In Re Ben Kennedy and Associates, Inc., Debtor. Kenneth L. Spears, Trustee v. St. Paul Insurance Company

BRORBY, Circuit Judge.

Appellant Kenneth L. Spears is trustee for the bankrupt Ben Kennedy & Associates, Inc. (BKA), an insurance agency. BKA was covered by a $100,000 fidelity policy issued by appellee St. Paul Insurance Company (St. Paul). Before its demise, BKA’s employee, Chitty, found a way to steal from third parties — BKA’s clients — while at his job. Without BKA’s knowledge, Chitty created a sham insurance agency for “specialty” insurance, submitted bids on behalf of this sham agency for BKA clients requesting such insurance, and, whenever “its” bid was accepted, prepared a fictitious…