Alabama One Credit Union, insurers settle lawsuit

Jan. 11--Alabama One has settled a lawsuit with its insurance company that initially declined to cover losses from a series of high-profile fraudulent loans.

CUMIS Insurance Society Inc. agreed to pay the credit union $2.25 million.

CUMIS provided fidelity bond coverage to Alabama One, a form of insurance that offers employers protection against losses caused by fraudulent or dishonest employee actions.

Alabama One claimed its losses exceeded $7 million from bad loans made by former employees to Fosters Water Treatment LLC, a company owned by Danny Ray Butler, in 2008 and 2009.

"We believe that this is a fair settlement that took into account the wrongful acts of the officers involved in these loans," said Andrew Campbell, managing partner of Campbell Guin, the lead counsel in the lawsuit. "We are committed to seek recovery of the other losses the credit union has suffered over the last several years, and we will do so with utmost vigor."

The credit union filed a lawsuit in U.S. District Court against CUMIS in February 2017, claiming breach of contract and bad faith refusal to pay an insurance claim. The case was dismissed Jan. 4 after both parties reported they had resolved the issue in mediation.

"This settlement represents Alabama One's commitment to our members to pursue all claims for losses resulting from the lending practices of prior management of Alabama One," Alabama One CEO Bill Wells stated in a release provided to The Tuscaloosa News on Monday. "We will continue to pursue those claims directly, forcefully, and without delay on behalf of our members of Alabama One."

Butler borrowed more than $7 million from Alabama One to finance construction of a water treatment plant in Fosters. The plant had a maximum value of less than $2 million at the time, according to the credit union release. Loan restrictions required that the money be used for the plant's construction, but Butler used the majority for personal expenditures, according to the release. The loans were made and approved by credit union officers who no longer work for Alabama One.

Butler pleaded guilty in February 2014 to three counts of wire fraud and three counts of bank fraud. Federal prosecutors say that he defrauded the Small Business Administration of $1.76 million in connection with a loan to build a grocery store in Fosters and that he engaged in a check-kiting scheme that caused Alabama One Credit Union to lose $1.275 million. Butler also made misrepresentations to a company that financed the car inventory at his used car lot, causing that company to lose $50,000.

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