Calif. Suit Seeks To Halt Small Broker ?Kickbacks'

By Daniel Hays

NU Online News Service, Oct. 28, 12:20 p.m. EDT?Attorneys pressing a California suit to end "kickback schemes," involving secret fee arrangements between four big insurers and small brokers and agents, asked a judge today for a ruling to end all such contingency fees.[@@]

Citing disclosures and convictions in New York State's Marsh Inc. brokerage inquiry, the lawyers filed for a summary judgment to halt the incentive payments as part of an ongoing lawsuit against American International Group, Hartford, Chubb and Allianz.

Insurers in the case had no comment.

Even if the California motion fails, the fallout from the inquiry by New York Attorney General Eliot Spitzer could result in the unsealing of confidential California case documents concerning the insurers' arrangements with brokers, said Finley Harckham, an attorney on the case.

The suit, which has been bumping through California Superior Court in San Francisco since 2001, has been brought under a California law that allows public interest lawsuits on behalf of small businesses and individuals who purchase insurance.

It alleges that insurers pay insurance brokers an annual sum based on business volume generated and sometimes for "the profitability of that business for the insurance company."

The suit complains that the arrangements it refers to as "kickbacks" provide the broker with "a powerful economic incentive to steer business to the insurance company instead of finding its client the best insurance at the best price and pressing for payment of claims."

Today's motion notes that Mr. Spitzer is suing Marsh for "the very same type of so-called ?contingent commission' kickback scheme at issue in this case" and mentions that it includes AIG, Hartford and Chubb.

Guilty pleas by two AIG employees to felony fraud charges related to bid-rigging with Marsh Inc. "are conclusive proof that the conflict of interest for brokers created by the contingent commission schemes can have a powerfully corrupting influence upon the insurance marketplace, to the detriment of consumers," the motion states.

During the evidence gathering pre-trial discovery phase of the California case, insurers have secured a protective order designating their documents "confidential," insisting that their schemes be kept from public scrutiny, according to the motion papers.

Mr. Harckham noted that in the wake of the New York suit, Hartford had stated they were in favor of transparency of all broker dealings. Given that, "we're going to ask the court to unseal documents we've received in discovery, which go to this issue."

Mr. Harckham, with the New York office of Anderson Kill & Olick, which specializes in policyholder representation, has filed suit with Scott C. Turner a San Francisco attorney. The case is before Judge Richard Kramer.

California Insurance Commissioner John Garamendi, who is investigating broker-insurer arrangements, has obtained a copy of papers in the case, Mr. Harckham said. His motion papers noted a recent statement by Mr. Garamendi that when "consumers place their trust in the hands of agents and brokers to find them the best policy at the best price, they should know if a backroom deal has already been struck."

Special Reports /

Calif. Suit Seeks To Halt Small Broker ?Kickbacks'

Related Stories

Recommended For You