NEWARK, N.J. (3/1/10)--The liquidating trustee of U.S. Mortgage Corp./CU National Mortgage LLC filed its response last week to a lawsuit by Lloyd's of London that seeks to block any potential claims from credit unions related to their losses when the mortgage companies went bankrupt after fraud was discovered. The case was filed in U.S. Bankruptcy Court for the District of New Jersey Tuesday. Lloyd's had issued Mortgage Bankers and Mortgage Brokers Professional Liability and Fidelity policies to U.S. Mortgage, the parent company of CU National Mortgage. The mortgage companies closed in 2009 after it was discovered they sold mortgages on behalf of credit unions to Fannie Mae without their knowledge and pocketed nearly $140 million. The insurance company is attempting to block claims from three credit unions that have filed suits in the matter--Picatinny FCU, Dover, N.J.; Suffolk FCU, Medford, N.Y.; and Sperry Associates FCU, New Hyde Park, N.Y. The three say they were bilked out of more than $50 million by U.S. Mortgage President Michael McGrath. Lloyd's is asking the court to rescind the fidelity bond it held for the mortgage company because McGrath confessed to fraud. It says it is endangered by the possibility of inconsistent judgments in the cases. If granted, that would mean it would not be liable for the claims. Nearly 30 credit unions have claims for more than $125 million. Lloyd's is the second insurer to seek a block on the claims. CUNA Mutual Group is also seeking a court order related to the bond it holds for 23 of the credit unions bilked by McGrath. Attorneys for the liquidating trustee, Anthony R. Calascibetta, filed a motion seeking relief from the automatic stay requested by the insurance company. The trustee maintains that Lloyd's had full and early notice of the bankruptcy cases pending and the confirmation plan in the bankruptcy. It added that the insurance policy is a core matter and claims regarding it should be decided by the Bankruptcy Court. A hearing is scheduled for 11 a.m. Tuesday on the objection.