Former Vanguard Executives Acquitted in Fla. Hurricane Cat Fund Fraud Case

Four former executives of now-defunct Vanguard Fire and Casualty Co. have been acquitted of federal fraud charges stemming from how the property/casualty insurer was reimbursed by the Florida Hurricane Catastrophe Fund during the 2004 hurricane season.

Judge Robert Lewis Hinkle of the U.S. District Court for the Northern District of Florida granted requests for full acquittal in the cases of former Vanguard President William Sanders; Thomas Stinson, former chief operating officer and chief financial officer; Richard Magsam, former controller; and John Henry Axley III, former vice president of claims.

Sanders, Stinson, Magsam and Axley were accused of defrauding the fund out of more than $20 million after Vanguard faced severe cash flow problems as a result of claims from the volatile 2004 hurricane season, according to the indictment.

While Vanguard's losses from Hurricane Frances met its $37 million threshold for losses eligible for reimbursement from the state fund, its losses from the subsequent Hurricane Jeanne didn't reach that mark. Frances struck Florida's eastern coast on Sept. 5, 2004. Jeanne followed three weeks later and tracked a similar northwestern course of destruction. Vanguard ended up with more than 20,000 claims (Best's News Service, March 2, 2011).

Stephen S. Dobson III, a Tallahassee, Fla.-based lawyer representing Sanders, told Best's News Service the acquittals were based on the argument there couldn't have been fraud on the part of Sanders or the other defendants because "they told the Florida Hurricane Catastrophe Fund exactly what they were doing at each stage of the process."

In 2004, Sanders and his colleagues were faced with the challenge of trying to determine which hurricane caused what damage to policyholders' homes, Dobson said. That effort was complicated by the fact the hurricanes struck in quick succession and several followed very similar paths. Under pressure from then-Gov. Jeb Bush to quickly pay policyholders, Dobson said Sanders and the other defendants told the fund they were going to classify all damaged properties as being damaged by Frances until the point where its path diverged from Jeanne's path. At that point, the damaged properties would be classified as being affected by Jeanne.

"There were emails between the Vanguard executives and the fund discussing which properties would be classified as what," Dobson said. "The claims were also given a high-level reasonableness test before the fund decided to make the reimbursements. There was no fraud."

Dobson said now that his client and the other executives have been acquitted, they are attempting to move past the situation. "This basically forced them to put their lives on hold for two years," Dobson said. "These are really good guys who were trying to do the right thing."

Dobson said Sanders is now working for an insurance company in Colorado. He declined to name the company.

Stinson, the other lead defendant in the case, was represented by Thomas M. Findley, a partner with Messer Caparello & Self.

(By Jeff Jeffrey, Washington Correspondent: [email protected])