Florida Zaps MMC With Rackets Suit

Florida's chief financial officer slapped Marsh & McLennan Companies with a civil racketeering suit for commercial insurance bid-rigging today, saying a previous $850 million settlement did not do enough for Florida interests.

The company said it would fight the action. “This complaint should never have been filed. It distorts the facts and disregards the events of the past 18 months and ignores releases signed by the State of Florida itself,” said an MMC representative, Barbara Perlmutter.

In January 2005, MMC reached a global agreement with New York Attorney General Eliot Spitzer in which the company agreed to repay $850 million to commercial insurance clients throughout the nation, and to have its Marsh brokerage stop accepting contingent commissions that investigators said were often a hidden fee for steering business to insurers against the best interests of its clients.

Ms. Perlmutter said that insurance commissioners in 33 states had endorsed the settlement, and that Florida had “executed legally binding documents releasing all claims against Marsh.”

However, Bob Lotane, a representative for Florida CFO Tom Gallagher, who brought the latest action with State Attorney General Charles Crist Jr., said Mr. Gallagher believes “the Spitzer settlement did not fully compensate the entities harmed by Marsh's conduct.”

“Many of these entities had agreed to take money under the Spitzer suit, but we're saying it's not what they are entitled to because Spitzer limited the years and areas of recovery. The CFO believes as much as half the money was left on the table,” said Mr. Lotane.

According to MMC, its Florida clients have begun to receive over $21 million in compensation.

Mr. Lotane said although Florida government agencies and MMC clients signed releases for the New York settlement, Mr. Gallagher “retains and is exercising his authority to seek full restitution for any Florida entity, public or private, that was harmed by Marsh's conduct.”

According to documents provided by Barry Richard, an attorney for Marsh in Florida, Carlos G. Muniz–general counsel for Mr. Gallagher's Department of Financial Services–signed off on a $57,285 settlement, while the Florida Department of Management Services gave a release for a $28,114 settlement.

“It's the same settlement they are now claiming to be suing on behalf of,” said Mr. Richard.

The releases were signed in September and December of 2005. Mr. Gallagher announced he had begun investigating broker practices in November 2004 and found that “Marsh and its affiliates were more interested in getting kickbacks than getting the best deals for their clients.”

His action names as defendants MMC, Marsh Inc., Marsh USA Inc. and Marsh Placement Inc. (MMC's global broking unit), and accuses them of violating the Florida Racketeer Influenced and Corrupt Organization Act.

Under the act, if the suit is successful Mr. Gallagher said he can recover up to three times the amount lost due to unlawful conduct, as well as injunctive relief and revocation of the firm's license to do business in Florida.

The 47-page complaint, filed in 2nd Judicial Circuit Court in Leon County, Fla., notes that when Marsh's former managing director of global broking, Kathryn Winter, pleaded guilty in New York to scheming to defraud in February 2005, she said her conduct involved a scheme to “maximize Marsh profits with individuals at AIG, ACE and Zurich by controlling the market and protecting incumbent insurance carriers when their business was up for renewal.”

In announcing the suit, Mr. Gallagher said that in addition to disclosed fees, Marsh quietly took other payments.

He mentioned $188,000 not disclosed to the Jacksonville Electric Authority, and $140,000 not revealed to Miami-Dade County. The broker arranged that all insurers bidding for Burger King's 2003 business in Miami ask for a 25 percent increase, Mr. Gallagher charged.