An insurance company has refused to pay the legal fees of the five former utility cooperative officials indicted on federal corruption charges.

The Connecticut Municipal Electric Energy Cooperative has paid about $500,000 collectively to attorneys for five defendants’ legal costs since the start of 2019, CMEEC interim CEO Michael Lane said Thursday.

In February, CMEEC agreed to advance the legal fees in response to a federal civil suit filed by indicted former CMEEC Chief Financial Officer Edward Pryor over legal cost coverage in the criminal cases. In Pryor’s civil suit, CMEEC reserved the right to challenge legal coverage in the future.

Pryor, former CMEEC CEO Drew Rankin, former board members James Sullivan of Norwich and Edward DeMuzzio of Groton, and former Norwich Public Utilities General Manager John Bilda were charged in one indictment with one count each of conspiracy and three counts each of theft from a program receiving federal funds. The charges stem from their roles in CMEEC’s hosting of controversial lavish trips to the Kentucky Derby for top staff, board members, family members and invited guests for four years and two trips in 2015 to The Greenbrier luxury golf resort in West Virginia, chartered flights, associated gifts and souvenirs.

Rankin and Sullivan face the same charges in a second indictment alleging CMEEC reimbursed Sullivan for nearly $100,000 in personal expenses.

Pryor argued in his suit that CMEEC had paid for his attorneys during the lengthy FBI investigation into the alleged corruption, but abruptly stopped paying once the indictments were handed down on Nov. 8.

In a suit against National Union Fire Insurance Co. of Pittsburgh, filed May 31, CMEEC argued that the insurance company in April 2017 denied a request for indemnification of the officials under investigation. The insurance company allegedly told CMEEC the FBI subpoenas “did not constitute a claim because they were merely requests for testimony.”

CMEEC countered that the insurance company breached its obligation to cover legal costs for alleged actions that occurred during the agency's policy coverage period.

CMEEC’s suit said National Union Fire Insurance Co. also denied a claim for legal coverage for the criminal proceedings after the indictments “without a factual or legal basis to do so notwithstanding the language of the Policy it drafted.” The suit also said the insurance company refused to cover CMEEC’s legal costs in answering to Pryor’s civil suit seeking insurance coverage.

“The defendant is obligated under the Policy to pay on behalf of each individual named in the indictments loss arising from the indictments, including but not limited to legal fees and costs in connection with the defense of the criminal proceedings,” CMEEC’s suit stated.

National Union Fire Insurance Co. has not yet filed a response to CMEEC’s suit, and no attorney is listed for the firm on the docket. A call to the company’s New York corporate office for public relations was not returned to The Day on Friday.

An exact total of CMEEC’s legal costs to date was not available this past week. Interim CEO Lane said legal bills associated with the criminal charges submitted by the five indicted former officials totaled about $500,000 since January 2019. The Day has requested under the state Freedom of Information Act a breakdown of legal costs submitted to CMEEC by each of the five defendants, but the information was not available this past week.

CMEEC received the initial FBI subpoenas on Oct. 26, 2016, after public outcry over the Kentucky Derby trips. In April 2017, The Day obtained detailed legal bills from CMEEC, Norwich Public Utilities and Groton Utilities associated with the utilities’ response to the subpoenas.

Records provided to The Day dated from Oct. 26, 2016, through March 31, 2017, showed CMEEC incurred legal bills totaling more than $362,000 in response to the subpoenas and the FBI’s request for numerous documents and information pertaining to the Kentucky Derby and Greenbrier trips and other expenses.

In addition, Norwich Public Utilities paid almost $50,000 in legal bills for its response to the FBI subpoenas, and Groton Utilities paid $6,000 by that time. Adding legal costs for the Groton City Ethics Commission investigation into actions of DeMuzzio and other Groton officials who attended the trips brought Groton City’s legal total to $30,000 through March 2017.

As the dispute over legal costs ensues, the criminal case is moving forward with motions and countermotions. All five defendants filed motions to dismiss all charges, and U.S. attorney John H. Durham and Assistant U.S. Attorneys Sarah P. Karwan and Douglas P. Morabito filed a strongly worded, 61-page objection to those motions on June 16, saying the defendants’ arguments were “improper” and premature in that they should be arguments made at a trial. Jury selection is scheduled for February 2020 in the cases.

In their motions to dismiss the charges, the former CMEEC officials contended the Kentucky Derby and Greenbrier trips were strategic retreats allowed by the state law that created CMEEC and authorized the cooperative to act as a private corporation. They also argued that the expenses for the trip did not include use of any federal money, nor did the funds come from member utilities’ funds.

“A common theme in the defendants’ motions to dismiss is that these trips were legitimate ‘corporate retreats’ for the senior leadership of an agency that essentially could act like a private corporation,” the U.S attorneys wrote in their objection. “The Indictment, however, tells a different story: that the defendants raided a public agency and public money, treating those funds as their own personal piggybanks to reward and enrich themselves, their families, and their friends.”

c.bessette@theday.com