A three-year effort by a nonprofit municipal utility cooperative to force its liability insurance company to pay “staggering” legal defense costs topping $5.3 million in ongoing criminal cases is heating up, despite one partial payment received recently.

National Union Fire Insurance Company of Pittsburgh had denied coverage to the Connecticut Municipal Electric Energy Cooperative for the defense of five former officials indicted in November 2018 on conspiracy and theft charges during times when CMEEC bylaws called for indemnification in allegations of legal wrongdoing.

The five former CMEEC officials were indicted on charges of conspiracy and theft from a program receiving federal funds for their leadership roles in planning lavish trips to the Kentucky Derby and a West Virginia golf resort. Two of them face a second theft indictment.

On Oct. 29, U.S. District Judge Janet Bond Arterton ruled that the insurance company had breached its contract with CMEEC by failing to advance defense costs.

The dispute is ongoing but in late December the National Union insurance company paid CMEEC $1,607,128, which the insurance company claimed was reasonable and necessary costs dating from the indictments through Dec. 31, 2020.

CMEEC General Counsel Robin Kipnis said Thursday that the cooperative "strongly disagrees with the insurance company's position." In a Jan. 21, 2021, Day story, CMEEC put the cost total at that time at more than $3.4 million.

CMEEC attorneys now seek an emergency ruling by the court to force the insurance company to pay ongoing legal costs, including advancement of legal costs to come in the criminal proceedings.

Following a monthlong criminal trial in November and early December, a jury on Dec. 10 acquitted all five defendants of the conspiracy charges. However, former CMEEC CEO Drew Rankin, former Norwich Public Utilities General Manager John Bilda and former CMEEC board of directors and Norwich utilities board Chairman James Sullivan were found guilty on one theft count for the 2015 Kentucky Derby trip and a trip that year to The Greenbrier golf resort in West Virginia. Attorneys for Rankin, Sullivan and Bilda plan to file motions to overturn the verdict or seek a new trial.

Former CMEEC CFO Edward Pryor and former CMEEC board and Groton Utilities commissioner Edward DeMuzzio were acquitted on all charges.

Rankin and Sullivan face a second criminal indictment on theft charges for alleged CMEEC reimbursement to Sullivan for nearly $100,000 in personal expenses. That trial has not yet been scheduled.

Since the 2018 indictments, the insurance company had denied the cooperative’s repeated requests for payment for the legal defense costs. CMEEC filed a federal civil suit against the insurance company for the following demands:

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[naviga:li] legal defense coverage[/naviga:li]

[naviga:li]CMEEC’s costs, now totaling $736,731, to respond to subpoenas from federal prosecutors and defense attorneys [/naviga:li]

[naviga:li] costs in a separate federal civil suit filed by Pryor against CMEEC after the indictment to seek legal costs under CMEEC's bylaws that indemnified cooperative officials in allegations of wrongdoing.[/naviga:li]

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Pryor’s civil case was put on hold after CMEEC agreed to advance legal costs, with a stipulation that it could challenge the agreement in the future.

In September, Judge Arterton reversed an earlier court ruling in the insurance company’s favor that had said CMEEC needed to prove through a civil trial that the insurance company was required to pay the legal costs. On Oct. 29, Arterton ruled that National Union had breached its contract with CMEEC and must pay “future legal fees.”

That did not end the dispute. Two weeks into the criminal trial, with no payment made, CMEEC attorney Michael T. McCormack filed an emergency motion Nov. 12 seeking a judge’s order for payment.

"Costs associated with the ongoing defense of the federal indictments are staggering and increasing daily,” McCormack argued. He wrote that CMEEC should not be required “to shoulder the continued financial burden for the Defense Costs of the indictments, which it has been forced to do since November 2018.”

National Union attorney Dennis O. Brown countered in a 17-page response Dec. 3 that CMEEC had not proven the claim for payment should be separated from other issues to be decided in the civil case. He wrote that the cooperative had not shown it faced “danger of hardship or injustice, and that an order for payment amounted to a piecemeal” decision that would risk the potential for multiple appeals on different matters.

The company also argued that CMEEC was asking for payment before the trials were concluded, citing “criminal exclusion” of coverage if parties ultimately were found guilty. CMEEC attorney Michelle M. Seery countered in a response, calling it a “nonsensical proposition” that CMEEC must wait for insurance coverage, and only if defendants are acquitted.

No ruling has been filed on CMEEC’s request for an emergency claim, but on Dec. 27 National Union told the court it had sent a check that week to CMEEC for legal costs through December 2020, “notwithstanding the lack of any final judgment” in the dispute.

CMEEC responded two days later, calling it an “arbitrary” partial payment, repeating a call for advanced payments for the ongoing legal costs. CMEEC argued that the back-due payments, plus interest, would be part of a damages claim “to be calculated at trial.”

“In fact, National Union appears to be of the continued belief that it need not advance defense costs in the absence of a judgment,” CMEEC attorney McCormack wrote.

A settlement conference is scheduled for Jan. 27 before a new judge assigned to the case, S. Dave Vatti. A joint statement by the two parties dated Jan. 10 said if matters are not resolved, CMEEC anticipates filing a motion for an expedited civil trial date “to obtain final adjudication of the amount of damages it has suffered to date.”

c.bessette@theday.com