                        United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                 _____________

                                  No. 00-2589
                                 _____________

Melissa Lancaster and                    *
Tim Lancaster,                           *
                                         *
            Plaintiffs/Appellants,       *
                                         *
      v.                                 * Appeal from the United States
                                         * District Court for the Western
American & Foreign Insurance             * District of Missouri.
Company, Royal Insurance Company of *
America, and Royal Surplus Lines         *
Insurance Company, as garnishees,        *
                                         *
            Appellees,                   *
                                         *
                                   ____________

                            Submitted: May 16, 2001

                              Filed: August 3, 2001
                                  _____________

Before WOLLMAN, Chief Judge, HANSEN, Circuit Judge, and BARNES,1
District Judge.

                                 _____________




      1
        The Honorable Harry F. Barnes, United States District Judge for the Western
District of Arkansas, sitting by designation.
BARNES, District Judge.



       Melissa Lancaster and Tim Lancaster appeal the district court’s2 order denying
their motion for summary judgment, and granting summary judgment to Royal Surplus
Lines Insurance Company. We review the district court’s order de novo. Wayne v.
Genesis Medical Center, 140 F.3d 1145, 1147 (8th Cir. 1998). For the reasons set forth
below, we affirm.

                                           I.

              Melissa Lancaster was an employee of Leonard Scheffler’s McDonald’s
restaurant in Columbia, Missouri. She and her husband Tim Lancaster filed a sexual
harassment claim against Scheffler. The parties reached a settlement agreement
whereby the judgment amount of two million dollars actual damages and five million
dollars punitive damages was to be paid out of proceeds of any insurance policies held
by Scheffler. The district court reduced the agreement to a judgment after a short
hearing which essentially adopted the agreement of the parties in toto.

       Scheffler had four insurance policies which were subject to the settlement;
however, this appeal is concerned only with the policy held by Royal Surplus Lines
Insurance Company (Royal Surplus). Melissa and Tim Lancaster filed garnishments
in aid of execution of the judgment awarded by the district court. Royal Surplus
opposed the garnishments alleging that their policy did not insure the risk and was not
subject to the execution. The district court held in its order of February 10, 2000, that
Royal Surplus was not liable and that the garnishment action must fail.


      2
        The Honorable Scott O. Wright, United States District Judge for the Western
District of Missouri.
                                           -2-
                                            II.

       The issue raised on appeal is whether the district court erred in its application of
the "traditional principles of contract interpretation" rather than the "reasonable
expectations doctrine," to the policy with Royal Surplus. Scheffler purchased four
insurance policies. One was a package policy from American & Foreign Insurance
Company (American) which provided coverage for commercial property, commercial
crime, commercial auto, and commercial general liability. In addition, he purchased
an umbrella policy from Royal Insurance Company of America (Royal). Neither the
American package policy nor the Royal umbrella policy covered sexual harassment.
Scheffler also purchased an employment practices liability policy or EPLP, from
Reliance National Insurance Company of Illinois (Reliance) which provided
$250,000.00 coverage for claims relating to sexual harassment and Reliance has
surrendered its face amount in partial satisfaction of the judgment.

        The policy which is the focus of this appeal is the special excess policy (SEP)
Scheffler purchased from Royal Surplus Lines Insurance Company. McDonald’s
provided this special excess policy to interested franchisees in an effort to cover
punitive damage awards above that covered by the franchisees’ individual general
liability policy and umbrella policy. The special excess policy application Scheffler
completed required that he list his other policies and their carriers. He listed the
American package policy and Royal umbrella policy on the application, but failed to
list his Reliance EPLP. Royal Surplus ultimately denied coverage since under the
language of the policy the SEP only provided coverage for those occurrences insured
by underlying insurance described in Scheffler’s application. Scheffler only listed two
policies, neither of which covered sexual harassment.3


      3
         Scheffler submitted his claim to Royal Surplus in 1997; however, it was not
until September 1, 1998 that Royal Surplus amended its policies to permit
                                            -3-
       Appellants argue that coverage was available to them under the Royal Surplus
policy because the insured (Scheffler) had a reasonable expectation of coverage and
had no reason to suspect coverage was dependent on the policies listed in his
application as underlying insurance. Appellants’ basis for their contention is set forth
in the case of Niswonger v. Farm Bureau Town & Country Insurance Company, 992
S.W.2d 308 (Mo. App. E.D. 1999); See also Bellamy v. Pacific Mut. Life Ins. Co., 651
S.W.2d 490 (Mo. 1983). The court in Niswonger , recognizing the fact that the
"reasonable expectations" doctrine is "not in strict accordance with traditional
principles of contract interpretation," found that it should only be applied with caution.
Niswonger, 992 S.W.2d at 320-321 (citing Rodriguez v. General Accident Ins. Co.,
808 S.W.2d 379, 382 (Mo. banc 1991)). An appropriate application might be a
situation where there is ambiguity in the policy. Id.

       Appellants argue that the facts support Scheffler’s "reasonable expectations" that
he had coverage under the Royal Surplus policy. McDonald’s originally negotiated the
special excess policy specifically for those franchisees in need of coverage for punitive
damages. They also contend that Scheffler only knew that a surplus policy was in
effect when he purchased the policy and therefore had a reasonable expectation that
he was covered. In fact Scheffler claims that only after the filing of this lawsuit did he
receive a copy of the master policy and learn that underlying insurance listed in his
application was a necessary condition for coverage. Finally, appellants argue that
ignoring Scheffler’s reasonable expectations and permitting Royal Surplus to deny
coverage would produce an unconscionable result.

       The district court, while agreeing with the appellants that Niswonger supports
the "reasonable expectations" doctrine, found that neither the policy nor the attending


employment liability policies to become eligible as underlying insurance. Therefore,
even had he listed his Reliance EPLP on the Royal Surplus application, that
coverage would have been unavailable to him.
                                           -4-
documents in the instant case contained the necessary ambiguity. Therefore, the court
said, "that part of Niswonger which authorizes a court to introduce ambiguity based
upon extrinsic evidence does not apply and the reasonable expectations doctrine is
unavailable." Dist. Ct. Op. at 6. We agree, and hold that the district court properly
applied traditional principles of contract interpretation in its determination that coverage
under the special excess policy provided by Royal Surplus did not extend to appellants’
sexual harassment claims.

                                            III.

      Accordingly, we affirm the district court’s grant of summary judgment to Royal
Surplus Lines and its denial of summary judgment for Melissa and Tim Lancaster.



       A true copy.

              Attest:

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




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