Chubb Reaches Settlement With Mass. Attorney General

The Chubb Corp. has reached a $240,000 settlement with Massachusetts Attorney General Martha Coakley over allegations of illegal kickbacks between the insurer and broker.

In a statement, Ms. Coakley's office said it reached an agreement over improper compensation practices between Warren, N.J.-based Chubb and Boston-based William Gallagher Associates Insurance Brokers.

The Attorney General's Office accused Chubb of offering improper incentives to William Gallagher Associates (WGA) in return for the broker steering business directly to Chubb.

Under the agreement, Chubb will pay WGA customers $182,815 and $56,196 to the state.

"We are pleased that Chubb cooperated during our investigation of WGA and that it has agreed to pay restitution to customers affected by WGA's alleged abuse of these incentives," said Ms. Coakley.

The Attorney General's Office said it filed a lawsuit against WGA in December 2007, in Suffolk Superior Court, alleging that WGA defrauded its customers by charging undisclosed fees and deceiving customers concerning its compensation practices.

According to the complaint, Chubb loaned WGA in excess of $3 million but offered to forgive this loan and any accrued interest if WGA directed enough profitable business to Chubb. Chubb also invited WGA to invest in a Chubb-sponsored reinsurance company through which WGA insured a portion of numerous insurance policies belonging to WGA's clients.

The Attorney General's Office said WGA's participation in Chubb's reinsurance program turned WGA into a reinsurer with a financial interest in keeping its customers' with Chubb.

Chubb was also accused of providing WGA with a trust fund that WGA could utilize to lower Chubb's quoted premiums. Chubb allegedly maintained the trust fund so that WGA could draw against it to offer Chubb's insurance policies at lower prices in situations in which Chubb's premium quotes were higher than the quotes issued by other insurers. The Attorney General's Office said it believes WGA utilized this trust fund to distort the competitive bidding processes.

WGA returned more than $3 million to its customers and paid the state $925,000 in its settlement in 2007. An audit in 2008 resulted in WGA paying an additional $330,624 in restitution to customers and $80,000 to the state, the attorney general said.

Under the agreement Chubb agreed not to make any more loans to brokers in the state unless they are disclosed to customers, limit participation in reinsurance companies, and to stop providing trust funds to agents and brokers in Massachusetts.

In an e-mail, a Chubb spokesman pointed to one section of the settlement stipulating that the agreement is not an admission of guilt and that Chubb believes its actions were legal and proper. The settlement also says that Chubb made the agreement solely to end the investigation, and it is not to be used for any other purpose.