                                                                          F I L E D
                                                                   United States Court of Appeals
                                                                           Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                           JUN 13 2000
                            FOR THE TENTH CIRCUIT
                                                                      PATRICK FISHER
                                                                               Clerk

    LYLE R. NELSON,

                Plaintiff-Appellant,

    v.                                                   No. 99-6275
                                                   (D.C. No. CIV-98-638-R)
    ITT HARTFORD FIRE INSURANCE                          (W.D. Okla.)
    CO.,

                Defendant-Appellee.


                            ORDER AND JUDGMENT            *




Before KELLY , McKAY , and HENRY , Circuit Judges.




         After examining the briefs and appellate record, this panel has determined

unanimously to grant the parties’ request for a decision on the briefs without oral

argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore

ordered submitted without oral argument.




*
      This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
      Lyle R. Nelson, bankruptcy trustee for the estate of National Guaranty Title

Company (NGTC), appeals from summary judgment granted in favor of ITT

Hartford Insurance Company (ITT).     The sole legal issue is whether the estate is

entitled to recover under a fidelity insurance policy for acts of employee

dishonesty that have not yet resulted in actual loss to the estate, but for which the

estate is potentially liable . Our jurisdiction arises under 28 U.S.C. § 1291, and

we reverse.


                                     Background

      The relevant facts are not disputed. NGTC conducted real estate closings

and held monies for its clients in escrow accounts. For two years before its

financial demise, certain employees of NGTC misappropriated funds from the

escrow accounts, failed to properly pay out proceeds of loan closings, and

fraudulently collected funds to be used for title insurance premiums while

knowing that NGTC was no longer authorized by any insurer to issue title

insurance policies. After NGTC filed for bankruptcy, former clients and intended

beneficiaries of the escrow monies, the defrauded title insurance company,

and others rendering services for NGTC filed claims against the estate totaling

over $250,000.




                                          -2-
      NGTC purchased employee “crime coverage” insurance from ITT.

Pursuant to that policy, ITT contracted to pay “compensatory damages arising

directly from a loss covered under this insurance,” and defined “[i]nterests

[c]overed” as property “[t]hat you own or hold”; or “[f]or which you are legally

liable.” Appellant’s App. at 52, 53. The Trustee filed an adversary complaint

against ITT on behalf of NGTC, seeking to recover the escrow losses under these

provisions of its insurance policy in order to satisfy the claims against the estate.

      The matter was withdrawn from reference to the bankruptcy court. The

district court granted summary judgment in favor of ITT, finding that it was

bound by our decision in Spears v. St. Paul Ins. Co. (In re Ben Kennedy &

Assocs. , Inc.) , 40 F.3d 318 (10th Cir. 1994). The district court held that, under

Ben Kennedy , because NGTC had not yet paid back the escrow losses to its

clients, the estate had no insurable interest and therefore could not recover under

the policy. We review this legal conclusion on summary judgment       de novo.

See Anderson v. Coors Brewing Co.    , 181 F.3d 1171, 1175 (10th Cir. 1999).


                                      Discussion

      1. Application of Ben Kennedy . In Ben Kennedy , a company’s dishonest

employee defrauded its customers of more than $235,000 before his scheme was

discovered. See 40 F.3d at 319. Before filing for bankruptcy, the company spent

$20,737.52 refunding certain premiums and replacing a few fictitious insurance

                                          -3-
policies promised by the employee.       See id. The company then filed bankruptcy

and did not repay any other customer losses. These defrauded customers failed to

timely file claims against the estate with the bankruptcy court, thus, in contrast to

the case before us, the estate could never be held liable to pay additional claims

arising from its employee’s fraudulent acts and its actual losses would be limited

to the amounts it had paid out pre-bankruptcy.

       The employee dishonesty coverage provision stated that it would protect

against losses of money “whether or not [the company] was liable for its loss.”

Id. The Ben Kennedy trustee argued that, pursuant to this language, the estate

was entitled to recover the full policy limits of $100,000 even though there was

no possibility that the estate could ever suffer losses greater than the $20,737.52

it had paid out prior to bankruptcy. Looking to Oklahoma law, we held that the

trustee was entitled to recover only those losses incurred from reimbursing

defrauded customers prior to the bankruptcy because the company’s “insurable

interest in the loss of its clients’ money while in its possession could only extend

as far as the financial detriment it   would suffer as a result of that loss.”   Id.

(emphasis added). We refused to enforce the express promise to protect against

losses regardless of liability for the loss because Oklahoma courts “would then

consider it a[n unenforceable] wagering contract.”        Id.




                                             -4-
       As the district court noted, several facts in    Ben Kennedy are similar to the

case at bar. The case is distinguishable, however, in two key respects: the policy

language and the potential liability of the estate for lost escrow funds. The

district court rejected the Trustee’s argument that      Ben Kennedy is not controlling

because of these different facts. The court noted that, even though the

bankruptcy estate in Ben Kennedy would not be liable for further claims, because

we did not expressly state that this fact was a basis for our decision, the court

would not assume that it mattered.      See Appellant’s App. at 36 n.3.   This

conclusion is erroneous.

       We refused to enforce the language promising to pay for lost escrow

monies notwithstanding liability for that loss in      Ben Kennedy only because

allowing the insured to recover such money when it had no obligation to pay it

back to its owners “would amount to allowing an insured to wager on the loss of

others’ property in its possession, and might foster a temptation for similarly

situated insureds to ‘lose’ such property for economic gain.” 40 F.3d at 319-20.

Because the Trustee in this case is requesting recovery under the policy only for

those losses that it is liable for (as may be established in the adversarial

proceedings), and because the policy provides coverage for only those losses for

which NGTC is legally liable, there is no danger of NGTC receiving the windfall

proscribed by our opinion in    Ben Kennedy . The Trustee is therefore entitled to


                                             -5-
recover losses when and if NGTC’s liability for those losses is established

(subject, of course, to any other applicable exclusions).   1



       2. Accrual of ITT’s liability under the policy. ITT argues that it is not

required to pay for losses until judgment on each claim is entered against NGTC

and the estate has actually paid the judgments because the policy is for first-party,

and not third-party, coverage. We disagree. That the policy is for first-party

coverage has no bearing on the accrual of ITT’s liability. As the district court

pointed out, “nothing in the opinion in     Kennedy indicates any requirement that

the insured first pay on a claim before coverage is required.” Appellant’s App. at

25. Under the policy language in this case, NGTC did not have to actually pay

back the losses from the escrow funds before ITT became liable for those losses.

It is, therefore, an indemnity policy from liability and not solely an indemnity




1
       The policy apparently excluded from coverage losses caused by dishonest
acts by NGTC’s owners. The district court declined to entertain the issue whether
the Trustee had evidence that other employees of NGTC engaged in dishonest acts
because of its holding that the Trustee could not recover under the policy because
it had no evidence of actual losses (having not repaid lost escrow monies to
defrauded clients for lack of financial resources to do so). See Appellant’s App.
at 22. On remand, the district court will, of course, entertain all other issues not
addressed on summary judgment.

                                             -6-
policy from loss.   2
                        ITT is liable to pay those claims for losses against NGTC as

they are established by the defrauded client/creditors of the estate.

       The Trustee’s motion to certify questions of state law is    DENIED . The

judgment of the United States District Court for the Western District of Oklahoma

is REVERSED and the case remanded for further proceedings.

                                                        Entered for the Court



                                                        Robert H. Henry
                                                        Circuit Judge




2
        The issue of accrual of liability--i.e., at what point ITT becomes liable to
pay for NGTC’s losses -- is controlled by the intent of the parties as expressed by
the language of the policy.    See Okla. Stat. tit. 15, § 427(1), (2). “(1) Upon an
indemnity against liability, expressly, or in other equivalent terms, the person
indemnified is entitled to recover upon becoming liable. (2) Upon an indemnity
against claims or demands, or damages or costs, expressly, or in other equivalent
terms, the person indemnified is not entitled to recover without payment thereof.       ”
Id.; see also Travelers Ins. Co. v. L.V. French Truck Serv.      , Inc. , 770 P.2d 551,
555 (Okla. 1988) (“An action to enforce indemnity from liability accrues when
the event for which indemnity is due occurs, while a cause of action for
indemnity from loss does not arise until the loss is paid.”)       As noted above, the
policy expressly provides that ITT will pay for losses “for which you are legally
liable” and requires NGTC to transfer to ITT “all your rights of recovery against
any person or organization for any loss you sustained.” Appellant’s App. at 53,
54. This language establishes that it is a policy for indemnity from liability and
ITT points to no evidence that indicates otherwise. ITT’s argument that all
fidelity insurance policies are for indemnity only from loss because the “banker’s
and broker’s blanket bonds” at issue in     Drexel Burnham Lambert Group, Inc. v.
Vigilant Ins. Co. , 595 N.Y.S.2d 999, 1004 (N.Y. Sup. Ct. 1993), were determined
not to be liability policies, is specious.

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