                    United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                  ___________

                                  No. 03-2133
                                  ___________

State Automobile Insurance Co.,        *
                                       *
            Appellee,                  *
                                       *
      v.                               * Appeal from the United States
                                       * District Court for the Eastern
Michael J. Lawrence,                   * District of Arkansas.
                                       *
            Appellant.                 *
                                  ___________

                            Submitted: November 21, 2003

                                  Filed: March 1, 2004
                                   ___________

Before WOLLMAN, BYE, and SMITH, Circuit Judges.
                           ___________

SMITH, Circuit Judge.

      State Automobile Mutual Insurance Company ("State Auto") sought a
declaratory judgment that its insured, Michael J. Lawrence, was not entitled to
underinsured motorist ("UIM") coverage under his auto policy. The district court1
granted summary judgment to State Auto after determining that Lawrence failed to
properly make a claim according to the procedures in the policy and under Arkansas
law. We affirm.

      1
        The Honorable George Howard Jr., United States District Judge for the
Eastern District of Arkansas.
                                  I. Background
       On May 16, 1998, while driving in Texas, Lawrence's automobile collided with
a vehicle driven by Carrie Ledwig. Lawrence filed a personal-injury suit against
Ledwig, claiming injuries from the accident. Ledwig maintained a liability policy
with Nationwide Insurance Company ("Nationwide") with policy limits of $100,000.
Through a settlement finalized on September 28, 2001, Nationwide paid $65,000 to
Lawrence. Lawrence executed a release relieving Ledwig and Nationwide from any
additional liability.

       Lawrence maintained a UIM policy with State Auto with limits of $300,000.
On May 14, 2001, State Auto received a letter from Lawrence's legal counsel stating
in pertinent part:

      The purpose of this letter is to inform your Company that I have
      decided, as Mr. Lawrence's Attorney, to attempt, with his authority, to
      settle his claims against Defendant Ledwig in the above entitled and
      numbered litigation in Johnson County by making an offer of settlement
      within the policy limits of the Defendant's available liability insurance
      coverage (i.e. at or below the $100,000 limits) and to make a claim, on
      his behalf, under the under-insured motorist provisions of the
      above-numbered State Automobile Mutual Insurance Policy . . . .

In response, State Auto sent Lawrence's counsel a letter on May 23, 2001, with
information detailing Lawrence's duties under the policy for filing a UIM claim. State
Auto also sent an Arkansas UIM coverage form and requested that Lawrence provide
information about the accident and investigation. State Auto repeatedly attempted to
contact Lawrence's counsel to learn the status of the settlement negotiations. State
Auto’s telephone calls and correspondence through November 2001 went
unanswered.




                                         -2-
       In a letter dated December 4, 2001, Lawrence advised State Auto that he had
settled his case against Ledwig in September. Lawrence requested payment of the
UIM policy limits of $300,000 within twenty-one days. Lawrence also attached the
information regarding the liability claim that State Auto had requested on May 23,
2001. State Auto denied the claim citing Lawrence's failure to comply with the
policy's notice requirements and applicable Arkansas law. State Auto then filed a
declaratory-judgment action.

       State Auto subsequently filed a motion for summary judgment alleging that
Lawrence was not entitled to UIM benefits as a matter of law because Lawrence
failed to properly file his claim. Lawrence responded that the UIM provisions were
ambiguous, State Auto failed to establish harm from the notice delay, and a question
of material fact remained as to whether there was substantial compliance with the
provisions of the policy. The district court determined that the policy language,
modeled after Arkansas Code Annotated section 23-89-209 (Supp. 1997), was not
ambiguous. The district court found that the policy clearly detailed the insured's
responsibilities to make a claim for UIM benefits and that Lawrence failed to fulfill
those responsibilities. Lawrence appealed.

                                II. Standard of Review
       This court reviews de novo the district court's grant of summary judgment, as
well as its interpretation of Arkansas law. Shelter Mut. Ins. Co. v. Maples, 309 F.3d
1068, 1070 (8th Cir. 2002). Therefore, we apply the same standard as applied by the
district court. United Tel. Co. of Mo. v. Johnson Publ'g Co., Inc., 855 F.2d 604, 607
(8th Cir. 1988). We examine the entire record in the light most favorable to the
nonmoving party. Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir.
1992). Summary judgment is appropriate when there is no dispute between the parties
as to any genuine issue of material fact and when the moving party is entitled to a
judgment as a matter of law. Fed. R. Civ. P. 56(c). Therefore, the mere existence of
some alleged factual dispute between the parties is not sufficient by itself to deny

                                         -3-
summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48 (1986).
Instead, "the dispute must be outcome determinative under prevailing law." Holloway
v. Pigman, 884 F.2d 365, 366 (8th Cir. 1989) (citation omitted).

                                    III. Analysis
      Lawrence argues that the UIM policy and Arkansas law should not exclude
coverage under the facts of this case.2 We, like the district court, disagree.

       Generally, Arkansas law requires that a tortfeasor's liability insurance coverage
limits must be paid in full before the insured is entitled to UIM benefits. Birchfield
v. Nationwide Ins., 875 S.W.2d 502, 504 (Ark. 1994) (applying Ark. Code Ann. § 23-
89-209(a)(3)3) (emphasis added). Full payment is required because UIM coverage is
secondary and supplemental insurance that is always conditional. Hartford Ins. Co.
of the Midwest v. Mullinax, 984 S.W.2d 812, 815 (Ark. 1999) (citing Shepherd v.

      2
         Specifically, Lawrence argues that the district court erred in construing the
policy as clearly excluding coverage under the facts of this case without regard to the
issue of harm to State Auto. He argues that controlling Arkansas case law should be
limited to its facts and that the district court's "unreasonably narrow construction" of
the policy excluded a reasonable third option allowing UIM coverage when an
insured provides notice of a proposed below-limits settlement and the UIM carrier
elects not to participate in the litigation. In addition, Lawrence argues that the district
court erred in failing to require State Auto to show that his failure to strictly or
substantially comply with terms of the policy caused any real harm to State Auto or
that it resulted in forfeiture of benefits.
      3
          Ark. Code Ann. § 23-89-209(a)(3) (Supp. 1997) provides:

      (3) The coverage shall enable the insured or the insured's legal
      representative to recover from the insurer the amount of damages for
      bodily injuries to or death of an insured which the insured is legally
      entitled to recover from the owner or operator of another motor vehicle
      whenever the liability insurance limits of such other owner or operator
      are less than the amount of the damages incurred by the insured.

                                           -4-
State Auto Prop. & Cas. Ins. Co., 850 S.W.2d 324 (Ark. 1993)). Before payment by
the UIM carrier is required, both the amount of bodily-injury damages incurred by the
insured and the amount of liability-insurance benefits recovered by the insured from
the tortfeasor must be known. Ark. Code Ann. § 23-89-209; Mullinax, 984 S.W.2d
at 815 (citing State Farm Mut. Auto. Ins. Co. v. Thomas, 871 S.W.2d 571 (Ark.
1994)).

       Arkansas case law emphasizes the necessity of knowing the amount of liability
benefits paid. Mullinax, 984 S.W.2d at 815; State Farm Mut. Auto. Ins. Co. v.
Beavers, 901 S.W.2d 13, 16 (Ark. 1995); Birchfield, 875 S.W.2d at 504; Thomas, 871
S.W.2d at 573. In both the Beavers and Thomas decisions, the Arkansas Supreme
Court noted that the obligation to pay UIM benefits could not be triggered until it was
determined that the insured is, in fact, underinsured. Beavers, 901 S.W.2d at 16;
Thomas, 871 S.W.2d at 573. That necessarily entails knowing the extent of the
insured's damages and the liability benefits that have been paid by the tortfeasor's
carrier. Here, it is undisputed that Lawrence settled his case for $35,000 less than the
tortfeasor's policy limits. Pursuant to Birchfield, this indicates that Lawrence may not
have been underinsured because additional funds were available under the tortfeasor's
policy that Lawrence may have recovered.

       In this case, however, both the statute and UIM policy provide a mechanism
by which an insured can settle for less than the tortfeasor's policy limits and still
recover UIM benefits. The pertinent language in State Auto's UIM policy, which
echoes the language in section 23-89-209(c), details an insured's obligations when
making a claim for UIM benefits. Specifically, when an insured reaches a tentative
settlement with a tortfeasor for less than policy limits, both the policy and the statute
require that the insured provide notice to the UIM carrier before the settlement is
finalized. Consequently, the policy and applicable law required Lawrence to
appropriately notify State Auto prior to consummation of a settlement with Ledwig
for less than her policy limits. He did not.

                                          -5-
       Lawrence argues that the policy language is ambiguous. Lawrence asserts that
a third alternative exists for coverage when the UIM insurer is given notice of an
attempted settlement and the insurer joins in the litigation of the case in order to
secure policy limits. Whether the policy is ambiguous is a question of law for the
court. Columbia Ins. Co. v. Baker, 108 F.3d 148, 149–150 (8th Cir. 1997) (citing
Keller v. Safeco Ins. Co., 877 S.W.2d 90, 93 (Ark. 1994)). An exclusion clause is
ambiguous if it is "susceptible to more than one reasonable interpretation." Id.

       Under Arkansas law, insurance policies are to be construed liberally in favor
of the insured, and exclusionary language that is susceptible to more than one
reasonable interpretation should be construed in favor of the insured. Canal Ins. Co.
v. Ashmore, 126 F.3d 1083, 1085 (8th Cir. 1997); Columbia Ins. Co., 108 F.3d at 149;
State Farm Fire & Cas. Co. v. Midgett, 892 S.W.2d 469, 471 (Ark. 1995); Noland v.
Farmers Ins. Co., 892 S.W.2d 271, 272 (Ark. 1995). The insurer bears the burden of
proving as a matter of law that the insured's claim was excluded under the policy. See
id. (citing Arkansas Farm Bureau Ins. Fed'n v. Ryman, 831 S.W.2d 133, 134–35
(Ark. 1992)). In order for timely notice to be a condition precedent to coverage, the
insurance policy must use language expressly to that effect or language that
necessarily implies that the provision is a condition precedent. Kimbrell v. Union
Standard Ins. Co., 207 F.3d 535, 536 (8th Cir. 2000) (citing Hope Spoke Co. v.
Maryland Cas. Co., 143 S.W. 85, 86–87 (Ark. 1912)). "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." Noland, 892 S.W.2d at 272.

      In this case, both the UIM policy language and the statute are clear and
unambiguous–if an insured seeks UIM coverage, he or she must either actually
recover the liability limits or provide notice of a tentative settlement and allow the
UIM carrier reasonable time (thirty days) to respond to protect its interests.
Lawrence's proposed reading of the policy language is untenable in light of these

                                         -6-
express requirements. An insured does not satisfy his contractual and statutory duty
to give his UIM carrier notice of a tentative settlement with the tortfeasor when his
counsel's statement includes only an intent to propose a settlement at some future
date.

        Furthermore, Lawrence's argument that State Auto was not harmed by his
noncompliance must fail. To support this claim, Lawrence argues that Shelter Mutual
Ins. Co. v. Bough, 834 S.W.2d 637 (Ark. 1992), allows an insured to recover UIM
benefits although the insured failed to provide the requisite notice to the UIM carrier.
However, in allowing UIM coverage, the Shelter court noted that the tortfeasor's
liability limits were exhausted, thus necessarily triggering Shelter's UIM policy. Id.
at 640. Therefore, the court allowed the insured's UIM claim after concluding that the
insurer was not prejudiced by the settlement because its subrogation rights were not
affected. Id.

      Lawrence's case is different. Lawrence did not settle his case against Ledwig
and Nationwide for policy limits. Furthermore, he failed to allow State Auto to pay
him the tentative $65,000 settlement amount so that State Auto, as subrogee, could
pursue additional monies under the tortfeasor's policy. Lawrence's settlement
extinguished State Auto's ability to protect its subrogation interests in the remaining
$35,000 of the $100,000 available under Ledwig's Nationwide policy. As such,
Shelter Mutual Insurance does not apply.

      For the foregoing reasons, we affirm.
                      ______________________________




                                          -7-
