Utah First CU Seeks $1.7 Million Insurance Payout In ‘On-Us’ Check Scheme

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SALT LAKE CITY – Utah First CU filed suit in federal court seeking to compel its insurer, Federal Insurance Co., to reimburse it $1.7 million for a check kiting scheme perpetrated by one if its members last year.

The $240 million credit union, which lost $1.8 million last year, claims the bond it holds with the Indiana insurer covers the check scheme, even though it appears that three tellers violated the credit union’s own check cashing policy by routing so-called on-us checks through the Federal Reserve system, instead of keeping them in house. By routing the checks through the Fed’s system that enabled the member time to kite the checks, according to the suit.

The suit revolves around activity last August in 18 separate Utah First accounts controlled by Harold Egan or a company owned by Egan.

Under the credit union’s on-us policy, checks that are drawn on another account at the credit union are drawn upon the other internal accounts, instead of routed through the Fed system.

The credit union’s suit says the three tellers, who were all subsequently fired, should have suspected the member of check kiting and the loss should have been covered under the part of their bond that covers losses resulting from an employee’s “failure to faithfully perform his or her duties.”  The credit union bond has a limit of $4.5 million for such claims, according to the suit.

Utah First filed a bond claim with Federal Insurance but the claim was apparently rejected, with the insurer asserting the credit union’s on-us policy was not properly enforced, as required under the faithful performance clause of the bond.

The bond requires Utah First to file suit to recover any loss under the bond within 60 days after filing its proof of loss.

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