MIAMI – A federal judge here last week order CUNA Mutual Group’s CUMIS Insurance Society unit to pay Dade County FCU $406,000 to fulfill a faithful performance bond claim for an employee who doctored more than 500 delinquent Visa credit card accounts to make it appear the accounts were current.
CUNA Mutual claimed the court order was a vindication of its position. In this case, the credit union and its lawyers filed a claim for $2.4 million, the said . CUMIS maintained the amount claimed was significantly inflated. In the end, the jury agreed with CUMIS' position, finding that the credit union's covered loss was $348,183, plus interest, which is less than 15% of what was claimed.
“Unfortunately, in situations such as these the only real winners are the lawyers who often generate fees far in excess of any recovery,” said John Christenson, associate general counsel for CUNA Mutual Group.
The credit union claimed that its former employee acted in conscious disregard of established and enforced lending policies by concealing the delinquencies and failing to submit the accounts for charge-off. CUMIS disputed each element of coverage and further asserted that the loss incurred by Dade County Federal was not a loss resulting directly from the former employee’s policy violations.
The Court, prior to trial, concluded that any loss incurred by the credit union was in fact covered under the bond. CUMIS initially denied coverage, in part, because the policy at issue was a collection policy and not lending policy.
The court asserted that CUMIS does not define lending in its bond but that “lending” is premised upon an expectation of collection of the money lent and that “lending” encompassed the collection of money loaned. Therefore, the opinion clearly did not let CUMIS denial stand simply because the policy at issue in the faithful performance bond claim was a collection policy.
The court disagreed with CUMIS claim that policies were not enforced. The court found that simply because some “red flags” were not detected was not evidence of lack of enforcement supporting denial of the credit union’s claim.
In responding to the CUMIS defense that there was no connection between Dade County Federal’s loss and the employee’s disregard of the policy because the credit union did not detect the employee’ misconduct, the Court found the CUMIS interpretation of its bond to be “unreasonable.” The Court stated “If the resulting policy language meant that an “insured’s failure to detect and prevent loss resulting from employee misconduct precluded coverage, then no insured would ever be entitled to coverage.”
