Chubb Agrees To Forgo All Contingent Commissions
Attorney General Spitzer’s office today announced an agreement with The Chubb Corporation, one of the nation’s largest property and casualty insurance companies, to resolve an investigation of customer steering, improper finite reinsurance transactions, and other unlawful industry practices.
Connecticut Attorney General Richard Blumenthal and Illinois Attorney General Lisa Madigan also joined in today's settlement.
Under the agreement, Chubb, a major provider of homeowner’s insurance for individuals, and commercial insurance and directors and officers insurance for businesses, will pay $15 million in restitution, $2 million in costs, and adopt a series of business reforms, including ending payment of contingent commissions for all of its insurance products on January 1, 2007.
"With this settlement, Chubb has stepped up and taken the lead in adopting reforms designed to improve transparency concerning compensation of brokers and agents," said David Brown, the Attorney General’s Investment Protection Bureau Chief. "Contingent commissions, and the conflict of interest such commissions create, need not be a part of the insurance business. We appreciate Chubb’s leadership in finding better ways to compensate agents and brokers. Today’s settlement confirms that reforms are taking root throughout the insurance industry."
The Attorney General’s investigation found that Chubb made undisclosed payments to insurance brokers and agents that encouraged them to steer business to Chubb. For example, the settlement describes loans Chubb made to brokers and agents where the loan interest and the principal would be forgiven if the broker or agent delivered an agreed-upon increase in business to Chubb. This created a conflict of interest for brokers and agents who owed their clients fiduciary duties of care, full disclosure and loyalty.
Under today's agreement, $15 million will be paid to Chubb excess casualty policyholders who purchased their policies through Marsh & McLennan Companies, Inc. In addition, Chubb will reimburse $800,000 each to New York and Connecticut, and $400,000 to Illinois for the costs of the investigation.
Today’s settlement with Chubb is an outgrowth of the Attorney General’s Office investigation of the insurance industry, which began in Fall 2004. To date, this investigation has resulted in guilty pleas by 20 insurance company executives and officers, and the recovery of approximately $3 billion for consumers and workers compensation plans.
The investigation underlying today's settlement was conducted by Assistant Attorneys General Maria Filipakis, Matthew Gaul, Mel Goldberg, and Daniel Sangeap under the direction of David D. Brown IV, Chief of the Attorney General’s Investment Protection Bureau.
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