FILED
                                                             United States Court of Appeals
                                                                     Tenth Circuit

                    UNITED STATES COURT OF APPEALS                   May 12, 2008
                                                                 Elisabeth A. Shumaker
                                TENTH CIRCUIT                        Clerk of Court



 UTICA MUTUAL INSURANCE
 COMPANY,
                                                  Nos. 06-6283 and 07-6044
               Appellant,
          v.                                           (W.D. of Okla.)
 PAUL VOYLES, GREAT STATES                         (D.C. No. CV-04-965-C)
 INSURANCE AGENCY, INC.,
 HEALTHBACK HOLDINGS, L.L.C.,
 GREG PECK, BRYANT JONES
 ENTERPRISES, INC., JUSTIN
 BRUNER, JOHN MILLSPAUGH,
 TABITHA JAQUAY-FERNANDEZ,
 BOARDMAN, INC., WICHITA
 STEEL FABRICATORS, INC.,
 BREWER CARPET & DESIGN
 CENTER, INC., also known as
 BREWER CARPET & DESIGN, INC.,
 STONE MOUNTAIN OF
 OKLAHOMA CITY, L.L.C., PRO-
 SOURCE OF OKLAHOMA CITY,
 INC., and TOJO, INC.,

               Appellees.


                            ORDER AND JUDGMENT *


Before TACHA, MCKAY, and TYMKOVICH, Circuit Judges.



      *
         This order and judgment is not binding precedent except under the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.
      Utica Mutual Insurance Company filed a declaratory judgment action to

resolve whether it had a duty to defend or indemnify Great States Insurance

Company and Great States’s president, Paul Voyles, in several Oklahoma state

court lawsuits. The state suits were brought by third-party plaintiffs claiming

fraud and negligence by Great States and Voyles in the course of their insurance

business. The district court entered judgment in favor of Voyles and Great States

in the federal case. It also awarded Voyles and Great States attorneys’ fees in

accordance with 36 Oklahoma Statutes § 3629(B). Utica appeals the

determination of its duty to defend and the award of attorneys’ fees.

      We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and affirm.

                                  I. Background

      A. Factual Background

      Great States is an insurance agency located in Oklahoma City, Oklahoma.

During the relevant period, Paul Voyles was an agent of Great States, as well as

its president. To protect Great States and its agents from any wrongful or

negligent acts or omissions committed during the course of its business, Voyles

obtained an errors and omissions insurance policy from Utica.

      In late 1999 or early 2000, Voyles helped form an employee-leasing

company called Fairway Employment Services, Inc. Voyles was vice-president

and a twenty-percent owner. Fairway leased employees to businesses operating in


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and around Oklahoma City for a fee. Fairway was responsible for the leased

employees’ wages, as well as their health insurance, workers’ compensation

coverage, payroll taxes, and other incidents of employment. Using his experience

as an insurance agent, Voyles helped Fairway set-up a partially self-funded health

insurance plan for the leased employees. Voyles also obtained an excess liability

policy from Monumental Life Insurance Company for Fairway’s leased employees

that contained a $75,000 per-employee deductible. This meant either the

employee or Fairway was responsible for health care costs below the deductible

amount; traditional insurance coverage applied only once costs exceeded $75,000.

      When employees began to submit claims to Fairway (their new employer)

for reimbursement, they found that Fairway was unable to pay benefits.

Consequently, in 2002, several of Fairway’s clients sued Fairway in Oklahoma

state court in connection with the benefits the clients and their leased employees

were supposed to receive. The complaints alleged Fairway had not provided

insurance coverage as promised. The clients alleged they had requested

traditional insurance coverage (with normal deductibles) from Voyles, but Voyles

negligently or fraudulently instead placed them into a high-deductible, partially

self-funded health care plan operated by Fairway. As a result, the clients were

forced to pay the claims instead. The complaints also alleged that some of the

leased employees were not covered by Fairway’s partially self-funded plan; these




                                         -3-
employees received no health insurance at all. Other employees did not receive

the workers’ compensation coverage promised them.

      Fairway sought recovery against Voyles and Great States for injuries

sustained by Fairway’s clients and the leased employees. Since Voyles had been

responsible for obtaining the insurance coverage, Fairway looked to Voyles to

explain the problems with the self-funded plan he had created. These problems

included not only a lack of traditional insurance coverage, but also a lack of any

health insurance coverage at all for some employees and a lack of workers’

compensation benefits for others. Fairway and the leased employees alleged

Voyles had made promises in regard to their insurance coverage which were not

kept. Fairway’s clients subsequently amended their complaints to also include

Voyles and Great States as defendants. Voyles and Great States requested Utica

defend and indemnify them against the state court claims.

      B. Procedural History

      Utica filed a federal diversity action seeking a declaration that it had no

duty to defend or indemnify Great States or Voyles in state court litigation. Utica

claimed that two exceptions to the errors and omissions policy held by Great

States excluded coverage of the claims asserted against Voyles and Great States.

Voyles and Great States in turn counter-claimed, seeking a declaration that Utica

had a duty to defend and indemnify. They contended the state court complaints

asserted liability upon grounds that fell within the scope of the policy.

                                          -4-
      On cross-motions for summary judgment, the district court held Utica had a

duty to defend and indemnify Great States and Voyles against allegations that

they committed wrongful acts or omissions during the course of Great States’s

business. The court also determined Great States and Voyles were entitled to

attorneys’ fees as the “prevailing party” under 36 Okla. Stat. § 3629(B), and

awarded fees in the amount of $10,917. Utica timely appealed.

                                    II. Analysis

      A. Standard of Review

      Utica appeals from a grant of summary judgment in favor of the defendants.

We review a district court’s grant of summary judgment de novo, applying the

same legal standard as the district court. Byers v. Albuquerque, 

,

1274 (10th Cir. 1998). Summary judgment is appropriate “if the pleadings,

depositions, answers to interrogatories, and admissions on file, together with the

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

that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ.

P. 56(c). When applying this standard, we view the evidence and draw reasonable

inferences therefrom in the light most favorable to the nonmoving party. 

.

      In this diversity action, the law of Oklahoma applies. Erie R.R. v.

Tompkins, 

(1938). “The obligation of responsible appellate review

and the principles of a cooperative judicial federalism underlying Erie require

                                         -5-
that courts of appeals review the state-law determinations of district courts de

novo.” Salve Regina Coll. v. Russell, 

, 239 (1991); see also Roberts

v. Printup, 

, 1215 (10th Cir. 2005) (noting “the United States

Supreme Court has held that ‘no form of appellate deference is acceptable,’ when

we are asked to review a district court’s determination of state law”).

      B. Utica’s Duty to Defend

             1. Initial Determination of Coverage

      Utica’s appeal centers on whether it has a duty to defend Voyles and Great

States against claims asserted against them in Oklahoma state court proceedings.

To answer this question, we apply the facts of the case to the language of Great

States’s errors and omissions policy. We conclude Utica has a duty to defend.

             a. Applicable Law

      Under Oklahoma law, “[a]n insurer’s duty to defend claims against its

insured is an ex contractu obligation.” First Bank of Turley v. Fid. & Dep. Ins.

Co. of Md., 

, 302 (Okla. 1996). “If language of a contract is clear

and free of ambiguity the court is to interpret it as a matter of law, giving effect

to the mutual intent of the parties at the time of contracting.” Pitco Prod. Co. v.

Chaparral Energy, Inc., 

, 545 (Okla. 2003) (footnote omitted).

Whether the contract is ambiguous is for the court to decide, considering the

contract as a whole. 

“The test for ambiguity is whether the

language is susceptible to two interpretations on its face . . . from the standpoint

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of a reasonably prudent lay person, not from that of a lawyer.” Spears v. Shelter

Mut. Ins. Co., 

, 869 (Okla. 2003) (internal quotation marks omitted).

In the absence of an ambiguity, the court must enforce an insurance contract

according to its express terms, giving the policy’s language its plain and ordinary

meaning. Pitco Prod. 

& nn.20–22.

      An insurer’s duty to defend is broader than its duty to indemnify. E.g.,

First Bank of 

. This rule stems from a coverage provision

found in most insurance contracts, which imposes a duty to defend on the insurer

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

liability under the policy.” 

potentially covered means that the

insurer’s duty to defend its insured arises whenever the allegations in a complaint

state a cause of action that gives rise to the possibility of a recovery under the

policy; there need not be a probability of recovery.” 

n.14 (quoting 7C

Appleman, Insurance Law and Practice § 4682 (Berdal ed. 1979)).

      Oklahoma does not recognize the four-corners rule followed by some

courts. A court must look beyond the language of the complaint to determine

whether a duty to defend exists. 

n.13 (“The duty to defend should

focus upon the facts rather than upon the complaint’s allegations, which may or

may not control the ultimate determination of liability.”). All sources of

information should be examined. “The insurer’s defense duty is determined on

the basis of information gleaned from the petition (and other pleadings), from the

                                          -7-
insured and from other sources available to the insurer at the time the defense is

demanded (or tendered) rather than by the outcome of the third-party action.” 

–04 (emphasis omitted).

      Thus, under Oklahoma law an insurer must defend an action in which

damages sought are potentially within the policy’s coverage. To determine the

scope of this duty, a court must consider all the available facts, not just those

asserted in the complaint.

             b. Application

      We agree with the district court that Utica owes a duty of defense to Voyles

and Great States under the errors and omissions policy.

      The contract between Utica and Great States is unambiguous on the

questions of who is an insured and when the duty to defend arises. Both Great

States and Voyles are covered insureds. Great States is the sole entity listed in

the Named Insured section of the policy. The policy, however, also covers Great

States’s “executive officers or directors . . . with respect to their duties as your

officers and directors” and its “employees (regular, leased, or temporary) or

managers . . . for acts within the scope of their employment by you or while

performing duties related to the conduct of your business.” R., Vol. I at 318.

Voyles, in his capacity as an employee and an officer of Great States, is therefore

a covered insured.




                                           -8-
      The policy is also unambiguous on when the duty to defend arises. The

policy, like most others of its kind, contains broad language concerning the duty

to defend. The Coverage section states,

      We will pay on behalf of the insured all “loss” to which this insurance
      applies. We will have the right and the duty to defend the insured
      against any “suit” seeking those damages even if the allegations of the
      “suit” are groundless, false, or fraudulent.

R., Vol. I at 314. Thus, if the plaintiffs’ allegations base liability on wrongful

acts that fall within the scope of the policy, Utica has a duty to defend its insured.

Utica may not deny a defense because it thinks the claims lack merit.

      Based on our independent review of the record, we conclude that several of

the Oklahoma plaintiffs’ claims against Voyles and Great States base liability on

wrongful acts within the scope of the policy. The errors and omissions policy

covers any “wrongful act,” which is defined as “any negligent act, error or

omission to which this insurance applies.” 

the allegations in the

plaintiffs’ complaints allege such acts, errors, and omissions. For example,

Oklahoma-plaintiff Healthback claims, “Pursuant to the terms of the Contract and

various oral representations, Healthback did make payments for the Insurance

Benefits, but Voyles and Great States failed to comply with their obligations.

Specifically, Voyles and Great States did not provide the Insurance Benefits as

agreed.” R., Vol. I at 358, ¶16.




                                          -9-
      The complaint also alleges, “Voyles and Great States have breached the

written and/or oral agreements with Healthback by failing to provide the

Insurance Benefits and were negligent in failing to do so.” R., Vol. I at 359, ¶17.

In other words, the plaintiffs retained Voyles and Great States, based on their

professional expertise as insurance brokers, to provide them with traditional

health care insurance polices that would provide a basic level of coverage for

their employees. Voyles and Great States failed to do so. Voyles made

affirmative representations to Healthback and the other Oklahoma plaintiffs,

which were not met. Because these claims of negligent acts and omissions at this

stage in the litigation are sufficient to show a “possibility of recovery” and the

“potential of liability under the policy,” First Bank of 

,

Utica has a duty to defend Great States and Voyles.

             2. The Two Exclusions

      Despite the potential for coverage arising from Voyles’s conduct, Utica

claims two policy exclusions bar coverage.

      The first exclusion exempts from coverage claims arising out of certain

types of self-insurance programs. Specifically, it exempts claims arising out of:

      The ownership, formation, creation, administration, or operation of any
      Health Maintenance Organization, Preferred Provider Organization,
      Self-Insurance Program, Risk Retention Group and/or Risk Purchasing
      Group formed under the Federal Liability Retention Act of 1981 and
      1986 as amended or any amendment thereto, Multiple Employer Trust,
      Multiple Employer Welfare Arrangement, or any pool, syndicate,


                                         -10-
      association or other combination formed for the purpose of providing
      insurance or benefits, if not fully funded by an insurance product.

R., Vol. I at 317, ¶14.

      The second exclusion deals with an insurance carrier’s inability to pay

claims. It excludes from coverage claims arising out of:

      The insolvency, receivership, bankruptcy, liquidation or inability to pay
      of any entity, person, corporation, estate, trust, or other organization
      including, but not limited to: (a) Insurance companies or reinsurance
      companies; (b) Health maintenance organizations or preferred provider
      organizations; (c) Captive insurers or risk retention groups and/or risk
      purchasing groups; or (d) Investment funds or self-insurance programs.

conclude neither exclusion applies here at this stage in the litigation.

      a. Applicable Law

      Under Oklahoma law, exclusionary provisions in insurance policies are

construed narrowly and against the insurer. See Timmons v. Royal Globe Ins.,

, 913 (Okla. 1982) (“[I]n Oklahoma, insurance contracts are

construed so that words of exclusion are construed against the insurer and words

of inclusion are construed in favor of the insured.”); Cherot v. United States Fid.

& Guar. Co., 

, 769 (10th Cir. 1959) (“We are dealing here with an

exclusionary clause. Such provisions are strictly construed.”).

      Utica must therefore show that the exclusionary language, narrowly

construed, covers all the claims asserted against Great States and Voyles. Cf.

Frontier Insulation Contrs., Inc. v. Merchs. Mut. Ins., 

, 869 (N.Y.

1997) (“If any of the claims against the insured arguably arise from covered

                                         -11-
events, the insurer is required to defend the entire action.”); Matlack v. Mountain

West Farm Bureau Mut. Ins., 

, 80 (Wyo. 2002) (“If the policy

potentially covers one or more claims, the insurer has a duty to defend all claims,

and any doubts about coverage should be resolved against the insurer.”). As a

general rule,

      [I]t does not matter that additional claims are alleged that fall outside
      the policy’s general coverage or within its exclusionary provisions. If
      the claims asserted against the insured could rationally be said to fall
      within the coverage of the policy, whatever may later prove to be the
      limits of the insurer’s responsibility to pay, the insurer has a duty to
      defend.

13-100 Appleman, Insurance Law and Practice § 100.3 (2d ed. 1996). Thus, if a

potential of liability under the policy exists after applying the exclusions at issue,

Utica retains its duty to defend.

      b. Application

      While some of the claims alleged may fall within the exclusions cited by

Utica, others clearly do not. For example, the first exclusion covers claims

arising out of Great States’s or Voyles’s ownership, formation, creation,

administration, or operation of a self-insurance program or pool to provide health

benefits. Giving the exclusion the required narrow reading, not all of the

Oklahoma plaintiffs’ claims fall into the exclusion.

      No one disputes that Fairway created a fund or trust from which it partially

paid health insurance claims to the leased employees. Nor is it disputed that


                                          -12-
Voyles, when asked to obtain health insurance for Fairway’s leased employees,

procured an excess liability policy from Monumental Life with a $75,000 per-

person deductible. Fairway planned to pay health insurance claims from its self-

created fund until the $75,000 deductible was reached. For whatever reason, the

plan failed. Fairway could not pay the claims made against it by the leased

employees and was ultimately forced into insurance receivership. Thus, claims

made against Great States and Voyles that rest liability solely upon the

ownership, formation, creation, administration, or operation of Fairway’s partially

self-funded plan—i.e., those within the first exclusion—cannot lead to recovery

under the Utica policy. Nor can such claims give rise to a duty to defend.

      Some claims, however, fall outside this first exclusion and could potentially

lead to a recovery under the Utica policy. Several of the Oklahoma plaintiffs’

claims rest liability on Voyles’s failure to provide what he promised. For

example, the allegation that Voyles and Great States negligently failed to provide

insurance benefits as promised does not fall into the exception. The plaintiffs

allege Voyles said one thing and did another. See R., Vol. I at 369, ¶4 (Bryant

Jones Enterprises, Inc. Amend. Pet.) (alleging Voyles and Great States “failed to

provide the agreed upon benefits and did not fulfill its other obligations for which

it was paid an administrative fee”). Likewise, the claim that Great States and

Voyles failed to provide workers’ compensation benefits to the leased employees

as agreed, if proven, could lead to recovery under the policy. See R., Vol. I at

                                         -13-
358, ¶14 (Healthback Holdings, L.L.C. First Amend. Pet.) (alleging “Voyles . . .

contracted to provide for . . . workers compensation, and other incidents of

employment”); 

¶13 (Boardman, Inc. First Amend. Pet.) (“Fairway was

to pay and account for the leased employees’ salaries, taxes, insurance, workers’

compensation and benefits.”). These claims allege sufficient acts or omissions

which trigger a duty to defend.

      Turning to the second exclusion cited by Utica—dealing with

insolvency—we similarly conclude it does not overcome Utica’s duty to defend.

The Oklahoma state court claims do not arise entirely from Fairway’s inability to

pay the leased employees’ claims. Rather, the claims stem at least in part from

the actions of Voyles and Great States in negligently providing a type of

insurance the leased employees did not request. For example, several of the

underlying complaints allege that the plaintiffs expected to receive “traditional

health insurance coverage,” but such coverage was not supplied. R., Vol. I at

359. Instead, an under-capitalized self-funded insurance plan was created.

Furthermore, some of the underlying complaints allege Great States and Voyles

negligently failed to supply any insurance to certain employees who paid for it.

They claim some of the leased employees were entirely omitted from coverage,

thereby leaving them exposed to all of their health care costs and forcing them to

obtain new coverage—in some cases, with a pre-existing condition. Finally,

Fairway alleges that although Great States and Voyles knew certain health

                                        -14-
insurance plans were not in place, they failed to inform Fairway of this fact,

thereby causing injury to Fairway, Fairway’s clients, and the leased employees.

Since these claims may “give[] rise to the possibility of a recovery under the

policy,” First Bank of 

n.14, Utica has a duty to defend.

                                        ***

      In sum, the district court correctly concluded on this record that Voyles and

Great States were entitled to a defense of the Oklahoma state court claims against

them. Although the policy exclusions may eventually preclude recovery for some

of the claims against Great States and Voyles, the exclusions do not cover all the

claims they currently face in state court. Because a potential for coverage exists,

Utica has a duty to defend. See First Bank of 

. Of course,

as the district court noted, Utica need only provide a defense for Voyles in his

capacity as an employee and officer of Great States—not in his capacity as

founder and vice-president of Fairway. Distinguishing between the actions of

Voyles as an employee of Great States and as an owner of Fairway can be

resolved in future proceedings.

      We emphasize that Utica’s duty to indemnify Great States and Voyles for

any judgment obtained by the Oklahoma state court plaintiffs is not at issue here.

Our discussion should make clear, however, that Utica’s duty to defend is not

coterminous with its duty to indemnify. “The duty to defend is separate from, and

broader than, the duty to indemnify.” First Bank of 

.

                                         -15-
Although Utica must defend Great States and Voyles in Oklahoma state court

against all claims, it need only indemnify claims falling within the policy’s scope.

                                   III. Conclusion

      The state court complaints against Great States and Voyles are premised at

least in part on conduct covered by Utica’s errors and omissions policy. We

therefore AFFIRM the district court’s order granting summary judgment in favor

of the defendants on this point.

      Because we affirm the district court’s decision, Great States and Voyles

remain the “prevailing party” under 36 Okla. Stat. § 3629(B) and are entitled to

attorneys’ fees for the reasons specified by the district court. We therefore also

AFFIRM the award of attorneys’ fees.

                                       Entered for the Court,


                                       Timothy M. Tymkovich
                                       Circuit Judge




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