Spitzer sues broker Marsh, alleges corruption in insurance industry.
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" 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 Group Inc. and Munich American Risk Partners, an affiliate of American Re-Insurance Co. and ultimately of Munich Reinsurance Co. In a statement, Spitzer said those insurers are named in the complaint "as participants in steering and bid rigging. Other insurance companies are still under investigation."
Although not named as defendants in the case AIG, 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 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 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 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 "broadening the scope of that inquiry" and, more recently, two more subpoenas that included interrogatories 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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|Title Annotation:||Briefing; Eliot Spitzer; Marsh & McLennan Cos.|
|Date:||Nov 1, 2004|
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