                                                                      F I L E D
                                                                United States Court of Appeals
                                                                        Tenth Circuit
                                  PUBLISH
                                                                       JUL 14 1998
                  UNITED STATES COURT OF APPEALS
                                                                  PATRICK FISHER
                                                                            Clerk
                               TENTH CIRCUIT



 WEST AMERICAN INSURANCE
 COMPANY,

       Plaintiff-Appellee-
       Cross-Appellant,

 v.

 AV&S, AM&S, LSK, AS&S and
 AMBASSADOR PIZZA, INC.,
                                           Nos. 96-4094, 96-4096, 96-4097,
                                                  96-4138, 96-4151
       Defendants-Appellees-
       Cross-Appellants,

 and

 BARRY HARPER, as conservator for
 James Harper,

       Intervenor-Appellant-
       Cross-Appellee.




                 Appeal from the United States District Court
                           for the District of Utah
                           (D.C. No. 2:95CV254S)


Donald J. Purser and Rebecca L. Hill, Donald Joseph Purser & Associates, P.C.,
Salt Lake City, Utah, for Plaintiff-Appellee-Cross-Appellant, West American
Insurance Company.
Andrew H. Stone and Scott D. Cheney, Jones, Waldo, Holbrook & McDonough,
Salt Lake City, Utah, for Defendants-Appellees-Cross-Appellants, Ambassador
Pizza, Inc., AV&S, AM&S and LSK.

Joseph J. Joyce and Kristen A. VanOrman, Strong & Hanni, Salt Lake City, Utah,
for Defendant-Appellee-Cross-Appellant AS&S, Inc.

Jeffrey D. Eisenberg, Alan W. Mortensen and Paul M. Simmons, Wilcox,
Dewsnup & King, Salt Lake City, Utah, for Intervenor-Appellant-Cross-Appellee
Barry Harper.


Before EBEL, Circuit Judge, McWILLIAMS, Senior Circuit Judge, and
HENRY, Circuit Judge.


EBEL, Circuit Judge.


      West American Insurance Company appeals the district court’s declaratory

judgment that it had a duty to defend its insureds under an insurance contract.

The insureds cross-appeal the district court’s denial of a motion for attorney fees

incurred by the insureds in litigating the declaratory judgment action. We affirm.

                                 BACKGROUND

      On November 11, 1993, high school student Bryce K. Morris (“Morris”) hit

James P. Harper (“Harper”), a pedestrian in a crosswalk, with his car while

delivering a pizza for his employer, AS&S, Inc. (“AS&S”), in Riverton, Utah.

AS&S is a corporation whose business is a franchisee of Ambassador Pizza, Inc.

(“Ambassador”). Ambassador had several other franchisees, including AV&S,

Inc., AM&S, Inc., and LSK, Inc. (collectively, the “Other Franchisees”).

                                        -2-
      As a result of the accident, Harper suffered severe injuries to his brain,

head, neck, legs, and back. Harper’s brother Barry Harper, acting as Harper’s

conservator, filed suit against Ambassador, AS&S, the Other Franchisees, and

Morris for negligence, negligent entrustment, and negligent hiring and training

(the “Harper litigation”). Ambassador, AS&S, and the Other Franchisees

tendered defense of the Harper litigation to their insurer, West American

Insurance Company (“West American”), under Ambassador’s Business Owner’s

Liability Insurance Policy (“the Policy”). The Policy covered Ambassador and all

of its franchisees, including AS&S. West American refused to defend

Ambassador or any of its franchisees because the Policy contained an “Auto

Exclusion” clause, which excluded from coverage under the Policy any claims for

“‘Bodily injury’ or ‘property damage’ arising out of the ownership, maintenance,

use or entrustment to others of any aircraft, ‘auto’ or watercraft owned or

operated by or rented or loaned to any insured.” (emphasis added). An “insured”

under the Policy included each named company and that company’s employees for

acts within the scope of their employment. However, the Policy also contained a

“Separation of Insureds” clause that provided: “Except with respect to the Limits

of Insurance, and any rights or duties specifically assigned in this policy to the

first Named Insured, this insurance applies: a. As if each Named Insured were the




                                         -3-
only Named Insured; and b. Separately to each insured against whom claim is

made or ‘suit’ is brought.”

      West American filed a complaint in the United States District Court for the

District of Utah under 28 U.S.C. § 1332 (diversity jurisdiction) seeking a

declaratory judgment that it did not have a duty to defend Ambassador, AS&S, the

Other Franchisees, or Morris. Resolving the parties’ motions for summary

judgment, the district court found that AS&S and Morris were not covered under

the Policy due to the Auto Exclusion clause. However, the district court

concluded that the Policy only excluded Morris and AS&S as Morris’ employer

and did not exclude Ambassador, AV&S, AM&S, or LSK from insurance

coverage. As a result, the district court ruled that West American had a duty to

defend Ambassador and the Other Franchisees in the underlying Harper litigation

and had to indemnify Ambassador and the Other Franchisees against any

judgment entered against them. The district court also held West American liable

for attorney fees incurred by Ambassador, AV&S, AM&S, and LSK in defending

the Harper litigation. However, the district court denied Ambassador’s and the

Other Franchisees’ motions for attorney fees incurred defending against West

American’s declaratory judgment action. These appeals followed. In case 96-

4097, West American appeals the determination that it had a duty to defend

Ambassador and the Other Franchisees. In case 96-4138, Ambassador and the


                                        -4-
Other Franchisees appeal the denial of attorney fees. 1 We have jurisdiction under

28 U.S.C. § 1291. 2

                                  DISCUSSION

      Because this is a diversity case, we apply the forum state’s choice of law

rules. See Trierweiler v. Croxton & Trench Holding Corp., 90 F.3d 1523, 1532

(10th Cir. 1996). Here the parties agree that Utah courts would apply Utah

substantive law to this dispute, and we agree. See American Nat’l Fire Ins. Co. v.

Farmers Ins. Exchange, 927 P.2d 186, 188 (Utah 1996).

                          I. Coverage Under the Policy

      We review a grant of summary judgment de novo, taking the evidence in

the light most favorable to the non-moving party. See Kaul v. Stephan, 83 F.3d

1208, 1212 (10th Cir. 1996). “Whether an exclusion in an insurance policy is

clear and unambiguous is a question of law that may be resolved by the court in

      1
        Barry Harper and AS&S also filed appeals numbered 96-4094, 96-4096,
and 96-4151. However, pursuant to a stipulation entered into by the parties, we
now dismiss those appeals as moot.
      2
          At the time the parties filed their notices of appeal, it was unclear
whether the district court’s April 2, 1996, Order and April 8, 1996, Judgment
constituted a final judgment disposing of all claims that could be appealed under
28 U.S.C. § 1291. This court directed the parties to secure from the district court
either a certification under Federal Rule of Civil Procedure 54(b) or an order
adjudicating all remaining claims. The district court then issued a series of
further orders on August 8 and 9, 1996, disposing of all remaining claims. As a
result, the appeal ripened as of August 9, 1996, and we have jurisdiction under
F.R.A.P. 4(a). See Lewis v. B.F. Goodrich Co., 850 F.2d 641, 645-46 (10th Cir.
1988).

                                        -5-
the context of a motion for summary judgment” under Utah law. See Cyprus

Plateau Mining Corp. v. Commonwealth Ins. Co., 972 F. Supp. 1379, 1382 (D.

Utah 1997) (applying Utah law) (citations omitted).

      The Policy’s Auto Exclusion clause excluded from coverage bodily injury

resulting from operation or entrustment of an automobile to “any” insured. AS&S

was unquestionably a named insured and Morris was unquestionably an insured

under the Policy. However, the Policy’s Separation of Insureds clause provides

that the Policy applies to each named insured under the policy as if that named

insured were the only named insured, and unquestionably Ambassador, AV&S,

AM&S, and LSK were named insureds. Thus, under the Separation of Insureds

clause, Ambassador, AV&S, AM&S, and LSK were each entitled to have the

Policy construed as to it as if the Policy were issued only as to it alone. Under

that scenario, AS&S and Morris would not be regarded as “insureds” when

considering the coverage available to Ambassador, AV&S, AM&S, and LSK. Of

course, if AS&S and Morris were not insureds, then the Auto Exclusion clause

would not apply because it only excludes coverage for automobile accidents

attributable to the operation or entrustment of an automobile to an “insured.”

Further, the Separation of Insureds clause provides that a complaint against any

one insured should be applied “separately” as to each insured. The question

before us is whether the use of the term “any insured” in the Auto Exclusion


                                         -6-
clause excludes from coverage all automobile accidents attributable to any of the

named insureds, or whether the Separation of Insureds clause read in conjunction

with the term “any insured” in the Auto Exclusion clause means only that the

single named insured and its employees that actually operated or entrusted the

automobile involved in the accident are excluded under the Policy.

      West American argues that the district court erred as a matter of law in

interpreting the Policy by ruling that West American had a duty to defend

Ambassador, AV&S, AM&S, and LSK, noting the broad exclusionary language

used in the Auto Exclusion clause. Relying on the majority rule, West American

cites a number of cases in other jurisdictions that broadly interpret the term “any

insured” under an exclusion clause to negate coverage for all insureds, even

innocent co-insureds, despite the inclusion of a severability clause similar to the

Separation of Insureds clause at issue here. See Taryn E.F. by Grunewald v.

Joshua M.C., 505 N.W.2d 418, 420, 422 (Wis. Ct. App. 1993) (applying

Wisconsin law and holding “[T]he term ‘any insured’ unambiguously precludes

coverage to all persons covered by the policy if any one of them engages in

excludable conduct,” notwithstanding a severability clause that provided, “Each

person listed above is a separate insured under this policy.”); see also Golden

Door Jewelry Creations, Inc. v. Lloyds Underwriters Non-Marine Ass’n, 117 F.3d

1328, 1336 (11th Cir. 1997) (applying Florida law and holding that the phrase


                                         -7-
“the insured” permits an innocent co-insured to recover for loss attributable to a

guilty co-insured, while contrasting that to a policy covering “any insured,” which

would preclude an innocent co-insured from recovery for the acts of a guilty co-

insured; however, it is not clear that the policy under consideration had an

explicit “Separation of Insureds” or “Severability of Insureds” clause); 3 American

Family Mut. Ins. Co. v. Copeland-Williams, 941 S.W.2d 625, 627, 629 (Mo. Ct.

App. 1997) (applying Missouri law in holding “the phrase ‘any insured’

unambiguously precludes coverage to all persons covered by the policy if any one

of them engages in excludable conduct,” notwithstanding a severability clause

that “the liability coverage applies separately to each insured . . . .”) (citations and

quotations omitted); California Cas. Ins. Co. v. Northland Ins. Co., 56 Cal. Rptr.

2d 434, 442 (Cal. Ct. App. 1996) (same, applying California law); Michael

Carbone, Inc. v. General Accident Ins. Co., 937 F. Supp. 413, 420 (E.D. Pa. 1996)

(same, applying New Jersey law to essentially the same policy language as the

West American policy); Oaks v. Dupuy, 653 So.2d 165, 168-69 (La. Ct. App.


      3
         When the insurance contract does contain a severability clause providing
that “[t]his insurance applies separately to each insured,” the Florida State
District Court of Appeals has held that innocent co-insureds are covered,
notwithstanding an exclusion clause which excludes coverage for any injury
which is intended by “any insured.” Premier Ins. Co. v. Adams, 632 So.2d 1054,
1056-57 (Fla. Dist. Ct. App. 1994). Thus, notwithstanding dicta in Golden Door,
we conclude that Florida law would provide coverage to an innocent co-insured
under contract provisions similar to those in the West American policy. Golden
Door failed to discuss or distinguish Premier Ins. Co..

                                          -8-
1995) (same, applying Louisiana law); Gorzen v. Westfield Ins. Co., 526 N.W.2d

43, 45 (Mich. Ct. App. 1994) (same, applying Michigan law); Chacon v.

American Family Mut. Ins. Co., 788 P.2d 748, 752 (Colo. 1990) (same, applying

Colorado law); Great Central Ins. Co. v. Roemmich, 291 N.W.2d 772, 774 (S.D.

1980) (same, applying South Dakota law).

      In contrast to the cases cited by West American, some jurisdictions have

found that the term “any insured” in an exclusion clause only applied to a single

named insured and its employees and did not exclude other named but innocent

insureds or their employees from coverage when the insurance policy also

included a severability clause similar to the Separation of Insureds clause in this

case. See Premier Ins. Co. v. Adams, 632 So.2d 1054, 1057 (Fla. Ct. App. 1994)

(applying Florida law in holding that in order to give effect to all parts of the

contract the court must construe the policy as excluding only coverage for

separate insurable interest of insured who intentionally caused injury); American

Nat’l Fire Ins. Co. v. Estate of Fournelle, 472 N.W.2d 292, 294 (Minn. 1991)

(applying Minnesota law in holding, “[t]he doctrine of severability limits

application of the exclusion to the insured claiming coverage and those deriving

their insured status from that insured claiming coverage”); Worcester Mut. Ins.

Co. v. Marnell, 496 N.E.2d 158, 161 (Mass. 1986) (applying Massachusetts law in

holding that the severability clause modifies the exclusionary clause). In


                                         -9-
addition, in cases interpreting exclusions for injuries to an employee in an

insurance policy covering the employer and other named insureds that also

includes a severability clause, a number of courts have construed the severability

clause to mean that each insured has a separate policy and, consequently, to

require the insurer to cover the named insureds other than the employer for

liability arising from the employee’s injuries. See Charles W. Benton,

Annotation, Validity, Construction, and Application of Provision in Automobile

Liability Policy Excluding from Coverage Injury to, or Death of, Employee of

Insured, 43 A.L.R.5th 149 § 13(a) (1996) (citing cases).

      We note that Utah has held that the term “any insured” in an exclusion is

not necessarily ambiguous. See Allen v. Prudential Prop. & Cas. Ins. Co., 839

P.2d 798, 807 (Utah 1992). However, Utah courts have not addressed the

interpretation of the term “any insured” directly in relation to a Separation of

Insureds clause. Given the conflicting interpretations of the interplay between a

severability clause and an exclusion clause using the term “any insured,” we find

the Policy in question in this case to be ambiguous. See also Cyprus Plateau

Mining, 972 F. Supp. at 1382-86 (applying Utah law in holding that term “any

insured” was ambiguous in light of other provisions of policy) (citing Pacific

Indem. Co. v. Transport Indem. Co., 146 Cal. Rptr. 648, 651 (Cal. Ct. App. 1978)

and United States Steel Corp. v. Transport Indem. Co., 50 Cal. Rptr. 576, 584-85


                                        - 10 -
(Cal. Ct. App. 1966)); Transport Indem. Co. v. Wyatt, 417 So.2d 568, 571 (Ala.

1982) (“The wording [‘any insured’ in an exclusion clause] could be interpreted

either to mean only singularly ‘any one of the insureds’ or could apply

collectively to the whole group of insureds.”).

      Under Utah law, an ambiguous clause in an insurance policy is construed in

favor of the insured. See Taylor v. American Fire & Cas. Co., 925 P.2d 1279,

1282 (Utah Ct. App. 1996) (citing Alf v. State Farm Fire & Cas. Co., 850 P.2d

1272, 1274 (Utah 1993)), cert. denied, 936 P.2d 407 (Utah 1997). Moreover,

Utah law requires that exclusions in an insurance policy must be strictly construed

against the insurer. See id. Because we find the relationship between Separation

of Insureds clause and the Auto Exclusion clause to be ambiguous at best and

capable of two different interpretations, we believe that Utah would construe the

exclusion against West American and adopt the interpretation most favorable to

Ambassador and the Other Franchisees.

      Under this rationale, we find that because the Separation of Insureds clause

treats each named insured separately as the only insured, the term “any insured”

in the Auto Exclusion clause only applies to the single insured that actually

owned the vehicle or whose employee operated the vehicle and the employees

claiming insurance through that named insured. As a result, the Policy only

excludes from coverage claims for bodily injury against either AS&S, the single


                                        - 11 -
named insured that actually operated or entrusted the automobile, or Morris, its

employee, and does not exclude claims against the Ambassador and the Other

Franchisees, the other named insureds covered by the Policy.

      Thus, we concur with the conclusion reached in those cases holding that the

term “any insured” in an exclusion clause in a policy that also contains a

severability clause does not exclude coverage for all insureds when only one

insured is at fault. See Premier Ins. Co., 632 So.2d at 1057 (“The policy contains

an exclusion for intentional acts of ‘any insured’ and contains a severability

clause creating a separate insurable interest in each individual insured. . . . [T]he

most plausible interpretation is that the exclusionary clause is to exclude coverage

for the separate insurable interest of that insured who intentionally causes the

injury.”); Worcester Mut. Ins. Co., 496 N.E.2d at 161 (severability clause

provides that the policy “applies separately to each insured” and “requires that

each insured be treated as having a separate insurance policy.”).

      West American further argues that the district court erred by finding that

Morris was not an employee of Ambassador and the Other Franchisees. 4 West


      4
         Harper’s complaint in the underlying litigation alleged that Morris was an
employee of LSK, Inc., an entity separate from AS&S but one of Ambassador’s
franchisees. West American relies in part on that allegation in its attempt to link
Morris to Ambassador and the Other Franchisees. However, the only evidence in
the record regarding Morris’ employment status clearly states that AS&S, not
Ambassador or any of the Other Franchisees, employed Morris. West American
                                                                       (continued...)

                                         - 12 -
American contends that the district court ignored the rule in Utah that an insurer

must defend its insureds only if the allegations of the complaint, if proven, would

result in liability for the insurer. See Deseret Fed. Sav. & Loan Ass’n v. United

States Fidelity & Guar. Co., 714 P.2d 1143, 1147 (Utah 1986). West American

notes that the complaint in the Harper litigation alleged that Ambassador and all

the franchisees (including AS&S) are corporate alter egos. Thus, West American

reasons that if Harper prevailed, Morris’ negligence would be attributable to

Ambassador and all the franchisees and West American would have no liability

because the terms of the Auto Exclusion clause would then apply to Ambassador

and the Other Franchisees as “any insured” who entrusted an automobile to

Morris.

      Deseret held that “the duty to defend is measured by the nature and kinds of

risks covered by the policy and arises whenever the insurer ascertains facts which

give rise to the potential of liability under the policy.” Id. at 1146 (emphasis

added). The court in Deseret found that the insurance company in that case did

not have a duty to defend the insured because the plaintiff’s allegations, which


      4
       (...continued)
presented no evidence to the contrary other than its reliance on the allegations in
Harper’s complaint. A party “may not rest upon its pleadings, but must set forth
specific facts showing a genuine issue for trial as to those dispositive matters for
which it carries the burden of proof.” Kaul, 83 F.3d at 1212. Therefore,
summary judgment was appropriate on the issue of which company employed
Morris.

                                        - 13 -
concerned only matters specifically excluded under the policy, “presented no

potential liability” under the insurance policy. Id. at 1147 (emphasis added). In

this case, West American faced the possibility of liability to Ambassador and the

Other Franchisees for claims brought by Harper – such as lack of training – that

did not depend on the existence of an employer-employee relationship between

Morris and Ambassador or the Other Franchisees. Because not all of Harper’s

claims required the attribution of Morris’ negligence to Ambassador and the

Other Franchisees to impose liability on them, the Auto Exclusion clause as we

have interpreted it would not have eliminated the possibility of West American’s

liability for all of Harper’s claims under Deseret. Consequently, West American

had a duty to defend Ambassador and the Franchisees under Utah law. Cf.

Overthrust Constructors, Inc. v. Home Ins. Co., 676 F. Supp. 1086, 1091 (D. Utah

1987) (“Once an insurer has a duty to defend an insured under one claim brought

against the insured, the insurer must defend all claims brought at the same time,

even if some of the claims are not covered by the policy.”).

                                II. Attorney Fees

      The district court awarded Ambassador and the Other Franchisees $6,100 in

attorney fees to compensate them for the attorney fees expended in defending the

Harper litigation. On appeal, Ambassador and the Other Franchisees argue that

the district court misapplied Utah law by denying them additional attorney fees


                                       - 14 -
incurred in litigating West American’s declaratory judgment action. Although

neither the Policy nor Utah statutory law provides for an award of “fees for fees”

here, Ambassador and the Other Franchisees contend that Utah recognizes that

“such fees may be recovered as foreseeable consequential damages flowing from

West American’s breach of its contractual obligation to extend coverage and a

defense.” We review de novo the legal analysis providing the basis for the award

or denial of attorney fees. See Towerridge, Inc. v. T.A.O., Inc., 111 F.3d 758,

765 (10th Cir. 1997).

      The Utah case most analogous to the case at bar is Farmers Ins. Exch. v.

Call, 712 P.2d 231 (Utah 1985), where an insurance company filed a declaratory

judgment action to determine whether an exclusion clause negated its duty to

defend the insured. The Supreme Court of Utah held that the company had a duty

to defend the underlying action, see id. at 232, but refused to award the insured

the fees the insured incurred in defending the declaratory judgment action, see id.

at 237-38. The court stated:

      When faced with a decision as to whether to defend or refuse to
      defend, an insurer is entitled to seek a declaratory judgment as to its
      obligations and rights. . . . An award of attorney fees is not
      warranted ‘where the plaintiff merely stated its position and initiated
      this action for determination of what appears to be a justiciable
      controversy.’

Id. (quoting Western Cas. & Sur. Co. v. Marchant, 615 P.2d 423, 427 (1980)); see

also Overthrust, 676 F. Supp. at 1091 (applying Utah law); Crist v. Insurance Co.

                                        - 15 -
of North America, 529 F. Supp. 601, 607 (D. Utah 1982) (applying Utah law);

American States Ins. Co. v. Walker, 486 P.2d 1042, 1044 (Utah 1971).

      We acknowledge that the viability of the Farmers line of cases may be in

some doubt, given recent decisions of the Utah courts which have allowed parties

to collect attorney fees incurred in litigation brought to collect fees. See Salmon

v. Davis County, 916 P.2d 890 (Utah 1996); James Constructors, Inc. v. Salt Lake

City Corp., 888 P.2d 665 (Utah Ct. App. 1994). In addition, we note that since

Farmers was decided Utah has held that attorney fees can be considered an item

of consequential damages flowing from an insurer’s breach of contract. See

Canyon Country Store v. Bracey, 781 P.2d 414, 420 (Utah 1989). However,

Canyon Country did not address awarding “fees for fees,” and both of the recent

Utah cases that do address that situation are distinguishable from the instant

action. In Salmon, which allowed a party to recover attorney fees expended in an

action to regain fees, the Supreme Court of Utah construed a Utah statute which

authorized the recovery of fees in an opinion which commanded no clear majority.

See 916 P.2d at 895-96, 900. In James Constructors, the award of fees was rooted

in a specific provision in an indemnity agreement. See 888 P.2d at 673-74. By

contrast, our case involves neither a statutory authorization for, nor a contractual

agreement regarding, fees. More importantly, however, none of these recent cases

overruled or even cited the Farmers line of cases. Without clearer guidance that


                                        - 16 -
the Supreme Court of Utah would overrule Farmers, we feel compelled to follow

it, particularly because it arises in a factual context so clearly analogous to this

case.

         There is no evidence in the record that West American did not file this

action in good faith or was stubbornly litigious. Consequently, under Utah law,

there is no basis for awarding Ambassador and the Other Franchisees the attorney

fees they incurred in defending this declaratory judgment action. See Farmers,

712 P.2d at 237; Western Casualty, 615 P.2d at 427; cf. American States, 486

P.2d at 1044.

                                    CONCLUSION

         For the reasons discussed above, we AFFIRM the judgment of the district

court.




                                          - 17 -
