CHESTERFIELD, Mo. — While the eventual legal outcome of lawsuits filed against credit unions by Lyndon Insurance, including The CU of Texas, may drag on, Credit Union Times has learned that Lyndon assured NCUA back in late August of 2005 that it was not aware of loan alterations changing coverage of Centrix loans.
Through the Freedom of Infor-mation Act, a letter sent to NCUA General Counsel Robert Fenner from Richard Hackett, senior vice president of the asset protection division on behalf of the Lyndon Property Insurance Company has been obtained by Credit Union Times. Hacket wrote: "…regarding your question of whether certain loan alterations have voided coverage at present we are not aware of any such alterations that have voided coverage…I'm not aware of any instance where a loan alteration has resulted in coverage being voided or in a claim being denied." Lyndon would not assert a "blanket assurance that loan alterations will not impact the compensability of a claim," however.
NCUA wrote Lyndon on behalf of CUs for which it had obtained power of attorney. A credit union (its name redacted according to a FOIA privacy exception) questioned Centrix valuations, claiming the wrong value had been used in paying claims. Lyndon countered, "claims are not adjusted on particular credit unions because the formula for the claim is the same for each and every credit union. No credit union receives a preferred claim or valuation by Lyndon or Centrix Financial."
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Lyndon never learned that the CU in question wrote to Centrix, informing them that they were using the wrong car values in submitting claims and that Lyndon reviewed every claim to ensure the correct value was used. Lyndon stated that NCUA was "presuming that the incorrect values have been used in calculating claims," but that they conduct audits and reviews on each claim submitted by Centrix.
Yet Lyndon's claims against some credit unions may be questioned by its contention in this letter that it "bears 100% of the risk with these loans and is confident with Centrix' past, current and future performance in servicing these loan portfolios."
The part that may prove sticky is Lyndon's assertion that it "conducted extensive due diligence on Centrix Financial before agreeing to embark in the Portfolio Management Program with them and such lengthy and costly due diligence would obviously be necessary before Lyndon would ever consider authorizing another servicer for a credit union. Further, notwithstanding the due diligence that would be required, it's not feasible to manage the insurance coverage for each individual credit union that decides, for whatever reason, to use a secondary servicer. Lyndon has confidence in Centrix Financial's ability to service the loan portfolios in a professional and competent manner."
The letter also maintains that Centrix is the "only authorized servicer" and that Lyndon has no process for "obtaining pre-approval of another servicer…" and goes on to say that many CUs "lack the ability and resources to service their loan portfolios," making Lyndon's approval of each credit union doing it on its own highly unlikely. Although Lyndon allowed that CUs may contract directly with any third party servicer to service their own portfolio, "doing so would result in the cancellation of the default insurance currently provided by Lyndon."
Finally, what was an apparent request by the NCUA to see a copy of Lyndon's Program Administrator Agreement with Centrix was rebuffed because "all such related agreements are proprietary and confidential." If individual CUs had questions Lyndon would try to respond, they said.
The reinsurance agreement between Lyndon and Founders Insurance Company Limited, an affiliate of Centrix is "domiciled in Bermuda" and they together provide "security to Lyndon to ensure sufficient funds are available to meet the obligations of Founders to Lyndon."
Founders is now involved in a lawsuit against Everest National Insurance Company (which provided the default insurance on Centrix loans) related to that reinsurance and Robert Sutton, former chairman and CEO of Centrix and officers of both Centrix and Everest are named in the litigation, which is ongoing.
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