Spitzer Broker Probe Bags 2 Execs And Marsh

Mr. Spitzer, in disclosing the first results of an investigation that has been underway for more than six months, verbally slammed the insurance industry for unethical practices and betrayal of a fiduciary trust toward its clients that he said is pervasive.

Marsh said in a statement that it had cooperated with the attorney general's investigation since it began but had only now been "made aware of the charges." The company said it has a committment to ethical standards and would make it a priority to get the facts and deal "appropriately with any wrongdoing."

American International Group, which was identified in the lawsuit said they had asked the New York State insurance department for advice on the fees, which Mr. Spitzer's office refers to as payoffs. The firm said it was "saddened" by the guilty pleas by employees of the subsidiary American Home Assurance Company's excess casualty unit. The company said it was cooperating with the attorney general and its Chairman Maurice Greenberg will say more tomorrow during a conference call.

Neither Marsh nor any of the insurers mentioned had any immediate comment.

The suit filed in Manhattan's State Supreme Court, a county level tribunal, accuses the broker of channeling customers to insurers with whom it had lucrative payoff agreements and rigging the solicitation of bids for insurance contracts.

Until the investigations began by both the state's Department of Insurance and the attorney general's office six months ago, Mr. Spitzer said no executives came forward to detail the manipulative practices on the part of the industry.

"To demonstrate how thoroughly corrupt this industry has become, before we began our investigation, no executive ever came forward about these practices," he said. "In the wake of Enron, and other scandals, where have these executives been? Where is their ethical compass here?"

"They have corrupted the marketplace," he continued, asking why an industry that blames other factors for increasing premiums has not been able to look at its "own malfeasance" as a source for increasing premium rates.

The suit, which identifies major insurers AIG, Chubb, Hartford, and others, alleges the bidding process was manipulated so Marsh brokers would steer business to certain companies to increase contingency commission fees.

The schemes include no shopping agreements, where a carrier would guarantee a premium price and fee if the broker would not bid the contract. In return, Marsh is alleged to have worked with other companies to supply higher bids to retain the appearance that the business was shopped.

At the press conference, New York State Insurance Superintendent Gregory V. Serio said what was most disturbing was that sophisticated buyers of insurance were duped into believing the brokers were looking out for their best interest at Marsh.

"This is a dishonest and unethical practice, and one that New York state will not tolerate," he said.

After a review of the proceedings, and after routine referral by the state attorney general's office, Mr. Serio said that there will be a review of Marsh's license.

Speaking to the Marsh & McLennan board of directors, Mr. Spitzer said he finds the business practices at the corporation, including its subsidiaries, the financial investing firm Putnam, and the consulting firm Mercer, "troubling," and he would not "talk to or negotiate with" that leadership.

He added that the investigation continues of other brokers and companies and that more actions would be coming.