Credit union complaint progresses in federal court

The complaint filed by USAlliance Federal Credit Union of Rye against CUMIS Insurance Society Inc. continues to move through the U.S. District Court in New York.

Attorneys for both parties recently met with Judge Stephen C. Robinson, presiding judge of the U.S. District Court for the Southern

"We are pleased the case is continuing to progress, and continue to believe CUMIS should honor the terms of its indemnity bond policies that were purchased to protect USAlliance and its members from exactly this type of employee misconduct," said Mitchell B. Pollack, legal counsel to USAlliance. "We have no doubt that USAlliance will prevail in this case, which not only protects USAlliance's members but also sends a message to CUMIS that it must meet its policy obligations to all its credit union clients across the country."

USAlliance initially filed a complaint against CUMIS in New York State Supreme Court in Westchester County in November 2003 seeking reimbursement for a loss covered under its indemnity bond policy In the action, USAlliance asserts CUMIS breached its insurance contract for employee dishonesty and lack of faithful performance. The suit also seeks recovery for bad faith insurance practices and violation of New York general business law. The action was moved to the Southern District Court last December 2003. In January, CUMIS filed its response to USAlliance's complaint as well as a motion to dismiss some of the causes of action. USAlliance subsequently filed opposition to CUMIS' motion to dismiss.

CUMIS' indemnity bond policy provides coverage for losses resulting from employee or director dishonesty and lack of faithful performance. In 1998, USAlliance discovered that a long time senior employee overseeing an auto leasing program had intentionally failed to disclose serious operational and financial problems and illegal activities in the leasing company to credit union management and the board of directors. USAlliance further discovered the. employee had a financial stake in the company, which he kept hidden.

Through the employee's actions, USAlliance suffered a loss of about $8 million. USAlliance was forced to delay filing a policy claim due to an FBI investigation into circumstances surrounding the loss. In June 2002, USAlliance submitted a claim to CUMIS under its indemnity bond policy; CUMIS denied the claim in April 2003.