NU Online News Service, May 20, 3:50 p.m. EDT–ACE Limited reported that the legal costs sparked by investigations concerning its role in suspected contingency fee abuses have amounted to more than $40 million.
In its 10-Q filing, for the first quarter of 2005, the Hamilton, Bermuda-based insurer said it has "paid and accrued over $40 million," approximately $30 million of which was recorded in the first quarter.
In March, ACE's annual 10-K filing with the Securities and Exchange Commission reported it was being examined by prosecutors and regulators in 13 states, including New York's Attorney General Eliot Spitzer who sued Marsh & McLennan Companies in October 2004 over allegations of kickbacks and other misconduct related to the collection of insurers' incentive commissions.
The latest filing said management believes "ultimate liability for these matters" would not have a "material adverse effect" on the company's financial condition. However, it cautioned that it could affect results "for an individual reporting period."
The company said it had received a total of 43 subpoenas, letters of inquiry and other demands from investigating agencies. The company also is being investigated by the SEC.
The company did not specify the prosecutors and agencies in its 10-Q filing, other than to say that they were "numerous."
ACE confirmed, in both the 10-Q and a subsequent 8-K filing, that it terminated three employees and suspended two others in the fourth quarter of 2004. The company said the actions were taken against employees in its excess casualty unit as the result of its internal investigation.
ACE said two employees were fired as a result of misconduct discovered in its internal investigation, and the third was terminated for failure to cooperate with the investigation.
In November, NU reported that ACE had fired Geoffrey Gregory, then president at ACE Casualty Risk, and Patricia Abrams, an employee in the unit. Ms. Abrams pled guilty to criminal misdemeanor charges in New York in October of 2004.
The identity of the third employee was not revealed.
In addition to the state authorities and the SEC, ACE said it is involved in a number of civil suits brought by policyholders and shareholders.
Connecticut's Attorney General Richard Blumenthal named ACE along with MMC in a suit over the placement of state workers' compensation cases with ACE in return for a contingent payment to Marsh, MMC's broker subsidiary, which was "unauthorized and undisclosed."
There are 12 federal class action civil suits nationwide, filed by policyholders, which are being consolidated into one class action. There is also one policyholder class action suit filed in Massachusetts state court.
Four securities class action suits were filed in federal courts in New York and Pennsylvania. ACE is seeking to have those actions consolidated into one class action suit to be filed in the Eastern District of Pennsylvania.
The company said it was named as a defendant in a derivative suit in Delaware Chancery Court by shareholders of Marsh. That suit also involves American International Group, ACE said.
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