USAlliance FCU Files Suit Against CUMIS; Claims Insurer Denied What It Claims is a "Straightforward" Claim

RYE, N.Y. – The $530 million USAlliance FCU has filed a lawsuit against CUMIS Insurance Society seeking payment for a claim it believes is a no-brainer to be covered under its bond policy. CUMIS is the insurance arm of CUNA Mutual Group. The complaint was filed in New York State Supreme Court Westchester County. The claim in dispute is for losses the CU incurred from actions taken by long-time employee, Albert Menard. Menard was responsible for overseeing the CU’s auto leasing program. He was affiliated with the CU, whether as volunteer or full-time employee, for over 30 years. According to the credit union, Menard intentionally failed to disclose operational and financial problems as well as illegal activities in the leasing operations to management and the board. The CU suffered a loss of approximately $8 million due to his actions. The credit union filed the claim with CUMIS in June of last year and was denied claim this April. “As a non-profit, member-owned cooperative, we have a fiduciary, ethical and moral obligation to protect the financial interests of our member-owners. We had hoped to avoid litigation, but CUMIS’ refusal to fulfill its policy or resolve the issue fairly has left us not choice but to take legal action,” said Michael Ambrose, USAlliance’s president and CEO. According to Mitch Pollack, USAlliance’s attorney in this matter, USAlliance FCU was engaged in an auto leasing joint venture with a company called Prime Time Holdings based in Connecticut. The CU did not know that Menard had ties to Prime Time Holdings. “Unbeknownst to us he had an option to purchase a 5% interest in that company at any time. You have to remember this was an employee who had been with the credit union for over 30 years. He had a law degree, a Ph.D, a tremendous amount of education, and was very well respected,” said Pollack. Menard was also treated as a de facto employee and/or shareholder of Prime Time Holdings, said Pollack. Despite his credentials, Pollack said Menard neglected to report to the CU a host of illegal activities being perpetrated by Prime Time Holdings. USAlliance believes he had knowledge of the embezzlement of $600,000 of credit union funding from Prime Time Holdings. USAlliance believes the claim should be covered under its “Employee or Director Dishonesty” policy which broadly requires CUMIS to pay losses that result in which employees or directors intentionally cause the credit union a loss. “The credit union has paid a fortune in premiums over the years to CUMIS and we’re suing CUMIS to honor the terms of the policy. We feel they did not treat the credit union in a fair and even handed way,” said Pollack. The CU is seeking approximately $8 million to cover the claim and another $10 million in punitive losses. According to the complaint, obtained by Credit Union Times, the credit union charges that CUMIS didn’t give the claim the attention it required. “CUMIS’ treatment of the Credit Union was based on its corporate decision (the “Corporate Decision) to deny coverage without closely scrutinizing the Credit Unions’ individual claim and judging it according to the appropriate standard.” The suit even alleges that CUMIS now has a corporate policy to deny any claims that aren’t no-brainers. “CUMIS made the Corporate Decision to deny all claims except those that are, at first glance, highly likely to be successful in a court of law…CUMIS’ decision is based on the view that parties wronged by its improper denials of claims will generally be unwilling to proceed with legal action against it because of the attendant trouble and expense.” Apparently this isn’t the first claim dispute USAlliance has had with CUMIS. The suit also cites a claim it filed related to a loss due to the terrorist attacks on the World Trade Center. USAlliance was a tenant in the World Trade Center. “The Credit Union did not pursue the full amount of its claim under its bond Policy with CUMIS because of the costs of legal proceedings and was compelled to compromise its claim for a fraction of its loss.” According to CUNA Mutual Spokesperson Sydney Lindner, CUMIS has not had any sweeping changes to its claim policies. “There has been no change to our procedures. We thoroughly investigate and pay claims as required under a policy. We will pay those claims that are payable according to the wording of the policyholders’ coverage,” said Lindner. CUNA Mutual Group pays out, (from all its units and all types of claims, not just bond) approximately $1.3 billion in claims a year, said Lindner. Lindner would not comment on the specifics of the USAlliance claim. [email protected]