March 17, 2006

Marsh Settlements Not Enough for Florida

Florida's CFO Tom Gallagher filed a civil racketering suit against Marsh & McLennan based on allegations of bid-rigging and "contingent commissions" detailed in a Settlement Agreement over a year ago. Marsh representatives have protested that the suit is in derogation of signed releases pursuant to that agreement. Mr. Gallagher's office claims that the $850 million settlement, negotiated by New York Attorney General Spitzer for the benefit of multiple states' residents, left money on the table for which Mr. Gallagher can now sue.

(read more below the fold)

In May of 2005, Marsh & McLennan Companies (MMC) released its 10-Q for the quarter ended March 31, 2005. Page 18 through 31 details various "Claims, Lawsuits and Other Contingencies". This included information about the January 30, 2005 Settlement Agreement with the New York Attorney General (NYAG) and the New York State Insurance Department (NYSID) regarding allegations of bid-rigging in the placement of commercial insurance. Pursuant to that Settlement Agreement, MMC set up a $850 million fund for policyholders and agreed to various business reforms. Several former MMC employees pled guilty to felony charges also disclosed in that document. The settlement provided for monies from the fund to be distributed to policyholders outside of New York through state authorities that agreed to the settlement.

The document also disclosed various ongoing civil actions on behalf of investors who alleged that MMC inflated its earnings by the use of allegedly improper "contingent commissions" and the bid-rigging alleged in the NYAG And NYSID charges. The disclosure also pointed out that the AGs in 20 other states and the government of Australia had initiated separate investigations. 10Q_1stQtr_05.pdf (application/pdf Object)

On March 13, 2006, the California Attorney General agreed to accept approximately $100 million out of the $850 million settlement. Insurance Commissioner John Garamendi Reaches Settlement With Broker to Enforce An End to Harmful Secret Commissions

Despite entering a release in connection with that Settlement Agreement, the State of Florida's CFO, Tom Gallagher, has filed suit on behalf of Florida policyholders against MMC based on the same facts, and alleging racketeering violations. In a March 14, 2006 press release, Mr. Gallagher's office said that:

"According to Gallagher, Marsh and its affiliates brokered approximately 15,000 insurance contracts in Florida between 1998 and 2004 for public entities and private businesses in Florida.
Gallagher said the Department’s complaint charges Marsh and three of its affiliated companies with numerous violations of Florida’s Racketeer Influenced and Corrupt Organization (RICO) Act. Specifically, the complaint accuses Marsh of engaging in a pattern of racketeering activity, including soliciting hidden payments in the form of contingency commissions, and steering hundreds of millions of dollars in business to insurance carriers willing to 'pay-to-play.'"

According to the FLDFS press release, the complaint can be read at The Florida DFS Press Office.

MMC representatives protested the move by Florida's Gallagher, according to a March 14, 2006 article in National Underwriter Property & Casualty. According to that article, Mr. Gallagher believes “the Spitzer settlement did not fully compensate the entities harmed by Marsh’s conduct.” According to The National Underwriter, MMC stated that “This complaint should never have been filed. It distorts the facts and disregards the events of the past 18 months and ignores releases signed by the State of Florida itself,” In response, although acknowledging that Florida government agencies and MMC clients signed releases for the New York settlement, Mr. Gallagher alleged that he “retains and is exercising his authority to seek full restitution for any Florida entity, public or private, that was harmed by Marsh’s conduct.”

Posted by dougsimpson at March 17, 2006 10:04 AM