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National Credit Union Administration Board v. Cumis Insurance Society, Inc.

United States District Court, D. Minnesota

March 17, 2017

National Credit Union Administration Board, as Receiver/Liquidating Agent of St. Francis Campus Credit Union, 808 Third Street Southeast, Suite 100, Little Falls, Minnesota 56345-2143, Plaintiff,
v.
CUMIS Insurance Society, Inc., Defendant.

          Frances Kern, Esq., Office of the Minnesota Attorney General; Glen E. Schumann, Esq., and James F. Baldwin, Esq., Moss & Barnett, PA; and Roy H. “Chip” Chockley, Esq., Wolff Ardis, P.C., counsel for Plaintiff.

          Daniel N. Moak, Esq., Briggs & Morgan, PA; F. Joseph Nealon, Esq., and Nicholas T. Moraites, Esq., Eckert Seamans Cherin & Mellott, LLC, counsel for Defendant.

          MEMORANDUM OPINION AND ORDER

          DONOVAN W. FRANK United States District Judge

         INTRODUCTION

         This matter is before the Court on Defendant's Motion for Summary Judgment. (Doc. No. 23.) For the reasons set forth below, the Court denies the motion.

         BACKGROUND

         St. Francis Campus Credit Union (“St. Francis”) is a credit union with its principal place of business in Little Falls, Minnesota. (Doc. No. 1 (“Compl.”) ¶ 4.) CUMIS Insurance Society, Inc. (“CUMIS”) insured St. Francis under a fidelity bond, which insured against, among other things, theft by employees. (Id. ¶ 8 & Ex. C.) St. Francis was insured under the bond during all relevant times. (Id. ¶ 8.) On January 23, 2014, St. Francis discovered that one of its managers, Margurite Cofell, had embezzled in excess of $3 million from St. Francis. (Id. ¶¶ 10-11.) On January 27, 2014, St. Francis informed CUMIS of the discovery of the fraud, which St. Francis was still investigating. (Id. ¶ 12 & Ex. D.) On January 28, 2014, CUMIS acknowledged receipt of St. Francis's Notice of Loss. (Id. ¶ 13, Ex. E.)

         Plaintiff National Credit Union Administration Board was appointed the receiver of St. Francis on February 14, 2014. (Compl. ¶ 5.) The receiver was put into place “in whole or in large part” as a result of the theft. (Id. ¶ 10.) On December 8, 2014, Plaintiff filed a proof of loss totaling $3, 086, 755.94. (Id. ¶ 14.)

         On June 10, 2015, CUMIS sent a letter seeking to rescind the fidelity bond to Raymond C. Leake. (Id. ¶ 15 & Ex. G (“CUMIS Denial Letter”).) Leake was an attorney hired to assist with the bond claim. (Doc. No. 29 (“Opp.”) at 17.) In its letter, CUMIS explained that its basis for seeking rescission was that Cofell lied on the application for the bond's renewal. (CUMIS Denial Letter.) Specifically, Cofell checked “no” to the following application questions:

Does any director, officer, board committee member, or employee have knowledge of or information regarding any act, error, or omission which might give rise to a claim against them or the credit union, [. . .] which would be covered under . . . the Bond or any of its Endorsements . . . ?
Does any director, officer, board committee member, or employee have knowledge of or information regarding any claims, demands or lawsuits currently pending or threatened that may be or have already been brought against them or the credit union?

(Id.)[1] Neither party disputes that Cofell lied by checking no because she was stealing from St. Francis at that time. (See Compl. at ¶ 23; Reply at 8.)

         Included with the CUMIS Denial Letter was a check for the premiums that St. Francis had paid from April 10, 2012 to April 10, 2014. (CUMIS Denial Letter.) The CUMIS Denial Letter also stated that it had already refunded the premiums paid from April 10, 2014 to April 10, 2015. (Id.) Leake forwarded the check and the letter to Robert D. Roach, a senior trial attorney for National Credit Union Administration (the federal agency who oversees Plaintiff). (See Doc. No. 32 (“Peeples Decl.”) ¶¶ 1, 9.) During the mail-sorting process, a clerk separated the check from the letter. (Id. ¶ 10.) The check was then forwarded to St. Louis and cashed pursuant to the procedures in place because of the receivership. (See id.) According to Plaintiff, the clerk did not understand that the letter was a purported offer for rescission. (Id. ¶ 11.)

         On January 21, 2016, Plaintiff filed its Complaint seeking a declaration that CUMIS owed coverage under the bond. (Compl. ¶ 33.) On June 13, 2016, CUMIS filed a motion for summary judgment arguing that it rightfully rescinded the bond because either: (1) Cofell's misrepresentation increased CUMIS's risk of loss, which is grounds for rescission under Minn. Stat.§ 60A.08, subd. 9; or (2) Plaintiff agreed to ...


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