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Washington Nationals sue insurer over ballplayer age fraud

Monday - 8/12/2013, 1:22pm  ET

Washington Nationals fans might be forgiven if they'd rather just forget everything that happened before 2010. But the team hasn't, and is suing a Philadelphia insurance company to collect $1 million under an employee fraud and theft policy from that era.

The suit stems from the Esmailyn Gonzalez scandal, in which the Nationals learned they gave a $1.4 million signing bonus to a man who had falsified his age and identity.

In 2006, the Nationals signed Gonzalez, who they believed to be 16 years old. Nearly three years later, a Sports Illustrated magazine investigation discovered that Gonzalez was, in reality, 20-year-old Carlos Alvarez Lugo when they signed him. Those four years greatly diminished his appeal as a prospect.

After investigating, the Nationals fired two employees they believed helped execute the fraud: Jose Rijo, a special assistant to then-General Manager Jim Bowden, and Jose Baez, the Dominican Republic operations director.

"Had they known Lugo's true age and identity at the time, more likely than not, the Nationals would have paid Lugo no bonus at all," the suit reads. "The $1.4 million signing bonus thus represented a complete loss resulting from the employee dishonesty, theft and fraud of Rijo, Baez and Lugo."

The team also moved to recoup part of the signing bonus from Philadelphia-based Westchester Fire Insurance Co., which issued the Nationals a $1 million policy protecting the team against employee fraud.

According to the lawsuit pending in U.S. District Court in D.C., Westchester dragged its feet in investigating the claim, and ultimately denied the claim after two years, the team's lawyers said. The team is suing for breach of contract and breach of good faith duty.

Westchester has not formally answered the complaint. The insurers' attorney, Brianna Forbes Silverstein at Drinker Biddle & Reath LLP, did not immediately return a call seeking comment.

Efforts to reach the Nationals or the team's attorneys, Dane Butswinkas and Liam Montgomery at Williams & Connolly LLP, were not immediately successful.

The Nationals originally filed suit in D.C. Superior Court in May, but last week Westchester Fire, a subsidiary of ACE Group Holdings Inc., had the case moved to federal court.

A separate insurance policy with Chartis Inc. for losses above $1 million has already paid out, the Nationals say.

© 2013 American City Business Journals, Inc.