MADISON, Wis.-CUNA Mutual Group's CUMIS Insurance Society has asked a state court to declare that surety bonds held by 26 credit union victims of the $140-million fraud by U.S. Mortgage/CU National Mortgage Corp. do not cover an estimated $125 million of losses suffered by those credit unions.
The little-known move came to light in a new civil suit filed by Educational Systems FCU, Greenbelt, Md., that stands to lose $3-million from the fraud and is asking a federal court in Baltimore to order the insurer to cover the losses as part of the bond.
Chris Conway, president of Educational Systems FCU, said he was compelled to file the new suit to prevent CUMIS from getting a court order protecting against his credit union's bond claim. "They kind of forced our hand," Conway said. "We have a valid claim and it's pretty straightforward. We couldn't just let them sit by and deny our claim."
The state suit filed by CUMIS is apparently the second attempt launched by the insurer to get a court to block the claims, which could be the biggest ever against CUNA Mutual. CUMIS originally filed a request for declaratory judgment last June in Wisconsin state court seeking to block the CUs' claims, but the credit unions were apparently never told of its existence and the suit was subsequently dismissed.
On Aug. 31, CUMIS filed a second attempt at a declaratory judgment, which Educational Systems FCU only learned of on Oct. 27 during a face-to-face meeting with CUMIS and its attorneys in New York City after the credit union representative specifically asked about the existence of any such actions. As a result, the $320-million ESFCU was served with the Aug. 31 Wisconsin suit on Nov. 23.
In a prepared statement, CUNA Mutual said it believes the specific circumstances of this claim aren't covered by its bond. "We believe other entities have liability for the losses the credit unions have suffered and we are continuing to look for ways to assist the affected CUs in seeking compensation for those losses."
