               IN THE UNITED STATES COURT OF APPEALS

                       FOR THE FIFTH CIRCUIT




                             No. 90-3820




FIRST NATIONAL BANK OF LOUISVILLE,
                                             Plaintiff-Appellee,
                                             Cross-Appellant,

                               versus

LORETTA LUSTIG, et al.,
                                             Defendants,
and

AETNA CASUALTY & SURETY CO. and
FEDERAL INSURANCE CO.,
                                             Defendants-Appellants,
                                             Cross-Appellees.




           Appeals from the United States District Court
               for the Eastern District of Louisiana


                     ON PETITION FOR REHEARING

                           (June 29, 1992)

(Opinion May 18, 1992, 5 Cir., 1992,                 F.2d             )

Before REAVLEY, HIGGINBOTHAM, and DeMOSS, Circuit Judges.

PER CURIAM:

      The petition for rehearing is denied.     We write briefly here,

however, to clarify our opinion on two of the issues the Sureties

raise in their petition.
     First, the Sureties ask that we decide whether they are

entitled to additional discovery of FNBL loan files on remand.              We

believe that the need for particular discovery in light of our

opinion   is   best   decided   by   the   district    court   in   the   first

instance.      We express no opinion on whether the Sureties are

entitled to additional discovery on remand.

     Second, the Sureties ask for a clarification of the causation

standard for a covered loss in light of our rejection of their "oil

patch" defense.       We do not intend to suggest that the bank can

establish liability without proving loss proximately caused by

employee fraud as defined by the bond.         Nor do we relieve the bank

of any duty to mitigate damages it may have under Kentucky law.              We

decline to announce other intervening causes of loss that might be

sufficient to defeat proximate causation.             We hold only that the

decline in the value of collateral as described by the "oil patch"

defense would not break a chain of causation which the jury might

otherwise find.

     In all other respects, the petition for rehearing is DENIED.




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