The Chubb Corp. has reached a $240,000 settlement withMassachusetts Attorney General Martha Coakley over allegations ofillegal kickbacks between the insurer and broker.

In a statement, Ms. Coakley's office said it reached anagreement over improper compensation practices between Warren,N.J.-based Chubb and Boston-based William Gallagher AssociatesInsurance Brokers.

The Attorney General's Office accused Chubb of offering improperincentives to William Gallagher Associates (WGA) in return for thebroker steering business directly to Chubb.

Under the agreement, Chubb will pay WGA customers $182,815 and$56,196 to the state.

"We are pleased that Chubb cooperated during our investigationof WGA and that it has agreed to pay restitution to customersaffected by WGA's alleged abuse of these incentives," said Ms.Coakley.

The Attorney General's Office said it filed a lawsuit againstWGA in December 2007, in Suffolk Superior Court, alleging that WGAdefrauded its customers by charging undisclosed fees and deceivingcustomers concerning its compensation practices.

According to the complaint, Chubb loaned WGA in excess of $3million but offered to forgive this loan and any accrued interestif WGA directed enough profitable business to Chubb. Chubb alsoinvited WGA to invest in a Chubb-sponsored reinsurance companythrough which WGA insured a portion of numerous insurance policiesbelonging to WGA's clients.

The Attorney General's Office said WGA's participation inChubb's reinsurance program turned WGA into a reinsurer with afinancial interest in keeping its customers' with Chubb.

Chubb was also accused of providing WGA with a trust fund thatWGA could utilize to lower Chubb's quoted premiums. Chubb allegedlymaintained the trust fund so that WGA could draw against it tooffer Chubb's insurance policies at lower prices in situations inwhich Chubb's premium quotes were higher than the quotes issued byother insurers. The Attorney General's Office said it believes WGAutilized this trust fund to distort the competitive biddingprocesses.

WGA returned more than $3 million to its customers and paid thestate $925,000 in its settlement in 2007. An audit in 2008 resultedin WGA paying an additional $330,624 in restitution to customersand $80,000 to the state, the attorney general said.

Under the agreement Chubb agreed not to make any more loans tobrokers in the state unless they are disclosed to customers, limitparticipation in reinsurance companies, and to stop providing trustfunds to agents and brokers in Massachusetts.

In an e-mail, a Chubb spokesman pointed to one section of thesettlement stipulating that the agreement is not an admission ofguilt and that Chubb believes its actions were legal and proper.The settlement also says that Chubb made the agreement solely toend the investigation, and it is not to be used for any otherpurpose.