Spitzer Sues Marsh For Payoffs; Convicts 2 AIG Execs

Companies that were named as participating in the scheme included American International Group in New York, ACE Ltd. in Bermuda, The Hartford Financial Services Group in Hartford, Conn., and Munich American Risk Partners.

Mr. Spitzer indicated there will be many more such cases to come because the alleged illegal practice involved "permeates the entire insurance industry and affects all lines of business including the life insurance industry and employee benefits and everything brokers deal with."

Gregory V. Serio, the New York insurance superintendent, at the press conference announcing the action, said his department had begun investigating the brokers about the same time as Mr. Spitzer and for the past six months his agency and the attorney general's office had been investigating together.

Mr. Serio said there will be a review of the Marsh license, and that the outcome of the case may well result in changes for the rules governing commercial insurance.

According to a statement Mr. Spitzer released with the suit, "If the practices identified in our suit are as widespread as they appear to be, then the industry's fundamental business model needs major corrective action and reform."

According to the complaint against Marsh, the broker took payoffs, which were called placement service agreements and market service agreements, to steer business to insurers and shield them from competition.

The papers stated that Marsh sometimes obtained fictitious high quotes from insurers to deceive clients into believing true competition had taken place. Not only did Marsh promise to protect insurers in on the scheme, but Marsh also "threatened to hurt the business of those who thought of truly competing for particular pieces of business," the complaint said.

Mr. Spitzer's suit said the disclosure Marsh makes of its contingent agreements to clients is both false and misleading and the "services" it refers to are illusory, and what the firm actually does is to "steer business to the insurance carriers."

The complaint also noted that Marsh has never revealed to investors the nature of the contingent commissions or the role they play in Marsh's earnings.

Marsh, from a centralized group in Manhattan, created lists of insurers whose products its employees were to sell more vigorously to clients based "not on price or service, but on the amount of money the insurance companies would pay Marsh," the lawsuit charged.

As an example of the deals involved, the complaints stated that the 2003 contingent commission agreement with AIG Risk Management Inc. called for AIG to provide Marsh with a bonus of 1 percent of all renewal premiums if its clients renewed with AIG at a rate of 85 percent or higher. If the renewal rate was 90 percent or higher, Marsh would receive 2 percent, and 3 percent if 95 percent renewed.

Although AIG would not comment when the suit was announced, on Tuesday, two days before Mr. Spitzer announced the lawsuit, AIG Chief Executive Officer Maurice Greenberg discussed the Spitzer investigation in scornful terms at a New York broker conference, according to the Insurance Brokers Association of New York.

"We need to continue operating in an environment of financial creativity or more and more businesses will go overseas. There is a clear need to differentiate between a parking violation and a murder charge. This is where our industry can enlighten political figures who seek to advance to higher offices," Mr. Greenberg said.

The last reference was an apparent notice of the fact that Mr. Spitzer is much talked of as a possible Democratic candidate for governor of New York.

Mr. Spitzer said that in addition to the Marsh brokerage he is investigating the Marsh & McLennan Putnam investment firm subsidiary as well as their Mercer Consulting group for "troubling practices."

Mr. Spitzer said he would advise the board of Marsh & McLennan that he will not "speak to or negotiate with the leadership of Marsh & McLennan." Marsh & McLennan's chief executive is Jeffrey W. Greenberg, the son of AIG's Maurice Greenberg.

In addition to the testimony of the two executives, Mr. Spitzer said his evidence in the case includes e-mails and a trail of paper documents.

In handling insurance coverage of the Greenville, S.C., public school district, according to the lawsuit, Marsh asked an insurer to submit a false bid, and when the insurer refused, Marsh "submitted a wholly fictitious bid on that insurer's behalf."

Seeking to get a contingent commission agreement from Zurich North America, the complaint said Marsh held out the Greenville project as a "carrot" to entice the carrier. According to the complaint, Joan Schneider, a Marsh Global Broking executive in an e-mail quoted in the lawsuit wrote, "[Y]ou are currently in the running on Greenville Country[sic] School System (FIX cost near 3MM)neck and neck with ACE who we have a PSA withWill bind most likely after the first of the yearwhere are we on the [contingent commission] agreementLeft messages but haven't heard from youhint hint."

Reproduced from National Underwriter Edition, October 14, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.