Spitzer sues broker Marsh, alleges corruption in insurance industry.Citing what he called "widespread corruption in the insurance industry," New York State Attorney General The New York State Attorney General is the chief legal officer of the State of New York. The office has been in existence in some form since 1626, under the Dutch colonial government of New York. Eliot Spitzer Eliot Laurence Spitzer (born June 10 1959 ) is an American lawyer, politician and the current Governor of New York. Spitzer was elected governor in the November 2006 election. shook some of the industry's biggest names with a lawsuit filed against Marsh & McLennan Cos., the world's largest insurance broker. In the lawsuit, filed in State Superior Court in Manhattan, Spitzer alleges that Marsh "steered unsuspecting clients to insurers with whom it had lucrative payoff agreements, and that the firm solicited rigged bids for insurance contracts." The complaint alleges that "for years" Marsh collected special payments from insurers "that were above and beyond normal sales commissions." Spitzer alleged that such "contingent commissions Contingent commissions is a term used in the American insurance industry for any kind of broker's commission which is contingent upon some event occurring (instead of a commission paid on the sale itself). In the UK this form of payment is known as Overriders. " were characterized as compensation for market services--but were actually "rewards for the business that Marsh and its independent brokers steered and allocated to the insurance companies." Marsh collected $845 million in contingent commissions in 2003, Marsh disclosed Oct. 19. This represents 7% of MMC's $11.6 billion total revenue. The brokerage said it has been cooperating with Spitzer's investigation into contingent commissions since it began last spring and wasn't aware of the pending charges until the day they were announced. Spitzer's lawsuit also names some of the industry's biggest insurers--American International Group Inc., Ace Ltd., Hartford Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. Group Inc. and Munich American Risk Partners, an affiliate of American Re-Insurance Co. and ultimately of Munich Reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. Co. In a statement, Spitzer said those insurers are named in the complaint "as participants in steering and bid rigging Bid-rigging is an illegal agreement between two or more competitors. It is a form of collusion, which is illegal in the United States. It is a form of price fixing and market allocation, and involves an agreement in which one party of a group of bidders will be designated to win . Other insurance companies are still under investigation." Although not named as defendants in the case AIG AIG addressee indicator group (US DoD) AIG American International Group, Inc AiG Answers in Genesis (religious group in defense of Scripture) AIG Artificial Intelligence Group AIG Australian Industry Group , Hartford, Munich American Risk Partners and Ace announced they are cooperating with the Attorney General's Office. Spitzer has obtained guilty pleas from two AIG executives, each for one count of scheming to defraud, according to Brad Maione, a spokesman for Spitzer's office. The executives--Karen Radke, senior vice president of excess casualty, and Jean-Baptist Pateossian, a manager in AIG's national accounts unit--are due in court Dec. 16 for a sentencing hearing, said Malone. In addition, on Oct. 15, Patricia Abrams, an assistant vice president in Ace's excess casualty division, pleaded guilty to charges stemming from the Spitzer investigation. She admitted to a misdemeanor count of attempted restraint of trade restraint of trade Preventing of free competition in business by some action or condition such as price-fixing or the creation of a monopoly. The U.S. has a long-standing policy of maintaining competition among business enterprises through antitrust laws, the best-known of and restraint of competition, according to Maione. The Case So Far * * In addition to Marsh, Spitzer has issued subpoenas to more than a dozen insurers and brokers, including Aon Corp. and Willis Group Holdings Ltd.--the second and third-largest insurance brokers respectively--over the practice of contingent commissions. * Marsh & McLennan Cos. has replaced the chief of its Marsh Inc. brokerage unit and suspended its practice of market service agreements with insurance carriers, the U.S. broker said. The broker said Michael G. Cherkasky, formerly CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Marsh Kroll, MMC's risk-consulting subsidiary, would succeed Ray J. Groves as Marsh's chairman and CEO, a post Groves had held since 2003. * In California, Insurance Commissioner John Garamendi said his office is preparing to introduce a spate of both regulations and lawsuits targeting compensation issues in the insurance industry. * Ace Ltd., the Bermuda-based writer of excess, casualty and reinsurance, said it would immediately discontinue "placement service agreements" with insurance brokers in the wake of Spitzer's probe. * MetLife Inc., responding to widespread speculation that Spitzer's investigation of compensation practices in the insurance industry would turn to group life and health plans, said it is not aware of any benefits provider offering "fictitious" quotes of the sort alleged in Spitzer's suit against commercial broker Marsh & McLennan. The largest U.S. life insurer--with $285.1 billion of admitted assets for 2003, according to A.M. Best Co.--MetLife has received four subpoenas from Spitzer's office seeking information about the company's compensation agreements with insurance brokers, consultants, and other intermediaries. The company was--along with Cigna Corp.,Aetna Inc., and leading long-term care long-term care (LTC), n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. writer UnumProvident Corp--among the life and health insurers queried by Spitzer's office in June in a round of subpoenas that followed the prosecutor's original inquiry of major brokers and commercial insurers. Since then, the company received a second subpoena subpoena (səpē`nə) [Lat.,=under penalty], in law, an order to a witness to appear before a court. A subpoena ad testificandum [Lat. "broadening the scope of that inquiry" and, more recently, two more subpoenas that included interrogatories Written questions submitted to a party from his or her adversary to ascertain answers that are prepared in writing and signed under oath and that have relevance to the issues in a lawsuit. asking whether the company had provided or was aware of the provision of "fictitious" or "inflated" bids, MetLife said. * As of Oct. 19, 2004 |
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