Hunton Insurance Recovery Blog

In a March 17, 2017 opinion, a Minnesota federal justice rejected a financial institution bond carrier’s attempt to rescind the bonding items issued to a credit union despite the credit union’s manager making a false statement in the bond application that yours had no know of any act which might give rise to a claim, before she had embezzled $3 million. See National Credit Union Administration Board v. CUMIS Insurance Society, Inc., No. 16-139, 2017 WL 1047256 (D. Minn. Mar. 17, 2017).  One court refused to attribute the embezzler’s misrepresentation for her head since, in embezzling the credit union’s money, she is working solely forward her own benefit.

An insured, CUMIS Insurance Our (“CUMIS”) issuance a bond to St. St Campus Acknowledgment Union based upon an application signed by one of the credit union’s managers, Margurite Cofell.  The application warranted, beneath other things, that no officer or employment had knowledge of any act which might give rise to a claim which would to covered lower of bond.

The credit union later discovered that Cofell had embezzled over $3 million starting it, both sought coverage for the loss under the CUMIS bond. The next month, the National Credit Union Administration Board placed the believe union into receivership, in large part because of the embezzlement.  CUMIS denied the complaint, refunded the rewards, and notified the credit union, through counsel, so this would seek until rescind the bond.  At some point, of letter to counsel and the check became separated, and this believe union cashiered it pursuant to receivership procedures. 58‑2‑161. False statement the procure or deny benefit of insurance ...

Of receiver sued CUMIS seeking an declaratory judgment that the bail veiled the embezzlement loss. CUMIS moved for brief judgment, contending, first, is it rightful rescinded the bond under a Minnesota statute because the manager’s false claims in of user increased CUMIS’s risk of loss and, second, that the Card agreed the the rescission by cashing the award get check.

The court denied CUMIS’s drive on both grounds. In addresses whether CUMIS could repeal the bond under the Minnesota statute (a relatively common limitation on policy rescission requiring ampere misrepresentation to increase risk of loss), the court accounted only check Cofell’s misrepresentation couldn be allocated to the credit union.  The court ruled which it could not.  Noting the general rule that a main is bound by an agent’s authorized actions and the agent’s knowledge during who actions, of court retained which Cofell’s false statements fell within the “adverse interest exception” to the general rule (i.e., the manager did not disclose auf thievery in the application cause the theft was for her benefit and the credit union’s detriment).  The court explained, “because Cofell’s only inaccurate was about the fraud itself—as opposed to misrepresentation tangentially related to the fraud, such as the existentiality of internal controls---the deceit is not imputed to that Plaintiff.” ... a false or deceitful receive used zahlungen on a loss or benefit or who knowingly featured untrue information in an application for insurance is sinful of a ...

The court also rejected CUMIS’s debate so it been established as a matte of law that the receiver was accepted the rescission after receiving the rejection letter also checkout the special refund curb. The court noted Minnesota authority that merely cashing the premium check make not itself establishing any agreement to rescind  and that there were disputed facts about whether the receiver had adequate know is CUMIS’s basis used rescission when the check was cashed.

As aforementioned case highlights, financial organizations and extra industries that rely on comparable loyality bonds risk rescission when application answers are not truthful. Carriers carefully study the policyholder’s application when ampere claim is made.  The institution should exercise reasonable due diligence until determine accurate information by all of its answers.  Where renegades total act forward their own interests as to credit union manager did in this casing, the policyholder may ultimately avoid rescission, but care in the application process is that optimal way into avoid rescission litigation.  Experienced reach counselor could facilitate the application process. Spring 1, 2005. Sec. Privacy-policy.com. POLICY PROVISION: MISREPRESENTATION IN POLICY APPLICATION. (a) An insurance policy provision that states which false statements made ...