United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                    __________

                                    No. 08-2167
                                    __________

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.                    *
                                        ___________

                             Submitted: December 10, 2008
                                Filed: July 14, 2009
                                 ___________
Before MELLOY, BENTON, and DOTY.1 Circuit Judges.
                           ___________

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.




      1
      The Honorable David S. Doty, United States District Judge for the District of
Minnesota, sitting by designation.

                                         -2-
                                      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

                                           -3-
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, 

, 78 (1938).

      The standard of review for summary judgment is de novo. Menz v.New
Holland N. Am., Inc., 

, 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., 

, 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, 

, 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



                                             -4-
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. 

however, specifically excluded
coverage in Alaska. 

The agent completed the application for the policy. 

The application asked if coverage for Alaska was requested. 

checked “no” in response. 

received the policy but never read it. 

The insured said he could not understand insurance policies, so he always
sought out someone skilled in the insurance business. 

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. 

      The Hall case is distinguishable. The agent there was the person who
completed the application form, marking “no” about coverage in Alaska. 

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., 

, 38 (Mo. Ct. App. 2000). See also Secura Ins. v. Saunders,

, 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., 

, 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



                                           -5-
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. 

; Manzella v. Gilbert-Magill Co., 

, 225 (Mo. Ct. App. 1998). In Manzella, the insured sought insurance coverage
for a delicatessen through an insurance agent. 

The insured did not provide
a coverage amount to the agent. 

agent made several mistaken
representations to the insured about the exact coverage amount. 

The
deli suffered a fire; insurance coverage was insufficient. 

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. 

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.” 

       Boardwalk tries to distinguish Manzella, citing decisions from other states. See,
e.g., Free v. Republic Ins. Co., 

, 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., 

, 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,

                                           

. 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, 

,
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.




                                             -7-
       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, 

, 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., 

,
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.,

, 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., 

, 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., 

, 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

                                            -8-
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 addressed the same language as in the State Auto
policy, finding it not ambiguous. 

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 

(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



                                         -9-
            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. 

. 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., 

, 397 (Kan. 1992).
Insurance provisions limiting liability for building code requirements may be
                                          -10-
unenforceable under Kansas law (void as against public policy). Unified School Dist.
No. 285 v. St. Paul Fire & Marine Ins. Co., 

, 1153-54 (Kan. Ct. App.
1981), overruled in part by Thomas v. Am. Family Mut. Ins. Co., 

(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 

(acknowledging the split of authorities).

Evins, Annotation, Insurer’s Liability as Affected by Refusal of
Public Authorities to Permit Reconstruction of Repair After Fire, 

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

citing, e.g., Stahlberg
v. Travelers Indem. Co., 

(Mo. Ct. App. 1978).

        The district court determined that most courts distinguish between partial loss
and total loss under valued policy statutes. 

; 

& n.7; Cohen Furniture Co. v. St. Paul Ins. Co. of Ill., 

, 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 

, 1152.




                                          -11-
       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.

(emphasis added). Directly addressing the building-code limitations, the
Unified School court decides that those cases “holding such limitations unenforceable
are the more persuasive.” 

court relied on Unified School’s citation of a Missouri appellate
case, 

& 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, 

, 413 (1875).
Boardwalk argues that the Missouri vexatious-refusal statute concerns a performance

                                           -12-
issue. Thompson v. Traders’ Ins. Co. of Chicago, 

, 893 (Mo. 1902),
overruled on other grounds by Alexander v. Chicago, Milwaukee& St. Paul Ry. Co.,

(Mo. 1920); Martin v. Mut. Life Ins. Co. of N.Y., 

, 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., 

, 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. 

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.

Brown v. Home Ins. Co., 

, 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.



                                            -13-
        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., 

, 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, 

, 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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