Liberty Mutual Sued In Bid-rigging Probe
Attorney General Spitzer today filed a lawsuit against a leading property and casualty insurance company, alleging that the firm participated in a pervasive bid-rigging scheme.
The civil complaint filed today in State Supreme Court in Manhattan details how Liberty Mutual made payoffs to insurance brokers and independent agents to steer their clients to Liberty Mutual. Liberty Mutual was explicit with brokers and agents about what it expected in exchange for the payments, describing the payoffs as an "incentive . . . to encourage your Agency to place an increased amount of profitable business with our company." Brokers and agents responded to these incentives, steering their clients to Liberty Mutual and in many cases violating their fiduciary duty to assist their clients in finding the best insurance for the lowest price.
The lawsuit also details how Liberty Mutual repeatedly rigged bids for excess casualty insurance as part of an anti-competitive customer allocation scheme led by Marsh & McLennan Companies, Inc. (Marsh).
"It is simply appalling that a major financial institution would rig bids and induce brokers and agents to abuse their position of trust with the insurance-buying public," said Attorney General Spitzer.
In its lawsuit, New York seeks disgorgement of Liberty Mutuals illegal profits; restitution to injured policy holders; and damages, including punitive and treble damages for the companys illegal business practices.
From 2001 through 2004, Marsh repeatedly solicited from Liberty Mutual and other insurers fake bids - - called "B quotes" - - that were intentionally higher or otherwise less favorable to the customer in order to "support" or "protect" the bid of a favored insurer. Through this scheme, Marsh was able to deceive its clients into thinking that the insurance policies and premiums it offered were the result of true competition among insurers.
In August 2005, a former Liberty Mutual executive, Kevin Bott, pled guilty to criminal charges in connection with his big-rigging conduct while employed at Liberty Mutual, stating that "[i]n many instances during this time period, brokers at [M]arsh instructed me to submit protect[ive] quotes on certain pieces of business where Marsh had predetermined which insurance carrier would win the bid. . . . I understood that such quotes were intended to allow Marsh to maintain control of the market and to protect the incumbent." Bott and Liberty Mutual understood that such quotes "had the effect of allowing Marsh to obtain property in the form of millions of dollars in commissions and fees from each of numerous policyholders and insurance companies." In exchange Liberty Mutual received favorable treatment from Marsh in placing and renewing its excess casualty policies.
In one example of bid rigging cited in the complaint, two Marsh executives discussed the bidding on a clients account in an internal email: "I need a B quote from Liberty. I finally had AIG agree to write this thing [i.e., an insurance policy for a client] at $140,000. Have Liberty come in around $175,000." This email was then forwarded to Liberty Mutual with the message, "see below and I will talk to you later." Ultimately, Liberty Mutual provided a bid of just over $200,000, and AIG got the account.
Attorney General Spitzer thanked the Attorneys General of Connecticut and Illinois for their assistance and cooperation in this investigation.
In the fall of 2004, the New York Attorney General's Office and Insurance Department announced a joint probe of misconduct in the insurance industry. To date, this investigation has resulted in settlements with six companies, guilty pleas from 20 insurance company executives and officers, and the recovery of approximately $3 billion in restitution and penalties.
The investigation leading to todays lawsuit was conducted by the Attorney Generals Investment Protection Bureau with assistance from the Antitrust Bureau. The Liberty Mutual litigation is being handled by Assistant Attorneys General Michael Berlin, Maria Filipakis, Matthew Gaul and Mel Goldberg under the direction of David Brown, Bureau Chief of the Investment Protection Bureau.
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