Vanguard Insurance Executives Acquitted of Federal Charges In Florida Hurricane Catastrophe Fund 2004 Reimbursement Case
Feb 15, 2012
After a seven-day trial that abruptly ended last night, February 14, 2012, four former executives of the now-defunct Vanguard Fire and Casualty Company were acquitted of federal charges by Judge Robert Lewis Hinkle of the U.S. District Court for the Northern District of Florida in a case involving Florida Hurricane Catastrophe Fund insurer reimbursement during the 2004 Hurricane Season.
“In granting our motion for a not-guilty verdict, Judge Hinkle essentially said that fraud cannot exist if my clients told the Florida Hurricane Catastrophe Fund exactly what they were doing and why they were doing it-and that’s exactly what they did.” said Stephen Dobson of Dobson, Davis & Smith, who represented one of the Vanguard executives in the case, during which federal prosecutors had called 29 witnesses.
Facing one count of conspiracy and 11 individual federal counts that included deceiving state regulators and filing materially false statements that were alleged to result in fraudulently obtaining $20 million in reimbursement from the Florida Hurricane Catastrophe Fund after the 2004 hurricane season, each Vanguard executive would have faced over 10 years of prison time under federal sentencing guidelines.
After four hurricanes struck the State of Florida during a six-week period in 2004, insurers such as Vanguard were not only unable to get ample adjusters out to damaged property, but were unable to identify which storm actually caused specific destruction.
At the center of Dobson’s argument was an emergency rule issued by the Florida Hurricane Catastrophe Fund that allowed insurers to assign all claims to Hurricane Frances if the cause of damage could not be identified.
“That accounted for 90 percent of claims that were made at the time,” explained Dobson.
Because three of the 2004 storms followed much of the same track, many Florida policyholders saw their costs literally triple because the State required payment of a windstorm deductible on a per-event basis.
“To mitigate the crisis, Florida Governor Jeb Bush and then-Insurance Commissioner Tom Gallagher were asking insurance companies to give policyholders a break and charge only one deductible,” Dobson recalled. “So even though Vanguard could have charged its customers for all deductibles, it only charged for one-yet it still got indicted!”
However, to facilitate more rapid access to reimbursement, Vanguard advised the Florida Hurricane Catastrophe Fund in writing that Hurricane Jeanne claims occurring after the point of divergence from Hurricane Frances’ earlier path would remain assigned to Jeanne. The Florida Hurricane Catastrophe Fund agreed to reimburse Vanguard.
But, upon the Florida Hurricane Catastrophe Fund’s loss examination and further examinations performed a year and half later at taxpayer expense of nearly $500,000, the U.S. Attorney’s Office and the Florida Office of Insurance Regulation suddenly alleged that Vanguard had conspired to commit fraud.
The federal investigation ensued, and Vanguard was ordered into liquidation in March 2007.
“In fifteen years, Judge Hinkle has never granted a judgment of acquittal after the government rested its case,” Dobson said.
With the case now behind them, the Vanguard executives William Sanders, former president; Thomas Stinson, former CEO; Richard Magsam; and John Henry Axley III, have all progressed to new employment in the insurance industry.
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