KNOXVILLE, Tenn. – A Tennessee credit union filed suit against CUNA Mutual Group claiming the credit union insurer should be responsible for millions of dollars of failed loans approved under the credit union’s former president.
Johnson City FCU claims under a faithful performance bond claim CUNA Mutual should be responsible for as much as $2.5 million in losses on signature loans accrued under the management of then-CEO G. Donald Cowan, who left the credit union in September 2006 under a "forced resignation." After Cowan’s departure, the $50 million credit union notified CUNA Mutual that Cowan "consciously disregarded the lending policies of the credit union, that illegal member accounts were identified," according to the action, filed last Friday in U.S. District Court for the Eastern District of Tennessee.
Beginning in April 2007, Johnson City FCU began charging off loans, an amount it expects to exceed $2.5 million. The credit union is asking for treble damages as part of the suit.
Because of the loans, Johnson City FCU reported a $1.1 million loss for 2007, a $1 million loss for 2008 and a $450,000 loss for the first six months of 2009.
The credit union is claiming "bad-faith failure to pay promptly" under Tennessee state law, and unfair and deceptive practices.
¡¡
CUNA Mutual said it is limited in what it can say because the case is in litigation. "This is a standard faithful performance bond claim, which we don't believe is covered under the policy," said Phil Tschudy, a spokesman for the credit union insurer.
Cowan could not be reached for comment.
