Exchange State Bank v. Kansas Bankers Surety Co.

Leben, J.:

Exchange State Bank of St. Paul, Kansas, bought a “check kiting fraud indemnification policy” from Kansas Bankers Surety Company. Exchange Bank certainly suffered a substantial loss from check-kiting, and it seeks to recover on the policy. We must decide whether its loss was covered under the policy s terms. The policy’s key provisions will focus our consideration.

The first sentence of the policy said that it was “intended to protect the Insured from loss sustained because of the classic check kiting fraud.” In a classic check-kiting scheme, a bank customer uses two or more checking…