This appeal arises from a dispute concerning coverage under a savings and loan blanket fidelity bond the appellee, Fidelity and Deposit Company of Maryland ("F&D"), issued to City Federal Savings Bank ("City Federal"), in 1987. In particular, the Federal Deposit Insurance Corporation ("FDIC"), as statutory successor to the Resolution Trust Company ("RTC"), appeals the district court's order of summary judgment entered against it on January 29, 1998, on its action on the bond.1 It contends that the district court erred in holding that no reasonable jury could conclude, based on the evidence presented, that City Federal "discovered" a covered loss within the bond period as required by the bond's terms for there to be coverage. In response, F&D asserts that the district court's ruling on the discovery issue is correct, and that alternatively, it is entitled to summary judgment because the loss City Federal sustained is not covered by the bond. For the reasons that follow, we will reverse the district court's order of summary judgment, and remand the matter to the district court for further proceedings consistent with this opinion.

We draw the relevant facts from the district court's opinion and the parties' submissions in the summary judgment proceedings before the district court.2 See Resolution Trust Co. v. Fidelity & Deposit Co., No. 92-1003, slip op. (D.N.J. Jan. 27, 1998) (hereinafter "Op. at ___"). Because this appeal is intensely fact-driven, it is necessary to set forth the factual background in some detail.

On March 22, 1987, F&D issued a "Savings and Loan Blanket Bond" ("the bond"), Standard Form No. 22, naming as insureds City Federal and its wholly-owned subsidiary City Collateral and Financial Services, Inc. ("City Collateral"). City Collateral was City Federal's mortgage warehouse lending operation.3 Among other things, the bond provided fidelity insurance, and stated that F&D would indemnify City Federal or its subsidiaries up to $5 million against losses it might suffer because of certain dishonest or fraudulent acts by its employees. The bond expired on March 22, 1989.

During the effective period of the bond, Willem Ridder ("Ridder"), John Hurst ("Hurst"), Lyndon Merkle ("Merkle") and Gregory DeVany ("DeVany") were City Federal and City Collateral employees, serving City Collateral in the following capacities: (1) Ridder was the president of City Collateral and Hurst's supervisor; (2) Hurst was a vice president of City Collateral, the director of financial services and DeVany's supervisor; (3) Merkle was a senior financial services officer and also a vice president of City Collateral; and (4) DeVany was a financial services officer and an assistant vice president of City Collateral. Unless we otherwise note, we will refer to these persons collectively as the "individual defendants."

In June 1987, Kevin Corcoran ("Corcoran"), a City Collateral loan officer, presented City Federal's Executive Committee ("Executive Committee") and Officer's Loan Committee ("Loan Committee") with a proposal for a lending arrangement whereby City Collateral would extend a $30 million warehouse credit line to Northwest Mortgage Company ("Northwest"). Northwest, a New Jersey company, originated residential mortgage loans and sold them to investors individually or in pools. At all times relevant to this case, Harry Movroydis ("Movroydis") was the president of Northwest. On June 16, 1987, City Federal and Northwest executed a "Master Mortgage Loan Warehousing Agreement" (the "master agreement") and related documents setting forth the terms and conditions of the lending arrangement.

In March 1988, Corcoran left employment at City Collateral, but before his departure, he told Hurst about certain problems he had experienced with the Northwest credit line. On or about April 1, 1988, Hurst and DeVany took over administration of the Northwest credit line. From approximately April 1, 1988, to November 1988, Merkle generated "exception reports" pertaining to the Northwest credit line and delivered those reports to both Hurst and DeVany. These reports provided the following information: (1) total amount of collateral that had been shipped to third-party investors for purchase but for which City Federal remained unpaid for at least 30 days (referring to these loans as "shipped loans"), and (2) total amount of collateral that had not been shipped to third-party investors for purchase and for which City Federal had not been repaid by Northwest for at least 180 days from City Collateral's funding of the loan (referring to these loans as "warehoused loans"). Despite the fact that the exception reports for the Northwest credit line indicated numerous problems with the Northwest collateral, Hurst and DeVany did not distribute the reports to City Federal officials during the relevant time period.

In May 1988, Hurst wrote to Movroydis to inform him that Northwest was in violation of the master agreement. About the same time, DeVany and another City Collateral employee found difficulties with Northwest's list of commitments from third parties to buy notes and mortgages. DeVany did not report the problems to City Federal's Real Estate Finance Committee. Despite these problems, Hurst recommended that the Loan Committee extend the maturity date of the credit line from May 31, 1988, to June 30, 1988. Moreover, Hurst did not inform the Loan Committee that the Northwest credit line was in technical default as of that time.

In June 1988, Hurst wrote to Northwest about a "workout plan" for the credit line to cure the violations of the master agreement. In July 1988, City Collateral put the credit line on its internal "watch list," which meant that the Northwest account had been identified as a problem credit. The individual defendants did not inform City Federal of this fact. Moreover, between June and September 1988, City Collateral continued to extend credit to Northwest while it closely monitored the loan. As F&D points out in its brief, the evidence demonstrates that there were improvements with Northwest's credit line during the summer of 1988. Northwest was able to reduce its warehoused loans from $8,036,027 as of June 30, 1998, to zero as of September 30, 1988. The shipped loans dropped from $7,040,357 as of June 30, 1988, to $5,695,890 as of September 30, 1988.

In or about May 1988, and coincidentally around the same time period that the Northwest credit line's maturity date was extended for the first time, Ridder, Hurst and Merkle learned from James McTernan ("McTernan"), a City Federal officer, that City Federal planned to sell City Collateral. According to the RTC, upon learning of City Federal's intent to sell City Collateral, Hurst, Ridder and Merkle promptly initiated discussions with City Federal about their potential compensation if the sale were consummated. Apparently, Ridder, Hurst and Merkle negotiated what the parties call "golden handcuff agreements" or "closing agreements" with City Collateral throughout the summer and into the fall of 1988. See SA at 48.

As part of the effort to sell City Collateral, Drexel Burnham Lambert, Inc. prepared an offering memorandum that described City Collateral's business and corporate structure as well as its loan credits. Ridder, Hurst and Merkle worked on the credit section of this document, in particular providing information for the section of the offering memorandum entitled "Workouts and Litigation." Although the Northwest credit line was in a "workout" status as of that time, they did not include it in this section of the offering memorandum. City Federal distributed the offering memorandum during the summer of 1988 to potential purchasers.

In September 1988, DeVany (under Hurst's supervision) prepared a written recommendation to extend and renew the Northwest credit line to June 1989, and in late September 1988, DeVany presented it to City Federal's loan committees. The report, and DeVany's oral presentation, omitted negative facts relating to the Northwest credit line, including, inter alia, its "workout" status and Northwest's technical default under the master agreement. The report also underestimated Northwest's risk rating in view of the various problems with the account. Indeed, F&D admits in its brief that while there appears to be a factual dispute as to what DeVany said at the committee presentation, giving the RTC every reasonable inference, "the most that can be said is that the Employees concealed the Northwest default and the workout plan in progress in order to induce City Federal to extend the loan." Br. at 7. Moreover, the record indicates that in September 1988, Hurst represented to City Federal that the Northwest credit line would be included in any future City Collateral sale. Nevertheless, Hurst told City Collateral employees in August and October 1988, that the Northwest credit line would not be included in any City Collateral sale.

After the September 1988 presentation, City Federal's committees accepted DeVany's recommendation to renew and extend the Northwest credit line, but conditioned its acceptance on Northwest's completion of certain conditions. As it turned out, Northwest failed to satisfy the stated conditions, and on or about December 5, 1988, DeVany halted funding on the credit line. There is evidence indicating that DeVany halted funding under Hurst's direction, but that none of the individual defendants informed anyone at City Federal of the situation as of that time.

Meanwhile, sometime in the fall of 1988, the parent corporation of HonFed Bank ("HonFed"), a federally insured savings bank based in Hawaii, expressed interest in purchasing City Collateral. The RTC states that"according to the deposition testimony of Hurst, by late October to early November, Hurst, Ridder and Merkle were confident that HonFed was going to purchase City Collateral and that HonFed planned to employ them after the sale." Br. at 9. Coincidentally (or not), on October 21, 1988, City Collateral signed closing agreements with Ridder, Hurst and Merkle, providing each with substantial sums of money, i.e., the "golden handcuff payments," if City Federal sold City Collateral and each of them provided assistance with the City Collateral sale. Under the agreements each was to "render such additional assistance as may be necessary to assist and expedite the sale, transfer or assignment of [City Collateral]." The amount of compensation Ridder, Hurst and Merkle received under the agreements depended upon a number of factors, including, inter alia, City Federal's gross profit from the sale and whether each obtained employment with the purchaser after the sale. Also, they could collect their payments only if the sale occurred before March 31, 1989, and they were not terminated for cause before the deal closed. The RTC also states that during the same time period, presumably by late October or early November 1988, Hurst, Ridder and Merkle were negotiating their future employment contracts with HonFed. Br. at 9.

Sometime in November 1988, DeVany began to create a "customer history" on the Northwest Loan that he kept in City Federal's files. The history summarized activities involving the credit line. On November 28, 1988, HonFed signed a letter of intent to purchase City Collateral and began its due diligence process. The letter of intent obligated HonFed to purchase all of City Collateral's loans except those that were "non-performing or otherwise substandard." Moreover, the letter of intent expressed that one of the conditions of the sale was that Hurst, Ridder and Merkle would agree to join HonFed.

During its due diligence, HonFed reviewed the exception reports from the Northwest credit line. Testimony from Kathy Durham of HonFed indicates that HonFed rated the Northwest credit line as a "watch" based on its history of losses and stale loans. A few days prior to the closing, HonFed notified City Federal that it was excluding the Northwest credit line from the sale.

In December 1988, DeVany met with Movroydis to discuss the situation with the credit line. At the meeting, which appeared at first in the customer history as having occurred on December 29, 1988, Movroydis admitted that he wrongfully had diverted collateral securing the loans obtained from City Collateral. Apparently, Movroydis was involved in what the parties refer to as a "kiting scheme," whereby he diverted the funds Northwest owed to City Collateral to cover marketing losses that Northwest had sustained in April and October 1987. DeVany did not tell anyone at City Federal of this admission at that time, but DeVany testified that he told Hurst about it. Apparently, the RTC learned in discovery that the meeting actually took place on December 22, 1988, rather than December 29, 1988. DeVany testified at his deposition that he changed the date of the meeting at Hurst's insistence, but Hurst denied that he ever ordered DeVany to do so. As described below, the closing date of the City Collateral sale was December 29, 1988. DeVany also testified that he changed the date of the customer history after the HonFed sale, but insofar as we can tell, his testimony does not indicate when Hurst asked him to change the date.

In the weeks prior to the closing, Ridder sent Gerry Czarnecki ("Czarnecki"), the chairman of the board of HonFed, a memorandum dated December 9, 1988, entitled "HonFed/CityFed Negotiations." The district court described the memorandum as containing "various recommendations that appear to run counter to City Federal's interest." Op. at 12-13. One of the items Ridder discussed in the memorandum was the Northwest credit line; in particular, he recommended that HonFed accept the Northwest credit line under certain conditions, and suggested the following course of action: "Your bargaining position [with City Federal] should be that if the credit does not improve to an `acceptable' or `pass' level (currently rated substandard by HonFed) rated by HonFed credit exam by March 31, 1989, that then all outstandings outstanding at that date are to be repurchased by [City Federal.]" SA at 59. Importantly, the memorandum confirmed that the Northwest credit line was in technical default, and that Northwest "had excessive stale loans in warehouse due to operating problems and commitment glitches." Id. Ridder did not distribute the memorandum to anyone at City Federal, nor was it found in City Federal's files.

Notably, City Federal executive James McTernan testified at his deposition that no one told him prior to the HonFed closing about "operating problems" or "commitment glitches" with the Northwest account. See SA 64-65. Similarly, McTernan stated in a declaration that he was certain that he was not aware of any problems with the collateral securing the Northwest loan, and, in his deposition, he testified that he did not know that there was any technical default of the master agreement precluding the renewal of the credit lines. McTernan also indicated in his deposition that certain of the statements Ridder made in the memorandum were contrary to City Federal's interests, and therefore could have been grounds for termination. See app. at 552; SA at 65-68. McTernan also testified that he would have expected Ridder to circulate the memorandum to his superiors at City Federal, given that it contained recommendations that ran counter to City Federal's interests. See SA at 68.

The district court noted that HonFed decided to exclude the Northwest loan from its purchase of City Collateral's assets only a "few days" before the closing. Thus, it is reasonable to infer that the decision to exclude the loan occurred after Movroydis's admission to DeVany, and after Hurst became aware of it. See Op. at 13. The record supports the conclusion that HonFed made its ultimate decision after its receipt of the December 9, 1988, memorandum. In late December, and prior to the HonFed sale, McTernan asked Ridder how HonFed decided to leave the Northwest credit line with City Federal. McTernan testified that Ridder replied that HonFed had performed due diligence and elected not to purchase the credit line. He also indicated that Ridder did not mention the problems with the Northwest account at that time.

At or about the same time as the closing on December 29, 1988, Ridder, Hurst, and Merkle entered into employment contracts with HonFed providing for various benefits including incentive compensation and automobile expenses. Also, HonFed provided each individual with a signing bonus: Ridder received $42,000, Hurst received $26,250, and Merkle received $22,500. They also received monthly salaries of $11,667, $8,750, and $7,500, respectively. Ridder, Hurst and Merkle earned the maximum payments under their "golden handcuff " agreements: Ridder received approximately $279,000, Hurst received approximately $206,000, and Merkle received $150,000. See Op. at 14. Moreover, it appears that DeVany received $1,000 from a bonus pool Ridder, Hurst and Merkle established voluntarily. F&D's Br. at 9.

After the closing, City Federal created First Collateral Financial Services ("First Collateral") to assume City Collateral's former duties. In January 1989, Northwest defaulted on its obligations on the credit line; it failed to make payments due on January 1, 1989, and February 1, 1989. On February 15, 1989, DeVany, who continued to administer the Northwest credit line after the sale, provided City Federal with a status report that revealed problems with the credit line. The district court indicated in its opinion that DeVany's memorandum marked the first time that anyone at City Federal had been advised of the problems with the line. See Op. at 14. We note, however, that evidence in the record indicates that City Federal employees, including McTernan, knew generally in late January 1989, that there were problems with the credit line. In any event, the important point is that City Federal officials were kept in the dark with respect to the nature and severity of the situation until after the completion of the HonFed sale. On February 24, 1989, Movroydis met with City Federal executives and admitted that he misappropriated City Collateral funds. This was thefirst time that anyone at City Federal learned of the Movroydis admission and the details of his kiting scheme, despite the fact that DeVany and Hurst knew about the situation in December 1988, prior to the HonFed closing.

City Federal's senior in-house counsel, Amy Stein, Esq. ("Stein"), learned of the Northwest situation on March 6, 1989. At that point, Stein and A. Eugene Hull, Esq. ("Hull"), another in-house attorney at City Federal, commenced an investigation into the Northwest matter because they were concerned that employee misconduct may have caused the Northwest loss, thus triggering coverage under the F&D fidelity bond.

On March 20, 1989, after interviewing DeVany and Merkle, Hull drafted a letter entitled "Notice of Possible Loss," and sent it to F&D. The letter essentially tracked the language of the discovery definition in the bond, but provided no specific details concerning the factual basis for City Federal's belief that a covered loss had occurred.

The following day, March 21, 1989, Hull sent a supplemental letter to F&D. He estimated that City Federal incurred a $7 million loss on the Northwest account, but he again provided no specific information concerning the basis for his belief that employee misconduct caused the loss.

On March 30, 1989, F&D sought additional facts from Hull concerning the suspect transaction, the losses sustained to date, the basis for City Federal's suspicion that employee dishonesty was involved, and any other information City Federal was willing to share. Unsatisfied with Hull's response to that letter, F&D wrote to Hull again on April 25, 1989. Specifically, F&D sought additional information concerning the factual basis for City Federal's suspicion that one or more of its employees was involved in fraudulent or dishonest conduct causing the Northwest loss. Hull did not respond to the correspondence, and F&D sent another letter seeking the same information on August 9, 1989. Again City Federal's legal department did not reply to F&D's correspondence.

Subsequently on December 7, 1989, the Director of the Office of Thrift Supervision, Department of the Treasury, declared City Federal insolvent and ordered it closed. The order also appointed the RTC as receiver for City Federal. Consequently, the RTC took possession of City Federal on December 8, 1989, and succeeded to all its rights, titles, assets, powers and interests, including City Federal's right, if any, to indemnification under the F&D bond. About two weeks later, the RTC filed its "Proof of Loss" with F&D. F&D denied the claim for coverage, and this litigation followed.

The RTC, as City Federal's successor, filed its complaint in the district court against F&D, Ridder, Hurst, DeVany and Merkle on March 6, 1992, asserting various state law claims. Count 1 of the complaint alleged that F&D breached its contract with City Federal because it failed to indemnify City Federal under the bond for the Northwest loss. Count 2 sought a declaratory judgment of coverage under the bond, and Count 3 alleged that F&D violated the implied covenant of good faith and fair dealing by denying coverage under the bond.4

F&D filed a motion for summary judgment, arguing that it was entitled to judgment as a matter of law on two separate grounds. First, it asserted that "Insuring Agreement A," which we call the fidelity provision, did not cover the losses caused by the alleged dishonest and fraudulent conduct by the individual defendants.5 It claimed that no reasonable jury could find that the individual defendants acted with the requisite "manifest intent" both to cause a loss to City Federal and to obtain the type of financial benefit for a third party or themselves that would permit coverage under the bond. Second, F&D maintained that under the general discovery definition found in section 4 of the "General Agreements" portion of the bond, no reasonable jury could conclude that City Federal "discovered" the loss during the bond period, as required for there to be coverage, even viewing the known facts as of March 22, 1989, the date the bond expired, in the light most favorable to the RTC. See Op. at 18.

The district court granted F&D's motion in its opinion and order entered January 29, 1998, and dismissed the RTC's claims against F&D with prejudice. First, the court concluded that there were genuine issues of material fact as to whether the individual defendants acted with the manifest intent to cause City Federal a loss which, at the same time, allowed them to obtain the type of financial gain that would establish coverage under the bond. The court held in the alternative, however, that summary judgment was appropriate on the basis that City Federal failed to discover the loss within the applicable bond period. See Op. at 31-32. The district court subsequently filed an order dismissing the action against F&D in its entirety, and after the remaining parties settled the case, the RTC filed a timely notice of appeal of the summary judgment order.

III. JURISDICTION, STANDARD OF REVIEW and APPLICABLE LAW

The district court exercised subject matter jurisdiction over this matter pursuant to 12 U.S.C. S 1441a(l)(1), which grants original jurisdiction to district courts over any action to which the RTC is a party. The FDIC was subject to jurisdiction in the district court by virtue of 12 U.S.C. S 1819(b)(2)(A).

We exercise appellate jurisdiction over this appeal pursuant to 28 U.S.C. S 1291, as the district court entered a final order dated September 3, 1998, dismissing the action. Because the RTC appeals from the district court's order of summary judgment entered January 29, 1998, our review is plenary. See Nelson v. Upsala College, 51 F.3d 383, 385 (3d Cir. 1995).

Preliminarily, we note that suits brought by the FDIC are deemed by statute to arise under the laws of the United States. See 12 U.S.C. S 1819(b)(2)(A). Nevertheless, we treat this appeal as governed by the substantive law of New Jersey, inasmuch as both parties assume that New Jersey law applies, neither party contends that another state's law governs, and we see no basis for fashioning a federal rule of decision to resolve the issues we address today. See O'Melveny & Myers v. FDIC, 512 U.S. 79, 87-88, 114 S. Ct. 2048, 2055 (1994); FDIC v. Insurance Co. of N. Am., 105 F.3d 778, 779 n.1 (1st Cir. 1997); FDIC v. Oldenburg, 34 F.3d 1529, 1538 & n.10 (10th Cir. 1994); FDIC v. New Hampshire Ins. Co., 953 F.2d 478, 481-82 (9th Cir. 1991). In this regard, however, we note that many of the germane cases are from the federal courts as, not surprisingly, diversity jurisdiction frequently is present in litigation involving fidelity bonds. The cases often state common law principles which are not unique to any particular state.

The RTC contends primarily that the district court erred in concluding that City Federal failed to discover the basis for its claim under the bond prior to the bond's expiration on March 22, 1989, as required for there to be coverage. It maintains that the issue of when the loss was "discovered" under the bond is inherently factual and thus properly is reserved for the trier of fact. It claims that the facts City Federal knew as of the expiration of the bond period, when considered in combination, were sufficient under the bond's discovery standard so that the issue should have been presented to a jury.

F&D contends in response that the district court's disposition of the discovery issue was correct, as the court recognized that the information that City Federal learned prior to the expiration of the bond period was insufficient to warrant a jury finding that it "discovered" the loss as of that time. It argues that, at most, the facts and circumstances City Federal knew gave rise to suspicions about the individual defendants' misconduct, but that "mere suspicion of employee dishonesty or wrongdoing during the bond period does not constitute discovery." Br. at 24. Citing cases in which the courts ruled in favor of the insurer on the issue of discovery, F&D claims they support its position because the insureds in those cases possessed "far more knowledge of facts about the alleged dishonesty than City Federal possessed" during the bond period. See id. at 25-28.

The bond at issue is known in the industry as a "Standard Form No. 22 bond." It is a "discovery bond," which by its terms requires that the insured discover the loss during the bond period as a condition to coverage. Thus, coverage expressly is limited by the following section, which defines "discovery" as the term is used throughout the various provisions in the bond:

Section 4. This bond applies to loss discovered by the Insured during the bond period. Discovery occurs when the Insured becomes aware of facts which would cause a reasonable person to assume that a loss covered by the bond has been or will be incurred, even though the exact amount or details of loss may not then be known.

App. at 100. Moreover, section 5 of the General Agreements section of the bond states that "[a]t the earliest practicable moment, not to exceed 30 days after discovery of the loss, the Insured shall give the underwriters notice thereof." Id.

During the summary judgment proceedings before the district court, the RTC argued that a reasonable jury could find that City Federal discovered the loss during the bond period, given the information City Federal knew prior to the expiration of the bond period, and the discovery standard that applied. It relied on several pieces of information of which members of City Federal's legal department were aware as of March 20, 1989, the date City Federal sent its Notice of Possible Loss letter to F&D. Thus, its position essentially was that the facts City Federal knew showed that it possessed more than "mere suspicions of dishonesty." Specifically, it cited Stein's deposition testimony which detailed the various pieces of information City Federal's legal department discovered during the bond period. Because the nature and extent of City Federal's knowledge is central to resolving the discovery issue, we will set forth in some detail the factual basis for the RTC's argument.

First, Stein testified that she knew that the Northwest loss essentially "dropped out of the sky" without City Federal management receiving prior warning from any of the individuals responsible for monitoring the loan. She testified that it was "unprecedented" that a multi-million dollar loss would just appear out of nowhere, without prior warning signs being noticed by the employees working on the account. Yet, to the best of her knowledge at that time, none of the responsible employees revealed any warning signs to City Federal personnel.

Second, Stein knew that HonFed specifically excluded the Northwest credit line from its purchase of City Collateral's assets. Stein testified that it was incredible and very peculiar that HonFed would single out the Northwest loan and exclude it from the sale, particularly while City Federal employees responsible for the loan seemingly were unaware of its troubled status. Her testimony in this regard was:

MS. STEIN: I mean, I can't imagine how HonFed could come up to a conclusion like that [i.e., that the loan should be excluded], having no ownership of the loan, where we had bank employees or City Collateral employees who were responsible for this loan. It just didn't square up. I mean, why does a buyer kick out a loan from a purchase? It's just not, you know, karma.

. . . .

I just knew the HonFed deal was going down right around this time, and it seemed very peculiar to me that another financial institution kicks this loan out of its purchase.

MR. KASLOW: Do you know if HonFed conducted any due diligence?

MS. STEIN: Well, my point is this. If HonFed conducted due diligence and saw something that made it believe that this loan was not, you know, acceptable, where were our employees who were managing this loan and dealing with this borrower, why didn't they also discover that and why wasn't that brought to management's attention?

Third, Stein knew that DeVany learned of Movroydis's fraudulent scheme in late December 1988, but failed to report his admission to management at City Federal or City Federal's legal department. She knew that DeVany met with Movroydis at or around the same time as the HonFed closing, and learned at that time that Movroydis converted monies Northwest owed to City Collateral and used the funds to cover marketing losses Northwest sustained in 1987. Stein testified that it was "bizarre" and contrary to bank policy that DeVany concealed that information rather than promptly notifying the legal department that one of its borrowers perpetrated a fraud. She explained:

A borrower walks in, sits down with an account officer [DeVany], confesses to a multimillion dollar fraud, and the account officer doesn't call the legal department for months, the legal department doesn't even find out about it through the account officer? That is, you know, clearly weird. That's just not the way things worked in the real world, it's just not the way it works.

App. at 352. Stein explained later in her deposition that City Federal policy required its employees to notify the legal department of matters that had "a legal consequence or a legal issue" involved. In view of her belief that "certainly fraud or theft by a borrower would fall into that category," Stein thought DeVany's concealment particularly telling. App. at 349, 362.

Finally, Stein cited DeVany's demeanor as an additional factor that led her to believe that he had engaged in fraudulent or dishonest behavior causing the Northwest loss. According to Stein, DeVany did not seem credible during his interview with Hull, which occurred shortly before the bond period expired and prior to City Federal's Notice of Possible Loss letter dated March 20, 1989. The RTC also cited Hull's assessment of both DeVany's and Merkle's demeanor when he interviewed them. Hull testified that he did not find either of them forthcoming with information about the Northwest loss, which seemed contrary to what one would expect given the circumstances.

After reviewing each piece of information, the district court concluded that no reasonable jury could find that discovery had occurred as of the bond's expiration date. It explained that while the circumstances apparently gave rise to concern or suspicions that employees concealed information from City Federal, there was "no evidence in the record to indicate that as of [March] 22, 1989, City Federal was aware of any specific dishonest conduct by the employees which proximately caused the Northwest loss." See Op. at 32. Specifically, the court noted that Stein's knowledge of the manner in which Northwest learned of the loss and her awareness of the fact that HonFed decided to exclude the account from the purchase did not provide a basis for assuming that the employees responsible for the administration of the credit lines caused the loss. Moreover, the court discounted the significance of the fact that Stein knew that DeVany was aware of Movroydis's scheme prior to the HonFed closing but failed to alert City Federal management or its legal department, stating:

DeVany's failure to notify the legal department of the confession is not a definite basis for a careful and prudent person to charge him with fraud or dishonesty. At that time, his omission may have just as easily been classified as neglect. Further, this particular concealment was not the dishonest conduct that directly resulted in the Northwest loss: the culprits were the earlier ongoing misrepresentations of the condition of the credit line that proximately caused the claimed loss from the unpaid loans.

Op. at 33. The court also cited City Federal's failure to respond promptly to F&D's requests for additional information, and its admission in litigation with its subsequent insurer that as of the expiration of the F&D bond, City Federal had not determined "the specifics of any employee dishonesty in connection with those problem loans to Northwest." Op. at 33-34.

In reviewing the district court's grant of summary judgment, we must determine whether there is a genuine issue of material fact for trial on the issue of whether City Federal discovered the loss during the bond period. See FDIC v. Insurance Co. of N. Am., 928 F. Supp. 54, 58 (D. Mass. 1996), aff'd on other grounds, 105 F.3d 778 (1st Cir. 1997). In this connection, we must view the facts in the light most favorable to City Federal and determine if a reasonable jury could conclude that a reasonable person would have assumed, based on the information City Federal knew as of March 22, 1989, that a covered loss had or would be incurred. Stated differently, summary judgment against the RTC on this issue of discovery was warranted only if there was no material dispute that the information City Federal knew provided an insufficient basis for a reasonable person to assume that a loss covered by the bond had or would be incurred. See In re ContiCommodity Servs., Inc., Sec. Litig., 733 F. Supp. 1555, 1578 (N.D. Ill. 1990).6

For the reasons we explain below, we disagree with the district court's conclusion that no reasonable jury could find that City Federal "discovered" the Northwest loss during the bond period. Given the standard of discovery set forth in section 4 of the bond, we find that a reasonable jury could conclude, based on the information that City Federal knew as of the expiration of the bond period, that it was aware of sufficient facts that would cause a reasonable person to assume that a loss covered by the bond had or would be incurred. Accordingly, we will reverse the district court's summary judgment on this issue.

To explain our result, we first must set forth our understanding of the concept of discovery under the standard set forth in the bond. While we recognize that we addressed the general idea of "discovery" of a loss under a fidelity bond in Fidelity & Deposit Co. v. Hudson United Bank, 653 F.2d 766 (3d Cir. 1981), this case presents an issue of first impression in this circuit inasmuch as it requires us to interpret the meaning of the discovery standard found in the Standard Form No. 22 bond.7 To reiterate, discovery occurs under section 4 of the bond "when the Insured becomes aware of facts which would cause a reasonable person to assume that a loss covered by the bond has or will be incurred, even though the exact amount or details of the loss may have not then been known." App. at 565. The date of "discovery" of the loss is of practical significance because it not only determines whether the loss is covered by the bond, but also triggers the insured's obligation to give notice of the possible loss to its carrier "at the earliest practical moment, not to exceed 30 days." Id.

We understand this discovery standard as comprised of a subjective and objective component: the trier of fact must identify what facts and information the insured actually knew during the relevant time period, and it must determine, based on those facts, the conclusions that a reasonable person could draw from them. Our understanding in this connection comports with prior case law addressing the concept of "discovery" in the fidelity bond context. See United States Fidelity & Guar. Co. v. Empire State Bank, 448 F.2d 360, 365 (8th Cir. 1971) ("In determining when discovery has taken place, the trier of fact must find the pertinent underlying facts known to the insured and must further determine the subjective conclusions reasonably drawn there from by the insured.") (applying Missouri law in absence of governing definition in bond); see also Wachovia Bank & Trust Co. v. Manufacturers Cas. Ins. Co., 171 F. Supp. 369, 375 (M.D.N.C. 1959) (adopting rule of law that mirrors discovery standard of Standard Form No. 22 bond, and stating that "The facts must be viewed as they would have been by a reasonable person at the time discovery is asserted, and not as they later appeared in the light of subsequently acquired knowledge.").

We also agree with F&D's position that the discovery definition requires that the insured possess more than mere suspicions of employee dishonesty or fraud. See Hudson United, 653 F.2d at 774 (citations omitted). Courts long have recognized the principle that unsupported suspicions of employee misconduct do not constitute discovery in the fidelity bond context, see, e.g., National Newark & Essex Bank v. American Ins. Co., 385 A.2d 1216, 1224 (N.J. 1978), and we believe that the language of the bond incorporates that requirement by tying the concept of discovery to "facts" within the insured's knowledge. Indeed, the language "facts which would cause a reasonable person to assume" defines the nature of information that the insured must possess in order for it to be charged with discovery, and we agree with those courts of appeals which have stated that "discovery" of a loss under section 4 does not occur until the insured "discovers facts showing that dishonest acts occurred and appreciates the significance of those facts." See, e.g., FDIC v. Fidelity & Deposit Co., 45 F.3d 969, 974 (5th Cir. 1995) (quoting FDIC v. Aetna Cas. & Sur. Co., 903 F.2d 1073, 1079 (6th Cir. 1990)); see also California Union Ins. Co. v. American Diversified Savs. Bank, 948 F.2d 556, 564 (9th Cir. 1991) (same); Aetna Cas., 903 F.2d at 1079 (citing Empire State Bank, 448 F.2d at 36466); cf. Royal Trust Bank, N.A. v. National Union Fire Ins. Co., 788 F.2d 719, 721 n.2 (11th Cir. 1986) (stating that same discovery definition does not require that the bank have enough information to charge its employee with fraud or dishonesty; "All that is required is that it have enough information to assume that the employee has acted fraudulently or dishonestly."). Moreover, we understand the objective, "reasonable person" component as permitting the trier of fact to analyze the full range of information the insured knew so as to determine whether a reasonable person would assume, based on all of the circumstances, that a covered loss had or would be incurred. See Wachovia Bank, 171 F. Supp. at 376-77.

Inevitably, a court must assess each case on its own facts, keeping in mind the general principle that the "discovery threshold is low." See California Union, 948 F.2d at 563; see also Oldenburg, 34 F.3d at 1542 (quoting California Union and stating that the " `discovery threshold is low' "). Indeed, by adhering to that general principle, we remain true to the plain language of the bond. All that it requires is that the insured possess sufficient information to lead to a reasonable assumption of a covered loss; it states specifically that the insured need not know "the exact amount or details" of the loss to be charged with discovery under section 4.8

With these basic precepts in mind, we may consider the specific facts of this case. As we have indicated, our review of the record leads us to conclude that a reasonable jury could find that City Federal possessed sufficient knowledge of facts that would cause a reasonable person to assume that a covered loss had or would be incurred as of March 22, 1989. Put simply, we believe that there is more than one reasonable conclusion that could be reached based on the facts City Federal learned during the crucial days just prior to the bond's expiration. First, City Federal knew for a fact that DeVany was aware of the Movroydis scheme, and committed a dishonest act by concealing the admission from City Federal and perhaps more significantly, its legal department.9This is an important piece of information, and it indicates to us that a jury could conclude that City Federal possessed more than mere unsupported suspicions of dishonest conduct. Compare California Union, 948 F.2d at 564-65 (affirming summary judgment for insurer on discovery issue where the evidence arguably showed that the insured knew of infractions of banking regulations, but there was no testimony to indicate that the non-wrongdoing employees knew of dishonest acts by other employees); Aetna Cas., 903 F.2d at 1079 (reversing summary judgment for FDIC and finding that discovery had not occurred during the bond period where the insured had suspected employee dishonesty was involved in a potential loss, but the suspicions grew from general conditions of bank and not from knowledge of any facts which indicated that its employee committed any dishonest acts). Moreover, City Federal was aware of the circumstance that, even after the HonFed sale, DeVany did not inform City Federal or its legal department of the Movroydis fraud; instead, City Federal learned of it because of Movroydis' admission to its management in February 1989.

Of course, a reasonable person would evaluate the significance of these facts in the context in which they occurred: on or about the same date that Movroydis supposedly revealed his fraudulent scheme to DeVany, the HonFed deal closed. And in evaluating the importance of the timing of the Movroydis admission and DeVany's concealment, a reasonable person could find it telling that HonFed specifically excluded this account from the City Collateral assets it purchased. Indeed, this circumstance would appear exceptionally suspect in view of the fact that the Northwest loan loss "dropped out of the sky" in the sense that City Federal management possessed no knowledge of any significant problems with this account, or the existence of any loss, until after the closing date. Finally, Stein testified that she and Hull perceived DeVany's demeanor as "elusive" when they questioned him. While their assessment of his behavior would be insufficient, standing alone, to satisfy the discovery standard in the bond because mere suspicions are not enough to constitute "discovery," it certainly lends support to the conclusion that a jury could find in favor of the RTC on the discovery issue when it is considered in conjunction with the other factual information in City Federal's possession during the relevant time period.

It appears to us that the district court overlooked the reasonable inferences that a jury could draw from the totality of information that City Federal knew during the relevant time period. Rather than considering the probative force of the information in its totality, the district court focused on each piece of information in isolation and resolved a disputed factual issue in F&D's favor. We recognize that finding the point at which discovery occurred is difficult, given the inherently fact-driven nature of the inquiry. It may be extremely difficult, then, to determine on summary judgment when the insured discovered a loss caused by employee dishonesty. Given the set of facts before us, we disagree with the district court's ultimate finding that the only reasonable conclusion to be drawn was that City Federal possessed nothing more than unconfirmed suspicions of employee misconduct relating to the Northwest account. Compare United States Fidelity & Guar. Co. v. Maxicare Health Plans, No. 96-2457, 1997 WL 466802, at *5 (E.D. La. Aug. 12, 1997) (finding as a matter of law at motion for summary judgment that insured discovered the loss within the meaning of the same bond definition where the insured possessed a similar level of knowledge as City Federal); see also Boomershine PontiacGMC Truck, Inc. v. Globe Indem. Co., 466 S.E.2d 915, 917 (Ga. Ct. App. 1996) (reversing order of summary judgment in favor of insurer in fidelity bond dispute on discovery issue, stating that as long as there is room under the evidence for a reasonable difference of opinion as to whether insured discovered loss, summary judgment is inappropriate).

In reaching our conclusion we have considered but rejected F&D's arguments in support of the district court's resolution of the discovery issue. First, F&D asserts that City Federal's admissions in litigation against National Union Fire Insurance Company, its insurer that followed F&D, belie the RTC's contention that City Federal possessed sufficient factual information during the bond period for a jury to conclude that it had discovered the loss prior to its expiration. Specifically, it argues that "[City Federal] acknowledged the limits of its information in the related National Union suit where it admitted that it knew of no specifics of any employee dishonesty in connection with the Loan prior to March 20, 1989, and further stated that much of the information in the proof of loss was learned after the Bond period had expired."10 Br. at 32-33. Apparently, the district court ascribed significance to the RTC's position in the National Union litigation, as it noted that the RTC stipulated in the Final Pretrial Order in that case that "prior to March 22, 1989, City Federal had not determined the specifics of any employee dishonesty in connection with those problem loans to [Northwest]." Op. at 34 (internal quotation marks omitted). It also noted that City Federal stipulated that it learned much of the information included in the proof of loss during the course of the investigation that took place during the late summer/early fall of 1989. See id.

F&D has not argued before us that the RTC's stipulations in the National Union litigation are binding in this case such that City Federal is precluded from asserting that it discovered the loss within the F&D bond period. See Hudson United, 653 F.2d at 777-78; see generally 9 Wigmore, Evidence S 2593 (Chadbourn rev. 1981) (discussing effect of judicial admissions and explaining that statement qualifying as a judicial admission generally is binding in subsequent parts of same proceedings between the same parties). Instead, we understand the thrust of its argument to be that the RTC's position in the National Union case undermines its assertion of discovery in this case.

In our view, the RTC has the better argument here, as it recognizes the logical flaw in F&D's argument. Specifically, the RTC's stipulation that City Federal learned "much of the information included in the proof of loss," after March 1989, does not mean that sufficient information was not available to City Federal prior to the expiration of the F&D bond so as to constitute discovery as of that date. Similarly, the circumstance that City Federal did not have specific information about the nature and scope of the employee dishonesty that caused the Northwest loss does not mean that what it did know as of March 22, 1989, was insufficient to warrant a reasonable assumption that a covered loss had or would be incurred, which is all that the discovery definition in the bond at issue here requires. Therefore, the RTC's statements in the National Union litigation are not incompatible with its position here and do not persuade us that F&D was entitled to judgment as a matter of law.

F&D also contends that the vague and conclusory nature of City Federal's letters to F&D confirm that as of the expiration of the bond period, City Federal possessed nothing more than unsupported suspicions of employee misconduct. It appears that the district court also ascribed significance to the fact that F&D repeatedly sought more specific factual information from City Federal, but City Federal failed to respond to those requests. Apparently, the argument here is that the tone of the letters and City Federal's omissions provide objective evidence that it possessed no specific information of employee wrongdoing.

Again, while these circumstances could be viewed as supportive of F&D's position, they do not demonstrate conclusively that F&D is entitled to judgment as a matter of law on the issue of the date of City Federal's discovery under the bond. In short, this argument does not overcome the fact that reasonable minds could differ on the discovery issue, given the nature of the RTC's proofs submitted at the summary judgment proceedings.

Next, F&D points out that throughout Stein's deposition testimony, she repeatedly used the word "suspicious" to describe her assessment of the circumstances surrounding the Northwest loan loss and the individual defendants' involvement in that loss. See Br. at 28-29. It claims that Stein's word choice is indicative of the quantity and quality of information City Federal possessed at the relevant time, and that her testimony actually supports its position that no reasonable jury could conclude that City Federal discovered the loss during the bond period.

We, however, do not share F&D's belief that Stein's deposition testimony demonstrates conclusively that she possessed only unsupported suspicions of employee misconduct insufficient to constitute discovery under the relevant standard. Indeed, review of the relevant deposition testimony demonstrates that F&D's argument focuses too narrowly on her use of the term "suspicious" without examining the context of her statements and the overall content of her testimony. We point out that while Stein stated that she was suspicious of Ridder, Hurst, Merkle and DeVany, she used the word "suspicious" in replying specifically to F&D's attorney's question, which asked her if she "suspected" that those employees engaged in misconduct. See SA at 293. In these circumstances, we do not find her responses particularly telling at all. In any event, they certainly do not demonstrate that, as a matter of law, City Federal did not discover the loss during the bond period. Cf. Interstate Prod. Credit Ass'n v. Fireman's Fund Ins. Co., 788 F. Supp. 1530, 1536-37 (D. Or. 1992) (rejecting insurer's argument that testimony of member of loan committee demonstrated that insured discovered loss where employee stated only that he had a "feeling" that the loans were questionable).

Moreover, other aspects of Stein's deposition testimony confirm that, in her view, the information she knew as of March 22, 1989, pointed to the conclusion that employee misconduct was involved in the Northwest loan loss, and thus that the loss was not the result of an employee's poor business judgment or negligence. For example, Stein stated specifically that with respect to DeVany's concealment of the Movroydis admission, she "ruled out the concept that it was negligence versus misconduct in regard to the concealment. . . . I mean, there's no-no way to my way of thinking that that was the result of negligence." App. at 374. Thus, we are not faced with a situation where the evidence shows only that City Federal knew of the existence of the loss, but had not yet reached the subjective conclusion that employee dishonesty somehow was involved. Compare Block v. Granite State Ins. Co., 963 F.2d 1127, 1130 (8th Cir. 1992) (affirming district court's grant of summary judgment to insurer where "not one" bank official testified to a contemporaneous belief that bank employee misappropriated money during coverage period); cf. Maxicare Health Plans, No. 96-2457, 1997 WL 466802, at *5 (granting summary judgment to insurer where it argued that insured discovered loss prior to commencement of insurer's bond; court noted that insured's actions in terminating contract suggested that it subjectively believed it suffered a loss precipitated by employee dishonesty).

Finally, we note that F&D relies on cases in which the courts ruled in favor of the insurer on the issue of discovery, and contends that they are factually analogous to this case and thus support the district court's finding in its favor on that point. Br. at 26-27 (citing Block, 963 F.2d at 1129-30; California Union, 948 F.2d at 564-65; Aetna Cas., 903 F.2d at 1079). We need not tarry on this argument, however, as we do not agree with F&D's assessment that these cases are factually analogous. Put simply, the cases F&D cites in support of its position do not compel the conclusion it seeks because the outcome of each case, as in the present case, turned on its unique facts. Accordingly, a comparison of the quality and quantity of information within the insureds' knowledge in those cases ultimately does not persuade us that the district court's disposition of the issue at the summary judgment stage was appropriate.

As the foregoing discussion demonstrates, we disagree with the district court's assessment of the legal significance of the known facts as of March 22, 1989. We hold that the district court erred in concluding that no reasonable jury could find that City Federal "discovered" the loss during the bond period, and accordingly, we hold that summary judgment in F&D's favor was inappropriate.

F&D argues in the alternative that if we find that the district court erred in its analysis pertaining to the discovery issue, we should uphold the district court's order for summary judgment because the RTC cannot establish at trial that the Northwest loss falls within the narrow scope of coverage the bond provides. F&D's overarching argument is that the fidelity provision of the Standard Form No. 22 bond provides coverage in very limited instances, and by its terms only insures against a specific type of risk. From that initial premise, it claims that the loss City Federal incurred on the Northwest loan does not fall within the narrow parameters of coverage.

The RTC contends that the district court's disposition of these issues is not before us because F&D did not file a cross-appeal from the January 29, 1998 order for summary judgment. We disagree with the RTC's position that F&D was required to cross-appeal in order to advance these arguments for our consideration, as it is clear that we may affirm the judgment on grounds alternative to those on which the district court relied. See Rite Aid, Inc. v. Houstoun, 171 F.3d 842, 853 (3d Cir. 1999) (dismissing cross-appeals and stating "we point out that[appellees] are not by their cross-appeals seeking additional relief. . . . Rather, they advance the issue as an alternative ground to affirm the summary judgment and injunction."); E.F. Operating Corp. v. American Bldgs., 993 F.2d 1046, 1048 (3d Cir. 1993) ("It is also well established that an appellee may, without taking a cross-appeal, support the judgment as entered through any matter appearing in the record, though his argument may attack the lower court's reasoning or bring forth a matter overlooked or ignored by the court."); Cospito v. Heckler, 742 F.2d 72, 78 n.8 (3d Cir. 1984). Accordingly, we will consider F&D's arguments as alternative grounds to affirm the judgment.

The bond does not afford coverage under its fidelity provision for all losses resulting directly from fraudulent and dishonest employee conduct. The fidelity provision sets forth a subclass or type of dishonest or fraudulent conduct that may be covered under the bond. It promises to indemnify the insured for:

(A) Loss resulting directly from dishonest or frau dulent acts of an employee committed alone or in collusion with others.

Dishonest or fraudulent acts as used in this Insuring Agreement shall mean only dishonest or fraudulent acts committed by such Employee with the manifest intent:

(a) to cause the Insured to sustain such loss, and

(b) to obtain financial benefit for the Employee or for any other person or organization intended by the employee to receive such benefit, other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment.

App. at 562 (emphasis added). Broken down into its components, this provision requires that the following elements be present in order for a loss to constitute a covered event: (1) the insured must incur a loss; (2) the loss must have "result[ed] directly" from dishonest or fraudulent acts of an employee or employees; (3) the employee must have committed the acts with the "manifest intent" to cause the insured to suffer the loss sustained (which we call "subsection (a)'s requirement"); and (4) the employee must have committed the acts with the "manifest intent" to obtain a financial benefit for the employee or a third party, and the financial benefit obtained must not be of the type covered by the exclusionary clause (which we call "subsection (b)'s requirement"). See Jeffrey M. Winn, Fidelity Insurance and Financial Institutions in the PostFIRREA Era, 109 Banking L.J. 149, 151-52 (Mar.-Apr. 1992). If F&D can establish, as a matter of law, that at least one of those requirements is not satisfied in this case, it would not be required to indemnify City Federal because the Northwest loss would not constitute a covered event. In that circumstance, we would affirm the district court's order for summary judgment on this alternative basis.

F&D concedes that the RTC established that City Federal suffered a loss on the Northwest account, but contends that the remaining elements necessary for coverage under the fidelity provision are absent in this case. Specifically, its arguments may be broken down into two broader categories. First, F&D asserts that there is insufficient evidence from which a jury could conclude that the individual defendants acted with the "manifest intent" (1) to obtain for themselves or a third party a type of financial benefit covered by the bond, and in turn (2) to cause City Federal to sustain the Northwest loss. Second, F&D maintains that there is insufficient evidence from which a reasonable jury could conclude that the Northwest loss "result[ed] directly" from the individual defendants' dishonest and fraudulent actions that form the basis for this lawsuit.

We will address these arguments in the following manner. In subsection (1) below, we first must ascertain the correct definition of the term "manifest intent" as it is used in the fidelity provision. We then must decide whether the RTC has presented sufficient evidence that the employees acted with the "manifest intent" to obtain a financial benefit for themselves or a third party that does not fall within the category of benefits specifically excluded by subsection (b), as that inquiry informs the remainder of our analysis. We will conclude by examining whether there is sufficient evidence from which a reasonable jury could find that the employees acted with the manifest intent to cause City Federal to sustain a loss on the Northwest credit line. In subsection (2), we will address separately F&D's causation argument, and consider whether thereis sufficient evidence from which a reasonable jury could conclude that the Northwest loss "result[ed] directly" from the individual defendants' dishonest and fraudulent acts. As we will explain in greater detail below, we have concluded, based on the bond's language and the proofs the RTC presented at the summary judgment proceedings, that there are genuine issues of material fact pertaining to each element described above. Therefore, while we reach our conclusion on different grounds than those on which the district court relied, we agree with its ultimate determination which we described above, that a jury could find that the Northwest loss falls within the narrow parameters of coverage.

1. Whether the individual defendants committed dishonest and fraudulent acts with the manifest intent to cause City Federal to sustain the Northwest loss and to obtain a certain type of financial benefit for themselves or a third party

a. The meaning of "manifest intent"

In order to determine if the RTC has presented sufficient evidence from which a reasonable jury could conclude that the individual defendants acted with the "manifest intent" to cause the Northwest loan loss and to obtain a certain type of financial benefit for themselves or a third party, we must begin by defining the term "manifest intent" in the fidelity insurance context. Initially, we point out that it is rather obvious that the term "manifest intent" refers to the employee's state of mind in engaging in the allegedly dishonest or fraudulent acts which the insured claims to have caused it a loss covered by the fidelity bond. Inasmuch as the Supreme Court of New Jersey has not identified the meaning of the term under New Jersey law, our task is to predict how that court would decide this issue.11 See McKenna v. Ortho Pharm. Corp., 622 F.2d 657, 661 (3d Cir. 1980). And, as is evident from our discussion that follows, the answer is not resolved easily, as it appears that there has been considerable debate among various state and federal courts concerning the proper formulation of the standard. See Christopher Kirwan, Mischief or "Manifest Intent"? Looking for Employee Dishonesty in the Unchartered World of Fiduciary Misconduct, 30 Tort & Ins. L.J. 183, 186 (Fall 1994) ("In the eighteen years since its introduction the term `manifest intent' has become the major battlefield in dishonesty coverage disputes.").

In virtually all of the cases we have found, courts have interpreted the term "manifest" as meaning that the intent of the employee must be "apparent or obvious." See, e.g., Oldenburg, 34 F.3d at 1539; FDIC v. St. Paul Fire & Marine Ins. Co., 942 F.2d 1032, 1035 (6th Cir. 1991); North Jersey Savs. & Loan Ass'n v. Fidelity & Deposit Co., 660 A.2d 1287, 1291 (N.J. Super. Ct. Law. Div. 1993); see also 11 Lee R. Russ and Thomas F. Segalla, Couch on Insurance 3d S 161:3 (1998). The divergence of opinion, however, stems from the issue of whether the "intent" aspect of the phrase "manifest intent" requires an inquiry into the employee's actual purpose in engaging in the conduct at issue. While the fidelity provision covers only those dishonest or fraudulent acts undertaken with the manifest intent both to (1) cause the insured (who is also the employer) to sustain a loss, and (2) obtain a certain type of financial benefit, the question of the meaning of "intent" usually arises in the context of determining whether the proofs show that the former requirement has been satisfied. Indeed, in virtually all of the cases interpreting the term "intent," the analysis has focused on whether the evidence showed that the employees possessed a "manifest intent" to cause the insured's loss. Of course, this is not surprising, given the fact that most cases turn on this element, as it presents difficult proof problems for the insured.

Following this method of analysis, succinctly stated, the initial question is whether the insured must establish that the employee acted with the specific purpose or desire to cause the insured to sustain the loss that it did. The related issue then is the type of circumstantial evidence relevant to the insured's burden of proof on this point.

In determining the appropriate construction of the "manifest intent" state of mind requirement, a review of the purpose and history behind its inclusion in bonds of this type is instructive. The Surety Association introduced the "manifest intent" language in its standard form bond in 1976 to ameliorate the effect of previous cases in which the courts expanded the concept of employee dishonesty to the point where the term included any act of the employee (or any failure to act), regardless of motive. See Michael Keeley, Employee Dishonesty Claims: Discerning the Employee's Manifest Intent, 30 Tort & Ins. L.J. 915, 919 (Summer 1995); see also Winn, supra at 152 ("According to an influential subcommittee report issued by the Surety Association of America in January 1976, insurers added the definition of dishonesty because [a] major factor in poor results . . . has been a well-established pattern by the courts to expand the concept of dishonesty to the point where the term now seems to include any act . . . regardless of motive, which results in an injury to the employer.") (internal quotation marks omitted) (quoting Surety Ass'n of Am. Sub-Committee, Revision of the Dishonesty Insuring Agreement of Form 24, at 1 (1976)). Thus, as one commentator explained: "Insuring Agreement A [which contains the manifest intent requirement] was revised to clarify the Surety Association's long-standing intent, dating back to Standard Form No. 1 in 1916, to limit loan losses to claims in which the culpable employee acted with the intent or purpose to gain a benefit at the expense of his employer--in other words, when the employee intended to defraud the insured bank of money." Keeley, supra at 919.

Against this background, we must examine the different standards courts have adopted in defining the bond's "manifest intent" requirement. To date, the Courts of Appeals for the Sixth, Seventh and Tenth Circuits have adopted the following standard of culpability: "Although the concept of manifest intent does not necessarily require that the employee actively wish for or desire a particular result, it does require more than a mere probability. . . . Manifest intent exists when a particular result is substantially certain to follow from conduct." See Peoples Bank & Trust Co. v. Aetna Cas. & Sur. Co., 113 F.3d 629, 635 (6th Cir. 1997) (applying Virginia law and quoting St. Paul Fire & Marine, 942 F.2d at 1035) (internal quotation marks omitted); Oldenburg, 34 F.3d at 1539 (citing FDIC v. United Pac. Ins. Co., 20 F.3d 1070, 1078 (10th Cir. 1994)) (applying Utah law); United Pac., 20 F.3d at 1078 (interpreting "manifest intent" under general principles of federal common law); Heller Int'l Corp. v. Sharp, 974 F.2d 850, 857-59 (7th Cir. 1992) (applying Illinois law and quoting St. Paul Fire & Marine, 942 F.2d at 1035); St. Paul Fire & Marine, 942 F.2d at 1035. But cf. First Fed. Savs. & Loan Ass'n v. Transamerica Ins. Co., 935 F.2d 1164, 1167 (10th Cir. 1991) (affirming order of summary judgment for insurer, explaining that employee did not possess a manifest intent to injure the bank, his employer, where evidence pointed to only one conclusion: that employee arranged transactions that "hopefully" would be beneficial to both the bank and borrowers). This standard, which requires only that the loss was "substantially certain to follow" from the employee's conduct, was articulated by the Court of Appeals for the Sixth Circuit in St. Paul Fire & Marine, see 942 F.2d at 1035, which in turn relied on language from Hanson PLC v. National Union Fire Insurance Co., 794 P.2d 66, 72 (Wash. Ct. App. 1990).

In stating that the "manifest intent" standard is satisfied either by proof of the employee's desire to cause a loss or by proof that the loss was "substantially certain" to result, these cases embraced a different, and less culpable mental state, than if the standard required that the evidence show that it was the employee's specific purpose or desire to cause the insured to sustain the loss and obtain a financial benefit at the insured's expense. Indeed, one commentator described this "substantially certain to follow" standard as requiring, in essence, a level of mental culpability equivalent to the general intent concept embodied in the area of criminal and tort law. See Keeley, supra at 937; see also Affiliated Bank/Morton Grove v. Hartford Accident & Indem. Co., No. 91-C-4446, 1992 WL 91761, at *4-5 (N.D. Ill. Apr. 23, 1992) (stating that the definition of intent that it adopted, i.e., that an employee acts with the manifest intent when the evidence demonstrates either (1) that the purpose was to achieve the particular result or (2) that the person knows that the particular result is substantially certain to follow from his or her conduct, is consistent with concept of intent in tort law); see also United Pac., 20 F.3d at 1078 (stating that jury instructions 36 and 37 provided "general intent" standard that was a correct explication of the meaning of "manifest intent"); Hanson PLC, 794 P.2d at 72. Moreover, the concept of general intent is synonymous with the Model Penal Code's mental state "knowingly," as a person acts knowingly under the Model Penal Code if he or she is aware that " `a result is practically certain to follow from his conduct, whatever his desire may be as to the result.' " See Keeley, supra at 923-24.

Thus for example, in United Pacific, the Court of Appeals for the Tenth Circuit upheld jury instructions stating, inter alia: "the concept of manifest intent does not require that the employee wish or desire for a particular result, but it does require that the result be substantially certain to happen' "; " `You may consider it reasonable to draw the inference and find that a person intends the natural and probable consequences of acts knowingly done or knowingly omitted' "; and " `There was an intent to cause the bank to sustain a loss if the natural result of [the employee's] conduct would be to injure the Bank even though it may not have been his motive.' " Id. at 1077-78 (citing Heller, 974 F.2d at 859; St. Paul Fire & Marine, 942 F.2d at 1035; First Nat'l Bank v. Lustig, 961 F.2d 1162, 1166 (5th Cir. 1992)); see also Oldenburg, 34 F.3d at 1539 (citing United Pac., 20 F.3d at 1078).

In contrast to the construction of "manifest intent" adopted by the Courts of Appeals for the Sixth, Seventh and Tenth Circuits, the Courts of Appeals for the Second, Fourth and Fifth Circuits have applied the term "manifest intent" differently, and we read those cases as requiring that the insured establish that the employee acted with the specific purpose or desire to both injure the insured and obtain a benefit. See General Analytics Corp. v. CNA Ins. Cos., 86 F.3d 51, 54 (4th Cir. 1996); Lustig , 961 F.2d at 1166-67; Glusband v. Fittin Cunningham & Lauzon, Inc., 892 F.2d 208, 210-12 (2d Cir. 1989) (reversing judgment for insured's receiver and entering judgment for insurer, stating that there was insufficient evidence that the employee acted with the manifest intent to cause a loss and obtain a financial benefit; court explained that manifest intent language limits coverage to losses caused by embezzlement and embezzlement-like acts, and that the evidence showed only that the employee intended to benefit the company rather than cause it a loss); Leucadia, Inc. v. Reliance Ins. Co., 864 F.2d 964, 972-74 (2d Cir. 1988) (affirming judgment for insurer where the only reasonable conclusion that could be drawn from the evidence introduced at trial was that the employee's dishonest actions were the result of attempts to save the employer from sustaining a large loss).12 In this regard, the "manifest intent" requirement thus may be analogized loosely to the concept of "specific intent" in the criminal law context. See Keeley, supra at 942 (advocating the adoption of a specific intent standard for purposes of defining "manifest intent"); Judy L. Hlafesak, Comment, The Nature and Extent of Subrogation Rights of Fidelity Insurers Against Officers and Directors of Financial Institutions, 47 U. Pitt. L. Rev. 727, 731-32 (1986) (stating that "manifest intent" language of 1976 form rider required proof of the employee's specific intent to cause a loss).

An instructive example of this approach is found in the Court of Appeals for the Fourth Circuit's opinion in General Analytics. See 86 F.3d at 54. There the insured, General Analytics Corp. ("GA"), sought coverage under a fidelity bond for losses it incurred as a result of an employee's actions in altering incoming purchase orders sent by the insured's customer, the Internal Revenue Service ("IRS"), for computer products. Not realizing that the purchase orders had been altered, GA personnel filled the IRS's requests by ordering parts from a third-party supplier. When GA delivered the parts to the IRS, it refused acceptance, causing GA to sustain a large loss. The district court granted summary judgment to GA against its insurer, finding that the evidence showed beyond any factual dispute that the employee acted with the manifest intent to benefit a third party. See id. at 52-53.

The court of appeals reversed the district court's grant of summary judgment to GA, finding that reasonable minds could differ as to whether the loss was caused by employee misconduct undertaken with the manifest intent to obtain a financial benefit for a third party. Because the parties disputed the district court's construction of the term "manifest intent," the court of appeals analyzed its meaning in the fidelity bond context. The court recognized that "employee dishonesty policies" are "designed to provide coverage for a specific type of loss characterized by embezzlement, which involves the direct theft of money." Id. at 53. The court then explained that:

Because employee dishonesty policies like CNA Insurance's require proof that the employee have acted to accomplish a particular purpose, they require that the insured establish a specific intent, analogous to that required by the criminal law. Thus, if a dishonest act has the unintended effect of causing a loss to the employer or providing a benefit to the employee, the act is not covered by the policy. . . .

As a state of mind, intent is often difficult to prove. And because it is abstract and private, intent is revealed only by its connection with words and conduct. . . . Thus, evidence of both words and conduct is probative of intent, . . . and, because context illuminates the meaning of words and conduct, evidence of the circumstances surrounding such words or conduct, including the motive of the speaker or actor, similarly is admissible.

Id. at 54 (citations omitted).

The court in General Analytics required proof of the employee's specific intent or purpose to cause the insured loss and to obtain a certain type of financial benefit for herself or a third party, but in adopting that state of mind requirement as the standard for "manifest intent," it recognized that the employee's subjective intent may be proven circumstantially by reference to evidence of the employee's words, conduct, and the context in which his or her actions took place. See also Lustig, 961 F.2d at 1166 ("When an employee obtains fraudulent loans with reckless disregard for a substantial risk of loss to the bank, a jury may infer from his reckless conduct and surrounding circumstances that he intended to cause the loss. . . . The jury should be instructed that in answering the question of intended loss, it should consider the range of evidentiary circumstances, including the relationship between the borrowers and the employee, the employee's knowledge of the likelihood that the loans would not be repaid, and all other surrounding circumstances bearing on the employee's purpose.") (citations and quotation marks omitted) (emphasis added).

Thus in General Analytics the court permitted consideration of both the reckless nature of the employee's conduct, and the likelihood that a loss would result from the employee's conduct (i.e., the employee's knowledge of the substantial likelihood of the result), in determining whether the employee acted with the "manifest intent" to cause the insured to sustain a loss. But the court tied the significance of those circumstances to a standard of employee culpability that required proof that the employee acted with the specific purpose to achieve the desired result, i.e., a specific intent to cause the loss and obtain a financial benefit for herself or a third party. See also Susquehanna Bancshares, Inc. v. National Union Fire Ins. Co., 659 A.2d 991, 998 (Pa. Super. Ct. 1995) ("[W]e hold that the `manifest intent' of the employee should be ascertained by deciding his true purpose in causing the loss. In deciding what the purpose was, both direct and circumstantial evidence should be considered, including the employee's own testimony as to his purpose as well as any evidence indicating the employee knew the loss was substantially certain to be the result of his acts.").

A review of the different approaches reveals the obvious distinction between the two lines of cases. As is evident from our discussion, under either approach, evidence tending to show that the employee acted "knowingly" would support a jury finding that the employee intended the consequences of his actions. Nevertheless, under the rationale explicitly adopted in General Analytics, proof of an employee's recklessness, or an employee's knowledge that a result was substantially certain to occur from the conduct, are objective indicia--manifestations--of the employee's specific purpose or intent. But neither an employee's recklessness or his knowledge that a result was substantially certain to occur would satisfy the language of the policy, absent that inference of specific intent. Cf. Peoples Bank, 113 F.3d at 636 ("Like our sister circuits, we recognize that reckless conduct might be evidence--a manifestation--of intent. But recklessness itself, without an inference of intent, would clearly not satisfy the language of the policy, any more than recklessness alone would create culpability for a crime requiring specific intent.") (citing General Analytics, 86 F.3d at 54). In contrast, those courts that have equated the term "intent" with the mental state "knowingly" would find that the employee acted with the manifest intent where the loss and the benefit were substantially certain to follow, regardless of whether the employee desired such results.

Interestingly in this case, regardless of the standard we choose to adopt, we believe that the proofs are sufficient to demonstrate a genuine issue of material fact concerning the employees' "manifest intent." Nevertheless, in view of the circumstance that we must remand this case to the district court for trial, we believe that it is appropriate at this juncture to state specifically which standard we adopt as reflecting what we think the Supreme Court of New Jersey would hold so as to give guidance to the district court.

We agree with the approach espoused by the Courts of Appeals for the Second, Fourth and Fifth Circuits, and hold that the term "manifest intent" as it is used in the fidelity provision requires the insured to prove that the employee engaged in dishonest or fraudulent acts with the specific purpose, object or desire both to cause a loss and obtain a financial benefit. Inasmuch as we equate the "substantially certain to result" standard with the mental state "knowingly," we are of the view that "purposefully" rather than "knowingly" better captures the meaning of "intent" as it used in the fidelity provision, given the history that prompted its inclusion in the dishonesty definition and its stated purpose. Indeed, we believe that our construction strikes an appropriate balance because it comports with the drafters' obvious intent to limit the types of employee misconduct covered by this provision but ensures that proof of the employee's recklessness and the substantial likelihood of loss factor into the ultimate inquiry into the employee's subjective state of mind. See Keeley, supra at 925 (noting that the Model Penal Code's definition of specific intent supports equating "manifest intent" with specific intent); Winn, supra at 152 ("We are ready and willing to insure against dishonesty, i.e., against improper acts of employees committed with an intent to deprive their employer of funds or property. We cannot insure against violations of instructions or poor business judgment."); see also Jane Landes Foster, et al., Does a Criminal Conviction Equal Dishonesty? Criminal Intent Versus Manifest Intent, 24 Tort. & Ins. L.J. 785, 800 (Summer 1989) ("Defining manifest intent in terms of purpose is also more in keeping with the intent of the fidelity industry. This clause represented a specific response to a growing number of decisions that judicially expanded the definition of dishonesty by recognizing claims based on reckless misconduct. Thus, it is clear that the drafters intended to limit coverage by requiring proof of a more particularized intent to harm.").

We emphasize, however, that by recognizing that the term "manifest intent" requires proof of the employee's purpose in engaging in the dishonest or fraudulent acts, we are cognizant that the employee's actual subjective state of mind virtually is impossible to prove absent resort to circumstantial evidence--objective indicia of intent. The Courts of Appeals for the Fourth and Fifth Circuits have recognized this proof problem, and permitted the insured to prove the employee's subjective purpose by introducing objective evidence of the employee's intent. See Lustig, 961 F.2d at 1166; General Analytics, 86 F.3d at 54; see also Susquehanna Bancshares, 659 A.2d at 998. And inasmuch as proof of recklessness and/or the employee's knowledge of the likelihood that a loss was to result both serve as manifestations of the employee's specific purpose or design, we hold that a jury may consider those factors, along with any other objective indicia of intent, in ascertaining the employee's state of mind in engaging in the wrongful conduct. See Couch 3d, supra S 161:3 (stating that "manifest intent" language meant an intent that was "apparent or obvious," and indicating that in determining the employee's intent or purpose, the court should consider the employee's testimony as to what his or her purpose was in engaging in the acts, and whether the employee was substantially certain that a particular result would be achieved, together with external indicia of subjective intent).

In reaching our conclusion, we recognize that our task here is limited to deciding the meaning of the term "manifest intent" as we believe it would have been decided by the Supreme Court of New Jersey had the case arisen in the New Jersey courts. See Robertson v. Allied Signal, Inc., 914 F.2d 360, 378 (3d Cir. 1990). Thus, in addition to relying on cases from other jurisdictions, we have considered the well-established rules for contract interpretation as they have developed under New Jersey law. We note, in particular, that New Jersey adheres to the principle of contra proferentum, which requires any ambiguities in an insurance contract to be resolved in favor of the insured. See Pittston Co. Ultramar Am. Ltd. v. Allianz Ins. Co., 124 F.3d 508, 520 (3d Cir. 1997). Nevertheless, "[w]hen the terms of an insurance contract are clear, . . . it is the function of a court to enforce it as written and not make a better contract for either of the parties." New Jersey v. Signo Trading Int'l, Inc., 612 A.2d 932, 938 (N.J. 1992) (citation and internal quotation marks omitted). Thus, we must not torture the language of a contract to create ambiguity where none exists in order to impose liability, and we must construe the words of an insurance policy so as to adhere to their ordinary meaning. See Longobardi v. Chubb Ins. Co., 582 A.2d 1257, 1260 (N.J. 1990). Under New Jersey law, ambiguity exists in an insurance contract where "the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage." Weedo v. Stone-E-Brick, Inc., 405 A.2d 788, 795 (N.J. 1979).

We have not overlooked the possibility that one could argue that given the divergence of opinion concerning the correct standard for determining the employee's "manifest intent," the term is ambiguous, thus requiring us to invoke the principle of contra proferentum. See, e.g., Oritani Savs. & Loan Ass'n v. Fidelity & Deposit Co., 821 F. Supp. 286, 290 (D.N.J. 1991) (rejecting that argument in the context of determining appropriate construction of "manifest intent"). If that were the case, we would be compelled then to find that the term "intent" requires only that the loss be "substantially certain to result," as it is a more lenient standard of employee culpability. Here, however, we do not believe that the Insuring Agreement is ambiguous because we cannot conclude that the "phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage." Weedo, 405 A.2d at 795. Rather, we find that the principle that courts" `should not write for the insured a better policy of insurance than the one purchased' " applies squarely to the facts of this case. Longobardi, 582 A.2d at 1260 (quoting Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 562 A.2d 208, 214 (N.J. 1989)).

Moreover, we further observe that in performing our task of "predicting" how the New Jersey Supreme Court would decide this issue, we have reviewed two cases from other courts which applied the manifest intent requirement under New Jersey law in a manner that supports our result. See McKenna, 622 F.2d at 662. First, in Oritani, the district court held that the term manifest intent requires the employee to possess the "subjective intent" to cause the employer loss. See 821 F. Supp. at 291. In reaching its conclusion, the court found persuasive the insurer's argument that the fidelity provision covers only those losses that were caused by "deliberate" conduct motivated by a "deliberate" intent. See id. at 288. The court granted the insurer's motion for summary judgment because it was undisputed that the employee was not a knowing participant in the scheme that caused the loss. See id. at 291.

We find the court's requirement of a "subjective intent" particularly noteworthy because the court could have reached the same result by adopting the "knowingly" standard given the facts of the case, but it chose instead to state the standard as requiring an inquiry into the employee's motive and subjective state of mind. Thus, the court determined that proof of the employee's recklessness or negligence would not suffice under the subjective standard it adopted, so long as the circumstances suggested only that the employee exercised poor business judgment and acted with "a pure heart." See id.

Similarly in North Jersey, the New Jersey Superior Court, Law Division, granted summary judgment to the insurer in a fidelity bond dispute because the evidence submitted pertaining to the question of manifest intent showed only that the employee exercised poor judgment. See 660 A.2d at 1292-93. The North Jersey court, citing, inter alia, the Court of Appeals for the Second Circuit's opinion in Leucadia, held that the evidence did not permit a reasonable inference that the employee's "motive" or "purpose" was to cause a loss to his employer. See id.

In light of the foregoing, we hold that the term "manifest intent" requires the insured to demonstrate that it was the offending employee's purpose or desire to obtain a financial benefit for himself or a third party, and to cause the insured to sustain a loss. And given that a jury could infer such an intent based on circumstantial evidence, an insured may survive a motion for summary judgment by proffering evidence suggesting that the employee acted knowing that it was substantially certain that his or her conduct would cause the insured to sustain a loss that would inure to the employee's benefit, see Lustig, 961 F.2d at 1166-67, and by offering any other proof tending to establish the employee's intent. See also General Analytics, 86 F.3d at 54 (stating that an employee's words and conduct are probative of intent, and that the context in which the words and conduct occurred also is relevant).

b. Whether there is evidence from which a reasonable jury could conclude that the employees acted with the manifest intent to obtain a financial benefit for themselves or a third person (subsection b's requirement)

Given the standard of manifest intent described above, we turn our analysis to the specific requirements of subsection (a) and subsection (b) of the fidelity provision. As previously mentioned, the plain language of the fidelity provision covers only those losses caused by employee misconduct undertaken with the manifest intent (1) to cause a loss, and (2) obtain a certain type of financial benefit for the employee or a third person. Wefirst will address in this section the scope of the latter requirement, found in subsection (b) of the fidelity provision, because it informs the remainder of our analysis of the coverage issues raised in this appeal.

At the outset, it is important to note that the plain language of that subsection indicates that an insured may meet its requirements in two ways. First, the insured may satisfy subsection (b) by demonstrating that the dishonest employee acted with the purpose of obtaining for himself or herself a financial benefit other than "salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment." Alternatively, the insured may meet the requirements of subsection (b) by showing that the dishonest employee acted for the purpose of obtaining for a third party a financial benefit not included within the list just enumerated. F&D contends that it is entitled to summary judgment because the individual defendants' actions do not satisfy either aspect of subsection (b). We will address its arguments separately below.

i. Whether the evidence could support a finding that the individual defendants acted with the manifest intent to obtain a financial benefit for themselves "other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment"

In the district court, the RTC contended that Hurst, Merkle and Ridder committed their fraudulent or dishonest acts because they were motivated by a desire to obtain the golden handcuff payments, and that DeVany was motivated by his desire to receive a $1,000 payment at the close of the HonFed sale. See SA at 206-07. It also asserted that Hurst, Ridder and Merkle acted with the intent to obtain lucrative employment opportunities with HonFed. In response, F&D claims that there is no evidence indicating that Ridder, Hurst and Merkle acted with the manifest intent to obtain for themselves employment opportunities with HonFed or signing bonuses with that company. Focusing next on the plain language of the exclusionary clause in subsection (b), F&D argues that both the golden handcuff payments and the $1,000 payment constitute bonuses or awards. From that premise, F&D contends that because the plain language of subsection (b) excludes coverage for losses resulting from employee misconduct motivated by a desire to receive, inter alia, bonus payments and other forms of compensation from the insured, the employees' desire to obtain the handcuff payments does not provide a basis for indemnity.

To reiterate, subsection (b) of the fidelity provision requires that the employee engage in the dishonest or fraudulent conduct with the manifest intent "to obtain financial benefit for the Employee . . . , other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment." App. at 562. As a matter of contract construction, it is evident that the clause beginning with "other than" is exclusionary. Thus, if the employee committed the fraudulent or dishonest act motivated only by a desire to gain one of the enumerated financial benefits for himself or herself, the insured could not recover under the fidelity provision, as the requirements of subsection (b) would not be satisfied.

The district court held that the golden handcuff payments were not the type of financial benefits excluded under subsection (b) by adopting the following construction of the relevant language:

It is clear that the uniquely final `one-time only' nature of these payments prevents them from being classified as bonuses `earned in the normal course of employment.' F&D maintains that the clause precludes coverage for acts done with the intent to obtain any type of bonus, not just those earned in the normal course of business. Although grammatically the phrase `earned in the normal course of employment' modifies `other employee benefits,' it is at least unclear whether this clause intended to exclude coverage for dishonest acts committed with an intent to obtain a one-time payment such as the handcuff bonus in the context of the generic thrust of excluded types of remuneration. The litany of compensation kinds excluded from coverage are all payments which are generally received on a regular basis as part of an employee's compensation scheme. The handcuff payments certainly do not fall within that category.

Op. at 26. Invoking the well-settled principle that courts resolve ambiguities in an insurance contract in favor of coverage and construe exclusions narrowly, the court found that the clause did not bar coverage for dishonest or fraudulent acts committed with the manifest intent to obtain the handcuff payments.

In support of its construction of the exclusionary clause, F&D points out that "[c]ourts uniformly have construed the Bond's exclusion language for financial benefits to mean any payment that the insured voluntarily pays to an employee, even if those payments are fraudulently earned." Br. at 39. It explains that "[r]ecovery under a fidelity bond is barred if the employer `knowingly paid the disputed funds directly to the employees on the belief that the employees were entitled to the payments as compensation for honest work.' " Id. at 40 (quoting FDIC v. St. Paul Fire & Marine Ins. Co., 738 F. Supp. 1146, 1160 (M.D. Tenn. 1990), aff'd in relevant part, 942 F.2d 1032 (6th Cir. 1991)). F&D also points to Auburn Ford Lincoln Mercury, Inc. v. Universal Underwriters Insurance Co., 967 F. Supp. 475 (M.D. Ala.), aff'd, 130 F.3d 444 (11th Cir. 1997) (table), where the court rejected the insured's argument that the phrase "earned in the normal course of employment" permits coverage under subsection (b) if the commissions the employee earned from his conduct were not "earned in the normal course of employment" in the sense that they were obtained fraudulently. See id. at 478-79 (noting that the phrase "in the normal course of employment" serves only to define the type of excluded benefits andfinding that "[t]his phrase does not mean that allegedly dishonestly obtained commissions are included within the policy").

We agree with F&D's argument that the district court erred in finding that the phrase "earned in the normal course of employment" could be construed as precluding the "one-time payments" provided for in the closing agreements. In this regard, we believe that the district court's construction of the last phrase of subsection (b) "`strain[s] the language of the policy to find an ambiguity where there is none in order to grant coverage that does not exist.' " Oritani Savs. & Loan Ass'n v. Fidelity & Deposit Co., 989 F.2d 635, 639 (3d Cir. 1993) (citation omitted). In our view, the phrase "earned in the normal course of employment" is unambiguous, and thus, the presumption of construing the exclusion in the contract narrowly does not apply here. This conclusion compels us to find that the handcuff payments fall squarely within the definition of "bonuses" or "awards," or alternatively qualify as a type of benefit "earned in the normal course of employment." Accordingly, the RTC cannot satisfy subsection (b) by establishing that Ridder, Hurst and Merkle acted with the "manifest intent" of obtaining the golden handcuff payments for themselves.13

Our analysis begins with a review of the plain language of subsection (b). First, we note that the position of the phrase "earned in the normal course of employment" strongly indicates that that phrase was meant to modify the language "other employee benefits," as the modifying language directly follows that phrase and describes the types of employee benefits falling within the exclusion. See id.; Hartford Accident & Indem. Ins. Co. v. Washington Nat'l Ins. Co., 638 F. Supp. 78, 83 (N.D. Ill. 1986) (quoting Berger v. Fireman's Am. Loss Control Co., No. 508, slip op. (Md. Ct. App. Dec. 16, 1982)). Moreover, as there is no comma between the two phrases, it is clear that they should be read together, so that the "earned in the normal course of employment" modifies only the general phrase "other employee benefits" rather than the other specific types of employee benefits previously enumerated. See Hartford Accident, 638 F. Supp. at 83. As one article explains:Attempts to limit the exclusion to financial benefits [such as salaries and commissions] earned in the normal course of employment have been rejected. The words `earned in the normal course of employment' do not modify the enumerated exclusions that precede them, but are intended to include in the list of excluded benefits other benefits typically earned by employees.

Foster, et al., supra at 789. Thus, under the plain language of the bond, the phrase "earned in the normal course of employment" cannot be viewed as a limitation on the exclusion. Rather, it is reasonable to conclude that the drafters included the phrase to provide a broader exclusion, thereby shrinking the bounds of coverage under the fidelity provision. This construction clearly undermines the district court's reliance on the last phrase of the exclusionary clause to conclude that the handcuff payments were not within the exclusion. See Hartford Accident, 638 F. Supp. at 83; see also Morgan, Olmstead, Kennedy & Gardner, Inc. v. Federal Ins. Co., 637 F. Supp. 973, 977 (S.D.N.Y.) (interpreting similar language and reaching same conclusion), aff'd, 833 F.2d 1003 (2d Cir. 1986) (table).

While recognizing that "earned in the normal course of employment" did not modify "bonuses" or "awards" per se, the district court found that language informative and demonstrative of the types of financial benefits that came within the exclusion. By relying on the phrase "earned in the normal course," its appears that the district court concluded that the one-time, final payments were not within the excluded financial benefits. The court's holding on this point thus rests upon its conclusion that the unique, one-time nature of the payment distinguished it from the types of employee benefits set out in the exclusionary clause.

We cannot agree with the district court's reasoning. Put simply, a review of the case law interpreting the purpose of the exclusionary language and the meaning of the phrase "earned in the normal course of employment" demonstrates that the court's conclusion on this point is contrary to most (if not all) of the decisions addressing this issue. Extrapolating from the cases we have found on point, we understand the exclusion found in subsection (b) to eliminate coverage where the insured's theory is that the employee's purpose in engaging in the misconduct that caused the loss was to receive some type of financial benefit that, generally speaking, the insured provides knowingly to its employees as part of its compensation scheme and as a result of the employment relationship.14

Following this approach, courts have explained that payments qualifying as "payoffs"or "kickbacks" fall outside the exclusionary clause, as well as financial benefits obtained as a result of the employee's interest in an entity that benefits from the improper transaction, because the payments in those instances clearly are not "salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment." See Lustig, 961 F.2d at 1167 ($40,000 "loan" from borrower to employee); First Bank v. Hartford Underwriters Mut. Ins. Co., 997 F. Supp. 934, 937-38 (S.D. Ohio 1998), aff'd on other grounds, 198 F.3d 245 (6th Cir. 1999) (table); Estate of K.O. Jordan v. Hartford Accident & Indem. Co., 844 P.2d 403, 413 (Wash. 1993) (en banc). Moreover, courts have rejected the argument that the exclusion precludes coverage only for losses caused by an employee's desire to obtain, for example, honestly earned commissions, finding that the term "earned" encompasses financial benefits both fraudulently obtained and honestly earned from the employer. See Municipal Sec., Inc. v. Insurance Co. of N. Am., 829 F.2d 7, 9-10 (6th Cir. 1987); Auburn Ford, 967 F. Supp. at 479; Mortell v. Insurance Co. of N. Am., 458 N.E.2d 922, 929 (Ill. App. Ct. 1983).

Thus, contrary to the district court's construction of the exclusion found in subsection (b), courts addressing its scope have held that the "earned in the course of employment" language is descriptive of the character of the payment at issue rather than the frequency with which the payment is received or the timing of its receipt. Indeed, this construction makes sense in view of the fact that each of the eight nouns preceding the last phrase "other employee benefits . . ." share the singular characteristic that they are all financial benefits provided knowingly by an insured, in its capacity as an employer, to its employees as a form of compensation and as a result of the employment relationship.

We also point out that the very nature of bonuses and awards, both of which are excluded financial benefits under subsection (b), undermines the district court's limitation of the exclusion to only those payments received with frequency, or at a minimum more than once. Webster's Third New International Dictionary defines a "bonus" as "something given or received that is over and above what is expected." Id. at 252. Similarly, Webster's Seventh New Collegiate Dictionary defines an "award" as "something that is conferred or bestowed: prize." Id. at 61. Thus, if presented in the employment context, bonuses and awards are given by an employer to its employee as rewards based on job-related performance. By their very nature, those rewards are bestowed sparingly, perhaps only once in an employee's career. Nevertheless, under the plain language of the bond, a loss motivated by a desire to obtain such benefits falls squarely within the exclusion found in subsection (b).

Thus, we cannot agree with the district court's reasoning that the last phrase "earned in the normal course" indicates that the excluded benefits are limited to those forms of compensation that are given by the employer to the employee on a "regular basis." Rather, we hold that the exclusion covers payments knowingly made by the insured to the employee as a consequence of their employment relationship and in recognition of the employee's performance of job-related duties. Applying this standard here, we find that the golden handcuff payments fall squarely within the exclusion set forth in subsection (b), whether it be because they are considered a "bonus," "award," or simply a financial benefit that the employees "earned in the normal course of employment."

We point out that the closing agreements describe the payments there under as "compensation" for the employees' assistance in City Collateral sale, SA at 153, which suggests to us that the payments were bestowed once and only to certain employees in recognition of their job-related performance. We also note that the fact that the closing agreements provided for a singular, lump-sum payment actually supports the finding that the payments qualify as a bonus or award, given the ordinary meaning of those terms. Moreover, these payments clearly are distinguishable from the those financial benefits which have been held to fall outside the category of excluded benefits, namely payoffs or embezzled funds, as City Collateral voluntarily signed the agreements knowing that the payments would be made if the sale eventually occurred. Indeed, City Federal paid the employees once the HonFed deal closed. Compare St. Paul Fire & Marine, 738 F. Supp. at 1160-61; Morgan, Olmstead, 637 F. Supp. at 978 (noting that bribes would not qualify as "salary, commissions, fees or other emoluments," which was the operative exclusionary language).

Nevertheless, given our construction of the exclusion, it appears that it would not preclude coverage under the theory that Ridder, Hurst and Merkle engaged in dishonest and fraudulent acts with the manifest intent to secure future lucrative employment opportunities, salaries and signing bonuses from HonFed--a third party to their employment relationship with City Collateral.15 Indeed, F&D apparently concedes that even under its construction of the exclusionary clause, which we found persuasive, benefits such as future employment, salaries and bonuses from HonFed would not fall within the exclusionary clause in subsection (b). Instead, it argues that the inference that the employees acted with the manifest intent to obtain different and more lucrative employment is "factually unsupportable" because it is undisputed that HonFed did not seek their employment with the company until November 1988. Thus, as we understand F&D's argument, it challenges the district court's assessment of the sufficiency of the RTC's evidence to survive summary judgment on this theory.

We disagree with F&D's argument that no reasonable jury could conclude, based on the evidence, that Ridder, Hurst, and Merkle acted with the purpose of obtaining for themselves more lucrative employment elsewhere, including large salaries and bonuses with the prospective purchaser. Indeed, we believe that a reasonable jury could find that these employees, in engaging in their course of concealment and misrepresentation, intended to secure employment bonuses and future employment with City Collateral's purchaser. As the district court noted, Hurst testified that the officers sought to " `maximize their rewards' in connection with the sales effort and targeted potential purchasers who would likely employ them after the transaction." Op. at 25. Put simply, the fact that Ridder, Hurst and Merkle did not learn until November 1988, that they in fact obtained what they had hoped for all along (in terms of lucrative employment, salaries and bonuses with the purchaser) is not logically inconsistent with the proposition that they engaged in a course of concealment and misrepresentation prior to that date to secure that ultimate result.

We also point out that there is a suggestion in the record that as of late October or early November 1988, Ridder, Hurst and Merkle were confident that HonFed was going to purchase City Collateral, and that they began negotiating the terms of their future employment with the company around the same time period. In determining the employees' "manifest intent" to obtain future employment and signing bonuses, the jury certainly could consider the events that occurred subsequently to that date, in particular the December 9, 1988, memorandum to HonFed, and the fact that the individual defendants continued their course of concealment through the date of the sale. These events would be particularly probative on this issue, given the circumstance that as of that time frame, Ridder, Hurst and Merkle were certain to gain future employment, substantial salaries and signing bonuses if the sale occurred smoothly and on terms that were favorable to HonFed. In that sense, then, Merkle, Ridder and Hurst's chances for financial prosperity were tied to HonFed's ultimate success, which inevitably would come at City Federal's expense.

Accordingly, we hold that at trial, the RTC may seek to establish coverage under the bond by proving that in engaging in the various acts of concealment and misrepresentation, Ridder, Hurst, and Merkle acted with the purpose of securing for themselves lucrative employment opportunities, salaries and bonuses with City Collateral's eventual purchaser. However, it cannot seek to establish coverage by arguing that these employees acted with the intent to secure the golden handcuff payments from City Collateral, as those payments qualify as financial benefits falling within the exclusionary clause in subsection (b).

ii. Whether a reasonable jury could conclude that the individual defendants acted with a manifest intent to secure a financial benefit for a third party

We noted at the outset of our discussion that subsection (b) of the fidelity provision could be satisfied in two ways. The second way that an insured could obtain coverage is if the loss resulted directly from the employee's desire to obtain a financial benefit for a third party, in this instance HonFed. F&D contended before the district court that it was illogical to assume that the individual defendants began their course of conduct in May 1988 with the manifest intent to benefit HonFed because HonFed did not come into the picture until November 1988, long after the individual employees allegedly began their dishonest and fraudulent conduct. The district court agreed with F&D's argument, holding as follows:

In addition, no rational juror could find that the officers fraudulently concealed information from City Federal beginning in May 1988 with the manifest intent to benefit HonFed, a potential purchaser which only expressed interest in City Collateral months later. Although the December 9 memorandum was likely motivated by the desire to ensure that City Collateral passed to HonFed on favorable terms, the entire course of dishonesty and concealment perpetuated by the officers during the prior months cannot be attributed to this purpose.

Op. at 24.

The RTC does not challenge this ruling on appeal. For our purposes, we need not address whether the district court's analysis on this point was correct because we already have determined that the RTC may establish coverage under subsection (b) by proving that Ridder, Hurst, and Merkle acted with the manifest intent to secure future employment and bonuses with HonFed. Therefore, we will not disturb the district court's finding on this point.

c. Whether there is sufficient evidence from which a reasonable jury could conclude that the employees acted with the manifest intent to cause City Federal to sustain a loss on the Northwest account (subsection (a)'s requirement)

F&D asserts alternatively that there is insufficient evidence from which a reasonable jury could conclude that the individual defendants acted with the manifest intent to cause City Federal to incur a loss on the Northwest account. F&D points out that the quintessential example of an employee who undoubtedly possesses a manifest intent to cause the insured's loss is the embezzling employee-"the thief"--because in that situation the employee's gain is always at the employer's expense. It contends that the only conclusion permitted by the evidence is that the employees hoped to save City Federal from large losses on the Northwest account. Accordingly, it asserts that we should affirm the district court's order of summary judgment because, as a matter of law, the evidence could not support the conclusion that the employees intended to cause City Federal's loss.

The district court found that there was a triable issue concerning the employees' manifest intent to injure City Federal, explaining that "the evidence supports an inference that the employees concealed the true problematic status of the Northwest credit line to induce City Federal to approve extensions of the credit line and to consent to the advancement of additional funds from April to December 1988." Op. at 22. Moreover, the court pointed out that the evidence demonstrated that the individual defendants, either individually or collectively, were well aware of the nature and severity of the problems with the credit line, yet took affirmative steps to misrepresent and conceal them from City Federal. Relying also on the other circumstantial evidence of intent, including the concealment of the Movroydis admission, the alteration of the customer history, and the advisory memorandum to HonFed on the eve of sale, the court found that a fact finder "could certainly conclude that the employees knew that the significant losses were `substantially certain to follow' from their conduct and that they acted with total disregard for these inevitable consequences." Id.

F&D contests the court's holding on two grounds. First, it contends that the district court's reasoning is unsound because "it makes no sense that the employees would cause [City Federal] to lose millions of dollars because that loss would assist the employees in obtaining the financial benefits." Br. at 48. It contends that "creating a loss would not have assisted the employees in receiving their bonuses from [City Federal.]" "If anything, and by the FDIC's own admission, the Employees could have been terminated if they had been caught purposely creating a loss on the Northwest loan." See id. at 49.

Second, F&D argues that the district court ignored the undisputed evidence in the case demonstrating that the individual defendants extended the Northwest credit line beyond its initial maturity date in an attempt to minimize the losses that City Federal would incur. Moreover, F&D points out that the evidence also shows that over the course of the summer of 1988, the credit line showed some improvement, thus demonstrating that the employees acted solely with the best interests of City Federal in mind. In addressing the alleged acts of concealment, F&D contends that they do not undercut the other evidence of the employees' good intentions, as the RTC has failed to show how the employees intended to harm City Federal by hiding these problems. See id. at 49.

We have made a complete study of the record of this case to determine whether there is sufficient evidence from which a jury could conclude that Ridder, Hurst, and Merkle acted with the purpose or desire of causing City Federal to sustain a loss on the Northwest account. While we do not set forth at this point all of the evidence the RTC presented on this issue and explain our analysis of it, we are in complete agreement with the district court's ultimate conclusion that the circumstances present a genuine issue of material fact concerning their manifest intent to cause City Federal to sustain the Northwest loss. Given the unique facts of this case, there are many possible conclusions that could be drawn concerning the employees' purpose. For example, there is evidence tending to show that Ridder, Hurst and Merkle acted with the desire of benefitting themselves, and consequently also desired to cause City Federal's loss, inasmuch as City Federal's loss would inure to their benefit. Clearly, HonFed's last minute decision to exclude the Northwest account from the purchase was beneficial to them because it ensured that their new employer would not be saddled with the loss with which they arguably were involved on some level. On the other hand, the jury could conclude that the loss was the unfortunate result of a series of poor business decisions, or that in seeking to obtain future employment and associated benefits with HonFed, Ridder, Hurst and Merkle only intended to benefit themselves and that the injury to City Federal was an unintended consequence. Moreover, we cannot discount the possibility that at some point, their motivation and desires changed. In any event, the evidence pertaining to the employees' intent is mixed, and coverage therefore is a disputed issue of fact that should be left for the jury. See Lustig, 961 F.2d at 1166-67.

Inasmuch as we have held that a jury may consider evidence tending to establish an employee's reckless behavior, as well as circumstantial proof of the substantial likelihood of a loss, and infer from those circumstances an intent to cause a loss, we believe that the facts of this case are such that a reasonable jury could draw the conclusion that the employees intended for City Federal to be saddled with the Northwest loan loss. Indeed, as we have explained, we simply cannot state with certainty what the employees intended in engaging in the acts that they did. Accordingly, we agree with the district court's ultimate conclusion that summary judgment on this issue was inappropriate.

We have considered in this regard F&D's argument that the district court ignored the circumstantial evidence supporting the conclusion that the employees' actions were not undertaken with the manifest intent to cause City Federal's loss on the Northwest account. To be sure, F&D is correct that a reasonable jury could conclude, based on certain evidence in the record, that the employees only hoped to save City Federal from incurring a substantial loss in connection with the overflow of shipped and warehoused loans. Nevertheless, there is other evidence in the record, namely the various acts of concealment, which supports the opposite conclusion. Put simply, a jury would be required to consider all of the evidence in reaching its ultimate finding regarding the employees' subjective intent in engaging in the conduct that they did, and we will not pretermit the jury's ability to do so.

Similarly, we have considered F&D's alternative argument, namely that "it makes no sense that the employees would cause [City Federal] to lose millions of dollars because that loss would assist the employees in obtaining the financial benefits." Br. at 48. It claims that logically, if the individual defendants purposely created a loss on the Northwest account, it would not have benefitted them at all personally because it would be likely that City Federal would have fired them if it discovered that they purposely did so. In that event, Ridder, Hurst, and Merkle would not have been able to obtain lucrative employment with HonFed or collect on their closing agreements with City Collateral. See id.

This assertion does not persuade us that no reasonable jury could find that these employees acted with the manifest intent to cause City Federal to sustain a loss. First, we note that this argument, in essence, asks us to view the facts in the light most favorable to F&D, and draw subjective conclusions in its favor, a task that we cannot perform at this juncture. We believe, however, that F&D's contention is best left for the jury's consideration. We also point out that this argument is premised on F&D's assumption that the RTC's theory is that the individual defendants purposely "created" a loss on the Northwest account. But it seems clear to us that the RTC does not claim that individual defendants "created a loss" in the sense that they assisted Movroydis in his kiting scheme. Rather, the RTC's position is that the employees "caused" the loss to City Federal because their acts of concealment and various misrepresentations led HonFed to exclude the loan from the sale, which in turn resulted in City Federal being put in the unfavorable position of having to deal with a delinquent account that was certain to result in a significant loan loss. Inasmuch as subsection (a) of the fidelity provision requires only that the employees acted with the manifest intent "to cause" the insured to sustain the loss that it did, the RTC's theory of coverage falls squarely within its relatively narrow parameters.

In sum, we are convinced that the evidence is not so onesided so as to compel the conclusion that, as a matter of law, Ridder, Hurst and Merkle did not intend to benefit themselves and cause City Federal to sustain a loss. Consequently, we will not disturb the district court's conclusion that summary judgment on this issue was inappropriate.

2. Whether there is a genuine issue of material fact as to whether the Northwest loss is a loss "resulting directly" from the employees' dishonest or fraudulent acts

As its final argument, F&D contends that the district court erred in concluding that a reasonable jury could find that the employees' misconduct caused the Northwest loan loss. The district court construed the causation language-"resulting directly from"--as meaning that the bond covers losses that would not have occurred "but for" the dishonest conduct. See Op. at 23 (citing Lustig, 961 F.2d at 181 [sic]). The court found that the evidence was sufficient to survive F&D's summary judgment motion on this point because it suggested that the extensions of credit and the additional loans made after the original maturity date "at the very least enhanced the losses" City Federal suffered. Id. The court concluded that "while the deteriorating financial condition of Northwest and Movroydis's kiting scheme certainly contributed to the losses, a fact-finder could reasonably conclude that the concealment by the officers of the problematic status of the credit line in order to induce the approval of future loans and extensions directly resulted in a covered loss." Id.

F&D does not contend that the district court's "but for" standard was incorrect, but instead maintains that the RTC has not produced any evidence from which a reasonable jury could conclude that the employees' misconduct was the cause in fact of the loss, given the reality that it was likely that City Federal would have sustained the same or similar loss absent the fraudulent and dishonest actions. F&D asserts that, under general principles of tort law, an actor's conduct cannot be said to be a cause in fact of the resulting damage if the evidence shows that the injury would have resulted anyway even in the absence of the conduct at issue. In support of applying this rule to bar coverage in this case, F&D relies on tort cases discussing the concept that a plaintiff asserting a fraud claim must demonstrate that the fraudulent conduct caused an injury, and it analogizes to cases which held that there is no tort without an injury. See id. at 56 (citing Midwest Commerce Banking Co. v. Elkhart City Ctr., 4 F.3d 521, 524-25 (7th Cir. 1993); Stromberger v. 3M Co., 990 F.2d 974, 976-77 (7th Cir. 1993); Citibank, N.A. v. K-H Corp., 968 F.2d 1489, 1496 (2d Cir. 1992); Schroth v. Coal Operators Cas. Co., 73 A.2d 67, 68 (N.J. Super. Ct. App. Div. 1950)).

From this premise, F&D argues that the RTC failed to meet its evidentiary burden at summary judgment because it did not introduce any evidence tending to show that, absent the individual defendants' pattern of concealment and misrepresentation, City Federal would have avoided the loss on the Northwest account. Br. at 55-63. F&D points to the fact that the RTC's expert could not quantify with a reasonable degree of certainty what funds were available to pay off the advances outstanding on the Northwest loan at any particular time. F&D's argument thus is premised on its belief that the district court's factual cause or "but for" analysis was flawed in that no reasonable jury could conclude that the employees' dishonest or fraudulent conduct played any part in the loan loss that forms the basis of the RTC's indemnification claim.

Our analysis of this issue must begin by determining the appropriate causation standard, given the plain language of the bond. That finding will permit us to consider whether the evidence in record is sufficient to establish that there is a jury issue on causation.

As to the first issue, we do not share F&D's view that the phrase "losses resulting directly from" requires only an inquiry into the factual cause of the loss. Indeed, it appears that in assuming that the language "resulting directly from" requires only a "but for" or "cause-in-fact" standard of causation, F&D has not considered our opinion in Jefferson Bank v. Progressive Casualty Insurance Co., 965 F.2d 1274 (3d Cir. 1992), which addressed the appropriate construction of the identical phrase under Pennsylvania law. There we construed the "resulting directly from" causation language in Insuring Agreement E--the forgery provision--and concluded that that phrase meant "losses proximately caused by." See id. at 1280-81. In reaching our conclusion, we specifically noted the insured's argument that the bond's language indicated that the causation standard was "broader" than proximate cause, and that the standard was a more lenient one, requiring only that the forgery be the "cause-in-fact" or the "but-for" cause of the loss. See id. at 1280-81 & n.10. Our analysis rejected the insured's broader construction, as we found that the conventional proximate cause standard was the correct formulation. We also rejected the insurer's argument that the language of the bond required the plaintiff to prove not only proximate cause, but also some additional closeness in space and time between the loss and the cause of the loss. See id. at 1280-81 & n.11.

Our research reveals that the New Jersey Supreme Court has not addressed the meaning of the phrase "losses resulting directly from" as it is used throughout the various Insuring Agreements contained in the Standard Form No. 22 bond at issue in this case, and in particular has not construed the meaning of that language as it is used in the fidelity provision. Nevertheless, our review of several New Jersey cases interpreting and applying similar causation language in other types of insurance agreements indicates to us that the New Jersey Supreme Court would follow our opinion in Jefferson Bank and apply the proximate causation standard to the "resulting directly from" language found in the fidelity provision of this bond. See, e.g., CruzMendez v. ISU/Ins. Servs., 722 A.2d 515, 525 (N.J. 1999) (stating that statute, in using the terms "caused" and "by reason of," contemplates proof of proximate causation) (citing Westchester Fire Ins. Co. v. Continental Ins. Cos., 312 A.2d 664, 669 (N.J. Super. Ct. App. Div. 1973), aff'd, 319 A.2d 732 (N.J. 1974) (per curiam), which observed that phrases "caused by" and "resulting from" in insurance contracts convey idea of proximate cause); Search EDP, Inc. v. American Home Assurance Co., 632 A.2d 286, 289-90 (N.J. Super. Ct. App. Div. 1993) (applying proximate cause standard where errors and omissions policy covered damages "resulting from" wrongful act where wrongful act "arises out of" conduct of insured's business) (citing Franklin Pack'g Co. v. California Union Ins. Co., 408 A.2d 448 (N.J. Super. Ct. App. Div. 1979)); Stone v. Royal Ins. Co., 511 A.2d 717, 719-20 (N.J. Super. Ct. App. Div. 1986) (interpreting language describing coverages and exclusions under homeowner's insurance policy where policy covered "direct loss . . . caused by," inter alia, accidental discharge or overflow of water, and excluded losses "directly or indirectly from" water damage; court applied proximate cause standard to determine if water damage was covered by policy, and determined that last event contributing to the damage--the ruptured hose on the sump pump--was a covered risk); see generally Karadontes v. Continental Ins. Co., 354 A.2d 696, 697 n.1 (Bergen County Dist. Ct. 1976) (noting that "direct loss" as used in fire insurance policies has been construed to have essentially the same meaning as proximate cause); Stephen M. Brent, Annotation, What Constitutes "Direct Loss" Under Windstorm Insurance Coverage, 65 A.L.R. 3d 1128 (1975) (noting that courts have equated "direct result" with "proximate cause of loss"); 7 Couch 3d, supra S 101:53 ("The term `direct loss' is generally held to be the equivalent of both `proximate cause,' and `direct cause.' ") (citations omitted).

Indeed, our result in Jefferson Bank was predicated upon our review of Pennsylvania case law addressing the meaning of a similar causation standard utilized in a different type of insurance contract, see Jefferson Bank, 965 F.2d at 1281, and our construction of the language "losses resulting directly from" comports with other jurisdictions addressing this issue in the fidelity insurance context. See, e.g., Mid-America Bank v. American Cas. Co., 745 F. Supp. 1480, 1485 (D. Minn. 1990) (utilizing proximate cause principles in addressing defendant's argument that the losses caused by the renewal of loans are not losses "directly resulting from" the employee's dishonest or fraudulent acts); Hanson PLC, 794 P.2d at 73 (stating that trial court did not err in instructing jury that "result directly" language in fidelity bond may be defined as proximate cause). But see Fidelity & Deposit Co., 45 F.3d at 976 ("Lustig requires that the FDIC show that a loan would not have been made `but for' the fraudulent conduct of the employee."); Lustig, 961 F.2d at 1167 ("A loss is directly caused by the dishonest or fraudulent act within the meaning of the bond where the bank can demonstrate that it would not have made the loan in the absence of fraud."); see generally William T. Bogaert, Andrew F. Caplan, Computing the Amount of Compensable Loss under the Financial Institution Bond, 33 Tort & Ins. L.J. 807, 813-14 & nn.29 & 33 (Spring 1998) (criticizing approach in Jefferson Bank as adopting causation standard that was too lenient given the plain language of bond which required that the connection between the loss and the conduct be "direct," and noting still that the Court of Appeals for the Fifth Circuit's approach in Lustig "departed even further from the contractual language by allowing recovery based upon mere `but for' or factual causation in apparent disregard of the direct loss requirement and the proximity of the covered conduct and the loss").

Thus, as a matter of logic, we see no reason why the New Jersey Supreme Court would adopt a different interpretation of the language, given the fact that the phrases in the two Insuring Agreements are identical, and our reasoning in Jefferson Bank supports an application of the proximate causation standard in this context. Accordingly, we hold, in accordance with our reasoning in Jefferson Bank, that the phrase "losses resulting directly from" requires, for purposes of indemnification, that the losses be "proximately caused by" the fraudulent or dishonest acts of the employee which form the basis for the insured's coverage claim.

As previously mentioned, the district court, following Lustig, held that there was evidence suggesting that the dishonest and fraudulent acts were the cause in fact of the Northwest loan loss. The court stated that there was evidence suggesting that the extensions and additional loans, at the very least, "enhanced" the losses City Federal suffered. Op. at 23. Thus, it appears from the language it used that the district court applied a less-demanding standard of causation than that which we have adopted today. See Jefferson Bank, 965 F.2d at 1281 n.10.

Nevertheless, we do not believe that the district court's error in this regard necessitates reversal of the district court's conclusion that there were genuine issues of material fact concerning the question of causation presented on the facts of this case. Indeed, we agree with the district court's ultimate finding that a jury must determine the cause of the Northwest loss that City Federal sustained, and in particular, whether those specific dishonest and fraudulent acts upon which the RTC bases its claim of indemnification proximately caused the loss. Under New Jersey tort law, which we find instructive on the proximate cause analysis required under the bond, see Jefferson Bank, 965 F.2d at 1281, "a proximate cause need not be the sole cause of harm. It suffices if it is a substantial contributing factor to the harm suffered." Perez v. Wyeth Labs. Inc., 734 A.2d 1245, 1261 (N.J. 1999); see also Jefferson Bank, 965 F.2d at 1281 (stating that under Pennsylvania law, a cause is proximate if it is merely a substantial cause of the harm) (citations and quotation marks omitted). Based on the record before us, we cannot find, as a matter of law, that a jury could not conclude that the employees' actions were a substantial factor in bringing about the Northwest loan loss that eventually resulted. Allowing the jury to decide the issue of proximate cause is consistent with New Jersey's approach to resolving causation issues. See Perez, 734 A.2d at 1261 (citing Martin v. Bengue, Inc., 136 A.2d 626 (N.J. 1957)).

We further point out that in reaching our conclusion on the causation issue, we are unpersuaded by F&D's suggestion that as the non-movant at summary judgment proceedings, the RTC had to produce evidence demonstrating that the Northwest loan loss would have been avoided if the employees' misconduct had not occurred. Importantly, F&D's position in this regard is premised on cases which are not on point factually and fail to address the relevant legal concept here--that of proximate causation. Indeed, it appears from its brief that F&D's argument conflates the tort concepts of proximate causation and lack of compensable injury. See Br. at 56-59 (citing Midwest, 4 F.3d at 524; Stromberger, 990 F.2d at 976-77; Citibank, 968 F.2d at 1495; W. Page Keeton et al., Prosser and Keeton on the Law of Torts S 41, at 265 (5th ed. 1984)). Given this analytical flaw, F&D has not persuaded us that the facts pertaining to the issue of proximate causation are so one-sided so as to require judgment as a matter of law in its favor. See Jefferson Bank , 965 F.2d at 1285 (finding genuine issue of material fact concerning whether forged signature proximately caused loss where the evidence suggested that the bank would have refused to enter the transaction had not an individual purporting to be a notary signed the instrument); accord Lustig, 961 F.2d at 1167-68 (finding that relevant question pertaining to causation issue was whether "the loan committee relied on [the employee's] misrepresentations in making at least some of the disputed loans," and determined that there were material disputed issues of fact on that point; court stated that the bond "does not require the bank to rule out all reasons the loan was not repaid before it can obtain coverage"). Accordingly, we will affirm the district court's ruling on the causation issue, as we see no basis for concluding, as a matter of law, that the dishonest and fraudulent actions did not cause the Northwest loss.

As the foregoing discussion demonstrates, we have determined that the district court erred in determining that no reasonable jury could conclude that City Federal "discovered" the covered loss prior to the expiration of the bond period. Moreover, for the reasons stated, we cannot affirm on the alternative ground that, as a matter of law, the loss City Federal sustained was not covered by the plain language of the bond's fidelity provision. Accordingly, we will reverse the district court's order entered January 29, 1998, and remand the matter to the district court for further proceedings consistent with this opinion.