Broker Says N.Y. Regulator Sought Fee Data In March

Analysts during conference calls with AJG and Hub International Ltd. asked about the inquiry being conducted by New York State Attorney General Eliot Spitzer. Four brokers have acknowledged being subpoenaed by his office.

In addition to the New York attorney general, the California Insurance Department has announced it is examining the fees, which critics say create a conflict of interest to the detriment of brokers' customers.

Patrick Gallagher Jr., president and chief executive officer, in answer to several questions about the New York State Attorney General's Office investigation, said his firm had not been subpoenaed.

However, he said that in March the New York State Department of Insurance asked the firm about contingency fees, and information was supplied to the department.

Later, when asked for more information, the company declined to expand on his statement.

The New York Insurance Department has maintained total silence on the issue of brokers' fees. After the issue was raised in February in a letter to the department from the Washington Legal Foundation, a department representative said there could be no comment. Questions this week and last week have again have drawn no response. Mr. Spitzer's office has declined to comment on its subpoenas. The New York insurance department generally does not comment regarding ongoing inquiries.

The Washington Legal Foundation, a non-profit law and policy center in Washington, D.C., characterizes itself as a free enterprise advocate. In February it wrote Mr. Spitzer, New York Insurance Superintendent Gregory V. Serio and California Insurance Commissioner John Garamendi calling for an investigation of the fees, which it said "infringe on businesses' right to compete in a free marketplace."

Martin P. Hughes, chairman and chief executive officer of Hub, in discussing a subpoena from the New York attorney general's office for information regarding contingency fees paid by insurers to Hub's subsidiary, Kaye Group, said the firm has never hidden contingency fees and "never been shy about disclosing it."

He said the firm is extending its "full cooperation to the attorney general's office."

Kaye, Aon, Willis and Marsh are the four brokers that have announced they have been subpoenaed in the inquiry.

In response to a question about the nature of the investigation, Bruce D. Guthart, Hub's chief operating officer, said the attorney general's office has asked for a long list of information and the nature of that list, "we presume," is no different from what has been asked of other brokers.

"The good news is that we have all the information the attorney general has requested and we are putting it all together," said Mr. Hughes.

Contingency fees were the subject of criticism in the late 1990s. The payment arrangements with insurance companies are in addition to commissions that brokers receive. The fees are based upon the amount of business or the quality of business that a broker places with an individual company.

In 1998, the activity was the subject of a letter from the New York Insurance Department warning brokers that undisclosed contingency fees might be illegal. After pressure from commercial buyers via the Risk and Insurance Management Society, Chicago-based Aon, New York-based Marsh and London-based Willis all agreed disclose fees. A California public interest lawsuit in 2000 that was filed against the three brokers over the fees was quietly settled out of court.