Acordia Denies Charges Of Steering Clients For Fees

Before Eliot Spitzer stepped down as New York's attorney general to become the state's new governor, his office filed suit late last month against insurance brokerage firm Acordia Inc. and its parent company, Wells Fargo Bank, for allegedly steering customers to insurance companies that paid kickbacks for the business in the form of contingency fees.

According to the lawsuit, the practice of steering business represented a significant conflict of interest, placing Acordia's own financial interests ahead of the well-being of its clients.

The suit was one of several developments in the past few weeks revolving around alleged abuse of contingency fee deals and other controversial market conduct issues.

In one instance, Chubb Corp. settled with attorneys general from the same three states involved in the Acordia suit–New York, Connecticut and Illinois–although the cases are unrelated. The settlement included an agreement to stop paying contingency fees as of Jan. 1, 2007.

Earlier last month, Florida officials announced that Brown & Brown Inc. had agreed to reimburse public-entity clients for collecting undisclosed contingency fees.

As for the Acordia case, the lawsuit contends the Chicago-based broker conspired with several insurers–known as Acordia's “Millennium Partners”–to steer customers to them in exchange for secret payments.

This alleged scheme was conducted despite the fact that on its Web site, Acordia describes itself as doing “what is ethical and what is right for the customer,” adding that it makes “insurance placements in the best interest of our customers,” noted a statement issued by the New York Attorney General's Office. Acordia's top management, including its then-CEO Robert Nevins, is alleged to have actively participated in the Millennium Partners scheme.

When insurance companies refused to make the improper payments, according to the lawsuit, Acordia's management punished the uncooperative carriers by steering customers away from them and toward insurers that did pay kickbacks.

Wells Fargo, based in San Francisco, participated directly in Acordia's fraud, the AG's statement continued.

In one scheme, Wells Fargo allegedly agreed to “funnel” its own retail banking clients to Acordia for advice about insurance coverage. Wells Fargo did so with the understanding that Acordia, in turn, would steer this additional business to The Hartford, an insurance company that paid Acordia for such steering.

The lawsuit, filed last month in State Supreme Court in Manhattan, a county-level jurisdiction, seeks restitution for the companies' customers, disgorgement of illegal profits and penalties. The attorneys general of Connecticut and Illinois filed parallel lawsuits at the same time.

In a statement posted on the Wells Fargo Web site, Dave Zuercher, president of Acordia, said the firm plans to vigorously defend itself against the allegations brought by the attorneys general. He said the company discloses its compensation in accordance with guidelines set out by the National Association of Insurance Commissioners.

“Contingent compensation agreements have been a long-standing and well-known practice in the insurance industry, and these commissions continue to be paid by insurers to hundreds of insurance agents and brokers throughout the country, including New York,” said Mr. Zuercher in a statement. “These agreements have been held by courts to be legal and enforceable.”