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After fraudsters used a stolen ATM/debit card to steal more than $380,000 from a member's account, TruStage denied Kinecta Federal Credit Union's claim because of the insurance bond's "plastic card/PIN" exclusion provision.
But the Manhattan Beach, Calif.-based credit union is suing TruStage, seeking payment of the claim, plus interest, alleging the Madison, Wis.-based company breached its insurance contract. Kinecta is seeking its case to be heard by a jury, according to court documents filed last week in U.S. District Court in Los Angeles.
Unidentified fraudsters gained access to a Kinecta member's account through its online banking portal between August and December 2022. Using the "misappropriated" member credentials, the fraudsters also gained access to the member's home equity line of credit, and then transferred funds to the member's checking account.
After the funds were transferred, the fraudsters used the member's stolen ATM/debit card to make cash withdrawals. In total, they stole $384,632, according to Kinecta's federal civil lawsuit.
Kinecta reimbursed the member's funds and filed a loss claim with TruStage, which it denied.
The credit union argued in court documents that the loss suffered falls squarely within the coverage provided under that bond, and that there are no exclusions under the terms of that bond.
But TruStage argued in its court filings that the credit union's claim failed because, even if Kinecta's loss was within the initial scope of the bond's electronic crime coverage, it is excluded by the bond's plastic card/PIN exclusion.
"The 'Plastic Card/PIN' exclusion states that CUMIS (currently TruStage) will not pay for "[a]ny loss resulting directly or indirectly from the use of … a plastic or other type of car[d], or plastic card number, to effect a transaction[.]" TruStage said in a court filing. "Here, Kinecta seeks indemnification for the amount of money it reimbursed its member after an unauthorized individual withdrew that money from her checking account using the member's stolen ATM/debit card number. The loss was therefore caused, directly or indirectly, by the use of a plastic card number to effect a transaction (the withdrawal), and the 'Plastic Card/PIN' exclusion directly applies to exclude coverage."
Editor's Note: The federal civil lawsuit's case number is 2:24-cv-02145-HDV-MRW.
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