In the

United States Court of Appeals

For the Seventh Circuit

Nos. 06-3685 & 06-3794

FIRST STATE BANK OF MONTICELLO,

Plaintiff-Appellee,

Cross-Appellant,

v.

OHIO CASUALTY INSURANCE COMPANY,

Defendant-Appellant,

Cross-Appellee.

Appeals from the United States District Court

for the Central District of Illinois.

No. 04 C 2089—Harold A. Baker, Judge.

ARGUED JANUARY 9, 2008—DECIDED FEBRUARY 5, 2009

Before WOOD, SYKES, and TINDER, Circuit Judges.

SYKES, Circuit Judge. This insurance-coverage dispute

arises from a fraudulent scheme perpetrated against First

State Bank of Monticello causing a $307,000 loss. James

Stilwell repeatedly exchanged bad checks for the bank’s
2 Nos. 06-3685 & 06-3794

money orders—instruments backed by the resources of the

bank and as good as cash. The bank filed a claim for the

loss with its insurer, Ohio Casualty Insurance Company,

under a Standard Form No. 24 Financial Institution

Bond. Ohio Casualty denied the claim and this lawsuit

followed. The district court held the loss was covered

and granted summary judgment in favor of First State

Bank. Ohio Casualty appealed; the bank cross-appealed

on the issue of its entitlement to prejudgment interest.

We affirm. Stilwell’s scheme was a covered risk under

Insuring Agreement B of the bond, which covers losses

from theft or false pretenses occurring on the bank’s

premises. The bank’s loss resulted “directly from”

Stilwell’s “on-premises” fraud and therefore came within

the coverage specified in this provision of the bond. We

also conclude that Exclusion (h), excluding losses “caused

by an employee,” does not apply. Finally, the bank’s tardy

application for statutory prejudgment interest, first made

in the district court in a motion to alter or amend the

judgment under Rule 59(e) of the Federal Rules of Civil

Procedure, was brought too late to entitle it to an award.

I. Background

For several months in 2002 and 2003, James Stilwell of

Atwood, Illinois, carried on an extensive scheme of writing

and cashing worthless checks. First State Bank in nearby

Monticello was his victim. Stilwell was a prominent

entrepreneur who owned several businesses and some

development property in central Illinois, but he was also
Nos. 06-3685 & 06-3794 3

James Stilwell’s financial activities are at issue in another 1

insurance-law case decided today. See Stilwell v. Am. Gen. Life

Ins. Co., Nos. 07-2613 & 07-2684.

illiquid. To acquire cash, Stilwell devised a scheme 1

whereby he (or more commonly, one of his associates)

would draw checks on one of his accounts at Tuscola

National Bank and tender them to First State Bank in

return for bank money orders, instruments backed by the

resources of First State Bank. But Stilwell’s account at

Tuscola National Bank was empty, or less than empty;

Tuscola National Bank allowed him to maintain

negative balances for months at a time, returning some

items and paying others that Stilwell directed to be paid

when he put funds into the account after the fact. So

First State Bank unwittingly allowed Stilwell to exchange

his worthless checks for the bank’s money orders, giving

him access to immediately available funds. Stilwell

carried out this scheme for three months at the end of

2002 and into early 2003, tendering checks daily to First

State Bank through January 24, 2003. Over that time

First State Bank “sold” Stilwell 130 bank money orders

for a total of $1,945,672.16.

Cashing checks for noncustomers was against the

bank’s policy (Stilwell had no accounts at First State

Bank), but when bank officers questioned Stilwell about

the transactions, he concocted a cover story that he was

conducting a year-end tax maneuver recommended by

his accountant to reduce his tax liability on a future sale

of land. On one occasion, to quell the doubts of a bank
4 Nos. 06-3685 & 06-3794

officer, Stilwell dialed Tuscola National Bank’s automated

banking system and handed the officer the phone,

allowing her to listen to a statement of the current

balance in his—or what he claimed was his—account. So

while some at First State Bank expressed concerns, others

believed him, and the bank continued to accept his business based on his facade of being a successful businessman. The scheme collapsed on January 24, 2003, when

Tuscola National Bank froze Stilwell’s accounts. First

State Bank was left holding worthless checks totaling

$307,000 from the last three days of the scheme.

First State Bank and Stilwell entered into an agreement

requiring Stilwell to repay the bank in a series of installments and to admit that he had engaged in unlawful

conduct. But Stilwell died before fulfilling the terms of that

agreement. First State Bank filed a claim with its insurer,

Ohio Casualty, after one of Stilwell’s corporations filed for

bankruptcy, preventing the bank from recovering its loss

from the corporation. Ohio Casualty denied the bank’s

claim, asserting that Stilwell’s scheme was not covered

under the bond’s “on-premises” fraud coverage (Insuring

Agreement B of the Standard Form No. 24 Financial

Institution Bond) or was excluded because it fell under

Exclusion (h) of the bond, which excluded losses “caused

by an employee.”

First State Bank then brought this lawsuit in state court,

which Ohio Casualty removed to federal court based on

the parties’ diverse citizenship. On cross-motions for

summary judgment, Ohio Casualty asserted several

grounds for noncoverage. It claimed that the bank did not
Nos. 06-3685 & 06-3794 5

suffer a “loss” as that term is understood in the bond; or if

there was a loss, it did not “result directly from” Stilwell’s

conduct; or if the loss was attributable to Stilwell’s scheme,

the failure of the bank’s employees to follow bank policy

was an intervening and the predominant cause of the loss,

removing coverage under Exclusion (h) of the bond for

losses “caused by an employee.” The district court rejected

these arguments, granted First State Bank’s motion, and

awarded judgment to the bank. First State Bank then

moved to alter or amend the judgment under Rule 59(e),

asking the court to clarify the amount of the award and to

add statutory prejudgment interest. The district court

agreed to clarify the award amount in the judgment

($292,000—the amount of the loss less the deductible), but

denied First State Bank’s request to add prejudgment

interest to the award. Ohio Casualty appealed the summary judgment, and First State Bank cross-appealed the

denial of its Rule 59(e) motion for prejudgment interest.

II. Discussion

We review the district court’s grant of summary judgment de novo, and because the district court had crossmotions for summary judgment before it, “we construe

all facts and inferences therefrom ‘in favor of the party

against whom the motion under consideration is

made.’ ” United Air Lines, Inc. v. HSBC Bank, USA (In re

United Air Lines, Inc.), 453 F.3d 463, 468 (7th Cir. 2006)

(quoting Kort v. Diversified Collection Servs., Inc., 394

F.3d 530, 536 (7th Cir. 2004)). Summary judgment is

appropriate if “there is no genuine issue as to any material
6 Nos. 06-3685 & 06-3794

fact and . . . the movant is entitled to judgment as a matter

of law.” FED. R. CIV. P. 56(c). Illinois law, the parties agree,

governs this case.

We review the interpretation of a fidelity bond de

novo. Private Bank & Trust Co. v. Progressive Cas. Ins. Co.,

409 F.3d 814, 816 (7th Cir. 2005) (Illinois law). A bond “that

contains no ambiguity is to be construed according to

the plain and ordinary meaning of its terms, just as

would any other contract.” Id. (internal quotation marks

omitted); see also RBC Mortgage Co. v. Nat’l Union Fire Ins.

Co., 812 N.E.2d 728, 734 (Ill. App. Ct. 2004). Standard

fidelity bonds are drafted by sophisticated parties (representatives of the banking and insurance industries);

therefore, the traditional rule of construing any ambiguity in favor of coverage does not apply. First Nat’l

Bank of Manitowoc v. Cincinnati Ins. Co., 485 F.3d 971, 977

(7th Cir. 2007); RBC Mortgage Co., 812 N.E.2d at 734. The

bond that Ohio Casualty sold to First State Bank was a

standard financial-institution bond that contained an

“on-premises” clause generally covering fraudulent acts

occurring on the bank’s physical premises.

The standard financial-institution bond is a unique

insurance instrument with a long and detailed history.

Some of it bears repeating here because part of what

makes the bond unique is that nearly every provision

“has been developed in response to and tested by case

law.” J. Kelly Reyher, A Brief Review of the Financial Institution Bond Standard Form No. 24 and Commercial Crime

Policy, 563 PLI/Lit 57, PLI Order No. H4-5259, 61 (May

1997). The Standard Form No. 24 Financial Institution
Nos. 06-3685 & 06-3794 7

Because the standard bond is sometimes modified by the 2

parties and various iterations of it are in use, it is important to

determine which version of the bond is under consideration.

Caselaw interpreting other versions may be unhelpful or

irrelevant to a court’s interpretation of the bond. See First Nat’l

Bank of Manitowoc, 485 F.3d at 977.

Bond is the latest incarnation of a series of bonds once

known as “banker’s blanket bonds.” First Nat’l Bank of

Manitowoc, 485 F.3d at 977-78; see also 9A JOHN ALAN

APPELMAN & JEAN APPELMAN, INSURANCE LAW AND PRACTICE § 5701, at 375-76 (1981); Peter I. Broeman, An Overview

of the Financial Institution Bond, Standard Form No. 24, 110

BANKING L.J. 439, 442-43 (1993). These bonds were

first developed in response to the uniform contract marketed by Lloyd’s of London, which was the only contract

to provide fidelity, theft, burglary, holdup, and other

types of coverage in one contract. See Private Bank, 409

F.3d at 816. The Surety Association of America and the

American Bankers Association worked together in 1916

to draft their first bond, the Standard Form No. 1 Banker’s

Blanket Bond, to compete with the uniform contract

offered by Lloyd’s. Id.; see also Edward G. Gallagher et al.,

A Brief History of the Financial Institution Bond, in FINANCIAL

INSTITUTION BONDS 7 (2d ed. Duncan L. Clore ed., 1998).

Today, Standard Form No. 24 is the descendant of that

first bond, containing six Insuring Agreements (Agreements A-F). In this case, we are concerned with Insuring

Agreement B of the Standard Form No. 24 (1986 Revision)

that Ohio Casualty sold to First State Bank. Agreement B

2

is the “on-premises” fraud clause of the bond. Its relevant

portion provides as follows:
8 Nos. 06-3685 & 06-3794

The Underwriter . . . agrees to indemnify the Insured

for: 

(B)(1) Loss of Property resulting directly from . . .

(b) theft, false pretenses, common-law or

statutory larceny, committed by a person

present in an office or on the premises of the

Insured while the property is lodged or deposited within offices or premises located anywhere. 

Ohio Casualty does not dispute that Stilwell’s fraudulent

conduct (or that of his associates) was committed on the

bank’s premises. It argues that First State Bank did not

incur a “loss . . . resulting directly from . . . false pretenses.”

The first part of Ohio Casualty’s argument is that First

State Bank did not, in fact, suffer a loss because it received

a valid and enforceable instrument—namely, Stilwell’s

check drawn on his (empty) account at Tuscola National

Bank—in exchange for its money order. If First State

Bank incurred any loss, Ohio Casualty argues that it would

have occurred later when First State Bank was unable to

collect on Stilwell’s check. That, Ohio Casualty asserts,

would not have been a covered loss because that event

would neither have taken place on First State Bank’s

premises nor “resulted directly from” any false pretenses.

Under Illinois law, and in most jurisdictions, a loss is

an “actual depletion of bank funds”; bookkeeping or

theoretical losses are not covered by the financial-institution bond. RBC Mortgage Co., 812 N.E.2d at 733; see also

Reserve Ins. Co. v. Gen. Ins. Co. of Am., 395 N.E.2d 933, 939

(Ill. App. Ct. 1979); Private Bank, 409 F.3d at 817 (Illinois
Nos. 06-3685 & 06-3794 9

law); Cincinnati Ins. Co. v. Star Fin. Bank, 35 F.3d 1186, 1191

(7th Cir. 1994) (Indiana law) (requiring an actual loss

instead of merely a bookkeeping or theoretical loss); FDIC

v. United Pac. Ins. Co., 20 F.3d 1070, 1080 (10th Cir. 1994)

(federal law) (the bond does not cover “[b]ookkeeping or

theoretical losses, not accompanied by actual withdrawals

of cash or other such pecuniary loss”); William T. Bogaert

& Andrew F. Caplan, Loss and Causation Under the Financial

Institution Bond, in FINANCIAL INSTITUTION BONDS, supra,

at 385-87. First State Bank’s loss was such an “actual loss.”

It is true that First State Bank did not experience a loss

at the precise moment Stilwell exchanged his checks for

the bank’s money orders; although his account was

empty, it was not certain that the checks would be

returned unpaid, as evidenced by the fact that Tuscola

National Bank had paid some of Stilwell’s earlier checks

despite the negative balance in his account. At the

moment of the exchange, any loss from acquiring Stilwell’s

checks was merely theoretical. But First State Bank experienced an actual loss when Tuscola National Bank refused

to honor Stilwell’s checks. Once it did so, First State Bank

necessarily had fewer available assets. That the act of

nonpayment occurred “off premises” is of no moment.

Insuring Agreement B requires only that the false pretenses

be committed by a person on First State Bank’s premises,

and that’s exactly what happened here. (We will defer

for a moment the question of whether the bank’s loss

resulted “directly from” Stilwell’s on-premises fraud.)

Ohio Casualty also makes a weak argument that

Stilwell’s conduct did not amount to false pretenses.
10 Nos. 06-3685 & 06-3794

Illinois law considers the term “false pretenses” in the

financial-institution bond to include, at the least, deceptive

practices under the Illinois criminal statutes. First Nat’l

Bank of Decatur v. Ins. Co. of N. Am., 424 F.2d 312, 317 (7th

Cir. 1970) (citing what is now 720 ILL. COMP. STAT. 5/17-1

(2006)). Section 5/17-1(B)(d) of the Illinois Statutes makes

it a crime for an individual to “issue[] or deliver[] a

check . . . knowing that it will not be paid by the depository. Failure to have sufficient funds . . . is prima facie

evidence that the offender knows that it will not be paid

by the depository, and that he or she has the intent to

defraud.” As we have noted, Stilwell knew that he did

not have any funds at Tuscola National Bank on the

dates in question. All along, he concocted and maintained an elaborate cover story to effectuate his scheme,

and there is no evidence in the record to overcome the

statutory presumption that Stilwell intended to defraud.

That he occasionally put money in his account at Tuscola

National Bank to cover some of his earlier bad checks

after the fact does not negate his intent to defraud. His

willingness to sign an installment repayment agreement

after his deception was uncovered is irrelevant.

We now return to Ohio Casualty’s argument that First

State Bank’s loss did not result “directly from” Stilwell’s

false pretenses. This language in the financial-institution

bond has undergone a series of revisions. Earlier

versions of the bond required merely a “loss through” a

covered event or transaction. Bradford R. Carver, Loss

and Causation, in HANDLING FIDELITY BOND CLAIMS 363, 379

(2d ed. Michael Keeley & Sean Duffy eds., 2005). The 1986

version of the bond specifically modified the bond to
Nos. 06-3685 & 06-3794 11

require, in the case of some coverages, a loss “resulting

directly from” the covered peril. This was a response to

certain court interpretations that applied tort concepts

of causation to the bond’s loss-causation requirements. Id.

Indeed, loss causation has been a sometimes-misunderstood concept in the caselaw interpreting financial-institution bonds. Even after the 1986 revision, some courts

have continued to look to proximate cause and other causation principles borrowed from tort law to decide losscausation issues under the financial-institution bond. See,

e.g., Resolution Trust Corp. v. Fid. & Deposit Co. of Md., 205

F.3d 615, 655 (3d Cir. 2000); Empire Bank v. Fid. & Deposit

Co., 828 F. Supp. 675, 679, aff’d 27 F.3d 333 (8th Cir. 1994);

Jefferson Bank v. Progressive Cas. Ins. Co., 965 F.2d 1274,

1282 (3d Cir. 1992); First Nat’l Bank of Louisville v. Lustig,

961 F.2d 1162, 1167-68 (5th Cir. 1992), amended by, No. 90-

3820, 1992 U.S. App. LEXIS 14873 (5th Cir. June 29, 1992);

Hanson PLC v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa.,

794 P.2d 66, 73 (Wash. Ct. App. 1990). This approach is

misdirected; tort-causation concepts like proximate

cause, “substantial factor” causation, and intervening

cause are inappropriate here. In particular, the concept of

proximate cause is problematic in this context; proximate

cause is a shifting standard that draws the line of causation “because of convenience, of public policy, of a rough

sense of justice . . . . It is practical politics.” Palsgraf v. Long

Island R.R., 162 N.E. 99, 103 (N.Y. 1928) (Andrews, J.,

dissenting). Insurance-coverage cases are not concerned

with the philosophical social-duty underpinnings of tort

law. The action sounds in contract, and our task is to
12 Nos. 06-3685 & 06-3794

interpret the parties’ agreement. Justice (then Judge)

Cardozo explained the inapplicability of tort-causation

principles in this context nearly a century ago:

General definitions of a proximate cause give little aid.

Our guide is the reasonable expectation and purpose

of the ordinary business man when making an ordinary business contract. It is his intention, expressed or

fairly to be inferred, that counts. There are times when

the law permits us to go far back in tracing events to

causes. The inquiry for us is how far the parties to

this contract intended us to go. . . . 

The question is not what men ought to think of as a

cause. The question is what they do think of as a cause.

Bird v. St. Paul Fire & Marine Ins. Co., 120 N.E. 86, 87 (N.Y.

1918). 

Accordingly, contract—not tort—principles apply to the

determination of loss causation; Illinois follows this rule.

See RBC Mortgage Co., 812 N.E.2d at 733-36 (rejecting

proximate-cause analysis of loss causation in financialinstitution bond context); Spearman Indus., Inc. v. St. Paul

Fire & Marine Ins. Co., 138 F. Supp. 2d 1088, 1100-01 (N.D.

Ill. 2001) (Illinois law); see also Bradford R. Carver, Loss

and Causation, supra, at 380; Maura Z. Pelleteri, Causation in

Loan Loss Cases, in LOAN LOSS COVERAGE UNDER

FINANCIAL INSTITUTION BONDS 258 (Gilbert J. Schroeder &

John J. Tomaine eds., 2007). Insuring Agreement B’s

coverage of losses resulting “directly from” on-premises

false pretenses means what it says. The bond’s “direct loss”

requirement “must be afforded its plain and ordinary
Nos. 06-3685 & 06-3794 13

meaning; ‘direct’ means ‘direct.’ ” RBC Mortgage Co., 812

N.E.2d at 736-37 (citation omitted).

We have already noted that the bank’s assets were

depleted as a result of Stilwell’s fraudulent money-order

transactions at the bank on January 22, 23, and 24, 2003.

The bank disbursed immediately available funds to

Stilwell; Stilwell’s account at Tuscola National Bank was

frozen and, in any event, empty; and the checks were

returned unpaid. This suffices to satisfy a common and

ordinary understanding of a loss resulting directly from

a fraud occurring on the bank’s premises. The slight gap

in time between the money-order transactions and the

nonpayment of the checks makes no difference; the loss

flowed directly from Stilwell’s on-premises fraud.

Ohio Casualty’s arguments about intervening or contributing causes—such as Stilwell’s death, his corporation’s

bankruptcy, and the bank officers’ failure to follow bank

policy—do not make the bank’s loss from Stilwell’s

false pretenses any less direct. We have already explained

that tort concepts like contribution and intervening cause

do not apply. Those events or omissions, standing alone

or in combination, did not cause the bank’s loss in the

sense meant by the bond; nor do they operate to make

Stilwell’s on-premises fraud merely an “indirect” cause of

the bank’s loss. What is important is that without Stilwell’s

on-premises misconduct—without the false pretenses

under which he tendered his checks—First State Bank

would not have suffered a loss. First State Bank’s loss thus

resulted “directly from” Stilwell’s on-premises false

pretenses, and there is coverage under Insuring Agreement B.
14 Nos. 06-3685 & 06-3794

All that remains is Ohio Casualty’s argument that

Exclusion (h) operates to exclude coverage. Exclusion (h)

is contained in Section 2 of the bond and applies to all six

Insuring Agreements. It excludes:

(h) loss caused by an Employee, except when covered

under Insuring Agreement (A) or when covered under

Insuring Agreement (B) or (C) and resulting directly

from misplacement, mysterious unexplainable disappearance or destruction of or damage to Property . . . .

Ohio Casualty argues that First State Bank’s loss was

actually caused by its employees’ failure to follow bank

policy in accepting Stilwell’s checks and therefore falls

within Exclusion (h). This argument is based on an

overbroad reading of the exclusion. Stilwell’s onpremises fraud was the actual and direct cause of the

bank’s loss; the bank employees’ failure to prevent the

loss does not trigger Exclusion (h). Ohio Casualty’s expansive interpretation of Exclusion (h) would swallow

all—or nearly all—of the bond’s coverages because a

bank must necessarily operate through its employees. See

First Nat’l Bank of Manitowoc, 485 F.3d at 980-81. Indeed, if

the exclusion were applicable under the circumstances

present here, there might never be coverage for any onpremises fraudulent transaction because all such transactions are handled—at one level or another—by a bank

employee. See id. If we were to accept Ohio Casualty’s

interpretation of Exclusion (h), we would eviscerate

much of the coverage granted under the bond. Id.

On this point, Ohio Casualty relies most heavily on the

Eighth Circuit’s decision in Empire Bank, 27 F.3d at 335, but
Nos. 06-3685 & 06-3794 15

Ohio Casualty also cites Parks Real Estate Purchasing Group v. 3

St. Paul Fire & Marine Insurance Co., 472 F.3d 33, 48-49 (2d Cir.

2006), applying New York law and a so-called “efficient cause”

rule. Illinois has no similar rule in this context, and given

its rejection of proximate cause and other tort-causation principles in the interpretation of fidelity bonds, see RBC Mortgage

Co., 812 N.E.2d at 733-36, we doubt it would adopt the

Parks Real Estate approach.

we reject the analogy. As we have noted, Empire Bank

imported a proximate-cause analysis from tort law, which

is inconsistent with Illinois law and the general rule in

this context. The case is also distinguishable. Empire

Bank’s employees knew that two customers were

engaged in a fraud; in fact, one supervisor aided in the

commission of that fraud. But the bank employees in this

case were unaware that Stilwell’s checks were written

against an account with a negative balance. Stilwell’s

fraud, not the bank employees’ failure to investigate,

caused First State Bank’s loss in the sense meant by the

bond; Exclusion (h) does not apply.3

We need only briefly address First State Bank’s argument

that it was entitled to statutory prejudgment interest. See

815 ILL. COMP. STAT. 205/2 (2006). The bank first requested prejudgment interest in a motion to alter or amend

the judgment under Rule 59(e), having failed to raise the

issue in its earlier motion for summary judgment. An

award of prejudgment interest may be within the scope of

Rule 59(e), Osterneck v. Ernst & Whinney, 489 U.S. 169, 175-

78 (1989); Employers Ins. of Wausau v. Titan Int’l, Inc., 400

F.3d 486, 488 (7th Cir. 2005), but the rule may not be used
16 Nos. 06-3685 & 06-3794

by “a party to complete presenting his case” to the district

court. In re Reese, 91 F.3d 37, 39 (7th Cir. 1996) (internal

quotation marks omitted); see also Uphoff v. Elegant Bath,

Ltd., 176 F.3d 399, 409-10 (7th Cir. 1999). “ ‘[P]rejudgment

interest, unlike post-judgment interest, normally is considered an element of the judgment itself, that is, of the relief

on the merits . . . .’ ” Uphoff, 176 F.3d at 410 (quoting Healy

Co. v. Milwaukee Metro. Sewerage, 60 F.3d 305, 308 (7th Cir.

1995)). So while we have no quarrel with First State Bank’s

contention that prejudgment interest may be a proper

subject for a Rule 59(e) motion, “so long as the requirements of Rule 59(e) have been complied with,” the bank

“should have requested the prejudgment interest prior to

judgment.” Id. The district court was entitled to conclude

that raising the issue of prejudgment interest for the first

time in a Rule 59(e) motion, after summary judgment was

entered, was too late.

AFFIRMED.

2-5-09