United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 97-3153

___________ State Farm Mutual Automobile * Insurance Company, * * Appellee, * * Appeal from the United States v. * District Court for the * Eastern District of Missouri. Andrew Shahan, Nancy Hunolt, * Leo Hunolt, * * Appellants. *

___________ Submitted: January 12, 1998

Filed: April 1, 1998

___________ Before RICHARD S. ARNOLD, Chief Judge, WOLLMAN and HANSEN, Circui t Judges.

___________ WOLLMAN, Circuit Judge. This appeal stems from a dispute over the terms of automobile i nsurance policies issued by State Farm Mutual Automobil e Insurance Company (State Farm) to Leo and Nancy Hunolt. After Andrew Shahan made a claim for underinsur ed motorist coverage under the policies, State Farm initiated this action seeking a declaration of non-The Honorable Charles A. Shaw, United States District Judge for the Eastern 1 District of Missouri. -2- responsibili ty. The Hunolts and Shahan counterclaimed, alleging vexatious refusal to pay. The district court entered summary judgment for State Farm. We affirm. 1
I.
In 1991, Andrew Shahan sustained significant injuries in a single-vehicl e accident wh ile a passenger in a 1987 Chevrolet pickup driven by his half-brother. At the time of the accident, Shahan resided with his mother, Nancy Hunolt, and he r husband, Leo. The pickup involved in the accident was owne d by the Hunolts and was covered by an automobile insur ance policy issued by State Farm. The Hunolts owned two othe r vehicles, a 1987 Oldsmobile and a 1956 Chevrolet, both of which wer e insuredthrough State Farm. The policies for the three vehicles were identical. Each provided f

or $25,000 personal liability coverage. In addition, each provided fo r underinsured motorist coverage, with limits of $100,000 per person and $300,000 per oc currence. The Hunolts also carried an underinsured motorist umbrella policy tha t was issued by State Farm and had a policy limit of $1,000,000. Shahan brought an action seeking damages for injur ies sustained in the accident. Th is action resulted in a judgment for Shahan in the amount of $225,000. Becaus e Shahan’s half-brother was an authorized driver of the Hunolts’ vehicle, he was insured under t he liability portion of their policy. Consequently, State Farm paid Shaha n $25,000 under the personal liability coverage in partial satisfaction of the judgment.
Shaha n thereafter filed a claim with State Farm seeking satisfaction of th e remainder of

his judgment under the underinsured motorist provisions in the Hunolts’ policies. State Farm denied Sh ahan’s claim and initiated this proceeding. The district court concluded that Shahan w as not entitled to underinsured motorist coverage under-3-

the terms of the policies and that State Farm had not acted vexatiously in refusing t o pay. Accordingly, the court entered summary judgment in favor of S tate Farm. Shahan now appeals this ruling. The parties agree that the law of Missouri applies in thi s diversity action. See Erie R. Co. v. Tompkins , 304 U.S. 64, 78 (1938).
II.
We review a grant of summary judgment de novo, applying the same standard as that applied by the distr

ict court. See Rabushka ex rel. United States v. Crane Co. , 122 F.3d 559, 562 (8th Cir. 1997), cert. denied , 1997 WL 799884 (1998). We wil l affirm a grant of summary judgment if the e vidence, viewed in the light most favorable to the nonmoving party, demonstrates that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. See id.
In arguing that the district court erred in granting summary judgment for Stat e Farm, Shaha n contends that: (1) the language excluding coverage under the polic y covering the 1987 Chevrol et pickup violates public policy; (2) the language excluding coverage under the policies covering the 1987 Oldsmobile and the 1956 Chevrolet is ambiguous; (3) a genuine factual dispute exists regarding the precise umbrella policy in effect at the time of the ac cident, precluding summary judgment; and (4) the district court misapplied the law in assessing his counterclaim for vexatious refusal to pay. The 1987 Chevrolet Pickup
Th e policy insuring the Hunolts’ 1987 Chevrolet pickup promises to pa y “damages for bodily injury an insured is legally entitled to collect from the owner o r driver of an underinsured motor vehicle.” An underinsured vehicle is defined as:

[a motor vehicle] whose limits of liability for bodily injury liability:-4- a. are less than the amount of the insured’s damages; or b. have b een reduced by payments to persons othe r than the insured to less than the amount of the insured’s damages. In addition, the policy contains the following exclusion:

An u nderinsured motor vehicle does not include a lan d motor vehicle: 1. insured und er the liability coverage of this policy. As the dis trict court noted, this language unambiguously states that a m otor vehicle insured under the policy is not an underinsured moto r vehicle. Nevertheless, Shahan contends that the exclusion violates public policy because it contravenes the letter and spirit of Missouri’s Moto r Vehicle Financial Responsibility Law. See Mo. Ann. Stat. § 303.010 e t seq. (W est 1994). This argument, however, is premised upon a fundamental misunderstanding of the nature and purpose of underinsured motorist coverage.
Shahan p oints to Mo. Ann. Stat. § 303.190, which requires that a liability policy be carried on every motor vehicle owned, maintained, o r used in the United States or Canada. This statute reflects a clear publi c policy interest in ensuring that all motor vehicles carry liability coverage. Th e Missouri Code contains no statute requiring underinsured motoris t co verage, however, nor is such coverage mandated by Missouri publi c p o licy. See Rodriguez v. General Acc. Ins. Co. of America , 808 S.W.2d 379, 383 (Mo. 1991) (en banc). Rather, underinsured motorist coverag e is entirel y optional and is governed only by the law of contracts. Se e American Family Mut. Ins. Co. v. Turner , 824 S.W.2d 19, 21 (Mo. Ct

. App. 1991). Shahan nevertheless argues that because an insured’ s underi nsured motor vehicle coverage will be rendered inapplicabl e whenever the insured carries the liability coverage required by section-5-

303.1 90, the exclusionary language in question is incompatible with th e policy concerns expressed in section 303.190.
Shaha n’s argument is misconceived. The policy’s exclusionar y cla use states simply that the vehicle insured under the liability portion o f th atsame policy will not be considered an underinsured motor vehicle

. This exclusion precludes coverage where, as here, a passenger is injure d in a single vehicle accident while riding in the insured vehicle. Shahan’s ass ertion that coverage will inevitably be precluded in every imaginabl e scenario is simplyfalse. Indeed, the policy at hand is specifically tailored to provide coverage in the s ituation ordinarily contemplated by purchasers of u nderinsured motorist policies. Underinsured motor vehicle coverag e is designed to pay “for losses incurred because another negli gent motorist’s coverage is insufficient to pay for the injured person’s actual losses. ” Hopkin s v. American Economy Ins. Co. , 896 S.W.2d 933, 935 (Mo. Ct

. App. 1995). The typically envisioned situation arises when the driver o f one vehicle is injured due to the negligence of another dr iver. If the second driver’s liability coverage is insufficient to c ompensate for the first driver’s injuries, the first driver may recover under his own underinsured moto r vehicle policy. Nothing in the policy at hand prevents payment in such a situation. Public policy is not cont ravened merely because Shahan’s claim fa lls within the narrow class of claims for which coverage has bee n precluded. The Missouri Court of Appeals has concluded that language identic al to that fo und in the Hunolts’ policy does not violate public policy. Se e Eaton v. State Farm Mut. Auto. Ins. Co. , 849 S.W.2d 189, 193-94 (Mo. Ct. App. 1 993). Shahan contends that Eaton is distinguishable because i t involved uninsured motorist coverage rather than underinsured motoris t co verage. This distinction, however, actually cuts against Shahan’ s position. Missouri statutorily requires uninsured motorist coverage. See Mo. Ann. Stat. § 37 9.203 (West 1991). This requirement reflects a strong public policy interest in preserving uninsured motorist coverage. N o corre sponding statutory requirement or policy interest exists in favor o f underinsured motorist coverage. See-6-

Rodriguez , 808 S.W.2d at 383. We may assume that Missouri court s wou ld be even less receptive to exclusions on uninsured coverage, which is mandated by statute, than to those on underinsured coverage, which i s purel y optional. Accordingly, we conclude that the language in th e Hunolts’ policy does not violate Missouri public policy.

The 1987 Oldsmobile and the 1956 Chevrolet
Sha han also argues that he is entitled to underinsured motoris t coverage under the terms of the policies covering the 1987 Oldsmobile and the 1956 Chevrolet. The district court held that the following languag e precluded recovery:

There is no coverage under coverage W [underinsure d motorist] for bodily injury to an insured: 1. While occupying a motor vehicle owned by you, you r spouse, or any relative if it is not insured for this coverag e under this policy. Because Shahan was oc cupying a vehicle owned by his mother and not insured under either the 1987 Oldsmobile policy or the 1956 Chevrolet p olicy, the district court concluded t hat coverage was precluded as a matter of law. Shahan disputes thi s conclusion, contending that the above-referenced language is ambiguous unde r Missouri law. Where the language of an insurance policy is unambiguous, it should be enforced as written. See Peters v. Employer’s Mut. Cas. Co

. , 853 S.W.2d 300, 302 (Mo. 1993) (en banc). The language should be accorded its plain meaning. This i s true even where the la nguage appears within the restrictive provisions of a policy. See Eaton , 84 9 S.W.2d at 193-94. However, if language is ambi guous, it should be construed in favor of the insured and against the insurer. See Peters , 853 S.W.2d at 302. Language is-7-

ambiguous if it is reasonably open to di fferent constructions. See Robin v. Blue Cross Hosp. Serv., Inc. , 637 S.W.2d 695, 698 (Mo. 1982) (en banc).
S h ahan contends that the phrase “a motor vehicle owned by you, your spouse, or any relative if it is not insured for this cov erage under this policy” is subject to more th an one reasonable construction. Specifically, he asserts that the word “it” coul d reaso nably refer to either “motor vehicle” or to “you, your spouse, or any relative. ” We cannot agree. In this context, the word “it” clearly and unequivocally refers t o “motor vehicle.” Any other interpretat ion would defy the most fundamental principles of construction. We are neither obliged nor permitte d to entertain novel interpretations of insurance policies so as to “create an ambiguity under the policy language wher e none exists.” Harrison v. MFA Mut. Ins. Co. , 607 S.W.2d 137, 142 (Mo. 1980) (en banc). Instead, we must gi ve effect to the plain language of the policy. See id. Here, that plain language unambiguously precludes recovery. The Umbrella Policy
Sta te Farm contends that it delivered to the Hunolts a copy of an amende d um brella policy prior to the accident and that this policy was in effect when th e accident occur

red. Shahan, on the other hand, claims that the Hunolts never received the amen ded policy and that the previous umbrella policy was therefore in effect. As a consequence of this dispute, Shahan contends that a genuine issue of material fac t existed regarding the precise umbrella policyin effect and that summary judgment was inappropriate. Shahan’s argument is without merit. Whi le this dispute might present a genuine issue of fact, the fact is simply not material. Both umbrella policies contain identical clauses stating that underinsured motorist coverage is availab le “in accordance with the terms and conditions of your underlying Underinsured Motorist Coverage.” Th is clause expressly incorporates the same terms and conditions that must be met in order to-8-

obtain payment under the underlying policies. Thus, the terms and conditions tha t preclude coverage under the underl ying policies act as a barrier to recovery regardless of which umbrella policy

was in effect. Shahan argues that the phrase “in accordance with” should not be strictly interpreted and should instead be read to require that the umbrella policy be interpreted “in harmony with” the underlying policies. Thi s proposed i nterpretation is unnecessarily vague and lacks any ascertainable standards. It also is incompatible with our duty to give effect to the clear and unambiguou s meaning of the umbrella policy. See Peters , 853 S.W.2d at 302.
Shahan argues, further, that the umbrella policy should be interpreted to allow coverage becaus e the underlying terms that it incorporates are ambiguous and against public policy. This argument is essentially a reiteration of arguments we have already rej ected. As we have explained, the underlying policies are unambiguous and do not violate public policy. Thus, we decline Shahan’s indirect invitation to revisit th e language of the underlying policies. Vexatious Refusal to Pay Finally, Shahan contends that the district court erred in granting summar y judgment for State Farm on his counterclaim seeking damages for vexatious refusal to pay under Mo. Ann . Stat. § 375.420 (West 1991). Section 375.420 is penal in nature and therefore must be strictly construed. See Mears v. Columbia Mut. Ins. Co. , 855 S.W.2d 389, 394 (Mo. Ct. App. 1993). Under section 375.420 , an insured can recover da mages for vexatious refusal to pay insurance proceeds by demonstrating “that th e insurer’s refusal t o pay the loss was willful and without reasonable cause, as the facts would appear to a re asonable and prudent person.” DeWitt v. American Family Mut. Ins. Co. , 667 S.W.2d 70 0, 710 (Mo. 1984) (en banc). Even where a genuine litigable issue exists, vexatious refusal may be found if “there is evidence the insurer’s attitude was vexatious and recalcitrant.” Id. at 710. This determination must be made by-9-

viewing the facts as they appeared at the time of the refusal to pay. See Storhaug v

. State Farm Fire & Cas. Co. , 747 F.2d 443, 444 (8th Cir. 1984).
Shahan’s vexatious refusal cl aim is without merit. As we have explained, State Farm’s refusal to pay was based on the clear and unambiguous language of th e in surance policies. Therefore, it was clearly not without reasonable cause

. Furth ermore, Shahan fails to identify any evidence that could conceivably support a fi nding that State Farm’s attitude was “vexatious and recalcitrant.” Absent suc h evidence, the district court’s grant of summary judgment was proper. The judgment is affirmed. A true copy.
Attest: CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.