On October 14, New York Attorney General Eliot Spitzer sued Marsh & McLennan Companies, the nation’s largest insurance broker, alleging that it steered clients to insurers with whom it had lucrative contingency agreements, and solicited rigged bids from major insurers for insurance contracts.

In the civil complaint filed in State Superior Court in Manhattan, Spitzer alleges that Marsh “steered unsuspecting clients to insurers with whom it had lucrative payoff agreements, and that the firm solicited rigged bids for insurance contracts.”

The complaint alleges that “for years,” Marsh collected special payments from insurers “that were above and beyond normal sales commissions.” Spitzer alleged that such “contingent commissions” were characterized as compensation for market services, but were actually “rewards for the business that Marsh and its independent brokers steered and allocated to the insurance companies.”

On October 15 Marsh said that it would no longer accept incentive fees from insurers, the practice that they believe is central to the recent investigation by New York Attorney General Eliot Spitzer.  The company also said that Michael G. Cherkasky, the head of Marsh’s investigative unit Marsh Kroll, would replace Ray J. Groves as chief executive of the Marsh Inc. unit.

Spitzer also announced that two insurance company executives have pleaded guilty to criminal charges in connection with the alleged scheme. The actions against the brokerage firm and the two American International Group (AIG) executives stem from what Spitzer said is a widening investigation of fraud and anti-competitive practices in the insurance industry. The lawsuit also implicates major insurance carriers The Hartford, ACE Ltd. and Munich American Risk Partners according to Spitzer’s complaint. Other insurance companies are still under investigation, according to Spitzer.

Statement by NY AG Spitzer (10/14/04) 

Text of Complaint Filed by NY AG Spitzer (Filed 10/14/04) 

Impact of Spitzer Charges Felt at Marsh and Beyond (Insurance Journal 10/18/04) 

Marsh Response to Spitzer Allegations (Marsh press release 10/14/04)

Marsh Suspends Market Service Agreements (Marsh press release 10/15/04) 

Statement by AIG on NY Attorney General Spitzer’s Action (AIG press release 10/14/04)

AIG’s Greenberg: More Transparency, Not Material Impact (Insurance Journal 10/15/04) 
 
Statement by The Hartford on the NY Attorney General’s Investigation (Hartford press release 10/15/04)

October 19, 2004