                       United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT



                                  _____________

                                   No. 96-2543
                                  _____________

Canal Insurance Company,                *
                                        *
           Plaintiff-Appellant,         *   Appeal from the United States
                                        *   District Court for the
     v.                                 *   Western District of Arkansas.
                                        *
Rodney DeWayne Ashmore,                 *
                                        *
           Defendant-Appellee.          *


                                  _____________

                           Submitted: January 13, 1997

                           Filed: October 6, 1997
                                 _____________

Before WOLLMAN and HANSEN, Circuit Judges, and MONTGOMERY,1
District Judge.
                        _____________


HANSEN, Circuit Judge.




     1
        The HONORABLE ANN D. MONTGOMERY, United States District Judge
for the District of Minnesota, sitting by designation.
      Canal Insurance Company appeals the judgment of the district court in favor of
Rodney DeWayne Ashmore in this diversity-based declaratory judgment action. We
reverse.

                                            I.

        This insurance dispute arose out of a 1989 motor vehicle accident in Mississippi,
involving Rodney Ashmore, who was an occupant of a semi-tractor truck owned by his
father, Dale Ashmore, doing business as Ashmore and Sons Trucking. Rodney was
seriously injured in the accident. He filed a lawsuit in Mississippi state court against
his father, doing business as Ashmore and Sons Trucking, seeking to recover damages
for his personal injuries.

       Prior to the accident, Canal Insurance Company had issued an insurance policy
to Ashmore and Sons Trucking, covering the vehicle involved in the accident. After
Rodney brought the state court action against his father and Ashmore and Sons
Trucking, Canal brought this federal declaratory judgment action against Dale and
Rodney Ashmore, seeking a declaration of its obligations under the policy. Canal
asserted that certain policy exclusions apply, negating its obligation to provide a
defense to the state lawsuit and precluding coverage for Rodney Ashmore's bodily
injuries. The district court initially entered default judgments against both Dale and
Rodney Ashmore. On appeal, we affirmed the default judgment against Dale Ashmore,
but reversed and remanded for further proceedings on the claim against Rodney. See
Canal Ins. Co. v. Ashmore, 61 F.3d 15, 17 (8th Cir. 1995).

       On remand, Canal's claim against Rodney Ashmore was tried before the district
court without a jury. The district court identified three issues pertinent to the question
of whether coverage exists under the policy: (1) whether Rodney was an employee of
Dale Ashmore at the time of the accident, (2) whether Rodney was driving the truck


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with Dale's permission at the time of the accident, and (3) whether the policy's
Occupant Hazard Exclusion is unenforceable as contrary to Arkansas public policy.

        The district court exercised its equitable discretion to refrain from considering
the first two factual issues -- whether Rodney was either an employee or the driver of
the truck at the time of the accident -- out of deference to the concurrent Mississippi
state court proceedings. Because these factual issues give rise to a possibility that
coverage exists, the district court declared that Canal has a duty to defend Dale
Ashmore in the Mississippi lawsuit.

       As to the third issue -- the effect and validity of the Occupant Hazard Exclusion
-- the district court found the following facts. Dale Ashmore applied through his
insurance agent for a general liability insurance policy to cover a 1987 tractor trailer rig
used by Ashmore and Sons Trucking. On the insurance application, Dale requested a
combined single limit of $750,000 for bodily injury and property damage liability
coverage and specifically rejected all uninsured motorist bodily injury and property
damage coverage.

         Based upon this application, Canal issued its "Basic Automobile Liability
Policy," with attached endorsements to Dale Ashmore. The basic policy itself included
an exclusion of coverage for bodily injury to any employee of the insured. The
attached endorsements included an Occupant Hazard Exclusion (OHE), excluding
coverage for bodily injury to any occupant of the vehicle. The OHE endorsement is
printed in decidedly larger type than the policy and is on a separate page. The OHE
endorsement specifically states that it is part of the policy to which it is attached, and
it is referenced on the declarations page of the policy by a code, "E-4(ai)." (Appellant's
A.P. at 433.) The insurance agent testified that Dale would not have understood this
code. The OHE endorsement was not signed by Dale Ashmore and was not referenced
on the insurance application he signed. Additionally, the insurance agent did not


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remember discussing the OHE endorsement with Dale when negotiating the coverage.



       The district court determined that the OHE was not part of Dale's policy. The
district court concluded that the language of the insurance application required all
exclusions to be included in that application and signed by the applicant in order to
become part of the policy. Because the OHE was not referenced in the insurance
application signed by Dale and was never specifically discussed or negotiated, the
district court concluded that the OHE was not part of the policy and thus did not
exclude bodily injury coverage for occupants of Dale's vehicle.

      Canal appeals.

                                           II.

      The parties are in agreement that Arkansas law applies in this diversity suit. We
review de novo the district court's determination and interpretation of state law. Salve
Regina College v. Russell, 499 U.S. 225, 231 (1991).

      First, Canal argues that the district court erroneously determined that the OHE
was not part of the policy.

        "Under Arkansas law, insurance exclusions must be clearly stated and are strictly
construed against the insurer." Columbia Ins. Co. v. Baker, 108 F.3d 148, 149 (8th Cir.
1997) (citing No land v. Farmers Ins. Co., 892 S.W.2d 271, 272 (Ark. 1995)). "It is
also a long standing rule that, where the terms of the policy are clear and unambiguous,
the policy language controls; and absent statutory strictures to the contrary,
exclusionary clauses are generally enforced according to their terms." No land, 892
S.W.2d at 272.


                                           4
        In this case, the district court concluded that the OHE endorsement was not part
of the insurance policy because it was neither referenced in the application nor signed
by Dale Ashmore, the applicant. We know of no general legal authority requiring all
policy exclusions to be referenced in an insurance application and to be signed by the
applicant in order to become part of an insurance policy. Absent statutory authority to
the contrary, Arkansas abides by the general rule that an insurance agent has no duty
to advise an applicant of all aspects of coverage contained in an insurance policy.
Scott-Huff Ins. Agency v. Sandusky, 887 S.W.2d 516, 517 (Ark. 1994). Cf. Smith v.
Shelter Mut. Ins. Co., 937 S.W.2d 180, 182 (Ark. 1997) (noting that in 1984, the
Arkansas Insurance Commissioner promulgated a requirement that driver-specific
exclusion endorsements must contain the insured's signature to demonstrate acceptance
of the restricted coverage). Arkansas places the duty on the policyholder to educate
himself concerning his insurance coverage. Continental Cas. Co. v. Didier, 783
S.W.2d 29, 31 (Ark. 1990). Despite this general rule, the district court concluded that
the specific language of the insurance application in this case required all exclusions
to be referenced in the application and signed by the applicant.

       We turn then to the plain language of the pertinent clause of the insurance
application in this case. The application provided, "if a policy is issued pursuant to this
application, the application and any restrictive and/or Exclusion Endorsement Text,
which is included on the application and signed by me [the applicant], shall become
part of the policy." (Appellant's Adden. at 28.) The district court interpreted this
phrase to mean that an exclusion endorsement could become part of the policy "only"
when it was specifically referenced in the application and signed by the applicant. (Id.
at 14-15.)

      Canal argues, and we agree, that the district court simply misread the plain
language of this clause. As we read it, this clause merely ensures that any signed
endorsements that are attached to the application will become part of the insurance
policy. It does not go so far as to require that all exclusions must be signed and

                                            5
attached to the application in order to become part of the policy. By reading the
sentence in an overly restrictive manner, we believe that the district court went beyond
the scope of the plain language and superimposed an unintended meaning on the clause.



       We conclude that neither Arkansas law nor the language of the application
requires every exclusion to be referenced in the application and signed by the applicant
in order to become part of the insurance policy. Similarly, the insurance agent's failure
to inform Dale Ashmore of the OHE endorsement does not preclude the endorsement
from becoming part of the policy to which it was attached and in which it was
specifically referenced by code. The district court erred by finding that the OHE
endorsement was not part of Dale Ashmore's insurance policy.

       Having determined that the OHE endorsement was in fact a part of the policy,
we must determine the validity and effect of the exclusion under Arkansas law and
public policy. Because the district court determined that the OHE was not part of the
policy, it did not reach this issue. We may nevertheless consider the issue in the first
instance, because deciding the validity of the OHE endorsement involves a purely legal
question and requires no additional evidence.2 See In re Young, 82 F.3d 1407, 1416
(8th Cir. 1996). While we would certainly respectfully appreciate and carefully
consider the views of the experienced district judge with respect to the law and public
policy of the state wherein he sits, it is not essential that we remand this case to permit
those views to be expressed, particularly here where judicial economy, time, and our
own ultimate de novo responsibility under Salve Regina are implicated.

      2
         Rodney Ashmore chose not to address this issue in his brief, but in his brief and
at oral argument, he requested the opportunity to supplement his brief if the court found
it necessary to reach this issue. We decline to extend him a second chance to make the
arguments that he should have made in his appellee's brief. Canal's opening brief
squarely and thoroughly argued the issue, and at his own peril, Ashmore chose not to
respond.

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       We have found no Arkansas case specifically addressing whether an OHE
endorsement is valid under Arkansas law. Arkansas law provides that an insurance
"policy will not be interpreted to bind the insurer to a risk which it plainly excluded and
for which it was not paid." Hartford Fire Ins. v. Carolina Cas. Ins., 914 S.W.2d 324,
326 (Ark. Ct. A.P.. 1996). At the same time, however, "[i]nsurance contracts in
Arkansas are read to include applicable statutory and public policy provisions in effect
at the time the insurance policy is issued. These supersede any conflicting policy
provisions." Nichols v. Anderson, 788 F.3d 1140, 1143 (5th Cir. 1986) (citing several
Arkansas cases as examples). Therefore, an insurance policy endorsement is
enforceable according to its terms unless those terms are "contrary to statute or public
policy." Blue Cross & Blue Shield v. Hicky, 900 S.W.2d 598, 600 (Ark. Ct. A.P..
1995) (citing Shelter Gen. Ins. Co. v. Williams, 867 S.W.2d 457 (Ark. 1993)). "The
general rule is that a contract is against public policy if it is injurious to the interests of
the public, or contravenes some established interest of society or some public statute,
or is against good morals, or tends to interfere with the public welfare." Id.

       Canal has brought to our attention a relevant state public policy which we
believe limits the use of an OHE endorsement in common carrier insurance policies.
Section 23-13-227 of the Arkansas Code provides the Arkansas Transportation
Commission with authority to promulgate rules and regulations prescribing the amounts
of insurance required for common carriers. Pursuant to this authority, the Commission
promulgated Rule 13.1, which, at the time of the issuance of this policy and at the time
of this accident, required common carriers of property by motor vehicle to carry
$25,000 of coverage for bodily injury. (Appellant's A.P.. at 94.) The rule also
prescribes an endorsement to be attached to all common carrier policies. (Id. at 99.)
The form for this endorsement states, "nothing contained in the policy or any
endorsement thereon, nor the violation of any of the provisions, by the assured, shall
relieve the company from the liability hereunder or from the payment of such
judgment." (Id.)


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       This rule evidences a state public policy that common carriers of property by
motor vehicle must carry at least $25,000 of bodily injury coverage and that no other
policy endorsement can exclude this coverage. While no courts have examined this
rule with regard to an OHE endorsement, the Fifth Circuit, interpreting Arkansas law,
has held that Rule 13.1 precludes the enforcement of a radius exclusion clause, which
attempted to limit coverage to accidents occurring within 150 miles of where the
vehicle was garaged. Nichols v. Anderson, 788 F.2d 1140, 1141, 1143 (5th Cir. 1986).
We likewise determine that the OHE endorsement attached to Dale Ashmore's policy
is void but only to the extent it is contrary to Arkansas's expressed public policy of a
common carrier maintaining at least $25,000 in bodily injury coverage.

       In a subsequent appeal of the Nichols case, after concluding in the first appeal
that the radius exclusion was void as against Arkansas public policy expressed in Rule
13.1, the Fifth Circuit then held that the insurance company was only obligated for the
amount of coverage required by that state policy, not for coverage up to the entire
policy amount. No Arkansas cases address the issue, so we will follow the Fifth
Circuit's reliance on general principles of contract construction. Applying these
principles, the Fifth Circuit held that for amounts over and above the mandatory
minimum coverage required by Arkansas law, the exclusion was not contrary to public
policy. "[T]he clause is void only to the extent required to meet the public policy."
Nichols v. Anderson, 837 F.2d 1372, 1376 (5th Cir. 1988). We agree. Accordingly,
the OHE endorsement remains a valid exclusion as to amounts over the minimum
$25,000 coverage required by Arkansas public policy at the time of the contract's
formation and at the time of the accident.

      Second, Canal argues that the district court abused its discretion by refusing to
determine the factual issues of whether Rodney Ashmore was either the driver of the
vehicle or an employee of Ashmore and Sons Trucking at the time of the accident.




                                           8
       The Declaratory Judgment Act confers upon federal courts "unique and
substantial discretion in deciding whether to declare the rights of litigants." Wilton v.
Seven Falls Co., 115 S. Ct. 2137, 2142 (1995). The Act "confers a discretion on the
courts rather than an absolute right upon the litigant." Id. at 2143 (internal quotations
omitted). In Wilton, the Supreme Court concluded that the district court had acted
within the bounds of its discretion by staying a federal declaratory judgment action
where a parallel state court proceeding presented an opportunity to ventilate the same
state law issue. 115 S. Ct. at 2144; Horne v. Firemen's Retirement Sys. of St. Louis,
69 F.3d 233, 236 (8th Cir. 1995). A showing of exceptional circumstances was not
necessary in that case, because "[i]n the declaratory judgment context, the normal
principle that federal courts should adjudicate claims within their jurisdiction yields to
considerations of practicality and wise judicial administration." Wilton, 115 S. Ct. at
2143.

        The district court in this case refrained from making determinative factual
findings on whether Rodney was an employee or the driver of the vehicle, noting that
the Mississippi state court is capable of making these findings and may need to make
such findings in the specific context of Mississippi tort law. Quoting Wilton, the
district court concluded that otherwise, it "would be engaging in the type of `gratuitous
interference' with a parallel state court proceeding which was discussed, with
disapproval, in Seven Falls, supra." (Appellant's Adden. at 10.) We cannot say that
the district court abused its substantial discretion in this instance.

        Finally, because the factual issues asserted in Canal's appeal will be adjudicated
in the state court proceedings and not by the federal district court, we need not consider
Canal's argument that the district court erred by not admitting a police report into
evidence.




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                                      III.

      Accordingly, we reverse the district court's legal conclusion that the OHE
endorsement was not part of the insurance policy issued to Dale Ashmore, and we
remand for entry of judgment in accordance with this opinion.

      A true copy.

            Attest:

                     CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.




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