JEA insurer earmarked millions for former JEA CEO and CFO defense

Records from a JEA insurance firm indicate it has advanced nearly $3 million to defense lawyers representing former CEO Aaron Zahn and CFO Ryan Wannemacher as they fight federal fraud and conspiracy charges, an arrangement the utility objected to years ago and that, unbeknownst to some officials, appears to still be in effect.

A financial ledger the Times-Union obtained in a public-records request describes more than 100 separate payments of varying amounts from the insurance carrier, AEGIS, to seven different law firms, including four that have taken the lead on the defense efforts for Zahn and Wannemacher in federal court. The payments span January 2020 to as recently as last month and range as high as $110,000 for a single month.

It's not clear if AEGIS has already advanced those payments or is preparing to do so.

Some of the earlier payments appear to be connected to the attorney fees for Zahn's civil arbitration fight challenging the JEA board's decision to fire him for cause in early 2020. But the ledger lists hundreds of thousands in more recent payouts to the criminal defense firms that have represented Zahn and Wannemacher since they were indicted in March on wire fraud and conspiracy charges in connection with a failed effort to privatize JEA in 2019.

One $15,000 payment this past May went to Malekpour & Ball, a jury consulting firm that touts its "reptilian brain" methodology of analyzing juror behavior.

JEA has had insurance policy covering executives, others accused while acting in official capacity

For years, JEA has maintained a special insurance policy with AEGIS that provides coverage for agency executives and board members accused of "wrongful acts" while acting in their official capacity, like accusations of neglect or breach of fiduciary duties.

That policy, however, does not cover "fraudulent, dishonest, criminal or malicious act or omission or any knowing and intentional violation of any statute or regulation," according to a document provided to the JEA board when the policy was renewed through September 2021.

In 2020, Zahn requested coverage for "various investigations and proceedings," according to a letter AEGIS sent to JEA attorneys in November of that year.

JEA officials objected to that request, but AEGIS disagreed with JEA's position and indicated it would provide coverage for Zahn — an arrangement the financial ledger, prepared by an AEGIS claims manager, shows continued even after federal prosecutors unsealed indictments against Zahn and Wannemacher in March accusing them of trying to secretly pocket millions of dollars while they worked to sell the utility to a private buyer.

Both men pleaded not guilty to the charges.

AEGIS based its analysis on Zahn's former employment agreement, which obligated JEA to cover "indemnify, defend and hold" him "harmless from any and all claims, to the fullest extent permitted by ... applicable law." It also said that since Zahn's "alleged wrongdoing has not to date been established by any court or tribunal," JEA was required to cover Zahn's costs up to $250,000, with AEGIS picking up the tab for any amount above that.

It's not clear if JEA paid the initial $250,000 deductible or if AEGIS did and plans to recoup that amount from JEA later.

In its November 2020 letter, AEGIS said it recognized JEA wanted to avoid acknowledging any obligation to cover Zahn's legal fees and offered to treat JEA's payment of the $250,000 as a "confidential compromise which would not be disclosed to Mr. Zahn." It's not clear how JEA reacted to that offer.

The insurance company also said that if Zahn is eventually found to have committed "egregious wrongdoing," JEA could reclaim any amount it paid out from the $250,000 deductible. It's unclear if AEGIS would try to claw back any payments it has advanced.

The company isn't just advancing payments to Zahn's attorneys. It has also paid tens of thousands of dollars to the firms that have led Wannemacher's defense: Kynes, Markman & Felman and Murphy & Anderson.

Zahn's primary defense firms are Suarez Law Firm and Phelps Dunbar, which has also handled his arbitration fight. Both have received payouts from AEGIS.

The ledger — titled, "JEA_History_of_Invoices_and_Payments" — lists two payment columns: "original amount" and "amount recognized." The original charges total more than $3 million; the "amount recognized" comes to about $2.9 million.

It's not clear if the amounts AEGIS indicates it has advanced are covering the full slate of attorneys fees in connection with Zahn and Wannemacher's legal troubles or just a portion.

The money going to Zahn and Wannemacher's attorneys is not coming from JEA ratepayers. But the utility has paid a premium of about $134,000 each year for the insurance that is set to increase by $106,000 for the coming year because of "claims made for attorney fees associated with investigations and activities subsequent to the failed privatization of JEA," according to a report by the Jacksonville City Council Auditor.

Attorneys for Zahn and Wannemacher and representatives with AEGIS did not immediately respond to requests for comment. JEA said it was working to answer Times-Union questions on the records.

A separate spreadsheet JEA provided in response to the newspaper's request for records shows $317,000 in payments made at various times in 2020 and 2021 to another law firm, Bradley Arant Boult Cummings.

Those payments were connected to legal fees charged to former JEA board members who were asked to cooperate with investigations by the City Council and the federal government and were themselves not accused of wrongdoing. JEA was aware of and did not object to those payments, though it wasn't immediately clear if JEA or AEGIS paid out the claims.

Nate Monroe is a metro columnist whose work regularly appears every Thursday and Sunday. Follow him on Twitter @NateMonroeTU.

Nate Monroe

Columnist

Jacksonville Florida Times-Union

USA TODAY NETWORK

The money going to Zahn and Wannemacher's attorneys is not coming from JEA ratepayers. But the utility has paid a premium of about $134,000 each year for the insurance that is set to increase by $106,000 for the coming year.