Insurer to settle with 9 states

Md., eight others reach $171 million settlement in bid-rigging case

March 20, 2006|By NICOLE FULLER | NICOLE FULLER,SUN REPORTER

Maryland and eight other states have reached a $171 million settlement with an insurance company accused of inflating prices and fixing bids on commercial insurance policies, the Maryland attorney general's office said yesterday.

Zurich American Insurance Co. has agreed to pay $151 million to the defrauded companies - with about $2.8 million paid to businesses in Maryland - to settle allegations of bid-rigging and price-fixing, said Kevin Enright, a spokesman for Maryland Attorney General J. Joseph Curran Jr. Zurich will pay an additional $20 million to the states for investigative costs.

Zurich, a unit of the Swiss insurer Zurich Financial Services, allegedly submitted fake bids to create the illusion of a competitive bidding process, when, in fact, the broker had predesignated another insurer as the winner at an inflated price in a "pay to play scheme," Enright said. Zurich was allegedly rewarded for submitting fake quotes by receiving protection from competition on other lucrative accounts.

The company also failed to disclose its payments of "contingent commissions" to insurance brokers and conspired with brokers to overcharge Zurich's policyholders, Enright said

The settlement is subject to court approval, he said.

Zurich spokesman Keith Owens said, "I can confirm that Zurich is finalizing agreements with certain state, legal and regulatory authorities to resolve inquires related to insurance business practices. We will release further details as soon as possible."

The Associated Press, through a news release from the Texas attorney general's office, identified the broker as Marsh & McLennan. Texas is one of the nine states involved in the settlement. Enright declined to confirm that report. A Marsh & McLennan spokesman could not be reached yesterday.

Marsh & McLennan, the nation's largest insurance broker, agreed in January 2005 to pay $850 million in restitution to end New York Attorney General Eliot Spitzer's investigation into bid-rigging, price-fixing and the use of hidden incentive fees, the AP reported. Marsh publicly apologized for "shameful" and "unlawful" conduct, the AP said.

The other states involved in the Zurich settlement are Florida, Pennsylvania, Massachusetts, California, Hawaii, Oregon and West Virginia.

Enright said the state's investigation into Zurich's business practices began in 2004. He said the company is cooperating and has agreed to disclose future contingent commission payments and implement conduct reforms.

"Schemes like this drive up the cost of doing business in Maryland," Curran said.

Nicole.fuller@baltsun.com

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