Plaintiffs fail to prove racketeering by Marsh, insurers and brokers

October 8, 2007

Dismissal of corruption conspiracy charges follows earlier dismissal of antitrust complaint

The same federal judge who early in September dismissed all federal antitrust charges against Marsh & McLennan Companies and a group of other brokers and insurers has now thrown out related federal charges of racketeering as well.

Judge Garrett E. Brown Jr. of the U.S. District Court for New Jersey dismissed the racketeering complaint with prejudice, citing a lack of facts and logic. Dismissing with prejudice means the insurers and brokers will not face another suit on similar claims.

The plaintiffs — a group that included financial services, manufacturing and utility companies that were customers of the defendants — alleged that these large insurance brokers and insurers engaged in a criminal conspiracy — described as a hub-and-spoke conspiracy — to control business in violation of the federal Racketeering Influenced Corrupt Organization statute.

Brown found that the plaintiffs’ legal arguments could not redeem the shortcomings in their factual pleadings, writing at one point: “The sole support for plaintiffs’ allegations is limited to plaintiffs’ self-serving conclusions. However, plaintiffs’ conclusions unsupported by facts state no RICO enterprise and should be dismissed.”

The lawsuits stemmed from investigations initiated three eyars ago by Eliot Spitzer, then New York attorney general, involving price fixing, fake quotes, contingent commissions and steering of business.

The lead defendant, Marsh, welcomed the development. In a statement Marsh said, “We are very pleased that the federal court has dismissed, with prejudice, all of the federal antitrust and RICO claims asserted against Marsh and other industry participants. This decision represents a major step forward for Marsh.”

The plaintiffs claimed that the defendants engaged in a series of fraudulent schemes. They charged that insurers paid kickbacks to brokers in exchange for having business allocated to them; kept their contingent commission agreements secret from their clients; and built the cost of the kickbacks into the premiums they charged their clients.

But Brown ruled that the plaintiffs failed to prove their charges. He found that the defendants were involved in normal business activities without collusion. He ruled the plaintiffs had no proof that there was any sort of conspiracy.

“In the case at bar, plaintiffs’ allegations offer nothing more than a kaleidoscope of acts executed by a kaleidoscope of actors, and combine broker-defendants and insurer-defendants in such a fashion that the court is unable to discern any systemic permutation,” Brown wrote. “While discussing dozens of transactions and hundreds of actors, plaintiffs fail to outline even a single set of actors that interacted with each other and executed their transactions systemically.”

Defendants in the suit that have now been cleared of federal antitrust charges are some of the largest insurance companies and brokerages including American International Group, The Hartford, Fireman’s, Liberty Mutual, American Re, Travelers, Chubb, Marsh, Willis, Aon and Hilb Rogal & Hobb.

The case was a consolidation of suits from around the country brought under federal statutes. These consolidated lawsuits took those charges to another level–claiming that they were part of a conspiracy among certain large insurers and insurance brokers and accusing the players of both federal antitrust violations and racketeering.

Last month, Brown put related federal antitrust conspiracy charges to rest in granting the defendants’ motions to dismiss.

With this RICO ruling, Brown also rejected a plea from plaintiffs to be given another chance. “In view of the facts that (a) this matter was initiated almost three years ago but (b) plaintiffs, even after substantial discovery and three previous rounds of extremely voluminous pleadings failed to meet their pleading burden, the court concludes that granting plaintiff leave to amend would be futile, unduly prejudicial to defendant and not in the interests of justice,” Brown concluded.

From This Issue

Insurance Journal West October 8, 2007
October 8, 2007
Insurance Journal West Magazine

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