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Gallagher Takes Action against Nation’s Largest Broker for Bid Rigging and Pay-to-play Schemes

3/14/2006

CONTACT:  Tami Torres or Bob Lotane
(850) 413-2842
 
TALLAHASSEE—Tom Gallagher, Florida's chief financial officer, today filed suit against the nation's largest insurance broker, Marsh & McLennan, and its affiliates for bid rigging and illegally steering their clients to certain insurers in exchange for improper commissions.  Today's action is based on a joint investigation by the Department of Financial Services, Office of Insurance Regulation and the Attorney General's Office.
 
 "Marsh and its affiliates were more interested in getting kickbacks than getting the best deals for their clients," said Gallagher, who initiated an investigation into broker practices in November 2004. "My goal is to ensure that Floridians are refunded for the millions of dollars in fees or commissions they were improperly charged."
The New York-based company is the nation's largest broker of commercial and liability coverage used to insure electric utilities, government buildings, low-income housing, municipal utilities and private businesses.  Brokers advise their clients on insurance needs and options, and represent their clients in negotiating the price and terms of coverage with insurance companies.  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."
 
 Gallagher said that Florida's RICO Act provides for restitution of up to three times the amount lost due to the unlawful conduct, as well as injunctive relief, and revocation of authority to conduct business in the state.
 
 The complaint also outlines how Marsh collected undisclosed commissions in its insurance deals on behalf of its clients, even though some of those contracts expressly prohibited such payments. Legal pleadings provided the following examples of misconduct:
 
• Marsh claimed to accept only a fixed fee starting at $80,000 a year from the Jacksonville Electric Authority to help secure its property and employee health insurance, but did not disclose to the JEA that it had accepted at least another $188,000 from the insurers to whom it gave the JEA's business.
 
• Marsh signed a contract with Miami-Dade County agreeing to be paid a flat fee of $100,000 a year to place property insurance for the county's water and sewer department. However, Marsh received an additional $140,000 from the insurers who got the business – and failed to disclose the additional income to Miami-Dade County.
 
• Marsh "targeted" a 25-percent premium increase in 2003 for its Miami-based client Burger King, and took steps to make sure that all competing insurers submitted bids with a uniform premium increase.
 
• Marsh "rigged" a purportedly competitive bid for Plantation-based DHL's excess auto insurance coverage, in favor of the insurer already providing coverage to DHL, by soliciting a sham "protective quote" from a different insurer that was $200,000 higher than the incumbent insurer's bid. The "protective quote" was designed to create the appearance of competitive bidding, although Marsh had already arranged to award the business to DHL's previous insurer. The incumbent insurer paid Marsh a commission in return for keeping DHL's business. A key Marsh employee involved in this illegal transaction has pled guilty to restraint-of-trade charges in New York. 
  
Gallagher said his department, along with the Office of Insurance Regulation and the Attorney General's Office, is also investigating allegations of bid-rigging, kickbacks and improper fees between other insurance brokers and insurance companies in Florida.
 
"If brokers and insurance companies are manipulating the law for personal gain and driving up insurance costs for consumers, then we need to seek restitution where appropriate and take swift action to prevent further abuses," Gallagher said.
 
The complaint can be read at http://www.fldfs.com/PressOffice/pdfs/MarshComplaint.pdf.