CUNA Mutual’s Condition 9

By Styskal, Wiese & Melchione

Your Credit Union’s management team needs to keep Condition 9 of CUNA Mutual’s Bond in mind.1 Condition 9 reads, in pertinent part:

“9. Termination Or Limitation Of Coverage For Employee Or Director     1. This Bond’s coverage for an “employee” or “director” terminates immediately when one of your “directors,” officers or supervisory staff not in collusion with such person learns of:         a. Any dishonest or fraudulent act committed by such “employee” or “director” at any time, whether or not related to your activities or of the type covered under this Bond; or . . .”

How CUNA Mutual Uses It: Say you have an employee who embezzles $100,000 from the Credit Union in 2009. You, of course, fire the employee and submit a bond claim for $100,000, expecting to be promptly paid. Not so fast. CUNA Mutual asks for the personnel file, a review of which indicates that the employee was disciplined in 2007 for filling out a “misleading” verification of deposit for a friend (the friend was a nominal accountholder on her parents’ substantial money market account and the VOE helped the friend get a mortgage loan at another financial institution). As a result, CUNA Mutual under Condition 9 declares the employee’s Bond coverage terminated as of the 2007 incident, and denies your $100,000 claim. What Your Credit Union Needs To Do Differently: Your management (and HR) team needs to keep Condition 9 in mind at all times. In the above scenario, the Credit Union could have submitted a “Notice of Employee Discrepancy” to CUNA Mutual in 2007. CUNA Mutual would have either “cleared” the employee or declared the employee non-bondable (and therefore non-employable). Although the 2007 incident could have resulted in termination (due to non-bondability) and that may seem inequitable, what is even more inequitable is an insurance company’s after the fact application of a Condition 9 to a marginal incident, allowing it to deny an otherwise clearly payable claim. _______________________ 1If your Credit Union carries bond coverage from another insurer, check your policy; it may contain a similar condition.

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