United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 08-2167

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State Auto Property & Casualty *

Insurance Company, *

*

Plaintiff-Appellee, *

* Appeal from the United States

v. * District Court for the Western

* District of Missouri.

Boardwalk Apartments, L.C., *

* 

 Defendant-Appellant. *

*

--------------------------------------- *

*

Boardwalk Apartments, L.C., *

*

Third Party Plaintiff- *

Appellant, *

*

v. *

*

T.S.A., Inc., doing business as *

The Sloan Agency, *

*

Third Party Defendant- *

 Appellee. *

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Submitted: December 10, 2008

Filed: July 14, 2009

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1

The Honorable David S. Doty, United States District Judge for the District of

Minnesota, sitting by designation.

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Before MELLOY, BENTON, and DOTY.1

 Circuit Judges.

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BENTON, Circuit Judge.

State Auto Property and Casualty Insurance Company sued for a declaratory

judgment that it had met its obligations under a fire policy issued to Boardwalk

Apartments. Boardwalk counterclaimed for indemnity proceeds. Boardwalk also

sued The Sloan Agency (Sloan), the independent insurance agency that secured the

policy for Boardwalk. 

The district court granted summary judgment to Sloan, ruling it did not have an

expanded agency relationship with Boardwalk. The district court granted partial

summary judgment to Boardwalk on its counterclaim against State Auto, ruling

Boardwalk has a right to replace one building and repair another building in the

apartment complex. State Auto was, however, granted partial summary judgment,

based on the district court’s reasoning that Kansas’s Valued Policy Statute did not

apply to Boardwalk’s loss, the coinsurance provision did apply to reduce Boardwalk’s

recovery, the term “value” in the policy means “actual cash value,” and certain policy

provisions (excluding reimbursement for extra costs incurred by the insured to comply

with laws or ordinances) were not void against public policy. The district court found

that Boardwalk was not entitled to attorney fees under Kansas law because State Auto

had not yet breached the contract. 

Boardwalk appeals. Having jurisdiction under 28 U.S.C. § 1291, this court

affirms in part and reverses in part.
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I.

Boardwalk, a Kansas limited liability company, owned a complex of eight

apartment buildings and a storage building in Lawrence, Kansas. Buildings 1 and 4

are the subjects of this litigation. The complex was built in 1963. In 1994, a bank

loan appraisal showed a projected replacement cost of $7,560,029. Terrace

Management Services, LLC, manages the complex. The Boardwalk-Terrace

management agreement provided that insurance coverage would be procured on an

annual basis and in such amounts as acceptable to the owner. Terrace directed Sloan,

a Missouri corporation, to procure 100% replacement insurance for the complex.

Richard Moseley (Terrace’s president) and David Moseley (his son, and the Sloan

agent working on the policy) reviewed the coverage limits annually. Richard Sloan,

a principal of Sloan, also was involved with Terrace’s transactions for Boardwalk. 

Before the 1996-97 insurance term, Sloan received four pages of the 1994 bank

loan appraisal, not including the replacement-cost figure. There is no evidence Sloan

ever received the replacement-cost figure. The information provided Sloan did not

include square footage of certain areas of the complex (balconies, breezeways and the

pool house). Each renewal included a 4 percent inflation increase in the coverage

amount. For years, Terrace, through Sloan, arranged Boardwalk’s insurance from

different companies, first acquiring it from State Auto for the 2004-05 term. The 2004

application to State Auto reflected a value of $2.1 million for Building 1. For the

2004-05 policy, the Statement of Values given State Auto provided $6.93 million as

the aggregate replacement-cost valuation for whole complex. State Auto, through

Terrace, renewed Boardwalk’s insurance coverage through 2005-06. The 2005-06

policy renewal was to continue the “blanket” replacement-cost coverage feature. State

Auto charged Boardwalk an additional premium for blanket coverage. 

On October 7, 2005, fire destroyed Building 1, an apartment building, and

partially damaged Building 4, the storage building. The 2005-06 policy provided an
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aggregate coverage limit of $7,207,200, with a 4 percent inflation guard. Building 1's

value of $2.1 million was reflected only on the Statement of Values. On January 20,

2006, a State Auto adjuster estimated the replacement cost of Building 1 as

$4,091,054.78, and the replacement cost for the whole complex as $14,690,321.04.

State Auto argues its maximum exposure to loss for Building 1 is $2,240,124.17

(including demolition, cleanup costs and business interruption), as limited by Kansas’s

Valued Policy Law. State Auto paid Boardwalk this amount. Boardwalk asserts it is

entitled to the coverage limit for the blanket policy, $7,387,000 (including the 4

percent inflation guard).

In this diversity case, a federal court applies the state law as declared by the

legislature or highest court. Erie R.R. Co. v. Tompkins, 304 U. S. 64, 78 (1938).

The standard of review for summary judgment is de novo. Menz v.New

Holland N. Am., Inc., 507 F.3d 1107, 1110 (8th Cir. 2007). The district court will be

affirmed if there are no material issues of fact and the prevailing party is entitled to

judgment as a matter of law. Peitzmeier v. Hennessy Indus., Inc., 97 F.3d 293, 298

(8th Cir. 1996). 

II.

 Boardwalk appeals the grant of summary judgment to Sloan. Boardwalk and

Sloan agree that the insurance agent’s duty is governed by Missouri law, which

imposes a general duty on an agent to use reasonable care and diligence. Hall v.

Charlton, 447 S.W.2d 5, 9 (Mo. Ct. App. 1969). Boardwalk argues that, in this case,

this general duty of an insurance agent is expanded because of a special relationship

or expanded agency agreement between the parties. Boardwalk relies on

conversations regarding “100% replacement cost coverage.” The parties agree that
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Boardwalk requested Sloan procure 100 percent replacement-cost coverage but never

designated a specific amount. 

Boardwalk invokes Hall, where an agent assured the insured that an insurance

policy covered flights to Alaska. Id. The policy, however, specifically excluded

coverage in Alaska. Id. at 7. The agent completed the application for the policy. Id.

at 8-9. The application asked if coverage for Alaska was requested. Id. The agent

checked “no” in response. Id. The insured received the policy but never read it. Id.

at 7-9. The insured said he could not understand insurance policies, so he always

sought out someone skilled in the insurance business. Id. at 7, 9. The Missouri court

held that under these circumstances (1) the insured’s failure to read was not grounds

for estoppel, and (2) it is reasonable for the principal to rely on the insurance agent for

negligent failure to procure insurance. Id. at 9. 

The Hall case is distinguishable. The agent there was the person who

completed the application form, marking “no” about coverage in Alaska. Id. at 8-9.

The agent, knowing that the insured was relying on him, could have reviewed the

policy to determine coverage in Alaska, and then told the insured that Alaskan flights

were not covered. Here, all parties understood that the policy had replacement

coverage; only the coverage limit is at issue.

 Boardwalk did not review the 2005-06 policy after receiving it. In Missouri,

an insured has a duty promptly to examine its policy. Jenkad Enters., Inc. v. Transp.

Ins. Co., 18 S.W.3d 34, 38 (Mo. Ct. App. 2000). See also Secura Ins. v. Saunders,

227 F.3d 1077, 1081 (8th Cir. 2000) (court relied on the obligation-to-examine as an

alternative reason to affirm district court). But see American States Ins. Co. v.

Boycom Cable Vision, Inc., 336 F. Supp. 2d 950, 954 (E.D. Mo. 2004) (an agent is

the agent of the insured when he is told to shop around for insurance among multiple

companies; the court did not discuss expanded agency). Boardwalk did not review the
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coverage limits and admits if it had reviewed the policy, that it would have recognized

the amount was inadequate.

Missouri requires an insurance broker or agent to perform with reasonable care

and diligence. Hall, 447 S.W.2d at 9; Manzella v. Gilbert-Magill Co., 965 S.W.2d

221, 225 (Mo. Ct. App. 1998). In Manzella, the insured sought insurance coverage

for a delicatessen through an insurance agent. Id. at 222. The insured did not provide

a coverage amount to the agent. Id. Throughout, the agent made several mistaken

representations to the insured about the exact coverage amount. Id. at 222-23. The

deli suffered a fire; insurance coverage was insufficient. Id. at 223. After a jury

verdict for the insured, the agent received a judgment notwithstanding the verdict

because Missouri law does not require an insurance agent to appraise and evaluate its

customers’ businesses. Id. at 224. Affirming, the appellate court in Manzella

addresses the possibility of an expanded agency relationship resulting in an expanded

duty, but states “no Missouri cases have adopted the expanded agency agreement

concept.” Id. at 228. 

Boardwalk tries to distinguish Manzella, citing decisions from other states. See,

e.g., Free v. Republic Ins. Co., 11 Cal. Rptr. 2d 296, 297-98 (Ct. App. 1992) (agent

assumed special duty by responses to homeowner’s annual inquiries about “sufficient

coverage to rebuild the property”). Boardwalk claims Free is “just like” the present

case. To the contrary, Free applies California law, concerns an individual

homeowner, and is not applicable on this issue governed by Missouri law. 

In Missouri, an insurance agent does not have an affirmative duty to advise

insureds of their insurance needs. See Blevins v. State Farm Fire & Cas. Co., 961

S.W.2d 946, 951(Mo. Ct. App. 1998). Sloan did secure “100% replacement cost”

coverage – the type of insurance Boardwalk requested. Boardwalk never specified

particular limits of coverage. It is the responsibility of the insured to advise the agent

not only of the type of insurance, but also “the limits of that coverage.” Manzella,
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965 S.W.2d at 228. The district court was correct that under Missouri Law, there was

no special relationship or expanded agreement with Boardwalk that transformed

Sloan’s general duty into an expanded duty. 

III.

Boardwalk appeals the decision of the district court granting summary judgment

to State Auto on several points.

A. 

The parties agree that Kansas law applies to their contract for insurance. They

disagree whether the Kansas Valued Policy Law applies. This law provides that if a

fire policy insures improvements and “the property shall be wholly destroyed,” the

amount of insurance written in the policy shall be taken conclusively to be the value

of the property, and the amount of loss. Kan. Stat. Ann. § 40-905.

The parties do not dispute that the policy was a blanket policy for $7.3 million.

See 44 C.J. S. Insurance § 21 ( 2008) (a blanket policy is written upon a risk as a

whole and each item described in the policy is covered by the whole amount of the

policy). Boardwalk asserts it is entitled to the $7.3 million because the Kansas Valued

Policy Law provides that for any wholly destroyed part of the complex, the insured

amount is the full value of a policy. The Kansas Valued Policy Law has no express

exception for blanket policies. However, Kinzer v. Nat’l Mut. Ins. Ass’n, 127 P. 762,

763 (Kan. 1912), holds that where one building in a group of buildings is destroyed,

the Kansas Valued Policy Law does not apply. The district court correctly followed

Kinzer, ruling that all of the buildings in the complex must be wholly destroyed before

the Valued Policy Law applies. 
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State Auto asserts that its liability is limited to $2.1 million, as listed in the

Statement of Value submitted with the 2004 application. The construction and effect

of insurance contracts is a matter of law. Scott v. Keever, 512 P.2d 346, 348-49 (Kan.

1973). “As a general rule, exceptions, limitations, and exclusions to insurance

policies are narrowly construed.” Marshall v. Kan. Med. Mut. Ins. Co., 73 P.3d 120,

130 (Kan. 2003). Kansas law requires the intent to incorporate a document into an

insurance policy must be clearly stated. See Van Enters., Inc. v. Avemco Ins. Co.,

231 F. Supp.2d 1071, 1080-81 (D. Kan. 2002). Boardwalk’s policy with State Auto

did not reference or incorporate the Statement of Values. The district court properly

ruled that State Auto’s liability was not limited to the valuation sheet value of $2.1

million.

B. 

Because the Valued Policy Law does not apply, the coinsurance provision of

the policy does. Coinsurance divides the risk between insurer and insured. Wenrich

v. Employers Mut. Ins. Cos., 132 P.3d 970, 975 (Kan. Ct. App. 2006), citing 15

Couch on Insurance § 220:3 (3d ed. 2005). The parties dispute the construction of

the coinsurance provision. Generally, the interpretation of an insurance contract is a

question of law. American Media, Inc. v. Home Indem. Co., 658 P.2d 1015, 1018

(Kan. 1983). Boardwalk appeals the district court’s ruling that the term “value” in the

coinsurance provision means “replacement cost.”

 

The policy provides that if a coinsurance percentage appears in the declarations,

the amount of loss State Auto pays is limited if the full amount of the loss, multiplied

by the coinsurance percentage, exceeds the limit of insurance for the property. The

declarations page lists the coinsurance percentage as 100 percent. By the policy, State

Auto determines the most it would pay by using four steps specifically set out in the

policy, which are based on the “value” of the covered property. “Value” is not

defined in this section of the policy. Boardwalk asserts that “value” means, in this
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section, actual cash value. State Auto counters that the term “value” for coinsurance

means replacement cost. 

The district court determined that the term “value” in the coinsurance provision

means replacement cost. It also found that if the property was underinsured, the

coinsurance provision applies. Kansas courts enforce limitations of liability.

Wenrich, 132 P.3d at 975. Wenrich addressed the same language as in the State Auto

policy, finding it not ambiguous. Id. Boardwalk alleges that Wenrich is simply

wrong. Instead, it asserts the policy is ambiguous and thus should be interpreted in

its favor as the insured. See American Media, 658 P.2d at 1019 (Insurance company

prepares the contracts and has a duty to make the meaning clear. If it fails to do so,

the insurer must suffer, not the insured.)

The threshold question is whether this part of the policy is ambiguous. On page

11 of the policy, appears Section E, “Loss Conditions.” Subsection 7 of Section E

says:

7. Valuation

 We will determine the value of Covered Property in the event of loss or 

 damage as follows: 

 a. At actual cash value as of the time of loss or damage . . . .

Also on page 11 of the policy, appears Section F, “Additional Conditions.”

Subsection 1 of Section F, entitled “Coinsurance,” details when and how coinsurance

applies. Subsection 1 of Section F provides: 

1. Coinsurance

 If a Coinsurance is shown in the Declarations, the following condition 

 applies.

 a. We will not pay the full amount of any loss if the value of the
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 Covered Property at the time of the loss [,] times the coinsurance 

 percentage shown for it in the Declarations[,] is greater than the Limit 

 of Insurance for the property.

 

On page 13 of the policy appears Section G, “Optional Coverages.” Subsection

3.a. of Section G provides:

3. Replacement Cost

 a. Replacement Cost (without deduction for depreciation) replaces 

 Actual Cash Value in the Loss Condition, Valuation of this coverage 

 Form.

 The policy does not use the term “replacement cost (without deduction for

depreciation)” in the coinsurance provision. Boardwalk asserts this failure makes the

contract ambiguous. Boardwalk further argues that if Section F.1. is not ambiguous,

the replacement-cost language simply is not incorporated into the coinsurance

provision. 

This same coinsurance provision was addressed in Wenrich. The Wenrich court

held that there is no ambiguity in the contract because the replacement cost coverage

is “inherently incorporated” into the coinsurance provisions. Wenrich, 132 P.3d at

975. The district court correctly followed Kansas law.

C. 

Boardwalk attacks the policy provisions that limit coverage for the cost of

repair or replacement in order to comply with an ordinance. Policy subsections E.4.b.,

E.7.b., and G.3.f. provide that State Auto will not reimburse any replacement cost

attributable to enforcement of an ordinance or law. Terms and limitations of an

insurance policy are enforceable unless they violate public policy or conflict with

statutes. House v. American Family Mut. Ins. Co., 837 P.2d 391, 397 (Kan. 1992).

Insurance provisions limiting liability for building code requirements may be
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unenforceable under Kansas law (void as against public policy). Unified School Dist.

No. 285 v. St. Paul Fire & Marine Ins. Co., 627 P.2d 1147, 1153-54 (Kan. Ct. App.

1981), overruled in part by Thomas v. Am. Family Mut. Ins. Co., 666 P.2d 676 (Kan.

1983). The Unified School case involved a replacement-cost policy, directly

addressed clauses limiting an insurer’s liability for building code requirements, and

reviewed the annotation at 90 A.L.R. 2d 790 (acknowledging the split of authorities).

Id. citing D.E. Evins, Annotation, Insurer’s Liability as Affected by Refusal of

Public Authorities to Permit Reconstruction of Repair After Fire, 90 A.L.R. 2d 790

(Supp. 2008). The Unified School court then found more persuasive the authorities

invalidating such provisions. Unified School, 627 P.2d at 1154 citing, e.g., Stahlberg

v. Travelers Indem. Co., 568 S.W.2d 79 (Mo. Ct. App. 1978).

The district court determined that most courts distinguish between partial loss

and total loss under valued policy statutes. See 90 A.L.R. 2d at 796; Stahlberg, 568

S.W.2d at 85 & n.7; Cohen Furniture Co. v. St. Paul Ins. Co. of Ill., 573 N.E. 2d

851, 854 (Ill. App. Ct. 1991). It determined that limiting provisions are void when the

loss is total under Kansas Statutes Annotated § 40-905. The district court found that

the Boardwalk fire resulted in a partial loss under Kansas Statutes Annotated § 40-

905(a)(1), and thus Kansas law did not void the policy provisions in this case. 

The district court ignored the direct statements in Unified School invalidating

building-code limitations, whether the loss is total or partial. The Unified School case

is neither a total-loss nor partial-loss case; the court there observes that “the record

does not contain substantial competent evidence to support the trial court’s finding

that plaintiff suffered a ‘total loss’” and that “the amount of plaintiff’s loss cannot be

accurately determined”. Unified School, 627 P.2d at 1150, 1152.
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Whether or not the case involves total or partial loss, the Unified School court

holds that

defendants [insurance companies] are liable, up to the limits of coverage,

for the cost of plaintiff’s necessary repairs, including any added costs in

making those repairs occasioned by Code requirements.

Id. at 1154 (emphasis added). Directly addressing the building-code limitations, the

Unified School court decides that those cases “holding such limitations unenforceable

are the more persuasive.” Id.

The district court relied on Unified School’s citation of a Missouri appellate

case, Stahlberg, 568 S.W.2d at 85 & n.7. The citation to Stahlberg must be

interpreted in the context of the Kansas court’s statements (quoted above) immediately

before the citation. The district court should have ruled that the limitations provision

was void against public policy under Kansas law. The district court’s decision on this

issue is reversed.

D. 

Boardwalk asserts a claim for vexatious refusal to pay under Missouri law.

State Auto responds that Kansas law applies to this claim, stressing that even if

Missouri law applies, Boardwalk could not recover because State Auto has not

“refused to pay.” The company has paid $2.2 million – which it alleges is more than

it owes under the policy. 

Boardwalk asserts Missouri law governs this claim, alleging it is the state with

the most significant relationship to issues of non-performance of the insurance

contract. Matters regarding the performance of a contract are governed by the law of

the place of performance. Scudder v. Union Nat’l Bank, 91 U.S. 406, 413 (1875).

Boardwalk argues that the Missouri vexatious-refusal statute concerns a performance
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issue. Thompson v. Traders’ Ins. Co. of Chicago, 68 S.W. 889, 893 (Mo. 1902),

overruled on other grounds by Alexander v. Chicago, Milwaukee& St. Paul Ry. Co.,

221 S.W. 712 (Mo. 1920); Martin v. Mut. Life Ins. Co. of N.Y., 176 S.W. 266, 269

(Mo. Ct. App. 1915). However, these cases were decided before Missouri adopted

sections 188 and 193 of the Restatement (Second) of Conflict of Laws. Viacom, Inc.

v. Transit Cas. Co., 138 S.W.3d 723, 724-25 (Mo. 2004) (per curiam). Section 188

provides that the governing law for insurance contracts is the state with the most

significant relationship to the transactions. Id. Section 193 says that the validity and

rights created under a contract are determined by the state which was the principal

location of the insured risk, unless another state has a more significant relationship.

Id. See also Brown v. Home Ins. Co., 176 F.3d 1102, 1106 (8th Cir. 1999).

The parties agree that Kansas law governs the insurance policy itself. Kansas

is the principal location of the insured risk, the state of incorporation of the insured,

and its principal place of business. Applying Restatement sections 188 and 193 here,

Kansas law governs any dispute about vexatious refusal to pay under this insurance

contract. The district court rightly rejected Boardwalk’s claim for vexatious refusal

to pay because Missouri law does not apply.

E. 

Boardwalk also seeks attorney fees under Kansas Statutes Annotated § 40-908.

The district court did not award any fees or retain jurisdiction over this issue. Section

40-908 mandates attorney fees where judgment is rendered against an insurance

company on a fire policy covering property in Kansas. Section 40-908 provides that

to recover attorney fees the insured must obtain a judgment exceeding the amount

tendered by the company before suit. State Auto argues it has already paid $2.2

million, asserting this exceeds its obligation. Boardwalk responds that it stands to

recover more than this amount. 
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 State Auto admits that the policy provides replacement coverage. Boardwalk

is entitled to replacement costs if it elects to replace the property within 180 days of

the loss. Replacement is a precondition to recovery here. See Burchett v. Kan. Mut.

Ins. Co., 48 P.3d 1290, 1292 (Kan. Ct. App. 2002). Boardwalk requested that the

district court declare it could replace the property even though a substantial period of

time has elapsed since the fire. Because State Auto sued before the 180-day period

ran, the district court ruled that Boardwalk has the right to replace Building 1 within

a timely manner after the current litigation ends. 

Pursuant to section 40-908, fees are granted when recovery exceeds the amount

tendered. See State Farm Fire & Cas. Co. v. Liggett, 689 P.2d 1187, 1193-94 (Kan.

1984). If Boardwalk obtains a judgment that qualifies it to receive attorney fees,

section 40-908 applies. The district court correctly ruled on attorney fees.

IV.

The judgment is affirmed in part, reversed in part, and the case remanded for

further proceedings consistent with this opinion. 

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