On January 22, 2018, the U.S. District Court for the Southern District of New York released its decision in Hudson Heritage Federal Credit Union v. CUMIS Insurance Society, Inc., dismissing the insured credit union’s claim pursuant to Federal Rule 12(b)(6) for failure to state a claim upon which relief could be granted.

According to its amended complaint, the insured had granted several vehicle finance loans on the strength of photocopies or electronic copies of New York State Department of Motor Vehicles (“DMV”) title documents.  The copies received by the insured had been falsified to misrepresent the names of the owners/sellers.  The Court found that the insured’s complaint failed to plead that its losses had resulted directly from forgery or alteration of an “instrument”, which the bond in issue defined as an “original … document of title”.

The Facts

Hudson Heritage Federal Credit Union (“HHFCU”) is a credit union with several branches in New York State.  HHFCU alleged that, between April and July 2016, it was the victim of three separate fraudulent schemes related to loans for the purchase of automobiles.  In each instance, a member of HHFCU applied for a loan to purchase an automobile using a falsified DMV title document, which misrepresented the owner/seller of the automobile to be purchased with the loaned funds.

By its own admission, HHFCU received and relied on photocopies or electronic versions of the falsified titles, rather than originals.  HHFCU contended that this was consistent with “[t]he custom and practice in the financial industry.”

HHFCU learned of the schemes when the underlying loans went into default.  HHFCU alleged it suffered losses of $134,879 as a result of the fraudulent schemes.

The CUMIS Coverage

HHFCU submitted a claim to CUMIS.  The bond provided that CUMIS would “pay [HHFCU] for [its] loss resulting directly from the ‘forgery’ or alteration of an ‘instrument.’”  In the CUMIS bond, “instrument” was defined as an “original … document of title”.

CUMIS denied the claim on the basis that HHFCU had not demonstrated alteration of original DMV title instruments.  HHFCU commenced an action, and CUMIS moved to dismiss the claim.  HHFCU resisted the motion on the basis that, while it did not receive altered originals, its “information and belief” was that the members who perpetrated the alleged fraud were the same people who altered the original DMV title instruments.

Applying the “plausibility” standard applicable to Rule 12(b)(6) motions, the Court rejected this contention:

Here, HHFCU admits it received only photocopies or electronic versions of the falsified titles  …  However, the bond defines “instrument” as an “original” document.  To reconcile this apparent conflict, HHFCU alleges “[u]pon information and belief, the Loan Fraud members altered original DMV instruments in order to procure the loans.”  However, this allegation is not supported by any facts alleged in the complaint and it is inconsistent with common sense.  As a result, HHFCU’s claim that originals were altered is implausible on its face.

The Court continued:

In particular, the amended complaint is devoid of any allegations suggesting how the individuals involved in the automobile loan frauds would have obtained the original DMV titles, and there is no alleged connection between the fraudsters and the actual owners of the automobiles in question.  …  Under these circumstances, HHFCU improperly alleged “upon information and belief” that originals were altered.  …

The defect of the amended complaint is that it fails plausibly to allege an “instrument” — as defined by the policy as an “original” document — was altered.

As a result, the Court granted the motion and dismissed HHFCU’s claim for coverage.


Hudson Heritage Federal Credit Union provides an example of a court affirming that the bond’s requirement of an “original” document means just that an original document, as opposed to a photocopy or an electronic copy.  The Court observed that, while HHFCU had contended that several words in the bond were ambiguous, the word “original” was not one of them.

Hudson Heritage Federal Credit Union v. CUMIS Insurance Society, Inc., 2018 WL 557900 (S.D.N.Y.)