                     United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT
                                    _____________

                                     No. 98-1845
                                    _____________

Winthrop and Weinstine, P.A.                *
                                            *
                                            *
           Plaintiff - Appellant,           * Appeal from the United States
                                            * District Court for the
      v.                                    * District of Minnesota.
                                            *
Travelers Casualty and Surety               *
Company; United States Fidelity &           *
Guaranty Company,                           *
                                            *
                                            *
           Defendants - Appellees.          *

                                    _____________

                            Submitted: February 11, 1999
                                Filed: August 19, 1999
                                 _____________

Before McMILLIAN, JOHN R. GIBSON, and MURPHY, Circuit Judges.
                           _____________

JOHN R.GIBSON, Circuit Judge.

       Winthrop and Weinstine, P.A., a law firm, appeals from the district court's1 order
granting summary judgment to United States Fidelity and Guaranty Company and


      1
      The Honorable David S. Doty, United States District Judge for the District of
Minnesota.
Travelers Casualty and Surety Company, and denying it insurance coverage for losses
resulting from an employee's embezzlement. Winthrop argues that the court erred in
granting summary judgment to USF&G and Travelers because: (1) USF&G was not
prejudiced by late notice of loss; (2) there is coverage under the prior insurance clause
of the Travelers policy; and (3) Travelers is estopped from denying coverage. We
affirm the district court's order.

       From February 1, 1990, through January 31, 1994, USF&G insured Winthrop
for loss caused by employee dishonesty. The policy covered loss sustained during its
policy period and "discovered no later than one year from the end of the policy period."
The declarations showed three policy periods for the USF&G policies: February 1,
1990 to February 1, 1991; February 1, 1991 to February 1, 1992; and February 1, 1992
to February 1, 1994. The policy required Winthrop to provide notice of a loss "as soon
as possible."

       On February 1, 1994, the USF&G policy expired. Winthrop obtained an almost
identical policy from Aetna Casualty & Surety Company.2 The policy provided
coverage for certain losses sustained during prior insurance:

      a. If you, or any predecessor in interest, sustained loss during the period
      of any prior insurance that you or the predecessor in interest could have
      recovered under that insurance except that the time within which to
      discover loss had expired, we will pay for it under this insurance
      provided:

             (1) This insurance became effective at the time of
             cancellation or termination of the prior insurance: and



      2
        Effective July 1, 1997, Aetna Casualty and Surety became known as Travelers
Casualty and Surety Company. For simplicity, we will identify Aetna as Travelers and
the policy at issue as the Travelers policy.
                                           -2-
             (2) The loss would have been covered by this insurance had
             it been in effect when the acts or events causing the loss
             were committed or occurred.

      b. The insurance under this Condition is part of, not in addition to, the
      Limits of Insurance applying to this insurance and is limited to the lesser
      of the amount recoverable under:

             (1) This insurance as of its effective date; or
             (2) The prior insurance had it remained in effect.

       In July 1989, Winthrop hired Therese Warner to work as an accounts payable
clerk. She was fired on July 5, 1994. On September 28, 1994, Winthrop discovered
that Warner had stolen money during her last month of employment. Warner had
altered the "payee" on checks payable to Winthrop creditors to her personal credit card
accounts. Winthrop immediately notified Mark Epstein, its insurance agent, who, in
turn, notified Travelers of a potential claim. No notice was provided to USF&G.

       On November 23, 1994, Winthrop submitted a proof of loss to Travelers. The
proof of loss documented that between September 1993 and June 1994, Warner altered
the payee on twenty-three Winthrop checks. The total amount stolen was $47,830.54.
Although six of the twenty-three checks (totaling $12,042.70) included in the proof of
loss were stolen when Winthrop was insured by USF&G, Travelers paid Winthrop
$47,330.54 (proof of loss minus $500 deductible) in "full settlement" of the proof of
loss. Winthrop accepted the check and executed a "Release and Assignment."
Winthrop released Travelers "on account of a certain loss arising out of employee theft
by Therese Warner" and assigned Travelers all "of its claims and rights" against
Warner "growing out of" the loss. Travelers also obtained a $47,330.54 promissory
note from Warner.

       Soon thereafter, on January 3, 1995, Winthrop discovered that Warner had stolen
additional checks. The next day, Winthrop provided notice to Travelers of the

                                          -3-
additional stolen checks. On April 5, Winthrop submitted a second proof of loss to
Travelers, documenting that between July 31, 1993, and May 23, 1994, Warner had
stolen thirty-three Winthrop checks totaling $82,994.98. Although nineteen of the
thirty-three checks set forth in the second proof of loss (totaling $52,651.57) were
stolen when Winthrop was insured under the USF&G policy, Travelers approved the
second proof of loss for payment.

       Before Travelers paid on the second proof of loss, Winthrop discovered
additional losses. On June 22, 1995, Winthrop learned that Warner had stolen more
checks, and that her scheme had been taking place for at least three years. Again,
Winthrop notified Travelers, but not USF&G, of its additional losses. Winthrop then
hired an accounting firm to determine the full extent of its losses. The accounting firm
completed its investigation on September 28, 1995, concluding that Warner stole an
additional 153 checks dating from as early as 1990, totaling $215,783.01.

       On October 18, 1995, for the first time, Winthrop notified USF&G of a potential
claim. About a month later, Winthrop submitted a third proof of loss to Travelers, as
well as proof of loss to USF&G. Winthrop believed that USF&G was responsible for
occurrences before February 1, 1994, and that Travelers was responsible for
occurrences after February 1, 1994.

       Travelers replied that it would provide coverage for losses sustained on or after
February 1, 1994, the effective date of the Travelers policy. Travelers acknowledged
coverage for $74,267.90. Travelers offered to pay $26,437.39, calculating that it had
already paid $47,330.51, of which $12,042.70 was mistakenly paid for losses sustained
prior to February 1, 1994. Travelers denied that the prior insurance clause of its policy
covered checks altered during USF&G's policy period on the ground that the one-year




                                           -4-
discovery window under the USF&G policy3 had not expired when Winthrop
discovered Warner's dishonesty.

      USF&G also denied coverage. USF&G asserted that there was no coverage
because Winthrop did not timely notify it of the loss.

      Winthrop filed suit against both insurers. The parties stipulated to certain facts,
and the insurers moved for summary judgment. The district court ruled that Travelers
was required to indemnify Winthrop only for the loss occurring during its policy, and
that USF&G had no obligation to provide coverage because of Winthrop's late notice.
Winthrop now appeals the grant of summary judgment.

                                           I.

      We review a grant of summary judgment de novo, viewing all evidence in a light
most favorable to the nonmoving party. See Johnson v. Outboard Marine Corp., 172
F.3d 531, 535 (8th Cir. 1999). "A motion for summary judgment should be granted if
there is no genuine issue of material fact and the moving party is entitled to judgment
as a matter of law." Id. The parties direct us to Minnesota law in this diversity case.

       Winthrop first argues that the district court erred in ruling that USF&G was not
required to indemnify it for any loss which occurred before February 1, 1994, because
of Winthrop's late notice. Winthrop admits that the thirteen-month delay between
Winthrop's initial discovery of the loss and notice to USF&G constituted late notice.
Nevertheless, Winthrop contends that USF&G was not prejudiced by the late notice
and must therefore provide coverage.


      3
       The prior insurance clause applied only if the insured "could have recovered
under [the prior insurance] except that the time within which to discover loss had
expired . . . ."
                                           -5-
       In Minnesota, late notice by the insured does not necessarily result in a loss of
coverage. Late notice defeats coverage only if there is prejudice to the insurer or notice
is actually a condition precedent to coverage (i.e. the policy is a "claims made" policy).
 See Reliance Ins. Co. v. St. Paul. Ins. Cos., 239 N.W.2d 922, 924-25 (Minn. 1976)
(prejudice required); N.K.K. ex rel. Knudson v. St. Paul Fire and Marine Ins. Co., 555
N.W.2d 21, 25 (Minn. Ct. App. 1996) ("claims made" policy); Esmailzadeh v. Johnson
and Speakman, 869 F.2d 422, 424-25 (8th Cir. 1989) (same). The insurer has the
burden of proving prejudice. See Reliance, 239 N.W.2d at 925.

        The district court held that notice was not a condition precedent to coverage.
The court ruled, however, that USF&G was prejudiced in two ways by the late notice.
First, USF&G was prejudiced because it could not recover from Winthrop's financial
institutions who paid on the altered checks. Second, USF&G was prejudiced when
Winthrop signed a release and assignment of all claims and Travelers obtained a
promissory note from Warner.

       Section 336.4-406(f) of Minnesota's Commercial Code precludes a bank
customer from recovering on an altered check from its bank if the customer does not
report the alteration within one year of the bank statement being made available to the
customer. See Minn Stat. § 336.4-406(f) (1998). Because USF&G did not receive
notice of Winthrop's loss until October 1995, it could not become Winthrop's subrogee
until that time. By October 1995, the one year limitation period expired on checks
appearing on bank statements after September 1993 but before October 1994.4 The
late notice to USF&G resulted in USF&G losing the opportunity to timely notify the
banks on these checks.5

      4
          Winthrop estimates that these checks totaled $67, 210.76.
      5
       Winthrop argues that USF&G would not have won on the merits against the
banks even if the limitations period had not expired; therefore, USF&G was not
prejudiced. We reject Winthrop's argument. Winthrop speculates on the merits, while
                                           -6-
        Furthermore, before Winthrop gave notice to USF&G, Winthrop had already
released Travelers and assigned to it "all of its claims and rights against Therese
Warner . . . growing out of the [employment theft] . . . ." Because USF&G did not
receive notice "as soon as possible," as the policy required, it lost the opportunity to
engage in the initial settlement negotiations and to prevent Winthrop from using the
broad language in the assignment to Travelers, or at least, to receive an assignment of
"all claims" before Travelers did. USF&G contends the assignment was detrimental
because if USF&G were to sue Warner, Warner could defend by asserting that USF&G
had no rights against her because Winthrop had assigned all such claims and rights to
Travelers. Winthrop contends that such an argument would fail, or at least would only
be successful as to items of loss actually paid by Travelers. The plain language of the
assignment refers to "all claims and rights" growing out of the employment theft, and
courts have interpreted such language in assignments and releases broadly. See, e.g.,
Sorensen v. Coast-to-Coast Stores Inc., 353 N.W.2d 666, 668-670 (Minn. Ct. App.
1984) (release of "all claims" applies to claims of which the party had no knowledge);
Steele v. Goosen, 329 S.W.2d 703, 711-712 (Mo. 1959) (assignment of "all claims" to
the insurer prevented insured from suing tortfeasor for amounts not paid by the insurer).
Cf. J&B Slurry Seal Co. v. Mid-South Aviation, Inc., 362 S.E.2d 812, 819 (N.C. Ct.
App. 1987) (by assignment insurer can acquire claim for greater value than the
proceeds it has paid to the insured); 16 George J. Couch, Couch Cyclopedia of
Insurance Law § 61:113 (2d ed. 1983) (same). Whether or not Warner's argument
would succeed, USF&G is exposed to an issue that carries with it colorable potential
for loss of its claim and the certainty of substantial litigation expense. This is, in our
view, sufficient to establish prejudice. See West Bay Exploration Co. v. AIG Specialty
Agencies, Inc., 915 F.2d 1030, 1036 (6th Cir. 1990) (applying Michigan law) (insurer
does not have to prove that but for the delay in notice it would have avoided liability;


the expiration of the limitations period is an undisputedly dispositive defense. Its
availability to the banks was prejudicial as a matter of law.
                                           -7-
it need only show that it has suffered material impairment in its ability to contest the
merits of a case); Robert E. Keeton and Alan I. Widiss, Insurance Law, § 7.2(e), at 766
(1988) (courts require insurers to prove "some, but not an overwhelming degree of,
prejudice . . . . it is sufficient for the insurer to show . . . that the company's exposure
to liability was increased . . . .).

      The district court did not err in concluding that Winthrop's untimely notice was
prejudicial to USF&G.

                                            II.

       Winthrop next argues that Travelers is liable for coverage under the prior
insurance clause of the policy. Travelers does not contest liability for losses occurring
after February 1, 1994.

       The prior insurance clause in the Travelers policy states:

       [I]f you . . . sustained loss during the period of any prior insurance that
       you . . . could have recovered under that insurance except that the time
       within which to discover loss had expired, we will pay for it under this
       insurance provided:

       (1) This insurance became effective at the time of cancellation or
       termination of the prior insurance . . . .

        The USF&G policy states, "We will pay only for covered loss discovered no
later than one year from the end of the policy period."

      The declarations show three insurance periods under the USF&G policy, and
Winthrop contends that after period one (February 1, 1990 to February 1, 1991), it had
a one year window to discover losses, and after periods two (February 1, 1991 to

                                            -8-
February 1, 1992) and three (February 1, 1992 to February 1, 1994), it had like one
year windows. It argues that because it did not discover period one and period two
losses until September 28, 1994 (outside the respective window for each period),
Travelers is liable for those losses under the prior insurance clause.

       We reject Winthrop's argument. Reading the USF&G policy to create multiple
discovery windows favors USF&G because USF&G would not be liable for period one
and two losses, as those losses are outside the respective discovery windows. Yet,
USF&G does not assert this interpretation of the policy. Instead, it argues that late
notice was prejudicial.

       Even if the USF&G policy contemplated multiple discovery windows, the district
court held that the Travelers insurance did not "go into effect until after the third policy
period"; therefore, the Travelers insurance did not become "effective at the time of
cancellation or termination of the prior insurance," as the Travelers policy required.

      The district court's holding views the expiration of USF&G policy periods one
and two as terminations of prior insurance not immediately followed by Travelers
coverage. Winthrop offers no analysis explaining why this is erroneous. Instead, it
conclusively states that Winthrop satisfied the condition regarding termination. See
Wilson v. International Business Machines Corp., 62 F.3d 237, 240 (8th Cir. 1995)
(vague and conclusory arguments not properly before the court). It argues that the
district court "apparently" interpreted the "loss during the period of any prior insurance"
language to mean only the "last" period. However, the district court made no ruling,
expressly or impliedly, to that effect.

       Finally, Winthrop's reading of the prior insurance clause contradicts its own
assertions regarding the purpose of the clause. In its memorandum in opposition to
summary judgment and again in its brief, Winthrop states that the purpose of prior
insurance clauses is "to avoid penalizing an insured when switching insurance

                                            -9-
companies." If USF&G had issued a "period four" insurance policy, instead of
Travelers, USF&G would not be liable for the period one and two losses because under
Winthrop's analysis, the separate one year discovery windows for periods one and two
had expired before discovery of loss. Yet, Winthrop contends that Travelers (who
issued the "period four" insurance) should be liable for period one and two losses.
Under Winthrop's analysis, the prior insurance provision does more than "avoid
penalizing an insured when switching insurance companies." By breaking the USF&G
policy into periods for purposes of discovery windows, but considering the USF&G
policy as a whole for determining whether the Travelers policy came into effect at the
termination of prior insurance, Travelers seeks to reap a benefit for switching insurance
companies.

       The district court did not err in concluding that Travelers was not liable under
the prior insurance provision.

                                          III.

      Winthrop's equitable estoppel claim against Travelers is without merit. Winthrop
claims that Travelers is estopped from denying losses not covered by its policy
because Travelers paid the first proof of loss and approved the second proof of loss,
both of which took into account checks that were stolen when Winthrop was insured
by USF&G.

       "The doctrine of estoppel may not be used to enlarge the coverage of an
insurance policy . . . . [I]t would be wholly improper to impose coverage liability upon
an insurer for a risk not specifically undertaken and for which no consideration has
been paid." Shannon v. Great American Ins. Co., 276 N.W.2d 77, 78 (Minn. 1979);
see also Pedersen v. United Services Auto. Ass'n, 383 N.W.2d 427, 430-31 (Minn. Ct.
App. 1986) (insurer's mistaken acknowledgment of coverage and partial payment does
not estop it from denying coverage).

                                          -10-
       Even if Winthrop could clear this hurdle, the evidence cited in its brief is
insufficient as a matter of law to show equitable estoppel. It has not demonstrated
sufficiently that Travelers intended that Winthrop act upon its representation or that
Winthrop actually relied to its detriment (i.e., did not give notice to USF&G) because
Travelers paid the first proof of loss and approved the second. See Transamerica Ins.
Group v. Paul, 267 N.W.2d 180, 183 (Minn. 1978) (stating elements of equitable
estoppel).

      Affirmed.

      A true copy.

             Attest:

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




                                         -11-
