Before Eliot Spitzer stepped down as New York's attorney generalto become the state's new governor, his office filed suit late lastmonth against insurance brokerage firm Acordia Inc. and its parentcompany, Wells Fargo Bank, for allegedly steering customers toinsurance companies that paid kickbacks for the business in theform of contingency fees.

According to the lawsuit, the practice of steering businessrepresented a significant conflict of interest, placing Acordia'sown financial interests ahead of the well-being of its clients.

The suit was one of several developments in the past few weeksrevolving around alleged abuse of contingency fee deals and othercontroversial market conduct issues.

In one instance, Chubb Corp. settled with attorneys general fromthe same three states involved in the Acordia suit–New York,Connecticut and Illinois–although the cases are unrelated. Thesettlement included an agreement to stop paying contingency fees asof Jan. 1, 2007.

Earlier last month, Florida officials announced that Brown &Brown Inc. had agreed to reimburse public-entity clients forcollecting undisclosed contingency fees.

As for the Acordia case, the lawsuit contends the Chicago-basedbroker conspired with several insurers–known as Acordia's“Millennium Partners”–to steer customers to them in exchange forsecret payments.

This alleged scheme was conducted despite the fact that on itsWeb site, Acordia describes itself as doing “what is ethical andwhat is right for the customer,” adding that it makes “insuranceplacements in the best interest of our customers,” noted astatement issued by the New York Attorney General's Office.Acordia's top management, including its then-CEO Robert Nevins, isalleged to have actively participated in the Millennium Partnersscheme.

When insurance companies refused to make the improper payments,according to the lawsuit, Acordia's management punished theuncooperative carriers by steering customers away from them andtoward insurers that did pay kickbacks.

Wells Fargo, based in San Francisco, participated directly inAcordia's fraud, the AG's statement continued.

In one scheme, Wells Fargo allegedly agreed to “funnel” its ownretail banking clients to Acordia for advice about insurancecoverage. Wells Fargo did so with the understanding that Acordia,in turn, would steer this additional business to The Hartford, aninsurance company that paid Acordia for such steering.

The lawsuit, filed last month in State Supreme Court inManhattan, a county-level jurisdiction, seeks restitution for thecompanies' customers, disgorgement of illegal profits andpenalties. The attorneys general of Connecticut and Illinois filedparallel lawsuits at the same time.

In a statement posted on the Wells Fargo Web site, DaveZuercher, president of Acordia, said the firm plans to vigorouslydefend itself against the allegations brought by the attorneysgeneral. He said the company discloses its compensation inaccordance with guidelines set out by the National Association ofInsurance Commissioners.

“Contingent compensation agreements have been a long-standingand well-known practice in the insurance industry, and thesecommissions continue to be paid by insurers to hundreds ofinsurance agents and brokers throughout the country, including NewYork,” said Mr. Zuercher in a statement. “These agreements havebeen held by courts to be legal and enforceable.”