                    United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                  ___________

                                  No. 04-3894
                                  ___________

Perle O'Daniel,                   *
                                  *
          Appellee,               *
                                  * Appeal From the United States
    v.                            * District Court for the
                                  * District of South Dakota.
NAU Country Insurance Company,    *
                                  *
          Appellant.              *
                             ___________

                             Submitted: September 21, 2005
                                Filed: November 1, 2005
                                 ___________

Before MURPHY, HEANEY, and MELLOY, Circuit Judges.
                          ___________

HEANEY, Circuit Judge.

       Perle O'Daniel commenced a declaratory action in district court seeking an
order declaring that his loss of cattle was covered by an insurance policy issued by
NAU Country Insurance Company. Following discovery, both parties moved for
summary judgment. The district court granted O'Daniel's motion, and the insurance
company appealed. After careful review of the briefs and the record, we conclude
that the district court erroneously granted summary judgment to O’Daniel. We
therefore reverse and remand to the district court with directions to enter summary
judgment in favor of the insurance company.1

                                 BACKGROUND

       O'Daniel purchased an insurance policy from appellant covering various
personal and real property, including numerous calves and cows, in the amount of
$1,400,400. The premium was $6,643, and coverage became effective January 1,
2002. Coverage of the livestock was limited to the amount shown in the declarations.
The policy covered physical loss due to theft (“any act of stealing or attempt to
steal”), but was limited by several exclusions, including loss “by wrongful conversion
or embezzlement.” (Appellant’s App. at 106-07.)

       In addition to the policy application, O’Daniel completed a questionnaire
detailing his livestock operation. According to the questionnaire, O’Daniel’s cattle
were located on several parcels of land that he rented or leased. These parcels were
located anywhere from 15 to 300 miles from his home. Due to drought conditions,
O’Daniel subsequently transferred the cattle, without notifying the insurance
company, to Midwest Feeders, a commercial feedlot owned by David Chavez.
Chavez was to feed, water, and care for the cattle.

      In September 2002, O’Daniel went to Midwest Feeders and discovered that
some of his cattle were missing. O’Daniel reported the loss to the South Dakota State
Brand Board, which initiated an investigation. The investigation ceased when
Chavez committed suicide on September 16, 2002. From September 25, 2002 to
September 27, 2002, O’Daniel removed his cattle from Midwest Feeders, eventually
determining that he was missing 334 cows, 369 calves, and 15 bulls. O’Daniel then


      1
        The appellee's motion to strike certain matters contained in appellant's reply
brief is denied.

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filed a claim for the loss with the insurance company. While the insurance company
conceded that a theft had occurred, it denied coverage on February 10, 2003 under the
policy’s wrongful conversion or embezzlement exclusion.

       O’Daniel commenced an action in district court. Both parties moved for
summary judgment, and the district court ruled in favor of O’Daniel, holding that the
loss was covered under the insurance contract. The district court reasoned that the
goal of contract interpretation was to carry out the mutual intent of the parties, and
stated that the terms of the contract should be interpreted on the basis of “what a
reasonable person in the position of the insured would have understood the words to
mean.” (Add. at 7 (quoting Dairyland Ins. Co. v. Wyant, 474 N.W.2d 514, 518 (S.D.
1991) (Henderson J., dissenting).2) Finding the conversion and embezzlement
exclusion ambiguous, the district court construed the exclusion in favor of the
insured, and declared the loss recoverable. The district court then declared that “[a]
reasonable person is left confused by the use of the terms ‘theft’ and ‘wrongful
conversion.’” (Id. at 13.) This appeal followed.

                                     ANALYSIS

      We review the district court’s grant of summary judgment de novo and affirm
only where there are no genuine issues of material fact and the district court correctly
decided the legal questions. See United Tel. Co. of Missouri v. Johnson Publ’g Co.,
855 F.2d 604, 607 (8th Cir. 1988). Our interpretation of the insurance policy is
governed by South Dakota law. St. Paul Fire & Marine Ins. Co. v. Med. X-Ray Ctr.,
146 F.3d 593, 594 (8th Cir. 1998). An insurer relying on the policy exclusion has the

      2
       The majority in the Dairyland Insurance Company case specifically stated that
the “reasonable expectations” doctrine of insurance contract interpretation was not
“declared law in South Dakota,” and refused to address whether it would adopt the
doctrine because the insurance contract there was unambiguous. Dairyland Ins. Co.,
474 N.W.2d at 518.

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burden of proving the exclusion applies, and we must resolve any ambiguity in favor
of the insured. Opperman v. Heritage Mut. Ins. Co., 566 N.W.2d 487, 489 (S.D.
1997). But where there is no ambiguity, we must resolve the insurance contract as
it is written. O’Neill v. Blue Cross of W. Iowa & South Dakota, 366 N.W.2d 816,
818 (S.D. 1985) (holding that “[t]he terms of an unambiguous insurance policy
cannot be enlarged or diminished by judicial construction.”).

       Under South Dakota law, we determine, de novo, whether the insurance policy
terms are ambiguous, and look to “the policy as a whole and the plain meaning and
effect of its words.” Nat’l Sun Indus., Inc. v. South Dakota Farm Bureau Ins. Co.,
596 N.W.2d 45, 48 (S.D. 1999) (quoting Economic Aero Club v. Avemco Ins. Co.,
540 N.W.2d 644, 645 (S.D. 1995)). Ambiguity exists where the insurance policy
language “is fairly susceptible to two constructions,” and “will not be created merely
by one party offering a different interpretation of the contract language.” Am. Family
Mut. Ins. Group v. Kostaneski, 688 N.W.2d 410, 413 (S.D. 2004) (quoting Nat’l Sun
Indus., Inc. v. South Dakota Farm Bureau Ins., 596 N.W.2d 100, 102 (S.D. 1999)).

       In our view, the conversion exclusion is not ambiguous. The policy covered
theft, but specifically excluded coverage when the loss has occurred by wrongful
conversion or embezzlement. “While the term ‘theft’ may, under some
circumstances, include conversion, the term must be construed in the light of the
specific exclusions contained in the insurance policy.” Roth v. Farmers Mut. Ins. Co.
of Neb., 371 N.W.2d 289, 291 (Neb. 1985). Thus, where an entity has lawful control
of the property and then converts or embezzles that property, coverage is not
provided. Id. That is precisely what happened here. The policy provided coverage
for livestock located on land leased or rented by O’Daniel. O’Daniel subsequently
gave control of his cattle to Chavez at Midwest Feeders, who wrongfully converted
the property. Accordingly the loss is not covered by the policy.




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                                CONCLUSION

     For the above-stated reasons, the district court’s grant of summary judgment
to O’Daniel is reversed, and the case is remanded to the district court to enter
summary judgment in favor of the insurance company.
                      ______________________________




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