Caterpillar Sues Aon Over Contingent Commissions

Aon Corp. has been hit with a multimillion-dollar suit by Caterpillar Inc., alleging the insurance broker harmed the manufacturer by engaging in contingent commission kick-back schemes and failing to allow the company to review the insurance transactions.

In a 32-page suit filed Oct. 12 in the U.S. District Court of the Central District of Illinois in Peoria, Ill., Caterpillar said the Chicago-based insurance broker failed to act in the best interests Caterpillar by entering into kick-back agreements with insurers.

The Peoria-based worldwide manufacture of construction and mining equipment, engines and turbines, and provider of related services, said Aon has served as the company's broker since 1981.

From then until 2004, the company paid Aon “millions of dollars in fees” for services, placing more than $14 million in premiums through Aon. In addition, between 2001 and 2004, Caterpillar said it paid Aon between $500,000 to $600,000 in fees for insurance brokerage services.

In 2004, the investigations by then New York Attorney General Eliot Spitzer and other state attorneys general uncovered illegal practices by insurance brokers Marsh, Aon and others of steering insurance contracts to preferred carriers in exchange for lucrative contingent commission fees.

After settling with state attorneys general in March 2005, Caterpillar said it sought information from Aon about the insurance transactions it engaged in on its behalf to determine if it had been harmed. The company said “it initiated a dialogue with Aon” requesting information and review of materials.

“Although Aon intimated that it would be willing to cooperate, it failed to respond with much information,” the company said in its court filling, “while engaging in obfuscation and concealment over a considerable period of time.”

The company said it reminded Aon of its contractual obligations to comply, but “Aon elected not to comply with its obligations.”

Caterpillar said it filed suit not only to determine harm done, but because Aon continues to be its broker, the company “faces the prospect of continued injury by the improper business practices described herein.”

In its allegations, Caterpillar relies on the evidence presented by state attorneys general in their complaints against Aon. According to the suit, the insurers involved in the alleged conspiracy with Aon include AIG, Allied, Arch, Chubb, CNA, Endurance, Hartford, Liberty, St. Paul Travelers, XL, Zurich, their subsidiaries, and “perhaps others”–all insurers that wrote coverage for the company through Aon.

Caterpillar claims Aon engaged in restraint of trade, consumer fraud and deceptive business practices in violation of both state and federal law. The company is seeking reimbursement of premiums and fees, punitive damages, and court costs.

David P. Prosperi, vice president, global public relations for Aon, said in an e-mail statement, “We believe that it is totally without merit and we intend to fight it vigorously.”

He noted that all of the $190 million from the fund set up as part of the settlement with the state attorneys general has been paid out and 90 percent of the firm's largest clients accepted the offer.

Mr. Prosperi also said the claims in this suit are similar to RICO (Racketeer Influenced and Corruption Organizations Act) and antitrust allegations made against a number of the nation's largest brokers in a federal class action suit in New Jersey that was recently dismissed.

“We feel there is nothing new in this lawsuit by Caterpillar that will merit a different outcome,” he said.

Concerning Caterpillar's assertion that it was not given information it requested, Mr. Prosperi said the broker provided all information the client requested. He said it would not have been appropriate for Aon to provide more information than it furnished other clients because it would have given the appearance of “preferential treatment.” Aon heard nothing from Caterpillar for two years until the suit was filed, he added.

“The notion that Caterpillar is publicly accusing Aon while continuing to use us as their broker is hypocritical,” he said.

(This story was updated at 4:20 p.m. EDT)