N.Y., Conn., Ill. AGs bring another suit, this time against Acordia

News Currents

The attorneys general of Connecticut, Illinois and New York continued their campaign against undisclosed compensation and account steering by simultaneously bringing suit against one of the nation’s largest insurance brokers.

The suits were bought against Acordia Inc. and its parent company, Wells Fargo Bank N.A., in late December for allegedly steering their customers to insurance companies that paid for the business with undisclosed payments.

Acordia Inc. said it will vigorously defend against the allegations.

According to the lawsuits, the practice of steering business represents a “significant conflict of interest” that places Acordia’s own financial interests ahead of the well-being of its clients.

The lawsuit offers what it says are details about how Acordia allegedly conspired with several insurance companies, known as Acordia’s “Millennium Partners,” to steer customers to them in exchange for secret payments. Acordia’s top management, including its then-CEO, Robert Nevins, is alleged to have actively participated in the Millennium Partners scheme.

When insurance companies refused to make the improper payments, according to the lawsuit, Acordia’s management punished them by steering customers away from them and towards insurers who did pay kickbacks.

The documents cite Acordia’s then-chief marketing officer, Charles Ruoff, as telling Acordia staff in 1999: “At this time we are concentrating on the plans and initiatives put forward by our ‘priority’ [insurance companies] to the exclusivity [sic] of all other [insurance companies].”

The suits further allege that Wells Fargo participated directly in Acordia’s fraud. In one alleged scheme, Wells Fargo agreed to “funnel” its own retail banking clients to Acordia for advice about insurance coverage, the documents claim. Wells Fargo did so with the understanding that Acordia, in turn, would steer this additional business to The Hartford, an insurance company that paid Acordia for such steering, the allegations continue.

The suits contend that contingent commissions and other so-called “concealed incentives” were a significant source of income for Acordia. From 2000 through 2005, the company made approximately $200 million in undisclosed contingent commissions.

The lawsuits seek restitution for the companies’ customers, disgorgement of illegal profits, and penalties.

“Contingent compensation agreements have been a long-standing and well-known practice in the insurance industry, and these commissions continue to be paid by insurers to hundreds of insurance agents and brokers throughout the country, including New York,” said Dave Zuercher, Acordia Inc. president and CEO. “These agreements have been held by courts to be legal and enforceable.”

Acordia discloses its contingent compensation agreements to its customers in a manner consistent with guidelines approved by the National Association of Insurance Commissioners, the company said in a statement.

“Acordia is confident that contingent compensation agreements, properly administered, are consistent with the responsibility of its brokers to its customer,” Zuercher said.

“Our legal action shows that Acordia masked a scheme of kickbacks and contract steering with the illusion of customer loyalty — giving real loyalty to any insurer willing to pay for it,” Connecticut Attorney General Richard Blumenthal said. “This lawsuit brings us closer to ending the insurance industry’s hidden pay-to-play game.”

Blumenthal’s lawsuit was filed in cooperation with Department of Consumer Protection Commissioner Edwin R. Rodriguez.

Topics Lawsuits Carriers Illinois