Conn. Sues MMC, ACE In Kickback Scheme

For their part, both MMC and ACE said they are cooperating in the ongoing investigations.

In a statement, the attorney general said Marsh never told DAS about the outside compensation on its deal. DAS paid Marsh $100,000 in consulting fees. He said DAS "clearly expected" Marsh would not accept any additional compensation.

"This lawsuitshows particular arrogance and avarice in victimizing the state and its taxpayers," according to Mr. Blumenthal. "Whatever name they are called?bonuses, commissions, overrides?the effect of these concealed kickbacks is to steer contracts, corrupt competitive bidding, inflate costs and deceive customers."

According to the attorney general, in April 2001, the DAS sought an insurance company to administer 678 workers? comp cases. The cases involved state workers with serious injuries, many requiring long-term care, and were therefore unusually expensive. DAS believed it would save money hiring an insurer to manage the cases for a fixed amount.

Through a competitive bidding process, two brokers?Marsh and Hagedorn & Company?responded. Marsh named its "preferred" companies in the bid, including ACE.

The DAS eventually selected both Marsh and New York-based Hagedorn. In its contract, Marsh agreed to limit its commission to a $100,000 fee from the state, Mr. Blumenthal said.

Despite that express limit, Marsh demanded that ACE pay Marsh a commission on the DAS contract if it wanted to continue receiving similar contracts, according to the suit.

On Dec. 3, 2001, less than two weeks after the deal was finalized, a Marsh executive informed the company's New York office that ACE had agreed to pay a $50,000 commission on the DAS contract. The two companies then signed a confidentiality agreement preventing ACE from revealing the terms of the deal, according to the suit.

In selecting ACE, Marsh also failed to inform the DAS of the company's financial condition resulting from claims stemming from the Sept. 11 terrorist attacks, Mr. Blumenthal added.

The DAS awarded ACE the contract in November 2001, paying the firm $80 million to take over the portfolio of cases.

The attorney general?s suit accuses Marsh of violating Connecticut consumer protection laws by:

• Accepting additional commission.
• Falsely claiming that it considered only the state's best financial interests in arranging the contract.
• Falsely claiming that it recommended ACE solely on ACE's qualifications.

The attorney general's action seeks actual and punitive damages, information allowing determination of how much Marsh was falsely paid, and reimbursement for legal and investigative expenses.

Hamilton, Bermuda-based ACE is conducting an internal investigation stemming from an unrelated suit filed by New York Attorney General Eliot Spitzer, alleging bid-rigging by MMC. One executive at ACE has pleaded guilty to criminal charges in New York, and at least five have been dismissed or suspended from the company. ACE said it expects its internal investigation to be completed in February.

In response to the suit, Robert T. Grieves, director of media relations for ACE, said, "We have been and continue to cooperate with the state of Connecticut and other state jurisdictions." He said the carrier had nothing to add to its statement.

Barbara Perlmutter, senior vice president of public affairs for MMC, said, "We are providing information to Mr. Blumenthal and are continuing to cooperate with him."

In response to a question about reports of additional layoffs being planned at the company, Ms. Perlmutter noted that Michael Cherkasky, president and chief executive officer of MMC, said additional cuts are possible depending upon the economics of the company.

MMC laid off 3,000 employees shortly after Mr. Spitzer's suit in October as part of its effort to offset the loss of hundreds of millions of dollars in lost contingency commission income. Marsh stopped taking such fees from insurers after Mr. Spitzer filed suit, alleging bid-rigging tied to such contingency deals. Settlement negotiations between Marsh and Mr. Spitzer's office are continuing.

In an interview with Bloomberg News, Mr. Cherkasky said that despite the bid-rigging scandal, the company has retained all but two of its major clients?Fortune Brands and whiskey maker Jim Beam.

Reproduced from National Underwriter Edition, January 27, 2005. Copyright 2005 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.