A thrift in Sylacauga, Ala., has won a $788,000 jury verdict against an insurance company that refused to compensate it fully for losses incurred in an embezzlement case.

An Alabama circuit court ruled that $84 million-asset SouthFirst Bankshares should receive the full amount of the claim it filed 3#1/2 years ago against U.S. Fidelity and Guarantee Co., Baltimore.

The award, which includes $100,000 in punitive damages, goes to SouthFirst's bottom line because the thrift had previously written off the amount. The net income from the case will add 50 to 60 cents in earnings per share.

"Their (USF&G's) whole defense was that we shouldn't have allowed it to happen and that we were negligent," said Donald C. Stroup, president of SouthFirst. "But we showed that we had checks and balances in place. If you're dealing with a crook, you can't put enough checks and balances in place to stop him. Look at the CIA. I mean, let's be realistic."

USF&G said it is considering appealing the case. It also said it has filed a countersuit charging SouthFirst with negligence in its handling of the embezzler.

"We disagreed on the original amount of the claim," said Cary Burch- Deluca, a spokeswoman for the insurance company. "We had offered to settle at a price similar to the final award."

Mr. Stroup called the USF&G Corp. subsidiary's offers "ridiculously low."

"You couldn't consider them offers," he said. "We couldn't get them to come up, and they couldn't get us to come down, so we decided to let a jury decide."

The case stemmed from the illegal actions of the thrift's vice president of consumer lending. Shortly after the employee was fired in the fall of 1991 for poor performance, the thrift found irregularities in his books and eventually determined that he had embezzled about $600,000 during the previous seven years.

The Federal Bureau of Investigation took over the case, and within months the former employee pleaded guilty and was sentenced to 33 months in federal prison. SouthFirst, whose subsidiary is First Federal of the South, had less success with its insurance claim.

The thrift's case against USF&G finally went to trial at the end of last month - the same week the embezzler was released from prison.

"We never dreamed it would take three years to get the money," Mr. Stroup said.

The dispute with the insurance company centered on the thrift's form of insurance with the company, called a financial institution bond or fidelity bond. The bond, in this case valued at $1.2 million, is meant to protect an institution from internal crimes, such as fraud or embezzlement.

SouthFirst's problem with its consumer lending officer certainly fell under the policy, but the insurance company held that because the crimes were committed over a seven-year period, the thrift should have detected them earlier and taken corrective action.

Mr. Stroud, in turn, charged USF&G with bad faith in failing to compensate for the thrift's losses.

Mr. Stroud said he was unaware of any suit filed against SouthFirst.

"I think the court's decision that they (USF&G) acted in bad faith seriously weakens their case if they want to come against us now," Mr. Stroud said.

Banking and insurance lawyers said this sort of case is not unusual.

"The number of these cases seems to rise and fall with the fortunes of the industry as a whole," said James I. Keenan, general counsel with Fidelity and Deposit Co., another Baltimore-based insurer. "Now that the (banking) industry is relatively healthy, we should see a reduction in them."

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