New York Community Bancorp sues insurer over claim

Getting robbed of $4.2 million was bad enough, so when an insurance company balked at covering the loss, Westbury-based New York Community Bancorp decided this week to sue the insurance company.

The suit, filed in State Supreme Court in Manhattan, accuses the National Union Fire Insurance Co. of Pittsburgh of breach of contract and failing to deal in good faith by failing to pay the claim.

The claim is the result of a $50-million fraud case against two top officials of Mount Vernon Money Center, a financial services company. Bernard McGarry, 50, the chief operating officer, and Robert Egan, 64, the president, are awaiting trial on federal charges of defrauding banks, stores, hospitals and universities.

Banks in the metropolitan area used Mount Vernon to keep more than 5,300 automated teller machines stocked with cash. In addition to New York Community Bancorp, which owns nine banks - including New York Commercial Bank and Roslyn Savings Bank - Mount Vernon was hired by Bank of America, U.S. Bank, Actors Federal Credit Union, ADP Federal Credit Union and Webster Bank to service ATMs.

To keep the ATMs full, New York Community Bancorp would wire money to a bank account, and Mount Vernon would withdraw it and hold it in its vaults until it was needed. At least, that was the plan.

New York Community Bancorp filed a claim on Feb. 24 with the insurance company, a subsidiary of New York-based American International Group, according to the suit.

But by June, the insurance company was demanding "a long list of documents purportedly required" to investigate the claim, the suit says. The company suggested the cash was stolen while being transported, which isn't covered by the policy. But bank officials say that's wrong.

"It was stolen out of the vault," said William A. DiSalvatore, an executive vice president and director of corporate risk for the bank company. "They're resisting paying for the full scope of the claim."

AIG officials declined to comment.

The suit says the bank so far has received nothing on its claim, and that the insurance company's "continued demands for additional documents are unnecessary and irrelevant to the payment of the claim and designed merely to avoid payment."

The suit demands the $4.2 million the bank lost, plus interest, attorney fees and unspecified punitive damages.

The Department of Justice seized $19.3 million in cash from Mount Vernon, all it had at the time of the arrests, DiSalvatore said. Mount Vernon declared bankruptcy soon after.