AIG, Other Insurers Settle Long-Running Suit Over Bid-Rigging
March 21 2011 - 04:44PM
Dow Jones News
Insurers, including American International Group Inc. (AIG) and
Travelers Cos. (TRV), agreed to settle a long-running legal battle
tied to allegations of bid-rigging first leveled in 2004.
The settlement requires the group of seven insurers and two
insurance brokers to pay a combined $36.8 million to clients that
purchased business insurance from 1998 to 2004, according to a
March 18 memorandum outlining the terms of the preliminary
settlement agreement.
The putative class-action case had alleged that insurance
brokers worked with insurers to manufacture fake bids to present to
large insurance buyers alongside legitimate bids to make the
process of finding coverage appear more robust than it actually
was. The suit also alleged the plaintiffs had conspired to hide
some commissions paid by the insurers to the brokers, and leveled
other accusations about how insurers and brokers marketed and sold
coverage.
The case, an amalgam of several that were consolidated in U.S.
District Court for the District of New Jersey in 2005, expanded on
allegations raised in an investigation by New York's then-attorney
general, Eliot Spitzer. The insurers and brokers had earlier
settled with Spitzer and other attorneys general.
Some brokers agreed in their settlements with Spitzer to stop
accepting some fees from insurers called "contingent commissions"
that are based on the amount of business or profits the brokers
generate for companies for a period of years. Spitzer's
investigation of the insurance industry also resulted in other
allegations concerning AIG accounting that caused AIG Chief
Executive Hank Greenberg to step down in 2005.
The other insurers that agreed to settle the lawsuit last week
are Liberty Mutual, XL Group PLC (XL), CNA Financial Corp. (CNA),
Hartford Financial Services Group Inc. (HIG) and Crum &
Forster. The settling brokers were Aon Corp. (AON) and Willis Group
Holdings Plc (WSH).
The insurance industry had been fighting in court to get the
case dismissed, and won a victory in the U.S. Court of Appeals last
year that resulted in portions of the case being thrown out.
Under the terms of the prospective settlement, AIG, Travelers,
Liberty Mutual and XL will each pay $6.75 million, plus some
administrative fees. Aon, Willis, Crum & Forster, CNA and
Hartford will pay a combined total of $9.75 million.
The settlement still must be approved by the judge who's
overseen the case.
A spokesman for AIG said the insurer was "pleased to have
reached an agreement to resolve this matter," and noted the
settlement "brings an end to another long-standing lawsuit about
events from many years ago."
The settlement amounts agreed to last week are substantially
less than the sums paid by the companies that settled with the same
defendants earlier. Zurich Financial Services AG (ZURN.VX), for
example, agreed to pay $100 million about five years ago to
settle.
Spokesmen and spokeswomen for Travelers, Liberty Mutual, XL,
Aon, Willis, Crum & Forster, CNA and Hartford either had no
immediate comment, couldn't immediately be reached or declined to
comment beyond confirming their participation in the settlement
agreement.
Some insurers named in the suit--including Ace Ltd. (ACE) and
Chubb Corp. (CB)--have yet to agree to settle.
-By Erik Holm, Dow Jones Newswires; 212-416-2892;
erik.holm@dowjones.com
--Serena Ng contributed to this story.
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