                                                                          FILED
                                                              United States Court of Appeals
                                                                      Tenth Circuit
                      UNITED STATES COURT OF APPEALS
                                                                  November 14, 2008
                                     TENTH CIRCUIT
                                                                  Elisabeth A. Shumaker
                                                                      Clerk of Court

 ROBERT SAIZ, individually;
 BRIGHTON SANTA-FE, INC., doing
 business as Brighton Depot, Inc., a
 Colorado corporation,                                   No. 07-1449
                                              (D.C. No. 06-cv-01144-EWN-BNB)
          Plaintiffs - Appellants,                        (D. Colo.)

 v.

 CHARTER OAK FIRE INSURANCE
 COMPANY, a Connecticut
 corporation,

          Defendant - Appellee.


                              ORDER AND JUDGMENT *


Before KELLY and TYMKOVICH, Circuit Judges, and DeGIUSTI, ** District
Judge.


      Plaintiffs-Appellants Robert Saiz and Brighton Depot, Inc. (collectively

“Brighton”) appeal from the district court’s grant of summary judgment in favor

of Defendant-Appellee Charter Oak Fire Insurance Company (“Charter Oak”).


      *
        This order and judgment is not binding precedent, except under the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.
      **
         The Honorable Timothy D. DeGiusti, District Judge, United States
District Court for the Western District of Oklahoma, sitting by designation.
Saiz v. Charter Oak Fire Ins. Co., No. 06-cv-01144-EWN-BNB, 2007 WL

2701398 (D. Colo. Sept. 12, 2007) (unpublished). Brighton brought claims

against Charter Oak based upon breach of contract and bad faith breach of

contract, and the case was removed to federal court. We have jurisdiction under

28 U.S.C. § 1291 and affirm.



                                   Background

      Mr. Saiz, as the sole shareholder of Brighton Depot, Inc., a Colorado

corporation, owned and operated the Brighton Depot Restaurant in Brighton,

Colorado, for approximately fourteen years, beginning in 1990. Aplee. Br. 1;

Aplt. App. 263. 1 Brighton purchased a business owner’s insurance policy from

Charter Oak for the period of June 18, 2004, to June 18, 2005. Aplee. Br. 1; Aplt.

App. 151. The policy was a “Restaurant PAC” policy, and it identified the type

of business as “family style.” Aplt. App. 151. Brighton ceased operations as a

restaurant in July 2004. Aplt. App. 265.

      After the restaurant closed, Mr. Saiz maintained an office on the premises

where he continued to conduct his business, including managing two other

restaurants located in Santa Fe, New Mexico, and seeking potential buyers for the

Brighton Depot Restaurant. Aplt. App. 269. In addition, Mr. Saiz continued to


      1
        As noted, we refer to Mr. Saiz and Brighton Depot, Inc. collectively as
“Brighton.”

                                       -2-
pay utilities, phone, and cable service for the premises. Aplt. Br. 4; Aplt. App.

269. He also repainted and refurbished the premises in anticipation of selling the

restaurant. Aplt. App. 269. The entire building was approximately 5,000 square

feet, Aplee. Br. 1, and the office used by Mr. Saiz following the closure of the

restaurant was approximately 500-600 square feet. Aplt. App. 269.

      On December 1, 2004, Mr. Saiz learned that the premises suffered

significant water damage due to a sprinkler head malfunction. Aplt. Br. 4. Mr.

Saiz notified Charter Oak of a potential claim for water damage to the premises,

Aplt. Br. 4, and Charter Oak began an investigation of the claim. Aplee. Br. 2.

Mr. Saiz also retained Sentry Fire and Safety to investigate the loss. Aplt. Br. 4.

On December 20, 2004, Charter Oak denied coverage for the loss. Aplee. Br. 2;

Aplt. Br. 5. Charter Oak based the denial on provisions of the policy precluding

coverage for losses caused by freezing pipes due to lack of heating and for

premises considered vacant under the policy. Aplee. Br. 2, Aplt. Br. 5; Aplt.

App. 278-80. Based upon additional information provided by Mr. Saiz

surrounding the loss, see Aplt. App. 281-85, Charter Oak reopened its

investigation on January 21, 2005. Aplee. Br. 5. Specifically, Mr. Saiz informed

Charter Oak that, although heat had been turned off upstairs where the sprinkler

was located, heat remained on in the lower level of the premises. Aplt. App. 283-

85. Additionally, Mr. Saiz informed Charter Oak that he continued to occupy a

portion of the premises. Aplt. Br. 5.

                                         -3-
      In its subsequent investigation, Charter Oak retained Knott Laboratory,

Inc., to investigate the cause of the sprinkler head failure. Knott Laboratory first

concluded that the sprinkler head did not malfunction because of freezing. Aplt.

App. 325. It then concluded, after extensive testing and ruling out several

alternatives, that “[t]he cause of the failure of the subject sprinkler head was from

deliberate tampering that required a series of actions to effect the observed

damages.” Aplt. App. 327. Based upon these findings, Charter Oak sent a second

letter in July 2005 confirming its denial of coverage. The district court

determined that the building was vacant at the time the loss occurred and that the

vandalism and water damage loss limitations excluded coverage under the policy.

Saiz, 2007 WL 2701398, at *5, *7. The district court also found no evidence of

bad faith given the clear applicability of policy exclusions. Id. at *8-9.



                                     Discussion

      A grant of summary judgment by a trial court is reviewed de novo. Sewell

v. Great N. Ins. Co., 535 F.3d 1166, 1170 (10th Cir. 2008). Summary judgment

is appropriate “if the pleadings, the discovery and disclosure materials on file,

and any affidavits show that there is no genuine issue as to any material fact and

that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c).

In applying this standard, the court reviews the evidence in the light most

favorable to the nonmoving party. Fed. Election Comm’n v. Wisc. Right to Life,

                                         -4-
Inc., 127 S. Ct. 2652, 2697 n.12 (2007). The party seeking summary judgment

must inform the district court of the basis for its motion. Celotex Corp. v.

Catrett, 477 U.S. 317, 323 (1986). Thereafter, the non-moving party must go

beyond the allegations in the complaint and come forward with significantly

probative evidence that would support a verdict in his favor. Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 249-50 (1986). As this is a diversity action, we apply

the substantive law of the forum state, Colorado. See Erie R.R. Co. v. Tompkins,

304 U.S. 64, 78 (1938); see also Sewell, 535 F.3d at 1170.

      Brighton raises four issues on appeal, all regarding the district court’s

interpretation of the insurance policy. Brighton initially claims that the district

court erred in concluding that (1) the building was vacant for purposes of the

policy, (2) the vandalism limitation applied, and (3) the sprinkler leakage

limitation afforded no coverage; Brighton further argues that (4) genuine issues of

material fact preclude an award of summary judgment on the bad faith breach of

insurance contract claim.

I. Breach of Contract

      A. Vacancy

      Brighton first argues that it is entitled to a trial on the issue of whether the

building was vacant. Finding the material facts undisputed, the district court held

that the building was vacant because it was not being used for customary

operations on the date of the loss. Saiz, 2007 WL 2701398, at *5. The policy

                                          -5-
provides in pertinent part:

      5. Limitations.
            e. We will not pay for any loss or damage caused by
            any of the following even if they are Covered Causes of
            Loss if the building where loss or damage occurs has
            been “vacant” for more than 60 consecutive days before
            that loss or damage occurs:
                   (1) Vandalism;
                   (2) Sprinkler Leakage, unless you have protected the
                   system against freezing;
                   (3) Building glass breakage;
                   (4) Water Damage;
                   (5) Theft; or
                   (6) Attempted theft.

Aplt. App. 165. The policy defines “vacant” in pertinent part:

      18. “Vacant” means the following:
            ....
            (2)  When this policy is issued to the owner or general lessee
                 of a building, building means the entire building. Such
                 building is vacant unless at least 31% of its total square
                 footage is:
            ....
            (b)  Used by the building owner to conduct customary
                 operations.

Aplt. App. 189. Although the policy does not define “customary operations,” it

does define “operations.”

      9. “Operations” means your business activities occurring at the
      described premises . . . .


Aplt. App. 188. Brighton argues that Mr. Saiz’s deposition testimony created a

fact issue on whether the building was vacant. Mr. Saiz testified that he

conducted business at the premises on a regular basis, including ongoing payment

                                        -6-
of utility bills and actively seeking a purchaser for the restaurant. Aplt. Br. 14-

15. Further, Brighton argues that such activities are customary operations for the

restaurant corporation. We are unpersuaded.

      We must interpret an insurance policy “consistently with the well settled

principles of contractual interpretation.” Carl’s Italian Rest. v. Truck Ins. Exch.,

183 P.3d 636, 639 (Colo. Ct. App. 2007) (quoting Chacon v. Am. Family Mut.

Ins. Co., 788 P.2d 748, 750 (Colo. 1990)). Furthermore, we must “give terms in

an insurance policy ‘their plain and ordinary meanings’ unless it is clear from the

policy that the parties intended an alternative interpretation.” Carl’s Italian Rest.,

183 P.3d at 639 (quoting Chacon, 788 P.2d at 750) (citing State Farm Mut. Auto.

Ins. Co. v. Nissen, 851 P.2d 165, 167 (Colo. 1993)).

      Because the policy does not define the term “customary” operations, we

consult the dictionary and the policy context for ordinary meaning. In the second

and most pertinent entry, “customary” is defined as “commonly practiced, used,

or observed.” Webster’s Ninth New Collegiate Dictionary 318 (1991). Given the

policy’s definition of “operations,” “customary operations” in this context would

be the commonly practiced business activities of a family-style restaurant. Such a

conclusion is further supported by various declarations: the insurance policy is

described as a “Restaurant PAC” and the business was described as “Family

Style.” Aplt. App. 151.

      Although Mr. Saiz attended to the premises each day and utilized an office

                                          -7-
on-site, neither he nor the corporation continued to operate the premises as a

restaurant after July 2004. Mr. Saiz testified that he kept the premises in top

condition, even performing some remodeling and renovation work, and would

utilize the entire premises when giving a tour to prospective buyers. See Aplt. Br.

15. Brighton contends that customary business operations includes efforts to sell

the business. Mr. Saiz admitted that the office that he occupied after the closure

of the restaurant consisted of approximately 500-600 square feet of the total 5,000

square feet of the premises. This is, at most, 12% of the total square footage of

the premises. Although, at certain times, Mr. Saiz may have accessed and

attended to the entire premises, the premises were no longer being used as a

family-style restaurant—the business pursuit identified by the policy. Because we

conclude that, at the time of the loss, the business could not have been utilizing

more than 31% of the premises for customary operations, the district court

properly held that, based on the uncontroverted evidence, the building was vacant

under the policy terms.

      B. Vandalism Limitation

      Brighton next claims that disputed questions of material fact remain

regarding whether the vandalism limitation for vacant buildings applies. The

policy does not define the term “vandalism,” but the dictionary definition will do:

“willful or malicious destruction or defacement of public or private property.”

Webster’s Ninth New Collegiate Dictionary 1303 (1991). The Knott Laboratory

                                         -8-
report concluded that “[t]he cause of the failure of the subject sprinkler head was

from deliberate tampering that required a series of actions to effect the observed

damages.” Aplt. App. 327. As Charter Oak highlights, Brighton did not dispute

these findings; it never deposed the author of the Knott Laboratory report, nor did

it retain its own expert. Aplt. Br. 17-18, Aplt. App. 138. Brighton argues that the

report never used the particular term “vandalism,” and that it should be allowed to

cross-examine Charter Oak’s witnesses to see if Charter Oak has met its burden.

Aplt. Br. at 17. Brighton further argues that Charter Oak could not plausibly

prove who might have vandalized the sprinkler head, and notes that there was no

evidence to suggest Mr. Saiz personally vandalized the property. Aplt. App. 365.

These arguments, however, do not create a genuine issue of material fact

concerning whether the sprinkler head was vandalized given the evidence. The

policy does not require that the vandal be found or identified. Deliberate

tampering resulting in “physical damage” to the sprinkler head in question fits

comfortably with willful or malicious destruction of property, i.e. vandalism.

None of Brighton’s arguments are sufficient to create a disputed issue of material

fact as to the application of the vandalism limitation.

      C. Sprinkler Leakage and Water Damage Limitations

      Brighton argues that it is entitled to coverage because of the sprinkler

leakage limitation, which may provide coverage for damages falling under its

rubric if a sprinkler system is protected against freezing. It further argues that the

                                         -9-
water damage limitation cannot take away that coverage. It is uncontroverted that

the damage in this case did not arise from freezing, which seems to be the

covered peril in the sprinkler leakage limitation. Though an interesting issue, we

need not determine the relationship between the two provisions because the

vandalism limitation operates independently to preclude coverage. As set out

above, the policy provides that “[w]e will not pay for any loss or damage caused

by any of the following[,]” including “[v]andalism.” Aplt. App. 165 (emphasis

added).

II. Bad Faith Breach of Insurance Contract

      Finally, Brighton claims that the district court erred in dismissing its claim

for bad faith breach of insurance contract. “For an insured to prevail on a bad

faith breach of contract claim against an insurer, the insured must establish the

insurer acted unreasonably and with knowledge or reckless disregard of its

unreasonableness.” Parsons ex rel. Parsons v. Allstate Ins. Co., 165 P.3d 809,

814-15 (Colo. Ct. App. 2006) (citing Dale v. Guar. Nat’l Ins. Co., 948 P.2d 545,

551 (Colo. 1997)). “The determination of whether an insurer has breached its

duties to an insured in bad faith is one of reasonableness under the

circumstances.” Id. at 815 (citing Surdyka v. DeWitt, 784 P.2d 819, 822 (Colo.

Ct. App. 1989)).

      Brighton claims that Charter Oak acted in bad faith by (1) concluding that

the restaurant was vacant after Mr. Saiz noted that he continued to work in an

                                        - 10 -
office in the building, and (2) rejecting the claim on the basis of vandalism when,

according to Brighton, “not one individual has given it an opinion that the damage

was due to vandalism.” Aplt. Br. 21. Brighton additionally suggests that Charter

Oak’s internal emails evidence bad faith, and that a mere statement regarding

what Charter Oak would not be paying on this claim demonstrates a preference

for the company’s financial interests over its insured. Aplt. Br. 21-22.

      This is insufficient to create a genuine issue of material fact on bad faith.

Charter Oak responded immediately to Mr. Saiz’s initial notification of a

potential claim by sending a representative to the premises the day after the loss.

Aplt. App. 136, 335. After the initial denial of the claim, and upon receipt of a

letter from Mr. Saiz providing additional information regarding the vacancy and

heating issues at the premises, Charter Oak re-opened its investigation. Aplt.

App. 137, 335. In its further investigation, Charter Oak hired Knott Laboratory to

conduct an investigation into the cause of the damage. Aplt. App. 137, 335. Mr.

Saiz did not present any evidence to contradict Knott Laboratory’s findings.

Aplt. App. 138, 336. Furthermore, Charter Oak examined Mr. Saiz under oath on

April 28, 2005, as part of its investigation. Aplt. App. 137, 335. Only after the

conclusion of its investigation did Charter Oak again deny the claim. In light of

these several steps taken by Charter Oak to investigate and apply the facts to the




                                        - 11 -
policy, summary judgment in favor of Charter Oak was required.

      AFFIRMED.



                                    Entered for the Court


                                    Paul J. Kelly, Jr.
                                    Circuit Judge




                                     - 12 -
