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Perhaps like you, I have been fascinated by the press coverage our industry has received lately – probably more individual stories in prominent newspapers than at any other point in the last 25 years, all thanks to the lawsuit New York Attorney General Eliot Spitzer filed against Marsh & McClennan October 14.
I wondered what was really behind it and, perhaps more important, what it might mean to other brokers, agencies, carriers and, especially, our customers. Here is what I know: There are very good, well-meaning people in this business who have integrity, who are honest, and who work hard for the good of insured customers every day. Unfortunately, theirs are not the stories being told these days. Instead, we are being painted with a broad brush of fraud and collusion. Investors have banged the industry incredibly hard recently, wringing perhaps 10 percent of the collective market values out of our industry. The impact is obvious – the harder questions are: Why has this happened? What are the long-term implications?
The Complaint Itself
Having practiced insurance regulatory law for a large part of my career, it was a natural instinct for me to set aside the press coverage and get to the source. So, I obtained and have studied Spitzer’s actual Summons and Complaint (the actual allegations and suggested evidence that set up the lawsuit). The document is 31 pages, and contains 60 factual allegations. The instances described by Spitzer, if proven, illustrate violations of several New York laws – notably Fraudulent Business Practices – Executive Law section 63(12), Antitrust violations, General Business Law section 40 et seq, Securities Fraud, General Business Law section 352-c, and Unjust Enrichment, a general Common Law fraud.
The factual allegations are stunning. Summing them together, it would appear that Spitzer has proof that Marsh (1) held itself out as a trusted advisor to its fee-paying corporate customers while at the same time insisting that some of those customers’ policies be placed with favored carriers that provided Marsh with revenue-enhancing “Services Agreements” and (2) systematically cajoled carriers into rigging high bids that created an artifice of actual competition where there was none.
Most Summons and Complaints that initiate lawsuits are somewhat vague, setting up the discovery process and allowing each side to gather facts in discovery that prove or defend against the allegations. Not this one. It cites internal and external emails, notes from executive meetings and minutes from carrier meetings that appear to leave no doubt that these things actually did happen.
As an attorney, I can always find a way to fashion a defense. Try as I might, I cannot fashion any kind of legitimate defense construct for what Marsh appears to have done, and what the carriers did to support this process.
The Murky Status Quo
I recall in the mid-1980’s drafting a new agency agreement form for a property and casualty insurer with whom I worked. Even then, the relationship was between the agent and the customer versus the agent and the company. The duty of care that followed was murky at best. In the vein of independent agencies and brokerages, it is often unclear whether the agent/broker is representing the interests of the insured exclusively, the carrier exclusively, or both, depending on the issue. This is an area of confusion that has allowed the kind of exploitation that Marsh seems to have undertaken. The Spitzer suit does not help. In it, brokerage fees and agent commissions are lumped together and classified as payments made by insureds to purchase independent advisory services. As a result, the Spitzer suit has broad implications for the industry as a whole.
Moving Toward Transparency ... More >>
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