Introduction

This Tenth Circuit order and judgment addresses a familiar but consequential intersection: state-court procedural rulings and their preclusive force in a subsequent federal insurance coverage action. In State Farm Fire & Casualty Co. v. Webb, the court affirmed summary judgment for State Farm, holding that under Colorado law, nonmutual defensive issue preclusion (collateral estoppel) barred the insureds from relitigating whether a fiduciary-duty counterclaim had been dismissed in a prior state action. Because the insureds’ coverage and bad-faith counterclaims depended entirely on the premise that the fiduciary-duty count remained live (and thus triggered coverage), preclusion of that single procedural issue was dispositive.

The underlying dispute involved neighbors, an easement, and homeowners’ association (HOA) governance. State Farm issued three policies: (1) an HOA liability policy covering directors, officers, and volunteers acting in that capacity; (2) an HOA businessowners policy covering certain acts by HOA employees, officers, and volunteers limited to official HOA duties; and (3) a homeowners policy for the Webb property, covering bodily injury or property damage but excluding willful and malicious acts. State Farm initially defended David Webb under a reservation of rights solely because of a fiduciary-duty counterclaim linked to his role as an HOA director and volunteer. Once that counterclaim was voluntarily dismissed in the state case, State Farm withdrew the defense, and later sought declaratory relief in federal court.

The key issue on appeal was narrow but decisive: whether the insureds could relitigate in federal court the state court’s determination that the fiduciary-duty counterclaim was dismissed at the pleadings stage. The Tenth Circuit held they could not, applying Colorado’s four-part test for issue preclusion and emphasizing that mutuality is not required for defensive collateral estoppel. The ruling underscores a practical lesson for coverage litigants: procedural determinations in the underlying suit—if actually decided, necessary to judgment, and final—can preclude later attempts to reframe coverage in federal court.

Note: The panel resolved the case without oral argument and issued an unpublished order and judgment. While not binding precedent (except under law-of-the-case, res judicata, and collateral estoppel), it may be cited for persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.

Summary of the Opinion

• Governing law: Federal courts must apply the forum state’s preclusion law to determine the effect of a state-court judgment (citing Marrese v. AAOS). Colorado’s four-part test for issue preclusion (collateral estoppel) controls.
• Identity of issue: The state trial court “actually and necessarily” determined that the fiduciary-duty counterclaim against David Webb had been dismissed and was no longer at issue. That determination was necessary for entry of final judgment in the state case.
• Party status: For defensive issue preclusion in Colorado, mutuality is not required. It suffices that the party against whom preclusion is asserted (here, the Webbs/Trust) was a party in the prior case. State Farm did not need to have been a party to the underlying state action (citing Foster v. Plock).
• Final judgment: The state trial court’s dismissal determination merged into the final judgment and became final upon affirmance on appeal (citing Natural Energy Resources and Mulberry Frontage).
• Full and fair opportunity: The insureds had a full and fair opportunity to litigate the dismissal issue—procedurally in the state court, via a “motion for clarity,” and on appeal. Their failure to raise certain procedural arguments (e.g., about Colorado Rule 41(a)) earlier did not defeat preclusion (citing Bebo Construction and Jones v. United States).
• Coverage consequence: Because the insureds’ coverage and bad-faith counterclaims depended entirely on the undismissed status of the fiduciary-duty count, preclusion of that issue compelled summary judgment for State Farm. The court affirmed the district court’s declaratory judgment of no coverage and dismissal of breach of contract and statutory/common-law bad-faith claims (citing New Hampshire Ins. Co. v. TSG Ski & Golf, LLC).

Analysis

A. Precedents and Authorities Cited

• Marrese v. Am. Acad. of Orthopaedic Surgeons, 470 U.S. 373 (1985): Federal courts must apply the rendering state’s preclusion law to state-court judgments. The Tenth Circuit accordingly applied Colorado collateral estoppel principles.
• In re Tonko, 154 P.3d 397 (Colo. 2007): Sets out Colorado’s four elements of issue preclusion: (1) identical issue actually and necessarily determined; (2) same party or privity as to the party resisting preclusion; (3) final judgment on the merits; and (4) full and fair opportunity to litigate.
• Foster v. Plock, 394 P.3d 1119 (Colo. 2017): Confirms that mutuality is not required for defensive issue preclusion. The party asserting preclusion need not have been a party to the prior case.
• Huffman v. Westmoreland Coal Co., 205 P.3d 501 (Colo. App. 2009); McLane W., Inc. v. Dep’t of Revenue, 199 P.3d 752 (Colo. App. 2008): Issue preclusion may apply even when the later suit involves different claims; what matters is whether the same issue was litigated and determined.
• Natural Energy Resources Co. v. Upper Gunnison River Water Conservancy Dist., 142 P.3d 1265 (Colo. 2006): Defines final judgment as one that fully resolves the parties’ rights; supports finality of the state court’s dismissal determination after entry of judgment.
• Mulberry Frontage Metro. Dist. v. Sunstate Equip. Co., LLC, 537 P.3d 391 (Colo. App. 2023): Interlocutory rulings merge into the final judgment, rendering those determinations final for preclusion purposes.
• East Cherry Creek Valley Water & Sanitation Dist. v. Greeley Irrigation Co., 348 P.3d 434 (Colo. 2015): A final judgment generally must resolve all claims; confirms why the dismissal of the fiduciary-duty counterclaim was necessarily decided before judgment and appeal.
• Bebo Construction Co. v. Mattox & O’Brien, P.C., 990 P.2d 78 (Colo. 1999): Frames the “full and fair opportunity” inquiry and focuses on due process adequacy and incentives to litigate.
• Crocog Co. v. Reeves, 992 F.2d 267 (10th Cir. 1993): Colorado state courts provide adequate procedural safeguards for preclusion purposes.
• Jones v. United States, 466 F.2d 131 (10th Cir. 1972): A party cannot obtain a second bite at the apple by reserving or omitting arguments in the first action.
• Clean Energy Collective LLC v. Borrego Solar Systems, Inc., 394 P.3d 1114 (Colo. 2017): Colorado trial courts are courts of general jurisdiction; federal diversity jurisdiction (28 U.S.C. § 1332) does not limit state-court jurisdiction, undercutting the insureds’ jurisdictional challenge to the underlying judgment.
• Boulter v. Noble Energy Inc., 74 F.4th 1285 (10th Cir. 2023): Federal and Colorado issue-preclusion doctrines materially align; choice between them did not matter here.
• Stickley v. State Farm Mut. Auto. Ins. Co., 505 F.3d 1070 (10th Cir. 2007); Matosantos Commercial Corp. v. Applebee’s Int’l, Inc., 245 F.3d 1203 (10th Cir. 2001): Standards on summary judgment and de novo review for preclusion-based rulings in diversity cases.
• New Hampshire Ins. Co. v. TSG Ski & Golf, LLC, 128 F.4th 1337 (10th Cir. 2025): When coverage is properly denied, breach-of-contract and bad-faith claims “flowing from” coverage necessarily fail; supports affirmance of State Farm’s win on the insureds’ counterclaims.
• Hall v. Bellmon, 935 F.2d 1106 (10th Cir. 1991): Pro se filings are liberally construed, but courts do not act as advocates for pro se litigants.

B. The Court’s Legal Reasoning

The Tenth Circuit framed the dispositive question with precision: Is the fact of the state-court dismissal of the fiduciary-duty counterclaim preclusively established for purposes of the later federal coverage suit? Applying Colorado collateral estoppel principles, the court answered yes, working methodically through each element.

1. Identical issue, actually and necessarily decided: In the underlying state suit, David Webb later asked the court for “clarity,” contending that his earlier pro se answer rendered Gregory’s voluntary dismissal ineffective under Colorado Rule of Civil Procedure 41(a)(1). The state court rejected that position, expressly stating the fiduciary-duty claim had been dismissed “at the pleadings stage” and was “not at issue.” That determination was necessary to entry of final judgment and for the appeal to proceed. The federal suit presented the same issue—whether that claim had been dismissed—and thus satisfied element one.
2. Party against whom preclusion is asserted was a party in the prior case: The insureds (the Webbs and the Trust) were parties in the state suit. Colorado allows defensive nonmutual collateral estoppel; therefore, State Farm’s non-party status in the earlier suit was immaterial.
3. Final judgment: The state court’s dismissal determination merged into the final judgment on the remaining claims, and the Colorado Court of Appeals affirmed. The insureds’ failure to challenge the dismissal ruling on appeal cemented the finality of that issue for preclusion purposes.
4. Full and fair opportunity to litigate: The state forum provided adequate procedures and remedies; the insureds had both incentive and opportunity to litigate the dismissal’s effectiveness (they filed a targeted motion and could have raised the issue on appeal). The argument that Rule 41(a)(1) does not allow claim-by-claim dismissal (as opposed to entire actions) could have been made in the state case; reserving it for the later coverage suit did not preserve it against preclusion.

Having found all four elements satisfied, the court affirmed the district court’s issue-preclusion ruling and the resulting summary judgment for State Farm. The insureds had argued no other basis for coverage in their summary-judgment briefing aside from the continuing existence of the fiduciary-duty count. With that premise foreclosed, two consequences followed:

• No duty to defend or indemnify: The only potentially covered claim (the fiduciary-duty count implicating David Webb’s HOA capacity) had been dismissed. State Farm’s reservation-of-rights withdrawal of the defense was therefore sustainable.
• No breach or bad faith: The insureds’ breach-of-contract and statutory/common-law bad-faith counterclaims were predicated on unreasonably denied coverage. Because coverage failed as a matter of law, so did those counterclaims (per New Hampshire Ins. Co. v. TSG Ski & Golf).

C. Addressing the Insureds’ Arguments

• “State Farm wasn’t a party to the state case”: Irrelevant for defensive collateral estoppel under Colorado law; mutuality is not required when preclusion is asserted defensively against a party who did litigate the issue (Foster).
• “There was no final judgment specifying State Farm’s obligations”: The preclusive issue was the dismissal of the claim, not the insurer’s obligations. Finality attached to the state court’s dismissal ruling via merger into the final judgment.
• “The state court lacked jurisdiction”: Colorado trial courts are courts of general jurisdiction; federal diversity jurisdiction limits federal, not state, courts. The insureds provided no developed showing of jurisdictional defect (Clean Energy Collective).
• “Rule 41(a)(1) did not permit a partial dismissal”: Even if potentially meritorious, that argument had to be timely raised in the state case; the insureds cannot circumvent preclusion by withholding it until the federal coverage suit.

D. Impact and Practical Implications

Although unpublished, the decision offers clear guidance for future coverage disputes and collateral estoppel practice in the Tenth Circuit applying Colorado law:

• Preclusive power of procedural determinations: A state court’s resolution of a procedural question—here, the effectiveness of a Rule 41(a)(1) voluntary dismissal—can be “actually and necessarily decided” and thus preclusive in later federal litigation. Parties cannot reanimate a dismissed count to manufacture coverage.
• Nonmutual defensive estoppel is fully available: Insurers who were not parties to the underlying action may deploy collateral estoppel defensively against insureds who litigated and lost the issue in state court.
• Finality via merger: Determinations made prior to final judgment, including dismissal rulings, merge into the final judgment and become final for preclusion once the case concludes and appeals are resolved.
• Duty to defend may end with dismissal of the only covered claim: Where an insurer’s defense is predicated on a single count implicating a covered capacity or risk, a valid dismissal of that count—especially following a reservation of rights—may permit withdrawal. Insureds should contest such dismissals promptly and preserve appellate review.
• Present all coverage theories early: The insureds’ federal coverage position rose and fell on the continued existence of the fiduciary-duty count. Parties should develop and brief alternative coverage pathways (e.g., other policy insuring agreements, absence of exclusions, extrinsic-facts triggers) rather than hinging their case on a single, vulnerable issue.
• HOA capacity matters: The state court’s merits findings (not essential to the Tenth Circuit’s holding) observed that certain acts were not within David Webb’s HOA authority, spotlighting capacity-based limitations in D&O-like HOA policies and businessowners endorsements. Even apart from preclusion, capacity and authorization will be recurring battlegrounds.
• Pro se risks: Procedural complexities arose from a pro se answer later withdrawn in favor of a counseled answer. Substitutions and withdrawals can affect the effectiveness of dismissal notices. Parties should ensure procedural posture is carefully managed when coverage turns on the life or death of a particular count.

Complex Concepts, Simplified

• Issue Preclusion (Collateral Estoppel): Prevents relitigation of an issue already decided in a prior case when: (1) it’s the same issue; (2) the person resisting preclusion was a party in the earlier case; (3) there was a final judgment; and (4) the person had a fair chance to litigate it before.
• Nonmutual Defensive Preclusion: The party using preclusion (here, the insurer) does not have to have been a party to the first case. It can defensively bar a losing party from relitigating an issue already decided against them.
• Merger of Interlocutory Orders: Rulings made before final judgment (like a dismissal of a count) merge into the final judgment. When the case ends, those earlier rulings become part of the final judgment for preclusion purposes.
• Voluntary Dismissal by Notice (Rule 41(a)(1)): Allows a claimant to dismiss claims without court order under specified conditions (e.g., before an answer or summary judgment motion). Disputes about whether a dismissal by notice was effective must be raised in that case; if the court resolves the dispute and enters judgment, that resolution can bind later cases.
• Duty to Defend vs. Duty to Indemnify: The duty to defend is broader and arises when allegations potentially fall within coverage. The duty to indemnify is narrower and depends on actual liability established. If the only potentially covered claim is dismissed, an insurer defending under a reservation may be able to withdraw the defense.
• Reservation of Rights: An insurer may defend while reserving the right to later deny coverage. If circumstances change (e.g., covered counts are dismissed), the insurer can rely on its reservation to withdraw the defense consistent with policy terms and governing law.

Conclusion

State Farm v. Webb crystallizes a straightforward but potent principle: when a state court has already decided that a particular claim was dismissed, the losing party cannot revive that issue in a subsequent federal coverage action. Applying Colorado law, the Tenth Circuit held that all four elements of issue preclusion were satisfied and that defensive nonmutual collateral estoppel permitted State Farm—though not a party to the state case—to rely on the state court’s dismissal determination. Because the insureds’ federal claims for defense, indemnity, and bad faith were tethered solely to the survival of the fiduciary-duty count, preclusion of that single procedural issue compelled summary judgment for the insurer.

The decision underscores practical imperatives for litigants: (1) challenge consequential dismissals promptly and preserve appellate review; (2) marshal all viable coverage theories at the summary judgment stage; and (3) recognize that procedural rulings in the underlying tort or HOA suit can carry determinative weight in later insurance litigation. Even as an unpublished disposition, the opinion offers persuasive guidance on the application of Colorado collateral estoppel in federal coverage disputes and on the termination of the duty to defend when the only potentially covered claim is dismissed.