MEMORANDUM**

Genisco Technology Corporation ("Genisco") sued its insurer Seaboard Surety Company ("Seaboard") to recover the amount of a settlement that Genisco paid to Texas Instruments Corporation ("Texas"). The district court granted summary judgment for Seaboard. We affirm.

* Seaboard insured Genisco under a policy of insurance which provided, inter alia, indemnity against loss resulting directly from fraudulent or dishonest acts, as those terms are defined in the policy. The policy provides that Seaboard is obligated to pay for:

Loss of Money, Securities and other property which the insured shall sustain ... resulting directly from one or more fraudulent or dishonest acts committed by an Employee, acting 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, profits sharing, pensions or other employee benefits earned in the normal course of employment.

While this policy was in effect, Genisco performed contracts with the United States Department of Defense, the United States Department of Transportation, and other defense contractors, including Texas, to supply pressure transducers as components for certain weapons guidance systems. These pressure transducers were components in the High Speed Anti-radar Missile ("HARM") program. Texas was the general contractor for the HARM program, and Genisco supplied the pressure transducers to Texas.

In February 1987 it came to light that certain Genisco employees had falsified test results on the pressure transducers supplied by Genisco, and that these transducers did not meet specifications. The falsified test results were revealed by a "whistle blower" suit which was settled by Genisco's agreement to pay $725,000 in fines and penalties to the government. Genisco also settled, short of suit, a claim asserted against it by Texas. Pursuant to this settlement Genisco paid Texas $1,000,000. Genisco now claims coverage under the policy issued by Seaboard for the amount of its payment to Texas.

We review the district court's grant of summary judgment de novo, viewing all facts in the light most favorable to the nonmoving party. Tzung v. State Farm Fire and Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir.1989). Since this is a diversity case, we apply California law. James B. Lansing Sound, Inc. v. National Union Fire Ins. Co., 801 F.2d 1560 (9th Cir.1986).

Genisco attempts to rely on the California rule that ambiguities in insurance policies are to be interpreted in favor of the insured, and straightforwardly advances its position:

[T]he policy must be interpreted in such a way so as to provide coverage in the event Genisco's employees committed the dishonest or fraudulent acts with the manifest intent to (a) cause Genisco to sustain the loss, and (b) to obtain financial benefit "for any other person or organization ..." namely, Genisco. This position is not inconsistent. The intent to benefit as well as the intent to cause the loss are not mutually exclusive as the intent to cause the loss can be inferred from the fact of the loss, if the loss is a natural result of the employees' voluntary act.

We reject Genisco's argument. The insurance policy at issue in the instant case unambiguously requires that an employee "manifestly" intend both to cause her employer a loss through her dishonest conduct, and to benefit herself or another through her dishonest conduct. An employee simply cannot simultaneously "manifestly" intend to cause her employer a loss through a dishonest act and to benefit her employer through this same dishonest act. See Red Lake County Bank v. Employer's Insurance of Wausau, 874 F.2d 546, 549 (8th Cir.1989). Cf. Liberty National v. Aetna, 568 F.Supp. 860, 866-67 (D.N.J.1983) (holding that in the circumstances of the case a factual issue was presented as to whether a bank officer had acted mistakenly or had acted with a dishonest intent in making bad loans).

We deny Seaboard's request that we sanction Genisco. Genisco's position was straightforwardly argued and, though hard to swallow, was not completely frivolous.

The district court's order is AFFIRMED.