CT Attorney General to Sue over Insurance Commissions

January 21, 2005 (PLANSPONSOR.com) - Connecticut Attorney General Richard Blumenthal is jumping into the ongoing probe of the US insurance industry with plans to sue broker Marsh & McLennan and commercial insurer ACE - the first of what he said will be a series of court cases.

The Hartford Courant said Blumenthal was set to file the Marsh & McLennan/ACE lawsuit for allegedly concealing commissions, which critics say can motivate brokers to maximize their compensation by steering clients to certain insurers.

“Our lawsuit alleges an illegal scheme to conceal commissions from customers, despite an express commitment for disclosure and specific limits on such commissions,” Blumenthal told the Courant. “The harm was to skew the [insurance] selection process and cause higher costs” for customers.

The suit, to be filed in Hartford Superior Court, is expected to seek restitution for customers and penalties against Marsh and ACE. The defendants are ACE Financial Solutions Inc., Marsh & McLennan Inc. and Marsh USA Risk Services Inc., doing business as Marsh USA Inc.

The suit, he added, will be the first of as many as six “against such practices involving violations of antitrust laws, consumer protection statutes, and contractual commitments … among other claims.” Blumenthal would not name other target defendants or say whether any will be Connecticut-based insurers, the Courant said.

The issue of extra commissions was central to New York Attorney General Eliot Spitzer’s bid-rigging lawsuit against Marsh in October (See  Spitzer Takes On Contingent Commissions ), which implicated ACE and several other companies. The suit alleged that Marsh solicited sham bids from some insurers so it could steer clients to others and collect bonus, or “contingent” commissions. Blumenthal declined to reveal many details about his own suit, but it is expected to detail at least one instance of a commission concealed from a Connecticut customer.

Blumenthal told the newspaper that a substantial amount of evidence in the case came from subpoenaed documents, including e-mails. His office has subpoenaed at least 29 insurance companies and 15 brokers, including Marsh, producing hundreds of boxes of documents, he said.

Meanwhile, Blumenthal has proposed new rules for the disclosure of insurance sales commissions that go further than what many states’ regulators are planning.