CUMIS and Convicted Credit Union CEO Fight Over Legal Fees

CUMIS Specialty Insurance Company paid $3.2 million in legal defense fees, court costs and vendor expenses for former Melrose Credit Union President/CEO Alan Kaufman when he was indicted and later convicted on two counts of bribery.

The disgraced credit union executive is now embroiled in lawsuits with the Madison, Wis.-based CUMIS, which asked a New York federal judge to declare that the insurance company is no longer obligated to continue to pay Kaufman’s legal bills while his conviction and prison sentence is being appealed. He is free on bail pending the outcome of the appeal.

In April 2016, CUMIS issued a management and professional liability policy to Melrose Credit Union that covered Kaufman. Just three months later, the Melrose board fired him and by March 2021 – after two years of legal proceedings – a jury found Kaufman guilty of accepting bribes from a taxi medallion business owner in exchange for millions of dollars in loans from the credit union. Kaufman was acquitted on one count of conspiracy to commit bribery.

In September 2021, he was sentenced to three years and eight months in federal prison. Kaufman also was ordered to pay $2 million in restitution to the NCUA and a $30,000 fine.

CUMIS contended Kaufman’s professional liability coverage does not extend to his legal fees during his post-sentencing or his appeal proceedings before the Second Circuit Court of Appeals in New York City, according to CUMIS lawsuit documents filed in U.S. District Court for the Southern District of New York in Manhattan.

CUMIS said it has repeatedly informed Kaufman and his attorneys that his conviction and sentencing constituted a “final adjudication” of his liability that established the applicability of the policy’s exclusions for dishonest or willful acts and renumeration. That means CUMIS is no longer obligated to pay any additional legal fees post sentencing or for his appeals.

Although CUMIS said it does not believe the policy requires it to pay Kaufman’s legal fees and costs following his conviction and sentencing, it has continued to do so under threat of a lawsuit. Kaufman did agree to sign a letter that he would repay those legal fees and costs should it be determined by a federal judge, according to court documents.

Nevertheless, Kaufman countersued CUMIS, claiming it was obligated to pay his legal fees and expenses during the appeals proceedings.

Kaufman argued in his court filings that the CUMIS policy does not define “final adjudication.” He contended that final adjudication means a final decision on the merits from which no further right of appeal or review exists and that there is no exclusion for appellate costs.

Additional legal proceedings have been scheduled through the end of this year and if there is no settlement reached, the case could go to trial, according to a case management and scheduling order document.