Ohio authorities announced yesterday that Zurich American Insurance Company had agreed to pay the state $7 million in penalties and costs to settle various allegations including bid rigging with Marsh brokerage and other insurers.
Ohio Attorney General Jim Petro and Ohio Department of Insurance Director Ann Womer Benjamin said the insurer had misled customers and inflated premiums paid for commercial casualty insurance policies in violations of Ohio's antitrust and insurance laws.
Under the settlement, Zurich, without admitting wrongdoing, agreed to pay $5 million in civil penalties and $2 million to reimburse the state for attorneys' fees and investigative costs.
The officials said the company also agreed to adopt comprehensive business reforms and cooperate with the state's continuing investigation of "the conspiracy."
Additionally, in connection with the resolution of other investigations and a class action lawsuit now awaiting approval, Zurich would pay nearly 79,000 of its business and government policyholders in Ohio their proportionate share from nationwide settlement funds exceeding $209 million.
The lines of insurance affected by the alleged conspiracy, Ohio authorities said included umbrella, excess casualty, directors and officers, errors and omissions and commercial auto, but not personal lines.
"Today's settlement should send a clear message that we will vigorously enforce our laws to protect honest competition among insurers and brokers in Ohio," Mr. Petro announced. "I'm gratified that Zurich has stepped forward to resolve this matter."
The settlement comes as a part of a joint investigation by the attorney general and insurance department launched in October 2004.
It followed allegations that Zurich and other insurers participated in a market allocation scheme with Marsh & McLennan, dividing commercial customers among themselves by agreeing not to compete with each other for those customers.
Insurers participating in the scheme allegedly submitted fictitious and artificially high premium quotes designed to deceive the customer into believing that the winning quote was the best available premium as determined by a competitive process.
Competitors' agreements to divide markets or customers are in violation of the Valentine Act, Ohio's antitrust law. The use of misleading, unfair or deceptive practices by brokers or insurers to manipulate insurance markets also violates state insurance laws enforced by the Department of Insurance, the officials said.
The settlement agreement prohibits Zurich from providing false quotes and from entering into so-called "pay-to-play" arrangements, under which insurers compensate brokers for being included on a list of companies from which the brokers solicit bids or quotes.
In addition, Zurich must institute business reforms that result in disclosure of information to consumers about the compensation it pays to insurance producers, including brokers.
Zurich has pending a settlement over business practices with 10 attorney generals in other states that require disclosure of fees to customers. That process has been seen as burdensome by agent groups who have sued to intervene in the settlement.
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