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Broker charged with rigging rates

The state accuses the insurance broker of racketeering. The company says charges were settled.

By TOM ZUCCO
Published March 15, 2006

Marsh & McLennan Companies Inc., the nation's largest insurance broker whose client list included the city of Largo, the Clearwater Housing Authority and Hillsborough County, was accused Tuesday by the state of conspiring to rig quotes for commercial insurance, inflate insurance premiums, and illegally steer clients to certain insurers in exchange for improper commissions.

A civil suit filed in Leon County Circuit Court alleges Marsh & McLennan and three of its affiliates violated Florida's antitrust laws and the Racketeer Influenced and Corrupt Organization Act.

New York-based Marsh brokers commercial and liability coverage used to insure utilities, government buildings, low-income housing and private businesses. Insurance brokers such as Marsh advise their clients on their insurance needs and options, and represent their clients when negotiating the price and terms of coverage.

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."

The suit was the culmination of a nearly two-year state investigation by the Attorney General's Office, the Office of Insurance Regulation, and the Florida Department of Financial Services. In November, 2004, the state sent subpoenas to 10 insurance brokers, including Marsh & McLennan, seeking documents and records. It also established a statewide task force to look into possible abuses among brokers.

According to the suit, Marsh and its affiliates brokered about 15,000 insurance contracts in Florida from 1998 through 2004, the majority of them with large corporations.

Marsh's clients also included more than 50 public entities, including the city of Largo, the Clearwater Housing Authority, Hillsborough County, the Hillsborough Aviation Authority, Tampa Bay Water and the Tampa Port Authority. None of those entities was mentioned in the suit as a target of Marsh's bid-rigging scheme.

The suit does allege Marsh contracted with Miami-Dade County to provide coverage for services for a flat fee, but received from insurers an additional $140,000 in hidden commissions.

"It is clear that this company took advantage of its clients," Attorney General Charlie Crist said in a statement. "Florida citizens and companies were cheated out of the best rates on insurance."

Announcement of the suit came in the form of strikingly similar press releases from the two plaintiffs, Crist and Chief Financial Officer Tom Gallagher, both Republican candidates for governor.

Florida's antitrust laws allow fines of $1-million per corporate violation. The RICO Act and antitrust laws also provide for restitution of up to three times the amount lost due to unlawful conduct, and revocation of license to do business in the state.

"This complaint never should have been filed," said Barry Richard, an attorney who represents Marsh & McLennan. "It distorts the facts, disregards the events of the past 18 months and ignores releases signed by the state of Florida itself.

"These allegations have been cut and pasted from a 2004 lawsuit that Marsh resolved with the New York Attorney General in January 2005. As part of that settlement, Marsh implemented sweeping business reforms and agreed to pay $850-million to eligible policyholders across the United States, including Florida."

Marsh & McLennan agreed to pay the restitution as part of New York Attorney General Eliot Spitzer's investigation into bid-rigging and price-fixing. Companies that accepted the payment agreed not to sue Marsh, which also issued an apology, calling its conduct unlawful and shameful.

But Spitzer wasn't done yet. Last September, he charged eight former executives at Marsh & McLennan with felonies related to the schemes.

And Florida officials responded Tuesday with their own lawsuit. Both Crist and Gallagher also said investigations of bid-rigging, kickbacks and improper fees involving other insurance brokers are ongoing.

Tom Zucco can be reached at zucco@sptimes.com or 727 893-8247.

[Last modified March 15, 2006, 01:31:19]