HRH President Quits In Fee Controversy

A second employee was terminated and a third suspended and placed on administrative leave pending the outcome of a company investigation into improper contingency fee arrangements. Neither of the employees was identified.

The letter–from Martin L. Vaughan III, chairman and chief executive officer–was part of an 8-K filing on the matter. It said an internal investigation found that in the beginning of 1998 an HRH employee in the Hartford office "arranged or attempted to arrange for payments" to the firm for the placement of professional liability insurance policies for "three different organizations."

The arrangements were possibly in violation of state or federal statutes, the letter said.

At the time, Mr. Lockhart was in charge of that office. The letter does not say what, if any role he had in the arrangements.

Mr. Lockhart's duties have been distributed among current management, the letter said, but it did not indicate if he would be replaced.

HRH went on to say that restitution will be made to clients harmed by the payments, depending upon the outcome of the investigation. A representative for HRH said she could not comment further on the 8-K filing.

The company said it has provided information about the transactions to the Connecticut U.S. Attorney's Office, the Connecticut attorney general and the state's insurance commissioner. HRH said it intends to cooperate fully in the investigation.

Connecticut Attorney General Richard Blumenthal issued a statement acknowledging receipt of the information as well as the cooperation of HRH in the investigation. He said his probe of the industry in the state is continuing. His office had no additional comment.

A representative for the state's insurance department said the department has begun an investigation and could not comment further.

A request for comment from the U.S. Attorney's Office was not returned.

In its 10-K filing for 2004, HRH said it has received subpoenas from attorneys general in Florida, Massachusetts and North Carolina. HRH also said it received requests for information from insurance departments in 10 states, and could receive more subpoenas or requests for information from other states in the future.

It reported that 19 percent of the $42.4 million it received in contingent commissions in 2004 consisted of volume-based placement agreements. Those types of agreements were at the center of alleged abuses uncovered at Marsh and Aon.

As of Jan. 1, the company converted all of its contingent commissions to standard profit-sharing agreements, the firm said. HRH identifies itself as the seventh-largest insurance brokerage in the United States, with over 120 offices throughout the nation.

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What Was The Problem At HRH?

In a letter from its chairman and CEO, HRH revealed that:

o Robert B. Lockhart, president and chief operating officer, had resigned.

o A second employee was terminated and a third placed on administrative leave–neither of them identified.

o An internal investigation is continuing into improper contingency fee arrangements at the firm's Hartford office in 1998–which Mr. Lockhart headed at the time.

o No replacement for Mr. Lockhart was named, with his duties split up among remaining management.