Court Opinion

ID: 3000494
Source: CourtListenerOpinion
Date Created: 2015-09-24 20:05:33.92362+00
Date Added: 2024-06-11T08:22:43.397329
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                        ____________

Nos. 05-4762, 06-1144 & 06-2044
FIRST NATIONAL BANK OF MANITOWOC,
                                            Plaintiff-Appellee/
                                              Cross-Appellant,
                               v.

CINCINNATI INSURANCE COMPANY,
                                        Defendant-Appellant/
                                              Cross-Appellee.
                        ____________
          Appeals from the United States District Court
              for the Eastern District of Wisconsin.
          No. 03 C 241—William C. Griesbach, Judge.
                        ____________
   ARGUED SEPTEMBER 6, 2006—DECIDED MAY 11, 2007
                  ____________

  Before ROVNER, EVANS, and SYKES, Circuit Judges.
  SYKES, Circuit Judge. First National Bank of Manitowoc
extended credit to a local used-car dealership based in part
on the dealership’s presentation of leases signed by its
customers. Unbeknownst to the Bank, in many instances
the dealership’s president forged customers’ signatures
on leases that were fabricated or altered. The dealership
eventually defaulted on the loans, and the Bank lost
more than $1.7 million. The Bank filed a claim for the loss
with its insurer, Cincinnati Insurance Company. The
2                          Nos. 05-4762, 06-1144 & 06-2044

policy Cincinnati had issued to the Bank was similar but
not identical to an outdated version of the standard
Bankers Blanket Bond, now known as a Financial Institu-
tions Bond. Generally speaking, these bonds provide
coverage to financial institutions for losses caused by
specified dishonest, fraudulent, or criminal acts.
  Cincinnati denied the Bank’s claim and this suit ensued.
Both parties moved for summary judgment. The district
court denied Cincinnati’s motion and granted the Bank’s
in substantial part, rejecting only its claim for statutory
interest. Both parties appealed. Because the Cincinnati
policy covers the Bank’s losses and statutory interest
was properly denied, we affirm.

                      I. Background
  First National Bank of Manitowoc is a national bank
headquartered in Manitowoc, Wisconsin. In 1991 the Bank
began doing business with West Town Auto, Inc., a used-
car dealership also located in Manitowoc. The Bank had
several lending relationships with West Town, including
a line of credit through which West Town purchased
vehicles to lease. West Town would enter into a prelimi-
nary lease agreement with a customer at the dealership,
and Lee Kust, West Town’s president, would procure a
loan to purchase the vehicle.
  Kust would call the Bank or fax it the lease terms
and wait for the Bank’s approval.1 Once the lease was
approved (sometimes several days later), Kust would
finalize the transaction with his customer and bring the
signed lease agreement to the Bank. At that time Kust
would execute several documents, including a business

1
  Manitowoc is a small community, so many of the “lessees” were
familiar to the Bank and were in fact Bank customers.
Nos. 05-4762, 06-1144 & 06-2044                             3

note, an assignment of lease payments, and a chattel
security agreement granting the Bank a security inter-
est in the vehicle. Under the terms of its line of credit with
the Bank, West Town was responsible for making loan
payments to the Bank; West Town’s customers made
their lease payments directly to West Town.
  The facts surrounding Kust’s fraud are undisputed. The
scam worked in one of two ways: Kust either fabricated a
lease agreement for a nonexistent vehicle and transaction
or altered the terms of a valid lease agreement and
submitted the altered version to the Bank.2 (As examples
of the latter fraud, Kust would alter a vehicle’s condition,
make, or model, thereby enabling him to obtain a larger
loan.) Under both scenarios, Kust forged customer signa-
tures by tracing a valid signature onto a fabricated or
altered lease form. In 2001 Kust suddenly disappeared
and West Town defaulted on the loan. Until then, however,
West Town had been making monthly payments as
required, although the Bank had assessed late charges
on several occasions.
  Cincinnati does not suggest that any Bank employees
were aware of Kust’s fraudulent scheme, but the insurer
does point to what it says are “red flags” during the course
of the lending relationship that it believes ought to af-
fect coverage. For example, the Bank did not have a copy
of each vehicle’s certificate of title and relied on Kust to
record and perfect its security interest. Bank employees
were aware that lien confirmations were not on file for
many vehicles, and those that were on file contained
discrepancies (the vehicle identification number (“VIN”) on

2
  The unaltered versions, recovered from West Town, were
typewritten; the altered versions Kust presented to the Bank
were handwritten.
4                         Nos. 05-4762, 06-1144 & 06-2044

the confirmations did not always match the VIN number
identified on the lease and loan documents). On several
occasions one VIN number served as collateral for two
separate loans. After Kust disappeared it only took a few
phone calls to West Town lessees for the Bank to realize
there was a problem.
  After the Bank assessed its losses, it sought coverage
under an insurance policy it had purchased from
Cincinnati in 2001 called the Depository Institutions
Blanket Bond, No. B80-534208. The Cincinnati Bond
borrows from the Bankers Blanket Bond, Standard Form
No. 24, an industry-standard insurance policy for com-
mercial banks offered by several carriers. The standard
Bankers Blanket Bond is “a two-party agreement be-
tween the underwriter and the insured financial institu-
tion, pursuant to which the underwriter agrees to indem-
nify the insured against loss sustained by reason of specific
perils described under six ‘Insuring Agreements,’ which
are commonly referred to by the letter designating them
in the bond.” Peter I. Broeman, An Overview of the Finan-
cial Institution Bond, Standard Form No. 24, 110 BANK-
ING L.J. 439, 439-40 (1993). The standard Bond also
includes several exclusions which subtract from coverage
provided by the insuring agreements. Cont’l Corp. v. Aetna
Cas. & Sur. Co., 892 F.2d 540, 546 (7th Cir. 1989)
(“[E]xclusions are expressly intended to modify coverage
clauses and to limit their scope.”); D’Angelo v. Cornell
Paperboard Prods. Co., 207 N.W.2d 846, 849 (Wis. 1973);
Bulen v. West Bend Mut. Ins. Co., 371 N.W.2d 392, 394
(Wis. Ct. App. 1985).
  Here, we are primarily concerned with Insuring Agree-
ment E and Exclusion H. Insuring Agreement E covers
loss resulting from a financial institution’s good-faith
reliance on forged or counterfeit documents. Cincinnati’s
version of Insuring Agreement E reads as follows:
Nos. 05-4762, 06-1144 & 06-2044                           5

    E. ALL RISK FORGERY
      Loss by reason of the Insured (a) having in good faith
    and in the usual course of business . . . extended any
    credit or assumed any liability or otherwise acted upon
    any security, document, or other written instrument
    which proves to have been a forgery or to have been
    altered or raised or counterfeited . . . .
    ....
      Actual physical possession of such security, docu-
    ment or other written instrument by the Insured . . . is
    a condition precedent to the Insured’s having relied on
    the faith of, or otherwise acted upon, such security,
    document or, other written instrument.
Forgery is defined in the Cincinnati policy as “the signing
of the name of another with intent to deceive.” Exclusion
H excludes coverage for “loss caused by an Employee,
except when covered under Insuring Agreement A.”
(Insuring Agreement A covers losses “resulting directly
from dishonest or fraudulent acts of an Employee.”)
  The Bank submitted a Proof of Claim to Cincinnati for
coverage under Insuring Agreements D and E of the
Policy.3 Cincinnati denied coverage and the Bank filed
suit in state court. Cincinnati removed the case to federal
court based on diversity jurisdiction, and both parties
moved for summary judgment. The district court denied
Cincinnati’s motion and granted the Bank’s motion in
part, holding that Insuring Agreement E covered the
Bank’s loss but that questions of fact existed with respect
to damages. To move the case along, the parties stipu-
lated to damages (about $1.75 million), and the district
court awarded the Bank common-law prejudgment inter-

3
  Because we conclude Insuring Agreement E covers the Bank’s
loss, we do not address coverage under Insuring Agreement D.
6                          Nos. 05-4762, 06-1144 & 06-2044

est at a rate of 5%. The court denied the Bank’s request
for statutory interest at the higher rate of 12%.
  Both parties appealed. Cincinnati appealed from the
district court’s orders partially granting the Bank’s mo-
tion for summary judgment on coverage, denying
Cincinnati’s motion for summary judgment, denying
Cincinnati’s motion to strike an affidavit,4 and awarding
the Bank common-law prejudgment interest. The Bank
appealed from the district court’s order awarding interest,
arguing that it is entitled to statutory prejudgment
interest at a rate of 12% under section 628.46 of the
Wisconsin Statutes.

                       II. Discussion
  We review a district court’s grant of summary judgment
de novo. “With cross summary judgment motions, we
construe all facts and inferences therefrom ‘in favor of
the party against whom the motion under consideration
is made.’ ” In re United Airlines, 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 fact and . . . the moving party is entitled to
a judgment as a matter of law.” FED. R. CIV. P. 56(c). The
parties agree that Wisconsin law governs this diversity
suit.

4
  We do not address the district court’s denial of Cincinnati’s
motion to strike the affidavit because the affidavit is relevant
only to the amount of damages the Bank is entitled to collect,
and the parties stipulated to that amount.
Nos. 05-4762, 06-1144 & 06-2044                            7

A. Coverage Under the Cincinnati Bond
  The interpretation of an insurance policy is a question of
law that is reviewed de novo. Cont’l Corp., 892 F.2d at 543
(citing Kraemer Bros. v. United States Fire Ins. Co., 278
N.W.2d 857, 860 (Wis. 1979)); Folkman v. Quamme, 665
N.W.2d 857, 864 (Wis. 2003). An insurance policy is
construed to give effect to the intent of the parties as
expressed in the language of the policy, which is inter-
preted as a reasonable person in the position of the
insured would understand it. Folkman, 665 N.W.2d at
864; Danbeck v. Am. Family Mut. Ins. Co., 629 N.W.2d
150, 153 (Wis. 2001). If the language of the policy is
plain and unambiguous, it is enforced as written, without
resort to rules of construction. Folkman, 665 N.W.2d at
864; Danbeck, 629 N.W.2d at 154. Policy language is
interpreted not in isolation but in the context of the policy
as a whole. Folkman, 665 N.W.2d at 866. If the policy
language is ambiguous, it is construed against the insurer
and in favor of coverage. Id. at 864; Frost ex rel. Anderson
v. Whitbeck, 654 N.W.2d 225, 230 (Wis. 2002) (“If terms
in an insurance policy are ambiguous, they should be
construed against the insurance company that drafted
the policy.”); Danbeck, 629 N.W.2d at 154.
  This last principle, however, generally does not apply
where the policy in question is a standard “fidelity” or
Bankers Blanket Bond, drafted by representatives from
both the banking and insurance industries. Tri City Nat’l
Bank v. Fed. Ins. Co., 674 N.W.2d 617, 621-22 (Wis. Ct.
App. 2003) (citing State Bank of Viroqua v. Capitol Indem.
Corp., 214 N.W.2d 42, 43 n.1 (Wis. 1974)) (“These bonds
are not the usual contracts of adhesion and the familiar
rule of interpreting a contract strictly against the insurer
and liberally in favor of the insured should not apply.”);
Sharp v. Fed. Sav. & Loan Ins. Corp., 858 F.2d 1042, 1046
(5th Cir. 1988) (the principle that insurance contracts
8                        Nos. 05-4762, 06-1144 & 06-2044

are to be construed against the underwriter does not
apply when “the contract was in fact a joint effort of both
insurers and the insureds”). As best we can tell, the
language of the Cincinnati Bond appears to generally—but
not uniformly—resemble an older version of the standard
Bankers Blanket Bond. Accordingly, any ambiguity in
language unique to the Cincinnati Bond may be resolved
by reference to the general practice of construing am-
biguities against the insurer/drafter and in favor of
coverage.
   A brief history of the standard Bankers Blanket Bond
is in order. The Surety Association of America drafted the
first American Bankers Blanket Bond in 1916. Edward G.
Gallagher, A Concise History of Standard Form No. 24,
1986 Edition, in ANNOTATED FINANCIAL INSTITUTION
BOND 5, 5 (Michael Keeley ed., 2d ed. 2004). By 1941 the
Bond had undergone several revisions—with input from
the American Bankers Association and other trade
groups—and was termed the “Bankers Blanket Bond,
Standard Form No. 24.” Broeman, An Overview of the
Financial Institution Bond, supra, at 443; Gallagher, A
Concise History, supra, at 6. Additional revisions were
made over the years, and beginning with the 1986 revision,
the Bond was renamed the “Financial Institution Bond,
Standard Form No. 24.” Gallagher, A Concise History,
supra, at 5. The standard Bond contains six Insuring
Agreements (Insuring Agreements A-F) which cover the
insured financial institution against loss arising from
specified dishonest, fraudulent, or criminal acts. Broeman,
An Overview of the Financial Institution Bond, supra,
at 440.
  Because there are several revisions of the Bond in
circulation, courts initially ought to determine which
version, if any, the policy in question adopts; case law
interpreting one revision may be unhelpful or even irrele-
Nos. 05-4762, 06-1144 & 06-2044                           9

vant to the task of interpreting another. The language of
the Cincinnati Bond is not entirely consistent with the
standard Bond version, the 1986 revision, in use at the
time it was issued. For example, the Cincinnati Bond adds
eight Insuring Agreements to the standard Bond’s six,
covering such additional risks as “Directors’ and Officers’
Expenses in Defending Suits,” “All Risk Safe Deposit Box,”
and “Audit Expense.” Insuring Agreement E, at issue
here, is called “All Risk Forgery” and most closely resem-
bles Insuring Agreement E as it appeared in the 1951 and
1969 revisions of the standard Bond, though it does not
precisely track the language of either of these versions.
  As noted above, Insuring Agreement E in the Cincinnati
Bond covers “loss by reason of the Insured . . . having
in good faith and in the usual course of business . . .
extended any credit or assumed any liability or otherwise
acted upon any security, document, or other written
instrument which proves to have been a forgery or to have
been altered or raised or counterfeit.” Cincinnati argues
that the “in good faith and in the usual course of business”
language imposes a duty on the Bank to follow “sound
banking practices” in connection with the events under-
lying the claim, and that this is a condition for coverage.
We disagree. Although we interpret the policy as a whole,
to interpret “in good faith” and “in the usual course of
business” as together imposing a prerequisite normative
standard of banking conduct ignores the independent
meaning of each phrase. Rabinovitz v. Travelers Ins. Co.,
105 N.W.2d 807, 811 (Wis. 1960) (“Some meaning must
be given to each sentence, phrase, and word used, and
when this may fairly and properly be done, no part of the
language used can be rejected as superfluous or unmean-
ing.”).
  Neither phrase is defined by the policy, but the Bank
points to section 401.201(19) of the Wisconsin Statutes,
10                           Nos. 05-4762, 06-1144 & 06-2044

adopting the UCC definition of “good faith” as “honesty in
fact in the conduct or transaction concerned.” We have
stated that “’good faith’ usually establishes a subjective
standard,” and pointed out that “[m]any negligent acts are
committed with pure hearts and empty heads.” State Bank
of the Lakes v. Kan. Bankers Sur. Co., 328 F.3d 906, 909
(7th Cir. 2003). Cincinnati asserts there are material
issues of fact regarding whether the Bank was “selectively
ignorant” in extending credit to Kust;5 however, its
corporate designee conceded that Bank employees acted
honestly and in good faith, with no knowledge of Kust’s
fraudulent scheme.6 We hold the good-faith requirement
does not impose a “sound business practices” prerequisite
to coverage.

5
  Cincinnati argues that Bank employees “selectively ignored”
red flags such as titling defects, late charges, and inflated
residual values for the vehicles, but this does not establish a
lack of good faith. It is not as if the Bank extended credit based
on documents that looked suspicious; the leases appeared
legitimate and the names Kust forged were in most cases Bank
customers, so the Bank had no reason to doubt the lessee’s
existence. Until Kust disappeared, West Town was making its
payments on the loans. Even if Bank employees acted negli-
gently, the Wisconsin Supreme Court has held that mere
negligence on the part of an insured does not bar the insured
from obtaining coverage under a Banker’s Blanket Bond “un-
less . . . [the negligence] is such that it amounts to fraud or bad
faith.” First Nat’l Bank of Crandon v. United States Fid. & Guar.
Co. of Balt., 137 N.W. 742, 745 (Wis. 1912).
6
  Cincinnati’s corporate designee, Charles Armentrout, testified
the Bank acted in good faith: “I think they acted in good faith;
that they had no intent—I think to act in bad faith you have
to have some intent to do something wrong, and I don’t think
there was any conscious intent on the part of anyone at the
bank to do anything that was going to cause a loss to the bank.”
Nos. 05-4762, 06-1144 & 06-2044                             11

  This leaves the question of whether the phrase “in the
usual course of business” means “consistent with sound
business practices” or otherwise imposes a particular
standard of conduct on the Bank for its loss to be covered.
On its face, the phrase does not suggest a duty of care but,
rather, a certain category of acts—i.e., those usually
conducted in the banking business. Because the language
of the Cincinnati Bond is not standard in this respect,7
bond-specific case law provides little guidance. However,
Wisconsin courts that have addressed this phrase in
other contexts have understood it to mean actions nor-
mally taken by a bank. Fid. & Deposit Co. of Md. v.
Peoples Exch. Bank of Thorp, 71 N.W.2d 290, 292 (Wis.
1955) (“The check here was complete and regular on its
face and, so far as the . . . bank was concerned, it had no
notice of any infirmity in it or any defect in the title of
the person cashing it, and took it in the usual course of
business.”); Banking Comm’n v. First Wis. Nat’l Bank of
Milwaukee, 290 N.W. 735, 749 (Wis. 1940) (“The usual
course of business upon a bank loan is to credit the
account of the borrowing customer and respond to
checks.”).
  This is the interpretation the district court adopted in
its well-reasoned opinion, and we agree. Because the
Bank acted “upon the kinds of documents that it would
normally act upon in its business, such as leases, checks,
securities, etc., rather than documents outside that usual

7
  As we have noted, the language of Insuring Agreement E in the
Cincinnati Bond most closely resembles the 1951 and 1969
versions of the standard Bond, which used the formulation “in
good faith and in the course of business.” Beginning with the
1980 revision, the “in the course of business” language was
dropped from the standard Bond.
12                          Nos. 05-4762, 06-1144 & 06-2044

course,” the Bank acted in the usual course of business.8
Fid. & Deposit Co. of Md., 71 N.W.2d at 292.
  Cincinnati also argues that Insuring Agreement E covers
only losses directly caused by forgery and not losses aris-
ing from loans made on forged documents describing
nonexistent assets or transactions. Here, Cincinnati
argues, the forged signatures on the leases did not directly
cause the Bank’s loss, the absence of collateral did. This
argument ignores the plain language of Insuring Agree-
ment E, which covers “loss by reason of the Insured hav-
ing in good faith and in the usual course of business . . .
extended any credit or . . . otherwise acted upon any . . .
document . . . which proves to have been a forgery.” The
Bank’s loss easily comes within this language; the Bank
sustained a loss because it extended credit to West Town
based on vehicle leases which proved to be forgeries.
  Insuring Agreement D in the Cincinnati Bond, entitled
“Forgery, Alteration and Unauthorized Signatures,” covers
(among other things) “loss resulting directly from . . .
Forgery or alteration of, on or in any Negotiable instru-
ment . . . , Acceptance, withdrawal order, receipt for the
withdrawal of Property, Certificate of Deposit or Letter
of Credit.” Insuring Agreements D and E thus cover
similar and potentially overlapping categories of loss, but
the language of each is distinct: the former covers

8
   Even if we determined that Cincinnati’s interpretation of “in
the usual course of business” language was a reasonable alter-
native interpretation, this would at best establish an ambiguity,
i.e., that this language is reasonably susceptible to more than
one interpretation. Folkman v. Quamme, 665 N.W.2d 857, 868
(Wis. 2003). Because the Cincinnati Bond language departs from
the standard Bond language in use at the time it was is-
sued—and does not even use the same formulation of earlier
versions—we would construe the ambiguity against Cincinnati
and in favor of coverage.
Nos. 05-4762, 06-1144 & 06-2044                                13

loss resulting directly from the forgery or alteration of
certain documents, the latter covers loss “by reason of ” the
Bank having “extended any credit” or otherwise “acted
upon” a document “which proves to have been a forgery.”
The coverage granted in Insuring Agreement E does not
simply duplicate the coverage granted in Insuring Agree-
ment D; Cincinnati’s interpretation essentially conflates
the two.
  Cincinnati asserts that “courts have overwhelmingly
held” that Insuring Agreement E does not cover losses
from loans based on forged documents describing ficti-
tious transactions or assets. This is not true. Of the cases
Cincinnati cites, only four are appellate decisions. Two of
the four concerned not loss causation but the so-called
“actual physical possession” prerequisite to coverage
under Insuring Agreement E.9 See Republic Nat’l Bank of
Miami v. Fid. & Deposit Co. of Md., 894 F.2d 1255, 1262-
63 (11th Cir. 1990) (holding that the condition precedent
of actual physical possession was unmet and suggesting
in dicta that the standard Bankers Blanket Bond imposes

9
   Cincinnati briefly argues that there is no coverage because
the Bank did not have actual physical possession of the original
leases but only the forged “pressure carbon copies,” and therefore
the “actual physical possession” requirement of Insuring Agree-
ment E is not met. But the Bond language does not require
possession of “original” documents; to interpret the “actual
physical possession” requirement as Cincinnati suggests would
amount to rewriting the policy. See Danbeck v. Am. Family Mut.
Ins. Co., 629 N.W.2d 150, 154 (Wis. 2001) (Courts enforce plain
policy language as written “to avoid rewriting the contract by
construction and imposing contract obligations that the parties
did not undertake.”). Furthermore, as the district court noted,
the forged pressure carbon copies—the ones the Bank actually
possessed—were the documents the Bank “acted upon” in
extending credit, and so the “actual physical possession” condi-
tion is satisfied.
14                       Nos. 05-4762, 06-1144 & 06-2044

a requirement of “commercially reasonable” reliance be-
fore Insuring Agreement E will cover a loss); Nat’l City
Bank of Minneapolis v. St. Paul Fire & Marine Ins. Co.,
447 N.W.2d 171, 177 (Minn. 1989) (holding that the actual
physical possession condition was not met and likewise
suggesting in dicta a “sound business practices” reliance
requirement). Another of Cincinnati’s cited cases held
that the record evidence established a fraud but not a
forgery because the documents in question were not signed
in the name of another. Charter Bank Nw. v. Evanston Ins.
Co., 791 F.2d 379, 382 (5th Cir. 1986). Here, it is undis-
puted that the leases were forgeries.
   The remaining appellate decision Cincinnati cites on this
point was scantily reasoned. Georgia Bank & Trust v.
Cincinnati Insurance Co., 538 S.E.2d 764, 766 (Ga. Ct.
App. 2000), involved a Cincinnati Bond similar to the one
at issue here. Georgia Bank & Trust extended credit based
on forged documents confirming the existence of certain
accounts that served as collateral for the loan. When the
debtor defaulted, Georgia Bank filed a claim for its loss
with Cincinnati. The Georgia court of appeals cited both
Insuring Agreements D and E in its very brief opinion;
without specifically addressing the language of either, the
court accepted Cincinnati’s argument that its Bond does
not cover losses resulting from the nonexistence of assets
assigned by a forged instrument. The court concluded that
“the blanket bond did not protect the bank from its bad
business deal. Even if the signature on the confirmation
was authentic, the bank would have suffered the loss,
because the assets did not exist.” Id. This conclusion
ignores the practical reality of the situation; but for the
forged documents purporting to verify the existence of
the collateral, credit would not have been extended in the
first place, and there would have been no loss. It also
ignores the plain language of Insuring Agreement E, which
covers loss “by reason of ” the Bank “having . . . extended
Nos. 05-4762, 06-1144 & 06-2044                           15

any credit . . . or otherwise acted upon any . . . document”
that “proves to have been a forgery.” As here, the loss
at issue in Georgia Bank easily fit within this coverage
language. The case is unpersuasive and we decline to
follow it.
  So the Bank’s loss is covered by Insuring Agreement E,
and we are left with Cincinnati’s argument that Exclusion
H applies because Bank employees caused the loss. This
argument is a nonstarter. Exclusion H states: “The Bond
does not cover loss caused by an Employee . . . .”
Cincinnati insists the Bank’s employees caused the loss
by failing to properly investigate the collateral presented
by Kust. Had they done so, Cincinnati argues, they would
have discovered the forgeries. As the district court noted,
however, this interpretation of Exclusion H would elimi-
nate coverage under Insuring Agreements D and E in all
cases, as bank employees are intermediaries in every
forgery-related bank loss. Exclusions are intended to
subtract from or limit coverage in specified circumstances.
Cont’l Corp., 892 F.2d at 546; Bulen, 371 N.W.2d at 394.
They do not operate as complete cancellations of coverage
granted in the insuring agreements. To the contrary,
under Wisconsin law exclusions are narrowly construed,
especially if their effect is uncertain. Am. Family Mut. Ins.
Co. v. Am. Girl Ins. Co., 673 N.W.2d 65, 73 (Wis. 2004);
Cardinal v. Leader Nat’l Ins. Co., 480 N.W.2d 1, 3 (Wis.
1992). We reject Cincinnati’s expansive interpretation of
Exclusion H; the exclusion does not apply here.

B. Prejudgment Interest
  The district court’s award of common-law prejudgment
interest is reviewed for abuse of discretion. The district
court awarded common-law prejudgment interest at a
rate of 5%. See McRoberts Software, Inc. v. Media 100,
Inc., 329 F.3d 557, 572 (7th Cir. 2003). A plaintiff is
16                        Nos. 05-4762, 06-1144 & 06-2044

entitled to prejudgment interest when the amount owed
to it is “readily determinable” or when there is a “reason-
ably certain standard of measurement by . . . which one
can ascertain the amount he owes.” Olguin v. Allstate Ins.
Co., 237 N.W.2d 694, 698 (Wis. 1976). Cincinnati argues
that because there was no reasonably certain standard of
measurement—as evidenced by the Bank’s changing its
calculation midway through the litigation—the Bank is
not entitled to prejudgment interest. This argument
misses the mark. Amending a damages amount is not
tantamount to conceding there is no reasonably certain
standard of measurement. The Bank’s losses can be
calculated by analyzing the forged leases, the vehicles’
Black Book and Kelley Blue Book values, and the amount
the Bank was able to recoup by selling the remaining
existing vehicles. Admittedly, it may be a cumbersome
process, but this does not render the Bank’s losses inde-
terminate.
  Tellingly, any disputes the parties had with respect to
damages dealt with the substantive issue of the Bank’s
entitlement to them, not their calculation. More specifi-
cally, Cincinnati argued that in certain instances the
Bank acquired physical possession of the forged leases
only after it issued funds on the line of credit—not before,
as required by Insuring Agreement E. These losses are
not covered. The parties were able to resolve these factual
disputes by stipulating to a damages amount after the
district court entered summary judgment. The district
court did not abuse its discretion in awarding common-
law prejudgment interest.
  For its part, the Bank is not satisfied with 5% interest
and argues it is entitled to statutory prejudgment interest
at a rate of 12% pursuant to section 628.46(1) of the
Wisconsin Statutes. Because the district court correctly
interpreted section 628.46(1), we review the court’s
application of the statute to the facts for clear error.
Nos. 05-4762, 06-1144 & 06-2044                         17

Thomas v. Gen. Motors Acceptance Corp., 288 F.3d 305,
307 (7th Cir. 2002). Under section 628.46(1), an insurer
must pay on a proof of claim within thirty days of receipt,
with all overdue payments subject to interest at the rate
of 12%, unless the insurer has “reasonable proof to estab-
lish that [it is] not responsible for the payment.” Reason-
able proof of nonresponsibility exists when coverage is
“fairly debatable.” Kontowicz v. Am. Standard Ins. Co. of
Wis., 714 N.W.2d 105, 117 (Wis. 2006). The district court
held that coverage was “fairly debatable” here and we
agree. The claim raised disputed questions about the
scope of coverage under the forgery insuring agreements
of an older and somewhat nonstandard Bankers Blanket
Bond. There are no Wisconsin cases directly on point and
little persuasive extrajurisdictional case law exists. This
makes the claim fairly debatable. The Bank was not
entitled to statutory prejudgment interest.
  For the foregoing reasons, the Bank’s losses are covered
under Cincinnati’s version of Insuring Agreement E,
Exclusion H does not apply, and the Bank is entitled to
common-law prejudgment interest at a rate of 5%. The
orders of the district court are AFFIRMED.

A true Copy:
      Teste:

                       ________________________________
                       Clerk of the United States Court of
                         Appeals for the Seventh Circuit

                  USCA-02-C-0072—5-11-07