                    United States Court of Appeals
                       FOR THE EIGHTH CIRCUIT


                              __________

                              No. 97-1090
                               __________



Transit Casualty Company,        *
                                 *
     Plaintiff/Appellee,         *     Appeal from the United States
                                 *     District Court for the Western
     v.                          *     District of Missouri
                                 *
Selective Insurance Company      *
of the Southeast,                *
                                 *
     Defendant/Appellant.        *


                               _________

                     Submitted: June 11, 1997

                           Filed: September 5, 1997
                               _________

Before WOLLMAN, HENLEY and BEEZER,1 Circuit Judges.

                               _________

BEEZER, Circuit Judge:

     Selective   Insurance   Company   appeals   the   district   court’s
summary judgment holding that Selective may not offset its debt to
Transit Casualty Company against the sums owed by Transit to
Selective.   The district court held that the contractual right of
offset between the parties conflicted with the insolvency clause in
the contracts and that granting the offset violated Missouri public
policy.   Accordingly, the court found that Selective owed the full



     1
      The Honorable Robert R. Beezer, United States Circuit Judge
for the Ninth Circuit Court of Appeals, sitting by designation.
sum of its obligations to Transit and awarded prejudgment interest.
We have jurisdiction over this timely appeal pursuant to 28 U.S.C.
§ 1291, and we affirm.


                                       I


     This case involves two sets of contracts.              The first set
concerns three retrocession contracts which Transit entered into in
1983, with Fortress Re as the reinsurance underwriting manager on
behalf of Selective.2    Pursuant to these three contracts, Transit
has submitted a number of claims that remain unpaid.              As of the
date of summary judgment in this case, Fortress, on behalf of
Selective, owed Transit $183,390.98.


     In the second set of contracts, Transit acted as reinsurer for
Fortress.    Between    1980    and   1985,   Transit   entered   into   ten
contracts with Fortress, acting on behalf of its member companies,
one of whom is Selective.      None of the member companies is named in
the contracts, however; only Fortress is a signatory.          Under these
ten contracts, Transit owes the Fortress           companies unpaid claims
in the amount of $337,974.68.         Selective was a member company for
the time period covered by six of the contracts.


     Transit went into receivership on December 3, 1985, and
liquidation proceedings began in Missouri.          Fortress filed claims
in the Transit receivership proceeding under each of the ten
reinsurance contracts.    Eight of these ten claims were allowed by
the receiver, for a total amount of $316,364.35.


     The receiver for Transit subsequently brought this action
against Selective in Missouri state court seeking recovery of the


     2
      Selective   was   formerly      known   as   Southeastern   Insurance
Company.

                                       2
sums owed by Selective under the three retrocession contracts.
Selective removed the action to federal court and pleaded as an
affirmative defense that it had a right to offset the sums it owed
to Transit against funds owed by Transit to Selective under the ten
reinsurance contracts.


     The retrocession contracts, under which Transit brought this
action against Selective, contain an insolvency provision.
The reinsurance contracts, under which Selective claims a right of
offset, contain both an insolvency clause and an offset clause.


     The    district court granted summary judgment in favor of
Transit, holding that the insolvency clause conflicted with the
set-off    clause   in   the   reinsurance   contracts,   and   that   upon
Transit’s insolvency the insolvency clause governed the rights of
the parties.    The district court further held that the insolvency
clause did not grant an inter-contract set-off right and that, even
if it did, such a set-off would be contrary to Missouri’s Insurance
Code and was void.


                                    II


     We review the district court’s grant of summary judgment de
novo.     Kielmele v. Soo Line R.R. Co., 93 F.3d 472, 474 (8th Cir.
1996).    In this diversity case, the interpretation of the insuring
agreement is a matter of state law, General Cas. Ins. Co. v. Holst
Radiator Co., 88 F.3d 670, 671 (8th Cir. 1996), and we review de
novo the district court’s interpretation of state law.                 Salve
Regina College v. Russell, 499 U.S. 225, 231 (1991).


     Selective’s appeal presents three issues for resolution: (1)
whether the allowance of a set-off violates the Missouri Insurance
Code; (2) whether the parties contracted to allow a set-off; and

                                     3
(3) whether Selective is entitled to a set-off in this case.                  We
answer the first question in the negative and the second in the
affirmative, but hold that lack of mutuality prevents Selective
from taking advantage of the contractual right of set-off.


                                         A.


       The first question presented by Selective’s appeal is whether
the offset of debts in insolvency violates the Missouri Insurance
Code or otherwise violates Missouri public policy.                  If such a
prohibition is discovered, any contractual right of offset is
irrelevant.     Transit contends that the Missouri Insurance Code
constitutes a comprehensive scheme for the resolution of the failed
insurer’s assets and that the Code does not condone set-offs.
Moreover, argues Transit, allowing set-offs would subvert the
priority of creditors established in the Code.


       Selective, on the other hand, argues that set-offs merely
establish the bounds of the pre-receivership assets and that the
Insurance Code governs only the distribution of those assets,
rather than their definition.        We agree with Selective that nothing
in the Insurance Code nor in Missouri common law indicates that
Missouri rejects the right of parties to contract for a right to
offset debts.
       In 1892 the Supreme Court held that the right to assert set-
off in insolvency was customary both statutorily and as a matter of
equity.       Indeed,    the    Court    stated   that    “where   the   mutual
obligations have grown out of the same transaction, insolvency on
the one hand justifies the set-off of the debt due upon the other.”
Scott v. Armstrong, 146 U.S 499, 507 (1892).             The Court went on to
hold   that   “[w]here    a    set-off   is   otherwise   valid,   it    is   not
perceived how its allowance can be considered a preference, and it
is clear that it is only the balance, if any, after the set-off is


                                         4
deducted, which can justly be held to form part of the assets of
the insolvent.”    Id. at 510.


     The Supreme Court of Missouri subsequently dealt with the
question of offset in an insurance insolvency proceeding.                    The
Court recognized the right to offset debts, but disallowed the
offset because of the lack of mutuality of obligation.                  Citing
Scott v. Armstrong, the Missouri Supreme Court stated that the
“right to assert set-off at law is of statutory creation, but
courts of equity from a very early day have been accustomed to
grant relief in that regard independently as well as in aid of
statutes upon the subject.”      Sturdivant Bank v. Stoddard County, 58
S.W.2d 702, 703 (1933).      Thus, the broad principle of offset in
insurance   insolvencies   has     been    accepted   by   Missouri    courts.
Missouri courts continue to allow offset in contractual disputes.
See Greenwood v. Bank of Illmo, 782 S.W.2d 783 (1989); Edmonds v.
Stratton, 457 S.W.2d 228 (1970).
     The    Missouri   Insurance    Code    establishes    the    priority   of
creditors in the case of an insurer insolvency.3                 This section,
along with the remainder of the statute, dictates the order of


     3
      Mo. Rev. Stat. § 375.700 (1997) provides:
          1.Unless reinsurance of a dissolved insurer is effected
          and its assets conveyed to the reinsuring company as
          provided by law, and unless such insurer is being
          rehabilitated under other provisions of sections 375.010
          to 375.1246, the receiver, under the direction of the
          court, shall apply the sums realized from the assets of
          such insurer in hereafter making any partial or final
          distribution, in the following order:
          (1) To payment of all the expenses of closing the
          business and disposing of the assets of such insurer;
          (2) To the payment of all lawful taxes and debts due the
          state and the counties and municipalities of this state;
          (3) To the payment of policy claims;
          (4) To the payment of debts due the United States
          (5) To the payment of the other debts and claims allowed
          against such insurer, and the unearned premiums and the
          surrendered value of its policies, in proportion to their
          respective amounts.

                                     5
distribution of the insolvent insurance company’s assets at the
time the receivership or liquidation order is entered.    If, as is
contemplated in Scott v. Armstrong, set-off defines the nature of
the insolvent’s assets, allowing set-off does not subvert the
priority of creditors established by statute.   Because the Missouri
courts have accepted the right of parties to offset debts and have
adopted Scott v. Armstrong, we believe that the Missouri Supreme
Court would hold that a mutual set-off may constitute a pre-
receivership asset that does not subvert the priority of creditors
listed in the Insurance Code.


     We are aware that the allowance of set-offs affects the nature
of the claims allowed:


     Whereas the allowance of set-offs furthers some public
     policies, it may conflict with other public policies that
     guide the administration of insolvent estates: the prohibition
     of preferences (the preferential treatment of one creditor
     over another), and the guarantee of a pro rata distribution of
     estate assets.      There is no question that in some
     circumstances, the application of set-off principles works to
     the advantage of one particular creditor, or class of
     creditors, and to the disadvantage of others. For nearly two
     thousand years, however, courts and legislatures have resolved
     the tension between these competing public policies in favor
     of set-offs.


Stephen W. Schwab et al., Onset of an Offset Revolution: The
Application of Set-Offs in Insurance Insolvencies, 95 Dick.L.Rev.
449, 454 (1991).   Acknowledging this tension, we hold that parties
in Missouri may contract to offset mutual debts.


     The allowance of set-off in Missouri insurance insolvencies
does not contradict the Missouri Insurance Code and it does not
otherwise violate Missouri public policy.   There is no indication
in Missouri case law that the right to set-off has been rejected.
Moreover, to allow set-off aligns Missouri with almost all other


                                 6
states.   See id. at App. A.   Indeed, since Transit’s insolvency,
Missouri has enacted a set-off provision, an indication that set-
offs likely did not violate public policy prior to the enactment.
Mo. Rev. Stat. § 375.1198 (1997).


                                 B.


     Given that parties in Missouri are free to contract for a
right of set-off, we next consider whether the parties did, in
fact, bargain for a right of offset.   We hold that the contracts at
issue here allow for the set-off of mutual obligations.


     The retrocession contracts, under which Transit brought this
suit, do not contain a set-off clause.     But the ten reinsurance
contracts, under which Transit owes money to Fortress Re, do:


     The parties may offset any balances (whether on account of
     premium, commission, claims, losses, loss adjustment expenses,
     salvage or other) due from one party to the other under this
     Contract or under any other Contract heretofore or hereafter
     entered into by the parties.


The district court found that the offset clause conflicted with the
following insolvency clause:

     In the event of the insolvency of [Transit] it is understood
     and agreed that [the Fortress companies’] claim against
     [Transit] in the insolvency proceeding shall consist of all
     amounts owing to [the Fortress companies] from [Transit] on
     the date of the entry of a receivership or liquidation order,
     . . . including but not limited to, liquidated and
     unliquidated claims and claims undetermined in amount on said
     date, all such claims being deemed hereby to be in existence
     as of such date less those amounts owing from the [Fortress
     companies] to [Transit] on the date of the entry of the
     aforesaid receivership or liquidation order.

We disagree with the district court that the clauses cannot operate
simultaneously.   In interpreting a contract under Missouri law, we


                                 7
attempt to harmonize the various provisions of a contract, and we
read them to avoid a conflict.           Phillips v. Authorized Investors
Group, 625 S.W.2d 917, 921 (Mo. App. 1981).            If the terms of the
contract are clear, we apply those provisions as written.               We find
that the contract here is clear and that there is no necessary
conflict between the two clauses.


     The    insolvency      clause    stipulates   that,    in   the   event   of
Transit’s insolvency, the Fortress companies’ claims would be
deemed to be in existence as of the date of insolvency and that the
amount owed by the Fortress companies to Transit would be deducted
from the claimed amount.             This appears to be a set-off clause
within the insolvency clause.           Transit maintains that it covers
only debts under the reinsurance contracts and does not apply to
obligations under other contracts, as the set-off clause does.


     We are unconvinced by Transit’s argument.             The two clauses may
be read harmoniously, and there is no reason not to do so in this
case.     The insolvency clause does not clearly limit its offset
provision to sums owed under the reinsurance contract; the offset
clause clearly does apply to sums owed under other contracts
between    the   parties.      Accordingly,    the   reinsurance       contracts
provide for an inter-contract right of set-off.              We see no reason
why the insolvency clause and the set-off clause cannot operate
simultaneously.    Together, these two clauses manifest an intent by
the parties to allow set-off of mutual obligations.


                                       III
        We next consider whether Selective may set-off its debt to
Transit.    In order for a set-off to be applied, the parties must be
“mutually indebted.”     Sturdivant Bank, 58 S.W.2d at 704.            “It is a
rule of practically universal application that to warrant a set-off
at law the demands must be mutual and subsisting between the same


                                        8
parties, due in the same capacity or right, and there must be
mutuality as to the quality of right.”        Id. at 703-04.   In other
words, “the mutuality of capacity requirement means that in order
for debts to be set off in an insurance insolvency, the parties
between whom the set-off is to be made must stand in the same
relationship or capacity to each other.”      Schwab, 95 Dick. L. Rev.
at 478.
     It   is   upon   the   mutuality   requirement   that   Selective’s
arguments fail.   Transit and Selective are not mutually indebted.
Selective is a named party to the retrocession contracts, but only
Fortress and Transit are parties to the reinsurance contracts under
which Selective claims a set-off.       Selective may well be obligated
under the reinsurance contracts by virtue of an agreement with
Fortress, but Selective does not act in the same capacity under
both the reinsurance and the retrocession contracts.         Transit may
sue Selective under the retrocession contracts, but it does not
appear that Selective could bring a cause of action against Transit
under the reinsurance contracts.    See Sturdivant Bank, 58 S.W.2d at
704 (“If defendant’s demand is due and payable while plaintiff’s is
not . . . it seems clear that the parties are not mutually
indebted.”); see also Greenwood, 782 S.W.2d at 786, quoting Dalton
v. Sturdivant Bank, 76 S.W.2d 425, 426 (1934) (“It is a general
rule of practically universal application at law that, to warrant
a set-off, the demands must be mutual and subsisting between the
same parties and must be due in the same capacity of right.       Equity
usually follows the law, and it is held as a general rule that in
equity as at law the right of set-off is reciprocal, and only
mutual claims and such as are in the same capacity or right can be
set off.”)
     The facts presented here are virtually identical to those in
a California case in which the Supreme Court of California denied
a set-off because the debts between the reinsurers were not mutual.




                                    9
Prudential Reinsurance Co. v. Superior Court, 3 Cal. 4th 1118, 1137
(1992) (“Prudential II”).            In Prudential II, Prudential Reinsurance
Company acted as reinsurer for Mission Insurance Company under one
set of contracts, and Mission acted as reinsurer for Prudential and
its subsidiary, Gibraltar, under another.                The court held that the
debts were not mutual under the two sets of contracts because
“Prudential Reinsurance did not demonstrate below that both it and
its       subsidiary,   Gibraltar,      contracted    as    both    reinsurers     and
reinsureds with the Mission companies.”              Prudential Reinsurance Co.
v. Superior Court, 265 Cal. Rptr. 386, 396-97 (1990) (“Prudential
I”) (explicitly affirmed on appeal by Prudential II, 3 Cal. 4th
1118).      The California court declined to adopt an expansion of the
set-off doctrine that would permit set-off “in the absence of an
express mutual agreement that the subsidiary would be deemed a
mutual debtor-creditor of the parent.”               Prudential II, 3 Cal. 4th
at 1137.


          Although Prudential I and Prudential II were decided pursuant
to    a    set-off   statute,    we    believe    that     the   logic   applies    to
Selective’s set-off claim.              There is no evidence in the record
indicating that Selective and Fortress agreed to be mutual debtor-
creditors.       With respect to the retrocession contracts, Selective
is a principal party; the same is not true of the reinsurance
contracts.       Thus, as in Prudential I and II, Selective did not
prove that it had contracted both as reinsurer and reinsured with
Transit.         Mutuality      is    therefore    lacking,        and   Selective’s
affirmative defense of set-off fails.


                                          IV


          Selective finally contends that the district court erred in
awarding prejudgment interest from 90 days after each demand
Transit made for payment of claims under the retrocession


                                          10
contracts.        Selective argues that the debts were not liquidated
until February 17, 1995, the date the parties stipulated to the
amount of insurance proceeds at issue.       The district court found
that Transit had made demands for proceeds from claims due every
year since 1986 and awarded prejudgment interest from 90 days after
each demand.       Whether the district court had authority to grant
prejudgment interest is a question of state law which we review de
novo.    Latham Seed Co. V. Nickerson American Plant Breeders, Inc.,
978 F.2d 1493, 1501-02 (8th Cir. 1992).


        The Missouri Code provides: “Creditors shall be allowed to
receive interest at the rate of nine percent per annum, when no
other rate is agreed upon, for all moneys after they become due and
demand of payment is made.” Mo. Rev. Stat. § 408.020 (1997)        In
Missouri, prejudgment interest will be awarded only on liquidated
claims, and a claim is liquidated when it is “fixed and determined
or readily ascertainable by computation or recognized standard.”
Schnucks v. Carrollton Corp. v. Bridgeton Health and Fitness, Inc.,
884 S.W.2d 733, 740 (1994).      Under this standard, Transit’s claims
under the     contracts were ascertainable at the date of the demand.
Transit is entitled to prejudgment interest in accordance with the
district court’s order of November 13, 1996.


AFFIRMED.



A True Copy:


        Attest:


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




                                    11
