United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 97-3153

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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. *

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 Submitted: January 12, 1998

Filed: April 1, 1998

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Before RICHARD S. ARNOLD, Chief Judge, WOLLMAN and HANSEN, Circuit

Judges.

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WOLLMAN, Circuit Judge.

This appeal stems from a dispute over the terms of automobile insurance policies

issued by State Farm Mutual Automobile Insurance Company (State Farm) to Leo and

Nancy Hunolt. After Andrew Shahan made a claim for underinsured 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.

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responsibility. 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-vehicle

accident while 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 her

husband, Leo. The pickup involved in the accident was owned by the Hunolts and was

covered by an automobile insurance policy issued by State Farm. The Hunolts owned

two other vehicles, a 1987 Oldsmobile and a 1956 Chevrolet, both of which were

insured through State Farm. The policies for the three vehicles were identical. Each

provided for $25,000 personal liability coverage. In addition, each provided for

underinsured motorist coverage, with limits of $100,000 per person and $300,000 per

occurrence. The Hunolts also carried an underinsured motorist umbrella policy that

was issued by State Farm and had a policy limit of $1,000,000.

Shahan brought an action seeking damages for injuries sustained in the accident.

This action resulted in a judgment for Shahan in the amount of $225,000. Because

Shahan’s half-brother was an authorized driver of the Hunolts’ vehicle, he was insured

under the liability portion of their policy. Consequently, State Farm paid Shahan

$25,000 under the personal liability coverage in partial satisfaction of the judgment.

Shahan thereafter filed a claim with State Farm seeking satisfaction of the

remainder of his judgment under the underinsured motorist provisions in the Hunolts’

policies. State Farm denied Shahan’s claim and initiated this proceeding. The district

court concluded that Shahan was not entitled to underinsured motorist coverage under
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the terms of the policies and that State Farm had not acted vexatiously in refusing to

pay. Accordingly, the court entered summary judgment in favor of State Farm. Shahan

now appeals this ruling. The parties agree that the law of Missouri applies in this

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 district 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 will

affirm a grant of summary judgment if the evidence, 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 State

Farm, Shahan contends that: (1) the language excluding coverage under the policy

covering the 1987 Chevrolet 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 accident, precluding summary judgment; and (4) the district

court misapplied the law in assessing his counterclaim for vexatious refusal to pay.

The 1987 Chevrolet Pickup

The policy insuring the Hunolts’ 1987 Chevrolet pickup promises to pay

“damages for bodily injury an insured is legally entitled to collect from the owner or

driver of an underinsured motor vehicle.” An underinsured vehicle is defined as:

[a motor vehicle] whose limits of liability for bodily injury

liability:
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a. are less than the amount of the insured’s damages;

or

b. have been reduced by payments to persons other

than the insured to less than the amount of the 

insured’s damages.

In addition, the policy contains the following exclusion:

An underinsured motor vehicle does not include a land

motor vehicle:

1. insured under the liability coverage of this policy.

As the district court noted, this language unambiguously states that

a motor vehicle insured under the policy is not an underinsured motor

vehicle. Nevertheless, Shahan contends that the exclusion violates public

policy because it contravenes the letter and spirit of Missouri’s Motor

Vehicle Financial Responsibility Law. See Mo. Ann. Stat. § 303.010 et

seq. (West 1994). This argument, however, is premised upon a

fundamental misunderstanding of the nature and purpose of underinsured

motorist coverage.

Shahan points to Mo. Ann. Stat. § 303.190, which requires that a

liability policy be carried on every motor vehicle owned, maintained, or

used in the United States or Canada. This statute reflects a clear public

policy interest in ensuring that all motor vehicles carry liability coverage.

The Missouri Code contains no statute requiring underinsured motorist

coverage, however, nor is such coverage mandated by Missouri public

policy. See Rodriguez v. General Acc. Ins. Co. of America, 808 S.W.2d

379, 383 (Mo. 1991) (en banc). Rather, underinsured motorist coverage

is entirely optional and is governed only by the law of contracts. See

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

underinsured motor vehicle coverage will be rendered inapplicable

whenever the insured carries the liability coverage required by section
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303.190, the exclusionary language in question is incompatible with the

policy concerns expressed in section 303.190.

Shahan’s argument is misconceived. The policy’s exclusionary

clause states simply that the vehicle insured under the liability portion of

that same policy will not be considered an underinsured motor vehicle.

This exclusion precludes coverage where, as here, a passenger is injured

in a single vehicle accident while riding in the insured vehicle. Shahan’s

assertion that coverage will inevitably be precluded in every imaginable

scenario is simply false. Indeed, the policy at hand is specifically tailored

to provide coverage in the situation ordinarily contemplated by purchasers

of underinsured motorist policies. Underinsured motor vehicle coverage

is designed to pay “for losses incurred because another negligent motorist’s

coverage is insufficient to pay for the injured person’s actual losses.”

Hopkins v. American Economy Ins. Co., 896 S.W.2d 933, 935 (Mo. Ct.

App. 1995). The typically envisioned situation arises when the driver of

one vehicle is injured due to the negligence of another driver. If the second

driver’s liability coverage is insufficient to compensate for the first driver’s

injuries, the first driver may recover under his own underinsured motor

vehicle policy. Nothing in the policy at hand prevents payment in such a

situation. Public policy is not contravened merely because Shahan’s claim

falls within the narrow class of claims for which coverage has been

precluded.

The Missouri Court of Appeals has concluded that language identical

to that found in the Hunolts’ policy does not violate public policy. See

Eaton v. State Farm Mut. Auto. Ins. Co., 849 S.W.2d 189, 193-94 (Mo. Ct.

App. 1993). Shahan contends that Eaton is distinguishable because it

involved uninsured motorist coverage rather than underinsured motorist

coverage. This distinction, however, actually cuts against Shahan’s

position. Missouri statutorily requires uninsured motorist coverage. See

Mo. Ann. Stat. § 379.203 (West 1991). This requirement reflects a strong

public policy interest in preserving uninsured motorist coverage. No

corresponding statutory requirement or policy interest exists in favor of

underinsured motorist coverage. See
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Rodriguez, 808 S.W.2d at 383. We may assume that Missouri courts

would be even less receptive to exclusions on uninsured coverage, which

is mandated by statute, than to those on underinsured coverage, which is

purely optional. Accordingly, we conclude that the language in the

Hunolts’ policy does not violate Missouri public policy.

The 1987 Oldsmobile and the 1956 Chevrolet

Shahan also argues that he is entitled to underinsured motorist

coverage under the terms of the policies covering the 1987 Oldsmobile and

the 1956 Chevrolet. The district court held that the following language

precluded recovery:

There is no coverage under coverage W [underinsured

motorist] for bodily injury to an insured:

1. While occupying a motor vehicle owned by you, your

spouse, or any relative if it is not insured for this coverage

under this policy.

Because Shahan was occupying a vehicle owned by his mother and not insured

under either the 1987 Oldsmobile policy or the 1956 Chevrolet policy, the district court

concluded that coverage was precluded as a matter of law. Shahan disputes this

conclusion, contending that the above-referenced language is ambiguous under

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 is true even where

the language appears within the restrictive provisions of a policy. See Eaton, 849

S.W.2d at 193-94. However, if language is ambiguous, it should be construed in favor

of the insured and against the insurer. See Peters, 853 S.W.2d at 302. Language is
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ambiguous if it is reasonably open to different constructions. See Robin v. Blue Cross

Hosp. Serv., Inc., 637 S.W.2d 695, 698 (Mo. 1982) (en banc).

Shahan contends that the phrase “a motor vehicle owned by you, your spouse,

or any relative if it is not insured for this coverage under this policy” is subject to more

than one reasonable construction. Specifically, he asserts that the word “it” could

reasonably 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 to

“motor vehicle.” Any other interpretation would defy the most fundamental principles

of construction. We are neither obliged nor permitted to entertain novel interpretations

of insurance policies so as to “create an ambiguity under the policy language where

none exists.” Harrison v. MFA Mut. Ins. Co., 607 S.W.2d 137, 142 (Mo. 1980) (en

banc). Instead, we must give effect to the plain language of the policy. See id. Here,

that plain language unambiguously precludes recovery.

The Umbrella Policy

State Farm contends that it delivered to the Hunolts a copy of an amended

umbrella policy prior to the accident and that this policy was in effect when the

accident occurred. Shahan, on the other hand, claims that the Hunolts never received

the amended 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 fact

existed regarding the precise umbrella policy in effect and that summary judgment was

inappropriate.

Shahan’s argument is without merit. While 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 available “in accordance with the

terms and conditions of your underlying Underinsured Motorist Coverage.” This clause

expressly incorporates the same terms and conditions that must be met in order to
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obtain payment under the underlying policies. Thus, the terms and conditions that

preclude coverage under the underlying 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. This

proposed interpretation is unnecessarily vague and lacks any ascertainable standards.

It also is incompatible with our duty to give effect to the clear and unambiguous

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 because the underlying terms that it incorporates are ambiguous and against

public policy. This argument is essentially a reiteration of arguments we have already

rejected. As we have explained, the underlying policies are unambiguous and do not

violate public policy. Thus, we decline Shahan’s indirect invitation to revisit the

language of the underlying policies.

Vexatious Refusal to Pay

Finally, Shahan contends that the district court erred in granting summary

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

damages for vexatious refusal to pay insurance proceeds by demonstrating “that the

insurer’s refusal to pay the loss was willful and without reasonable cause, as the facts

would appear to a reasonable and prudent person.” DeWitt v. American Family Mut.

Ins. Co., 667 S.W.2d 700, 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
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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 claim is without merit. As we have explained, State

Farm’s refusal to pay was based on the clear and unambiguous language of the

insurance policies. Therefore, it was clearly not without reasonable cause.

Furthermore, Shahan fails to identify any evidence that could conceivably support a

finding that State Farm’s attitude was “vexatious and recalcitrant.” Absent such

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.