MADISON, Wis.-CUNA Mutual Group said it has taken on a policy of "aggressively" pursuing civil litigation against credit union employees who steal from its insured CUs.
The company said in 2006 it paid approximately 250 bond claims attributable to employee dishonesty. By 2010, the number of claims dropped to about 200, but claim dollars paid more than tripled, jumping to $38 million in 2010 from $12 million in 2006.
According to Tresa Loose, claims director for CUNA Mutual Group, the increase in dollars paid is "significantly outpacing" the reduction in the number of claims filed. The average cost per claim increased to roughly $190,000 in 2010 from $50,000 in 2006. Employee dishonesty claims account for 13% of the total number of bond claims paid by CUNA Mutual Group, but represent 45% of the total dollars paid.
"There are several reasons why this change has taken place," Loose told Credit Union Journal. "For one, there has been a surge in funds transfer losses in the last couple years. Fraudsters are getting more adept at taking money out of folks' HELOC accounts. Also, more affluent members are being targeted, which means bigger dollars."
In a down economy, she noted, employee dishonesty and fraud increases. And although CUNA Mutual has always left open the option to file lawsuits in civil court to recoup payments it made on behalf of policyowners, Loose said the increase in claim amounts has made that path significantly more likely.
"The difference is the dollar amounts are much larger, so a cost-benefit examination means litigation makes sense," she explained. "Litigation costs money, so unless the dollar amount of potential recovery is high it might not have always happened in the past."
No Guilty Plea Needed
Not every embezzlement results in a criminal trial, Loose noted. She said in some cases local police or other authorities do not have the resources to pursue crimes for, say, $150,000. However, no criminal conviction is required for CUNA Mutual to file a civil lawsuit seeking monetary damages.
"The FBI might have bigger crimes to pursue, but $150,000 is a lot of money to a credit union in a small town," she said. "We collect enough facts to convince a jury, and in a civil suit the standard is a preponderance of the evidence [as opposed to beyond a reasonable doubt in a criminal case]. Many times we end up settling out of court when we show the wrongdoer we have enough evidence against them."
Once a civil conviction is won, recovery "is a challenge," Loose acknowledged. Getting the money back depends greatly on what the embezzler did with it. She said CUNA Mutual sometimes is forced to go after personal assets. If the thief has a home, the company tries to attach it. If not, sometimes the only recourse is to get a judgment against the person for future assets.
"There is no 'typical' recovery," she said. "The amount we recover varies wildly. In some cases we get back all of the theft, sometimes nothing. But in our civil lawsuits we ask for the credit union's deductible, as well."
A 'Miracle'
In one recent example a CU employee stole more than $60,000. Once CUNA Mutual Group filed a civil suit, Loose recalled, the person "miraculously" came up with the money, including the credit union's deductible.
"This was a particularly good recovery because it only took about six months," she said. "Sometimes these cases can drag on for years."
In 2011 CUNA Mutual Group filed approximately 30 civil lawsuits, which Loose said was a small increase from previous years. She said it is possible there will be more suits in 2012 based on the number of claims and the severity of claims the insurer is seeing.
"Credit unions have been very, very thankful for us going after these people, especially in this economy," she said. "It is the right thing for us to do."
