                                                                          F I L E D
                                                                   United States Court of Appeals
                                                                           Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                          MAY 30 2000
                            FOR THE TENTH CIRCUIT
                                                                      PATRICK FISHER
                                                                                 Clerk

    LEOLA L. OWENS, individually
    and as executrix of the Estate of
    Spohn D. Owens,

                Plaintiff-Appellant,

    v.                                                  No. 99-3201
                                                 (D.C. No. 98-CV-1271-MLB)
    THE CONTINENTAL INSURANCE                              (D. Kan.)
    COMPANY, a foreign insurance
    company,

                Defendant-Appellee.


                             ORDER AND JUDGMENT           *




Before KELLY , HENRY , and MURPHY , Circuit Judges.



         After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist the determination of

this appeal.   See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is

therefore ordered submitted without oral argument.



*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
      Plaintiff Leola L. Owens, individually and as executrix of the Estate of

Spohn D. Owens, appeals the district court’s summary judgment dismissal of her

diversity complaint seeking insurance coverage against defendant, Continental

Insurance Company, under two different policies. We have jurisdiction under

28 U.S.C. § 1291, and we affirm.


                                   BACKGROUND

      On July 3, 1993, Spohn D. Owens was killed in an automobile collision

with a vehicle driven by Joshua Kreutzer. Joshua, who was also killed in the

accident, was a 12-year old boy. Joshua’s parents, Gary and Sherry Kreutzer,

owned the vehicle Joshua was driving and had given him permission to drive

the vehicle. At the time of the accident, Spohn Owens was a named insured on

a liability insurance policy issued by Continental that included underinsured

motorist coverage. Coincidentally, the Kreutzers were insured under a farm

property insurance policy also issued by Continental. The Kreutzers had

automobile liability coverage through the Kansas Farm Bureau.

      On January 4, 1994, plaintiff filed suit against the Kreutzers in Kansas

federal court, claiming that Joshua negligently operated the motor vehicle and that

Gary and Sherry Kreutzer were negligent in entrusting the automobile to Joshua.

Plaintiff and the Kreutzers reached a settlement agreement and judgment was

entered in that case on November 9, 1995. The terms of the settlement agreement

                                        -2-
are set forth in the entry of judgment, which states in relevant part that plaintiff

would receive a judgment against the Kreutzers for $850,000, but that this

judgment would not constitute a lien on any real or personal property of the

Kreutzers and that the judgment against Gary Kreutzer and the estate of Joshua

Kreutzer would be “paid solely and exclusively from the proceeds of

any insurance policy which may provide coverage to said defendants.”

Appellant’s App. at 95-96.

      Plaintiff collected $25,000 from the Farm Bureau. Plaintiff then sought

coverage from Continental, seeking underinsured motorist benefits under the

Owens’ policy, and liability coverage under the Kreutzers’ farm property policy.

Continental denied coverage under both policies. Plaintiff filed the underlying

complaint, seeking an award of insurance benefits under these policies.

      Continental moved for summary judgment on both claims. It claimed it was

not liable under the Owens’ underinsured motorist coverage for two reasons.

First, the settlement agreement provided that the judgment was to be paid solely

and exclusively from the Kreutzers’ insurance policies. Continental asserted that

the Kreutzers were clearly not insured under the Owens’ underinsured motorist

policy, and, thus, plaintiff was precluded by the terms of her settlement agreement

from asserting any claim under that policy. Second, Continental asserted that

plaintiff had prejudiced its subrogation rights by entering into a settlement


                                          -3-
agreement releasing the Kreutzers from any personal liability for the accident

without first giving Continental any notice of its settlement agreement, as

required by Kan. Stat. Ann. § 40-284(f), or obtaining Continental’s consent to

settlement, as required by the Owens’ insurance policy. With respect to the

Kreutzers’ farm property policy, Continental claimed it was not liable because

that policy excluded coverage for the operation or use of a motor vehicle and

excluded coverage for negligent entrustment of a motor vehicle. The district

court granted summary judgment in favor of Continental.


                                       ANALYSIS

                                 I. Standard of Review

       We review the district court’s grant of summary judgment       de novo ,

applying the same legal standards used by that court.     See Charter Canyon

Treatment Ctr. v. Pool Co. , 153 F.3d 1132, 1135 (10th Cir. 1998). Summary

judgment is proper when the evidence, viewed in the light most favorable to the

party opposing the motion, shows there are no genuine issues of material fact and

the moving party is due judgment as a matter of law.      See id. ; Fed. R. Civ. P.

56(c). When, as here, a federal court is exercising diversity jurisdiction, it must

apply the substantive law of the forum state.     See Blanke v. Alexander , 152 F.3d

1224, 1228 (10th Cir. 1998). The parties agree that Kansas law governs our

interpretation of these policies. We review the district court’s determination of

                                            -4-
Kansas law de novo . See Salve Regina College v. Russell      , 499 U.S. 225, 231

(1991).

                            II. Underinsured Motorist Policy

       Under Kansas law, an insurer that pays underinsured motorist benefits to

its insured is subrogated to any cause of action in tort that the insured may have

against the tortfeasor.   See Kan. Stat. Ann. § 40-287;   Allied Mut. Ins. Co. v.

Gordon , 811 P.2d 1112, 1115 (Kan. 1991). Section 40-287 states that the insurer

“shall be subrogated, to the extent of such payment, to the proceeds of any

settlement or judgment that may thereafter result from the exercise of any rights

of recovery of [its insured] against [the tortfeasor] for said bodily injury or death

for which payment is made by the insurer.” § 40-287. The procedure for

enforcing these subrogation rights is set forth in Kan. Stat. Ann. § 40-284(f),

which is central to our resolution of this case. Section 40-284(f) provides in

relevant part that:

       An underinsured motorist coverage insurer shall have subrogation
       rights under the provisions of K[an]. S[tat]. A[nn]. [§] 40-287 and
       amendments thereto. If a tentative agreement to settle for liability
       limits has been reached with an underinsured tortfeasor, written
       notice must be given by certified mail to the underinsured motorist
       coverage insurer by its insured. . . . Within 60 days of receipt of this
       written notice, the underinsured motorist coverage insurer may
       substitute its payment to the insured for the tentative settlement
       amount. The underinsured motorist coverage insurer is then
       subrogated to the insured’s right of recovery to the extent of such
       payment and any settlement under the underinsured motorist
       coverage. If the underinsured motorist coverage insurer fails to pay

                                            -5-
       the insured the amount of the tentative tort settlement within 60 days,
       the underinsured motorist coverage insurer has no right of
       subrogation for any amount paid under the underinsured motorist
       coverage.

       It is undisputed that Continental did not receive notice of the settlement

agreement until July 11, 1996, when it received a copy of the November 9, 1995

journal entry of judgment. It is also undisputed that plaintiff did not obtain

Continental’s prior consent to the settlement agreement, as required by the

Owens’ policy.

       The district court held that Continental was not liable for underinsured

motorist benefits because plaintiff failed to give the notice of settlement required

by § 40-284(f). The district court relied upon    Dalke v. Allstate Insurance Co.   ,

935 P.2d 1067 (Kan. Ct. App. 1997), which held that an underinsured motorist

who failed to provide any notice of a settlement agreement with the tortfeasor to

her underinsurance carrier, in accordance with § 40-284(f), forfeited her right to

underinsurance benefits, regardless of whether the insurance company was

prejudiced by the lack of notice.   See id . at 1072.




                                            -6-
                                              A.

       On appeal, plaintiff first contends that § 40-284(f) and     Dalke are

inapplicable to this case because plaintiff had commenced litigation with the

Kreutzers, and had given Continental notice of the commencement of her suit.

She argues that once the insured is given notice of the litigation, it can protect

its subrogation rights by intervening in the suit.

       Plaintiff cites no authority which supports her proposition that § 40-284(f)

only applies when the tentative settlement agreement is reached prior to the

initiation of a lawsuit. She instead cites    Guillan v. Watts , 822 P.2d 582, 590

(Kan. 1991), in which the Kansas Supreme Court held that once an underinsured

motorist insurance carrier is notified of its insured’s suit against the tortfeasor,

and elects not to intervene, it is bound by the judgment obtained, including any

judgment based upon a settlement agreement establishing the tortfeasor’s liability.

Guillan , however, is inapposite.      Guillan did not address § 40-284(f) or the

subrogation rights of an underinsured motorist insurance carrier. In contrast

to the facts here, the insured in    Guillan complied with the requirement of

§ 40-284(f), and notified the insurance carrier when the tortfeasor offered to

settle for the policy limits.    See id . at 584. Thus, the insurer had notice and

opportunity to intervene.       Guillan simply does not address a situation presented

here, in which the insured fails to provide the statutorily required notice that the


                                              -7-
parties have reached a tentative settlement agreement, thereby destroying the

insurer’s subrogation rights.

       There is nothing in the plain language of § 40-284(f) relieving an insured

from its obligation to give notice of a tentative settlement agreement because it

previously gave notice to the insurer of the commencement of litigation. “When

a statute is plain and unambiguous, the court must give effect to the intention of

the legislature as expressed, rather than determine what the law should or should

not be.” Dalke , 935 P.2d at 1069 (refusing to require an insurer to show

prejudice under § 40-284(f) because the plain language of the statute includes

no such requirement). Thus, we conclude that plaintiff’s notice to Continental

of the commencement of litigation did not relieve her of her obligation under

§ 40-284(f) to give notice of the tentative settlement agreement.

                                                B.

       Plaintiff cites this court’s unpublished decision in        Davis v. Prudential

Property & Casualty Insurance Co.       , No. 97-3137, 1998 WL 51734 (10th Cir.

Feb. 2, 1998) for the proposition that § 40-284(f) does not provide an absolute

defense to coverage based on technical noncompliance. Beyond its limitations

under 10th Cir. R. 36.3 as an unpublished decision,           Davis is distinguishable from

the facts of this case because the insured in         Davis gave the insurer the required

notification under § 40-284(f). In contrast, plaintiff here failed to notify


                                                -8-
Continental, thus depriving it of any opportunity to make a substituted payment.

“This inaction on [plaintiff’s] part destroyed [Continental’s] subrogation rights.”

Dalke , 935 P.2d at 1072.

                                            C.

         Plaintiff next argues that her failure to give Continental notice under

§ 40-284(f) did not impair its subrogation rights because Continental did not have

the right to make substitute payment. Mr. Owens was acting in the scope of his

employment when he was killed in the car accident. Plaintiff asserts his employer

had subrogation rights under Kan. Stat. Ann. § 44-504(b) because it provided

workers’ compensation benefits, and she asserts that any attempt by Continental

to tender a substitute payment would have been “irrational.” Appellant’s Br.

at 10.

         Plaintiff cites us to no authority, nor are we aware of any, that supports this

proposition. Under Kansas law, an insured is entitled to recover underinsured

motorist benefits which are not duplicative of workers’ compensation benefits.

See Kilner v. State Farm Mut. Auto. Ins. Co.      , 847 P.2d 1292, 1299 (1993). It

follows that an underinsured motorist carrier that becomes obligated to pay

benefits under such circumstances would also be entitled to subrogation rights

under § 40-287. Moreover, plaintiff’s argument that it would have been

“irrational” for Continental to make substitute payment is based on the erroneous


                                            -9-
premise that Continental may not deny coverage to her unless it can demonstrate

that it was prejudiced by her failure to give the required notice under § 40-284(f).

This argument was rejected by the Kansas court in    Dalke, see 935 P.2d at 1069,

which held that an insured’s obligation to give the required notice under

§ 40-284(f) is absolute:

      [Section] 40-284(f) provides that the insurer    shall have subrogation
      rights and that the insured must notify the insurer by certified mail of
      the tentative agreement for settlement. It then provides what the
      insurer may do to preserve its subrogation rights. This is very clear.
      The legislature was obviously cognizant of and concerned with the
      preservation of the insurer’s right of subrogation and the benefits to
      the public emanating from the preservation of that right. They
      commanded the insured with the strong legislative       must to notify the
      insurer of any possible settlement and provided that the insurer     shall
      have subrogation rights if it substitutes its payment.

Id. at 1072. (emphasis in original). Therefore, regardless of whether Mr. Owens’

employer also had subrogation rights, plaintiff was obligated to give, and

Continental was entitled to receive, notice of the parties’ settlement agreement.

Under Kansas law, the failure to give such notice under § 40-284(f) dictates

a forfeiture of underinsured motorist benefits:

      The failure of [the insured] to notify [the insurer] of her
      settlement and her release of the tortfeasor, . . . violated her
      statutory and contractual duty to [the insurer]. In doing so, she
      cut off [the insurer’s] subrogation rights and must be held to
      have forfeited her right of recovery from [the insurer] under
      the underinsured motorist provisions of her policy. To hold
      otherwise would suggest meaningless legislation and would fail
      to give operation to the obvious intent of the legislature.


                                         -10-
Id.


                                          D.

       Plaintiff next contends the terms of Continental’s policy limit application

of § 40-284(f) and require proof of prejudice before Continental is entitled to

deny coverage on the basis of an unauthorized settlement. Continental’s

underinsured motorist policy includes a limitation precluding coverage if the

insured “accepts a settlement or secures a judgment for a bodily injury claim

that prejudices [Continental’s] right to recover payment [unless Continental has]

given [the insured its] written consent to settle or sue.” Appellee’s Supp. App.

at 89-90.   1



       We need not decide whether Continental has surrendered statutory rights

under § 40-284(f), because it is clear that plaintiff’s failure to give the required

notice of settlement did, in fact, prejudice Continental’s subrogation rights.

Continental never had the opportunity to make a substituted payment in order to

protect its subrogation rights. Moreover, the settlement agreement relieves the

Kreutzers, including the estate of Joshua Kreutzer, from any personal liability,



1
       Plaintiff contends Continental’s consent to settlement or suit provision is
void because it is not authorized by § 40-284(f). We need not address this
argument because plaintiff never gave notice to Continental of the settlement
agreement in the first place; thus whether Continental had the right to consent to
the settlement never became an issue.

                                         -11-
and states that the judgment could    only be paid from the Kreutzers’ insurance

policies. “Subrogation contemplates one person’s stepping into the shoes of

another . . . .”   Allied , 811 P.2d at 1120. Because Continental must step into the

plaintiff’s shoes if it attempts to exercise its subrogation rights, it is barred by the

terms of this settlement agreement from collecting from the Kreutzers. Plaintiff’s

failure to notify Continental of the settlement agreement thus destroyed

Continental’s opportunity to make a substituted payment and the terms of the

settlement agreement destroyed its ability to seek a judgment against the

Kreutzers.

                                            E.

        Finally, plaintiff claims that Continental’s subrogation rights were not

prejudiced because, at the time of the settlement agreement, the statute of

limitations had expired in the action against the Kreutzers. Plaintiff had timely

filed her suit against the Kreutzers. Because Continental stands in the shoes of

its insured, it also succeeds to plaintiff’s right to be free from the statute of

limitations defense.

        In summary, the district court correctly granted summary judgment in favor

of Continental on plaintiff’s claim for underinsured motorist benefits under the

Owens’ policy because of plaintiff’s failure to give Continental notice of the

settlement agreement as required by § 40-284(f).      See Dalke , 935 P.2d at 1072.


                                           -12-
                           III. Kreutzers’ Farm Property Policy

       Plaintiff contends the district court erred in ruling that Continental was

not obligated to pay benefits under the Kreutzers’ farm property policy. The

Kreutzers’ farm property policy provides liability coverage to the Kreutzers for

bodily injury caused by an accident. The policy is not an automobile policy;

thus, it excludes coverage for bodily injury which results from the ownership or

use of a motor vehicle which is owned or operated, loaned to, or available for the

regular use by a “covered person.”           See Appellee’s Supp. App. at 165. It is

undisputed that Gary, Sherry and Joshua Kreutzer are all covered persons under

the policy. The policy also excludes coverage for negligent entrustment of a

motor vehicle, stating in relevant part that it does “not cover bodily injury or

property damage arising out of . . . the entrustment by a [c]overed [p]erson to any

person of . . . any motor vehicle . . . .”      Id. at 166.

       Plaintiff asserted a claim against Joshua Kreutzer for negligent operation

of the motor vehicle and against Gary and Sherry Kreutzer for their negligent

entrustment of the vehicle to their minor son. Continental’s motion for summary

judgment relied on both the motor vehicle exclusion and the negligent entrustment

exclusion. In response, plaintiff merely made the conclusory assertion that

coverage “was not limited by the exclusion set forth in [Continental’s]

memorandum.” Appellant’s App. at 67. Plaintiff did not identify which of the


                                                 -13-
exclusions she was referring to, nor did she provide any further argument or legal

support for her assertion. The district court’s order focused only on the motor

vehicle exclusion, stating “the property policy excludes coverage for personal and

property damages resulting from automobile accidents.”        Id. at 88.

      Citing Upland Mutual Insurance, Inc. v. Noel       , 519 P.2d 737 (Kan. 1974),

plaintiff now claims on appeal that “the exclusionary terminology relied upon

by Continental is not sufficient to bar coverage for a claim of negligent

entrustment.” Appellant’s Br. at 16. In   Upland , the Kansas Supreme Court

held that a homeowner’s policy exclusion for bodily injury or property damage

arising from the ownership, maintenance, operation, use, loading, and unloading

of automobiles did not exclude coverage for the insured’s liability for negligent

entrustment of an automobile to another. 519 P.2d at 741-42. In relying on

Upland , however, plaintiff ignores the separate clause in the Kreutzers’ policy

expressly precluding coverage for negligent entrustment claims. Plaintiff has not

articulated any reason, either before the district court or now on appeal, why the

negligent entrustment exclusion does not bar coverage for her negligent

entrustment claim. Nor does plaintiff claim the district court erred in ruling the

negligence claim against the estate of Joshua Kreutzer was excluded. Thus, the

district court correctly granted summary judgment in favor of Continental with

respect to the Kreutzers’ farm property policy.


                                          -14-
     The judgment of the United States District Court for the District of Kansas

is AFFIRMED.



                                                  Entered for the Court



                                                  Michael R. Murphy
                                                  Circuit Judge




                                      -15-
