The 12,500-member, $70 million North East Alliance FCU has sued CUNA Mutual Group for at least $565,000, alleging in federal court that the insurer has breached its contract with the Bardonia, N.Y., credit union by refusing to cover losses stemming from a record-setting theft by an ATM servicing firm.

The complaint, brought in the U.S. District Court for the Southern District of New York, flows from the case of Mount Vernon Money Center, a now-defunct ATM and cash services firm whose executives were found to have pilfered large sums of money from banks, credit unions and other clients.

The credit union claimed that CUNA Mutual's contract had obligated the insurer to pay for money lost to the firm's theft, arguing that the money was taken during the time that it was in the custody of the firm which the CU had hired to transport the funds. 

CUMIS had claimed, the CU said in its complaint, that CUNA Mutual had denied its claim for losses on the grounds that the theft had taken place when the funds were “in transit,” a state in which MVMC had possession of the CU's funds but they were not in an armored car. 

The bond had limited in-transit losses to $2 million, according to the CU's court filing. The CU also argued CUNA Mutual should have alerted the North East Alliance FCU to the coverage gap.

“A reasonable financial institution in the Plaintiff's position, having been apprised and aware of the risks, deficiencies and exposure contained in the Bond may not have proceeded with purchasing the Bond and/or may have chosen an alternative product/insurance company,” the complaint said.

CUNA Mutual has not yet commented on the case and the court has not yet set deadlines for next steps in the case.

Robert Egan, president of Mount Vernon Money Center, and Bernard McGarry, his chief operating officer, were arrested by the FBI in February 2010 and charged with defrauding banks, other financial institutions, retailers, hospitals and universities out of $50 million in funds that had been entrusted to it.