A federal judge in Trenton, New Jersey has dismissed the remaining racketeering claims pending against several dozen insurers and brokers in a class action lawsuit stemming from industry wide investigations into bid-rigging and client-steering allegations, saying the plaintiffs had failed to prove their allegations.

The September 28 ruling by Judge Garrett E. Brown Jr. follows a recent ruling dismissing antitrust claims against the brokers and insurers. The ruling spares Marsh & McLennan and more than two dozen insurers and brokers from a court battle with clients who had chosen to pursue their own claims, rather than accepting a settlement negotiated by then-New York Attorney General Eliot Spitzer. The decision resolves the major claims in the consolidated litigation brought on behalf of commercial property/casualty insurance policyholders and employee benefit plan sponsors, who sued the firms following the investigations.

Plaintiffs had alleged that the companies engaged in a conspiracy in which they allocated clients, fixed prices and restrained trade, in violation of Racketeer Influenced and Corrupt Organizations (RICO) Act and the Sherman Antitrust Act. In earlier rulings, Judge Brown and Judge Faith S. Hochberg, previously assigned to the case, had rejected attempts by the attorneys to increase the number of defendants and plaintiffs, as well as the scope of the charges, for these allegations. Earlier this year, Judge Brown gave plaintiffs a final chance to amend their filings and bolster their case.

Each time, Judges Brown and Hochberg made clear that the attorneys’ submissions only demonstrated that the alleged defendants had contracted business relationships between them, under which insurers offered and paid compensation, to include contingency and that the pool of insureds may have had transactions handled under these. Both judges were clear that such business arrangements and compensation packages are not on their face illegal and alone do not reasonably demonstrate suspicion that adverse results were befalling customers. Judge Brown made clear, specific links between and among parties, compensation and adverse results to specific clients would be required.

In August, Judge Brown ruled that the consolidated suit lacked factual support for claims of a widespread antitrust conspiracy. On September 28, Judge Brown also ruled that the lacked factual evidence of a RICO enterprise.

After repeated opportunities offered by the judges in this federal suit to offer sufficient evidence to prove their allegations, the court ruled that they had failed to do so. The two dismissals and a New York Appellate Court decision (on points of law) in a separate case involving New York insurance brokerage firm, DeWitt Stern Group, Inc., taken together underscore that:

• The law presumes, and so therefore must consumers, that insurance brokers &/or agents are paid compensation by the insurer when they place business; that compensation can and most often does include commissions -- contingency and other forms. And that any and all compensation paid by the insurer to the producer will be fully included in the price of the insurance the consumer pays.
• In the context of the fundamental legal presumption, the rulings serve to affirm that there is no fiduciary obligation requiring or expecting the insurance producer to disclose to their customer at any time that they receive compensation from the insurer, its sum or nature, that longevity of doing business (in and of itself) does not create or presume that a “special circumstance/understanding” has been established between the insured and the insurance producer.
• Further, no matter how long the insurance producer has been serving the insurance needs of the customer, that longevity of doing business does not, in itself, create any special circumstance that would rise to being considered or treated as “special or different” arrangement under the law. 

What It Means to Agents:  PIA is only focused in these decisions on the narrow matters of law that directly relate to the interests and matters of unfairness to PIA members in the reactionary wake of the 2004 insurance mega-broker scandals and their over-reach to retail Main Street PIA agencies. 

PIA members and leaders can take great pride in the fact that they were right! PIA had the fortitude of character to stand up when others were retreating, make clear to the media, insurers, insurance regulators, state AGs and other insurance trade associations that adverse comments and actions blindly taken against retail Main Street agencies were factually and legally wrong, unfair and would not be tolerated. PIA was the first to challenge such actions in court.

PIA was the only insurance trade association that provided the NAIC with the correct way to draft a producer compensation disclosure model and, when they did not act on our advice, PIA was the only insurance trade association -- on December 29, 2004 – to inform the NAIC that we, regrettably, would work to oppose their disclosure model as unworkable, legally imprecise and unfair to PIA members. As a result, no state ever adopted the flawed NAIC disclosure model.

PIA made clear from the outset that we would write, speak, act and litigate, in order to defend the integrity of PIA members.

PIA provided the most comprehensive legal briefs in the federal district court action, speaking to the legally incorrect disclosure form being imposed on us by the settlement actions, as well as the litany of unfair and adversely disparate treatments PIA agencies were being subjected to by being ignored, actively precluded from, and denied due process through, the misuse of the settlement process.

While we hope that this string of decisions will mean that common sense will finally prevail, the legal action is not quite at an end. An extensive legal analysis is being drafted by PIA’s outside counsel and will be used in conjunction with PIA affiliates to communicate our issues as they relate to these decisions to state DOIs, AGs and legislators – demonstrating the correctness of our position and the court decisions’ support of it, so that in the future, officials will not go down this road again. We will also update PIA’s suggested guidelines relating to producer disclosure, compensation and conflicts of interest.

PIA National’s Mission Statement:
To promote, protect and defend the integrity of our members,
the value of their profession and the success of their businesses.

October 2, 2007