By Mark Ruquet
NU Online News Service, May 11, 4:35 p.m. EDT–Aon said it will be able to take a tax deduction on its $190 million settlement with the New York Attorney General's office and others over alleged contingency fee abuses.
In a 10-K filing this week, the Chicago-based insurance broker said the settlement is considered fully tax deductible and, through a series of accounting principals, it will be reflected on its books as the settlement payments are made.
Aon, which announced the agreement in early March, will make three payments into a fund to be paid to policyholder clients whose insurance contracts involved volume placement contingent fee payments to the firm. Those clients who opt into the agreement will receive a proportionate share of the settlement.
The three payments will consist of two $76 million payments to be made on Sept. 1 of 2005 and 2006, and a final $38 million payment to be made on Sept. 1, 2007.
The fund will begin payments this November.
The agreement was reached with New York Attorney General Eliot Spitzer, who initiated the investigation in April of 2004, the attorneys general for Connecticut and Illinois, and insurance and financial regulators in New York and Illinois.
Under the accounting formula detailed in the 10-K filing, Aon noted that the deductions were being taken under the Accounting Principals Board Opinion. The company has not yet discounted the first payment, but has discounted already the payment stream associated with the settlement in its year-end report of 2004 results.
In making the settlement payments under the agreement, Aon cannot seek indemnity through any insurance policy or other reimbursement.
The firm said it has received subpoenas or requests for information from departments of insurance or attorneys generals in "approximately" 25 states, including those it has reached agreements with. It continues to cooperate in the investigations.
Aon noted that it has had a number of civil suits filed against it. Most notable is a nationwide $40 million class action settlement reached Monday at the Federal Circuit Court of Cook County in Illinois, which gave preliminary approval. The company said it had reserved for the settlement in the fourth quarter of 2004.
There are also a number of other actions pending in state courts in California and Illinois, and in federal courts in Florida, South Carolina and New Jersey.
In February, Aon received a subpoena from the U.S. Department of Labor concerning compensation arrangements related to client's employee benefit plans. The broker said it is cooperating in the inquiry.
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