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Economy, Fee Income Push Create Perfect Storm for CUSO Lawsuits
Monday, April 22, 2013 6:55 AM

Credit Union Service Organizations (CUSO) expanding their fee-based services to increase revenues need to be cognizant of the growing risk exposure to professional and cyber liability such expansion creates, warns Jim Hunt, a staff underwriting specialist with the CUNA Mutual Group.

“The current economy has people looking for any reason to sue,” says Hunt. “Directors and officers of CUSOs must understand the financial and reputational impact a loss will have on their CUSO.”

Professional liability could arise from neglect or an act, omission, error, breach of duty, misstatement or misleading statement made by directors, officers or employees of a CUSO. “Even a seemingly small, inadvertent error or unintentional oversight can result in costly legal action against your credit union or CUSO,” Hunt cautions.

Likewise, as CUSOs expand e-commerce activities and become responsible for safeguarding larger amounts of confidential data, so does the risk of cyber-attack, data breaches and viruses. Hunt says types of cyber exposures include:

  • Privacy rights violations: unauthorized disclosure of other’s confidential information
  • Damages to a third party’s data
  • Social media errors (Facebook, Twitter, etc.)
  • Human errors
  • First-party losses, such as public relations and security breach expenses

To avoid these exposures and related losses, Hunt says CUSOs should first ask themselves a series of questions about their fee-based services, the potential risks they pose, and what steps can be taken to minimize them. These include examining processes and arrangements with third-party vendors.

In addition, Hunt strongly advised CUSOs to protect themselves against errors and omissions and cyber liability losses by obtaining professional liability and cyber liability insurance coverage as part of their overall protection strategy. He advises credit unions to look at the total package offered by the insurance provider and selecting the one that offers the best overall solution.