wyo. 2001); see also Squillance v. Wyo.

State Employees’ and Officials’ Group Ins. Bd., 933 P.2d 488, 491 (Wyo. 1997)

(stating that general principles of contract interpretation apply to insurance

policies). This implied covenant requires that “neither party commit an act that

would injure the rights of the other party to receive the benefit of their

agreement.” Scherer Constr., 18 P.3d at 653. “Compliance with the obligation to

perform a contract in good faith requires that a party’s actions be consistent with

the agreed common purpose and justified expectations of the other party.” Id.

“The purpose, intentions, and expectations of the parties should be determined by

considering the contract language and the course of dealings between the conduct

of the parties.” Id. (emphasis and quotation omitted).

      The obligation to act in good faith is not a limitless one. The covenant of

good faith and fair dealing does not “establish new, independent rights or duties

not agreed upon by the parties.” Id. Whether a party has breached this duty “is a

factual inquiry that focuses on the contract and what the parties agreed to.” Id. at

654. Though a factual inquiry, summary judgment may be appropriate if “the

party’s actions alleged as the basis for the breach . . . were in conformity with the

clear language of the contract.” Id. at 654 n.2. “If the action complained of is

                                          -6-
clear and within the intention of the parties as expressed within the unambiguous

language of the contract, then summary judgment is appropriate.” Id.

      Applying these standards, we conclude that there is no genuine factual

dispute as to whether CGU breached the implied covenant of good faith and fair

dealing. The contract language provided that CGU could settle any claim it

deemed appropriate. 5 It did not place an affirmative duty on CGU to negotiate a

global settlement for claims brought by the Elworthys against CGU; it did not

place an affirmative duty on CGU to represent the Elworthys in their affirmative

claims against CGU; 6 nor did it place an affirmative duty on CGU to seek the

Elworthys’ consent before settling the claims against them. See Whitlock Constr.,

Inc. v. South Big Horn County Water Supply Joint Powers Bd., 41 P.3d 1261,

1267–68 (Wyo. 2002) (finding no breach when defendant acted in accordance

with the contract terms). If the parties intended that CGU represent the

Elworthys’ interests in any related counterclaim they may have had, they were



      5
       In fact, had CGU unreasonably failed to settle the claims against the
Elworthys, it could have been liable in tort for denying a compensable claim in
bad faith. See Ahrenholtz v. Time Ins. Co., 968 P.2d 946, 950–51 (Wyo. 1998).
      6
        The Elworthys claim that though the contract did not provide that CGU
represent them in pursing their counterclaims against Cosner, CGU assumed a
contractual duty to do so because the Elworthys’ claims were inextricably
intertwined with Cosner’s claims. The Elworthys provide no relevant authority
for the notion that an insurer can assume a contractual duty to represent an
insured in pursuit of counterclaims. Indeed, there is authority to the contrary.
See Suchta v. Robinett, 596 P.2d 1380, 1384 (Wyo. 1979). As such, we find that
this argument is without merit.

                                       -7-
required to state expressly that intention in the contract itself. See id.; see also

Suchta v. Robinett, 596 P.2d 1380, 1384 (Wyo. 1979) (holding that an insurer

owes no duty—in either contract or tort—to advise or represent the insured on

counterclaims that survive a settlement agreement); Shoshone First Bank v. Pac.

Employers Ins. Co., 2 P.3d 510, 517 (Wyo. 2000) (holding that absent language in

the policy to the contrary, an insurer has no obligation to assume expense of

prosecuting counterclaims). We cannot infer “that such a duty existed absent

clear language in the contract indicating that was the parties’ intent.” Whitlock

Constr., 41 P.3d at 1268 .

      Moreover, the settlement did not affect the Elworthys’ ability to recover on

their counterclaims against Cosner. The settlement agreement expressly provided

that the dismissal of Cosner’s claims against the Elworthys “should not be

construed as hindering the right of [the Elworthys] to pursue all of their claims

against any and all parties in this Lawsuit.” Nonetheless, the Elworthys argue

that the attorneys retained by CGU withdrew from the case immediately prior to

trial which rendered the Elworthys unable to prosecute their counterclaims. The

record reveals, however, that the Elworthys’ personal attorney was involved in the

underlying case at all times and that the Elworthys could have retained the same

attorneys that CGU hired to represent them for their defense. See Shoshone First

Bank, 2 P.3d at 517 (Wyo. 2000) (insurer has no obligation to assume expense of

prosecuting counterclaims). In addition, the fact that Elworthys’ claims were

                                          -8-
dismissed as a sanction for failing to comply with discovery orders appears to be

solely due to the Elworthys’ conduct. In sum, CGU acted in accordance with the

clear language of the contract, and in so doing did not impinge on the Elworthys’

right to prosecute their counterclaims against Cosner. In other words, CGU in no

way injured the Elworthys’ right to receive the benefit of their agreement. See

Scherer Constr., 18 P.3d at 653. Accordingly, the District Court appropriately

granted summary judgment to CGU on this issue. See Whitlock Constr., 41 P.3d

at 1267.

C.    First-Party Claims for Damage to Floors

      The Elworthys next raise claims regarding CGU’s refusal to pay policy

benefits for damage to the floors in their home. Although their brief is not

entirely clear on the matter, they seem to argue both that the failure to pay was a

breach of the contract and that the failure to pay was done in bad faith. We will

address the breach of contract claim first.

      Generally, “the insured has the burden of proving that its loss was due to an

insured risk[] [and] the insurer has the burden of showing that the loss was within

a policy exclusion.” Hursh Agency, Inc. v. Wigwam Homes, Inc., 664 P.2d 27, 31

(Wyo. 1983). “When the evidence is conflicting, the question of whether the loss

is within the risks of the policy or excepted therefrom is ordinarily for the trier of

fact.” Id.

      In this case, there is no conflicting evidence on whether the damage to the

                                          -9-
floors was excluded from coverage. The policy excluded from coverage damages

caused by “faulty, inadequate or defective: (1) . . . (2) Design, specifications,

workmanship, repair, construction, renovation, remodeling, . . .(3) Materials used

in repair, construction, renovation or remodeling.” Mr. Elworthy admitted in an

affidavit that the damages were due to Cosner’s use of improper materials in

remodeling the home. Although he later filed an affidavit contradicting those

earlier statements, the District Court was correct to disregard it. See Burns v. Bd.

of County Comm’rs of Jackson County, 330 F.3d 1275, 1281–82 (10th Cir. 2003)

(“We will disregard a contrary affidavit . . . when it constitutes an attempt to

create a sham fact issue.”) (quotation marks omitted)). Therefore, although this

issue ordinarily presents a question of fact for the jury, summary judgment is

appropriate in this case because there is no genuine dispute of material fact.

      Finally, the Elworthys argue that CGU’s failure to pay for the damage to

the floors was done in bad faith. See Gainsco Ins. Co. v. Amoco Prod. Co., 53

P.3d 1051, 1058 (Wyo. 2002) (recognizing a cause of action against an insurer for

failure to pay a claim in bad faith). “To establish a claim for . . . bad faith, a

plaintiff must establish (1) the absence of any reasonable basis for denying the

claim, and (2) the insurer’s knowledge or reckless disregard of the lack of a

reasonable basis for denying the claim.” Id. Because the policy did not cover the

Elworthy’s loss, CGU’s denial of the claims was clearly legitimate. Thus, the

Elworthys have no bad faith claim against CGU.

                                          - 10 -
                              III. CONCLUSION

     Because the record demonstrates the    absence of any genuine issues of

material fact, we AFFIRM.

                                      ENTERED FOR THE COURT,



                                      Deanell Reece Tacha
                                      Chief Circuit Judge




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