F I L E D
                                                                       United States Court of Appeals
                                                                               Tenth Circuit

                                                                               FEB 25 2003
                      UNITED STATES COURT OF APPEALS

                                   TENTH CIRCUIT                          PATRICK FISHER
                                                                                   Clerk


 COLUMBIA NATIONAL
 INSURANCE COMPANY,

              Plaintiff - Appellant,
                                                            No. 01-5184
 v.                                                   (D.C. No. 99-CV-877-K)
                                                         (N.D. Oklahoma)
 REROOF AMERICA, INC., an
 Oklahoma corporation,

              Defendant - Appellee.


                             ORDER AND JUDGMENT*


Before O’BRIEN, Circuit Judge, McWILLIAMS, Senior Circuit Judge, and BRORBY,
Senior Circuit Judge.


      This appeal concerns the duty of Columbia National Insurance Company

(“Columbia”) to defend its insured, Reroof America, Inc. (“Reroof”), when DM Hotels of

Denver (“DM”) sued Reroof claiming it suffered damages because Reroof had

improperly designed and installed a new roof on a hotel owned by DM.

      Columbia, a Nebraska corporation with its principal place of business in Missouri,


      *
         This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. The 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.
issued a Commercial General Liability Insurance policy to Reroof, an Oklahoma

corporation with its principal place of business in Oklahoma, for the policy period of

February 21, 1998, to February 21, 1999. The policy provided, inter alia, that Columbia

would pay Reroof for all monies that Reroof became legally obligated to pay as damages

because of “property damage” caused by an “occurrence,” and that Columbia “will have

the right and duty to defend any ‘suit’ seeking those damages.”

       On August 4, 1997, Reroof contracted with DM to design and install a metal roof

for a Holiday Inn located in Denver, Colorado. On January 13, 1999, DM filed suit in a

state court in Colorado against Reroof and alleged that it had suffered an unspecified

amount of damage, which would be established at trial, caused by Reroof’s failure to

properly design and install the roof. Reroof advised Columbia of the action brought

against it by DM, and on February 18, 1999, Columbia wrote Reroof that it was

“providing a defense at this time, while reserving our right to a determination of any and

all coverage issues.” On April 19, 1999, an attorney retained by Columbia wrote Reroof a

more detailed letter which stated, in part, that “Columbia has preliminarily assumed

defense on the assumption that discovery could establish that there has been physical

injury to some Holiday Inn property other than the new roof by reason of that roof.” In

that same letter, the author thereof also stated that “Columbia is of the opinion that there

is no coverage under the policy for the claims asserted by the plaintiff and that

developments in the lawsuit will conclusively establish that the obligation to defend and


                                             -2-
the obligation to indemnify are precluded. . . .”1 Thereafter, counsel for Reroof on

August 17, 1999, responded by letter and asked Columbia to pay its expenses for separate

counsel “because counsel retained by Columbia would face an irreconcilable conflict

between the obligation to represent Reroof and loyalty to Columbia.” On October 11,

1999, in a letter to Reroof, counsel for Columbia wrote “[w]e can now state conclusively

that there is no coverage.” On November 23, 1999, Columbia withdrew its appearance

for Reroof in the action against the latter in the Colorado proceeding, having by that time

filed an action on October 18, 1999, against Reroof for declaratory judgment in the

United States District Court for the Northern District of Oklahoma. When Columbia

withdrew its representation of Reroof, it apparently relied primarily on the allegations in

DM’s complaint and the so-called KLP Report, produced by DM’s engineers during

discovery.

       By its Second Amended Complaint in its declaratory judgment action, Columbia,

pursuant to 28 U.S.C. § 2201 and Fed. R. Civ. P. 57, requested a declaration that the

policy issued Reroof “did not provide coverage or a duty to defend defendant, Reroof

America, Inc., against the claims filed against it by DM Hotels of Denver” and for “such

additional and other declaratory relief as shall be found to be appropriate under the


       1
        In the April 19, 1999, letter the author also stated “it is uncertain from the
allegations whether plaintiff complains of ‘property damage’ within the meaning of the
policy” and “[w]hether the ‘new roof’ is damaged, or whether the new roof has caused
damage to the underlying roof, other parts of the building, or other property is not stated.”


                                            -3-
circumstances in prosecuting the action.” Jurisdiction was based on 28 U.S.C. § 1332.

By answer filed on November 8, 2000, Reroof requested judgment in its favor and against

Columbia, and asked that the district court find that “Columbia has a duty to defend and

indemnify Reroof in connection with the DM Suit and that Columbia is estopped from

denying coverage to Reroof in connection with the DM Suit.”

       On June 9, 2000, Columbia filed a motion for summary judgment, which motion

was denied on November 6, 2000. On February 9, 2001, Reroof filed a motion for

summary judgment, which was denied on February 21, 2001. In that order the district

court noted that the case had been previously set for trial in March, 2001, and that the

“deadlines under the Scheduling Order for amended pleadings and dispositive motions

have long since passed.” Accordingly, the district court denied Reroof’s motion for

summary judgment as being “untimely” and, at the same time, struck Reroof’s

counterclaim as also being “untimely filed.” (Reroof’s counterclaim is apparently not in

the record on appeal.)

       After a trial to the court, sitting without a jury, commenced on March 20, 2001,

and after each party had submitted proposed findings of fact and conclusions of law, the

district court on September 19, 2001, made its findings and conclusions, and entered

judgment that Columbia’s decision to withdraw from Reroof’s defense in the Colorado

proceeding “was not justified, and [that] Columbia was, and continues to be, obligated to

defend Reroof in the DM Lawsuit.”


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       The central issue in this appeal is whether Columbia had a duty to defend Reroof

in the action brought against the latter by DM in the Colorado court. However, in the

brief filed by Columbia in this court, there appears to be some suggestion that this is not

an appeal from a “final judgment” and that the appeal should, therefore, be dismissed and

the case remanded to the district court with directions that it hear, and determine, the

coverage and indemnification issue. 28 U.S.C. § 1291. In this regard, Columbia, at least

initially, asked the district court for not only a declaratory judgment that it had no duty to

defend but also requested a declaration that “the policy does not provide coverage” and

asked for indemnification from Reroof. Reroof, in its answer to Columbia’s Second

Amended Complaint, also asked the district court to find that Columbia had a “duty to

defend” and “indemnify” it. Since the district court did not rule on the coverage request,

there is, as indicated, the “suggestion” that the district court’s judgment is not a “final”

judgment, and is, therefore, non-appealable, a final judgment being one that disposes of

all claims raised in the district court. Servants of the Paraclete v. Does, 

,

1008 (10th Cir. 2000).

       We conclude from the record before us, that we are here concerned with a “final”

judgment. Immediately before trial commenced, counsel for Columbia orally moved to

withdraw any request for a determination that the policy issued Reroof did not “cover”

the damages sought by DM in the Colorado proceeding, counsel apparently being of the

view that the “coverage” issue could not be raised until the “underlying action” was


                                             -5-
concluded, which at that time had not been concluded. A counterclaim asserted by

Reroof was also struck because it was untimely. All things considered, we agree with

counsel for both Columbia and Reroof in this Court, each of whom was trial counsel, that

the issue of policy coverage and indemnification was, by time of trial, at least, not an

issue before the district court and whether there was policy coverage or whether either

party was entitled to indemnification from the other, was not in the case at the time of the

judgment.

       The parties agree that a duty to defend may exist even though it may be later

determined that there was, in fact, no policy coverage. This being a diversity case, the

substantive law of Oklahoma applies. Blackhawk-Central City Sanitation Dist. v.

American Guar. and Liab. Ins. Co., 

, 1188 (10th Cir. 2000). In First Bank

of Turley v. Fidelity and Deposit Ins. Co. of Maryland, 

, 303 (Okla. 1996),

the Supreme Court of Oklahoma held that an insurer had the duty to defend its insured

“whenever it ascertains the presence of facts that give rise to the potential of liability

under the policy.”2 (Emphasis in original). See also Midland Mortgage Co. v. United

States Fid. & Guar. Co., 

(10th Cir. 2002); IDG, Inc. v. Continental Cas.

Co., 

(10th Cir. 2001) . In Midland, we quoted the above language from

Turley with approval, and also said, inter alia, “[a]ny doubts [about a duty to defend] are



       In footnote 14 in First Bank of Turley, p. 304, “potential liability” was defined as
       2

“possibility of a recovery under the policy; there need not be a probability of recovery.”
(Emphasis in the original).

                                             -6-
resolved in favor of the insured.” Midland at 1280. In IDG, we said “[i]f a policy term is

ambiguous - i.e., where it is susceptible to two or more different meanings - ‘it will be

construed against the insurer’.” IDG at 921, n. 2. The district court in the instant case

concluded that, under the allegations in DM’s complaint filed in the Colorado proceeding

and the other information available to Columbia, there was “potential coverage” under the

policy here involved, and hence a duty on Columbia to defend. The record supports such

holding. That the allegations in DM’s complaint indicated a “possibility of a recovery”

under the policy is evidenced, inter alia, by the fact that Columbia initially defended

Reroof in that action, reserving a right to deny policy coverage. In our view, the KLP

report, later produced by DM’s engineers, did not negate that “possibility.”

       Columbia asserts that, even if it had an initial duty to defend, such duty does not

continue ad infinitum, and that it was later justified in withdrawing its defense of Reroof.

In its order, the district court, citing Blackhawk, stated that, while an insured need only

show the “potential” for liability in order to establish an insurer’s duty to defend, the

insurer, to escape its duty to defend, must show that the underlying claim “cannot fall

within policy coverage” (emphasis added). Blackhawk involved Colorado law, but the

district court in the instant case stated it was not persuaded that, in this respect, Oklahoma

law differed from Colorado. The record supports the district court’s holding that

Columbia had not shown that the underlying claim “cannot . . . fall within policy

coverage.”


                                             -7-
       On March 19, 2001, DM filed in the underlying action in Colorado against Reroof

a “supplemental disclosure” concerning its damages. It claimed therein that as “a

consequence of installing the new roof, Holiday Inn’s old roof was irreparably damaged,”

because nails were drilled into the old roof damaging the old roof and the parapet wall.

The supplemental disclosure further stated “as a result of the new roof, Holiday Inn

incurred property damage to approximately 37 fan motors” and that as a result of “the

heat and odor” caused by a lack of roof ventilation, Holiday Inn lost rental income from

263 rooms.

       On the morning the trial of the instant case commenced, March 20, 2001, Reroof

asked that a prior pretrial order be amended and that the supplemental disclosure of DM

in the Colorado proceeding be admitted into evidence in the trial of this case. The district

court allowed such, but first asked Columbia if it desired a postponement of the trial to

allow it time to study the new disclosure. Columbia declined that offer. Instead, it asked

that its prayer for relief be simply amended to show that it had no duty to defend until that

time, i.e., the date the trial commenced, March 20, 2001.3 We should note here that, after

       3
        The duty to defend arose when Reroof tendered the defense of the action against it
by DM in the Colorado court to Columbia. At that time, Columbia apparently conceded
its duty to defend by entering its appearance on behalf of Reroof, reserving its right to
contest coverage. When Columbia eight months later withdrew its appearance for Reroof
in the Colorado proceeding after determining to its satisfaction that there was no policy
coverage, it did so at its own peril. We agree with the district court that “Columbia’s
decision to withdraw from Reroof’s defense was not justified and Columbia was, and
continued to be, obligated to defend Reroof in the DM lawsuit.” As previously indicated,
Columbia had not shown that there “cannot” be policy coverage. The “potential” was still
                                                                                (continued...)

                                            -8-
the district court entered its judgment in the instant case, Columbia reentered its

appearance in the Colorado proceeding and later settled DM’s claim against Reroof for

approximately $500,000.

       In connection with the foregoing, Columbia argues in this appeal that the district

court erred in considering the supplemental disclosure made by DM in the Colorado

proceeding the day prior to the commencement of trial of the instant case. Under the

above described circumstances, we find no error. There was no abuse of discretion,

which is our standard of review of the grant, or denial, of a motion to amend a pretrial

order. Koch v. Koch Indus., Inc., 

, 1222 (10th Cir. 2000). In Davey v.

Lockheed Martin Corp., 

(10th Cir. 2002) we held that the denial of a

motion to amend a pretrial order made three days before the commencement of trial was

an abuse of discretion, and noted that any possible prejudice or surprise could have been

easily removed by a continuance. Here, Columbia declined the district court’s offer to

continue or stay the trial.

       Judgment affirmed.

                                           Entered for the Court

                                           Robert H. McWilliams
                                           Senior Circuit Judge




       3
        (...continued)
present.

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