Auto-Owners Insurance Co. v. Fleming, 701 F. App'x 738

The Flemings hired Timbersmith (with LC Builders involved) to construct a home; framing was defective and both builders abandoned the project.
The Flemings obtained a state-court judgment against LC Builders (~$1,113,780.63) and an arbitration award against Timbersmith (~$1,109,642.50); both companies later filed bankruptcy.
LC Builders was insured by Charter Oak; Timbersmith was insured by Auto-Owners. Charter Oak declined to defend; Auto-Owners’ notice of arbitration was disputed and it later sought a declaratory judgment denying coverage.
The Flemings counterclaimed that both insurers must pay the judgments against their insureds; the insurers moved for summary judgment denying coverage and the district court granted it.
On appeal, the Tenth Circuit reviewed de novo, applying Utah substantive law, and affirmed the district court’s ruling that neither policy provided coverage.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether insurer estoppel prevents coverage contest after insurer refused to defend	Flemings: insurers breached duty to defend and are estopped from denying coverage	Insurers: estoppel only binds insurer for issues actually adjudicated; coverage was not litigated	Held: No estoppel — Utah law allows insurers to contest coverage when liability/coverage were not necessarily decided (affirmed)
Whether judgments arose from an "occurrence" under CGL policies	Flemings: defective construction and resulting latent/dangerous conditions constitute an occurrence	Insurers: faulty workmanship causing damage to the work itself is not an "occurrence"; coverage excluded	Held: No covered occurrence — judgments arose from faulty workmanship to the insureds’ work, not a fortuitous occurrence (affirmed)
Whether exceptions to faulty-workmanship rule apply (damage to other property or subcontractor negligence)	Flemings: latent defects or subcontractor-caused damage could trigger coverage	Insurers: no evidence damages were to property other than the work product or caused by subcontractors	Held: Exceptions not met — plaintiffs failed to present evidence of covered damage or subcontractor status (affirmed)
Burden of proof on coverage	Flemings: insurance should cover award	Insurers: insured must prove coverage elements	Held: Burden on Flemings to demonstrate coverage; they failed to meet it (affirmed)

McCarty v. Parks, 564 P.2d 1122 (Utah 1977) (insurer who refuses to defend may be bound by judgment only as to issues actually litigated)
Speros v. Fricke, 98 P.3d 28 (Utah 2004) (reaffirming limits of estoppel for insurers and distinguishing coverage issues)
Alf v. State Farm Fire & Cas. Co., 850 P.2d 1272 (Utah 1993) (insurance policies interpreted as ordinary contracts; construed by ordinary meaning)
N.M. ex rel. Caleb v. Daniel E., 175 P.3d 566 (Utah 2008) (definition of "accident" for insurance coverage — natural and probable consequences are not accidental)
Emp’rs Mut. Cas. Co. v. Bartile Roofs, Inc., 618 F.3d 1153 (10th Cir. 2010) (faulty or unworkmanlike construction generally does not constitute an "occurrence")
Farmington Cas. Co. v. Duggan, 417 F.3d 1141 (10th Cir. 2005) (business risk/faulty workmanship generally excluded from CGL coverage)
Cincinnati Ins. Co. v. AMSCO Windows, 921 F. Supp. 2d 1226 (D. Utah 2013) (possible exception when defective workmanship causes damage to other property)
Great Am. Ins. Co. v. Woodside Homes Corp., 448 F. Supp. 2d 1275 (D. Utah 2006) (possible exception when subcontractor negligence causes damage)