The opinion of the court was delivered by: DUFF
BRIAN BARNETT DUFF, UNITED STATES DISTRICT JUDGE
This suit came before this court for trial without a jury on September 7-8, 12, and 15, 1989. The court has heard the evidence and has considered the testimony, exhibits, memoranda of law, and arguments of counsel. Now fully advised in this matter, the full trial having been concluded, the court finds these facts:
1. Continental Illinois National Bank and Trust Company of Chicago is a national banking association with its principal place of business in Chicago, Illinois.
2. Occidental Fire & Casualty Company of North Carolina is a North Carolina corporation with its principal place of business in North Carolina. Occidental is engaged in the business of, among other things, writing surety bonds.
3. Occidental wrote 29 surety bonds for reclamation work on which Occidental was the obligor, the State of Kansas was the obligee, and Bill's Coal Company was the principal. The aggregate amount of these bonds was $ 4,239,816.
4. Occidental wrote these reclamation bonds at the request of Union Indemnity Insurance Company of New York. Union Indemnity could not issue the bonds because the State of Kansas had not licensed it as an insurer.
5. Union Indemnity reinsured the reclamation bonds 100%. Union Indemnity also wrote other bonds for Bill's Coal on which it was surety and in which Occidental had no interest.
6. In April and June 1984 Continental Illinois issued seven Irrevocable Standby Letters of Credit on the account of Bill's Coal Company. The aggregate face amount of these letters of credit was $ 2,069,000. According to Rodney Davis, an employee of Occidental, these letters were to approximate 45% of the amount of bonds issued by Occidental. The letters of credit defined the "beneficiary" of the letters of credit as:
UNION INDEMNITY INS. CO. OF N.Y. & OCCIDENTAL FIRE & CASUALTY CO. OF NORTH CAROLINA
AS THEIR RESPECTIVE INTERESTS MAY APPEAR
260 MADISON AVE., NEW YORK, N.Y. 10016
P.O. BOX 5946TA, DENVER COLO. 80217
7. The letters of credit required that, in the event of a draw, "you," the "beneficiary," must certify to the Bank that:
-- You, as surety have executed or have procured the execution of bond(s) or undertaking(s) at the request of Bill's Coal Company, Inc., and that you have incurred liability in an amount not less than the amount of the accompanying sight draft(s), or that as of the close of business in Chicago on the day which is ten (10) days prior to the expiry date of this Letter of Credit you have received neither an amendment renewing this Letter of Credit for an additional year nor an acceptable replacement thereof.
-- Any funds drawn under the Letter of Credit shall be held apart by you for the purpose of reimbursing any incurred liabilities of the aforementioned bond(s) or undertaking(s).
-- Should funds drawn not be used by you for the satisfaction of or reimbursement of any loss, cost, claim for expenses of any nature whatsoever, incurred by you, (including unpaid premiums) on any such bond(s) or undertaking(s) as aforesaid, such amounts shall be returned directly to [Continental Bank] . . .