Connecticut AG Sues Marsh, Ace Financial in Broker Commission Case

January 21, 2005

Connecticut Attorney General Richard Blumenthal on Friday sued insurance broker Marsh & McLennan Inc., and insurance provider ACE Financial Solutions Inc., for a scheme in which ACE reportedly paid Marsh a secret $50,000 commission to steer an $80 million state contract to the company.

Blumenthal’s office is investigating whether ACE may have paid additional illegal commissions to Marsh in the deal.

Marsh reportedly never told the Department of Administrative Services (DAS), which paid the company $100,000 to act as its advisor on the contact, about the $50,000 or any additional payments. Marsh reportedly solicited and accepted the $50,000 commission, even though the DAS clearly expected the company to accept no additional fees.

It was also reported that Marsh failed to inform the DAS that ACE was in serious financial difficulty at the time it sought the contract.

The lawsuit is the first of a series of legal actions that Blumenthal expects to bring soon in his ongoing investigation into insurance industry abuses.

“As offensive as this specific scheme is the outrageously common pattern and practice of illegal commissions and kickbacks that it reflects,” Blumenthal said. “This lawsuit – the first of a series anticipated against insurance abuses – shows particular arrogance and avarice in victimizing the state and its taxpayers. Whatever name they are called – bonuses, commissions, overrides – the effect of these concealed kickbacks is to steer contracts, corrupt competitive bidding, inflate costs and deceive customers. The resources raided by Marsh and ACE were a public trust to be used for compensating workers. Our investigation is active and ongoing, and additional legal action will be forthcoming shortly involving other companies and consumer victims.”

In April 2001, the DAS sought an insurance company to administer 678 workman’s compensation cases. The cases involved state workers with serious injuries, many of them requiring long-term care, and were therefore unusually expensive.

The DAS reportedly believed that the state could save money by hiring a private company to manage the cases. The agency would pay an insurance company a fixed amount, which the company could then invest and use to pay expenses.

The DAS started by seeking an insurance broker to win the best deal for the state.

Two brokers, Marsh and Hagedorn & Company, responded to the state’s request for qualification (RFQ). As required by the RFQ, Marsh named its “preferred” companies, including ACE.

The DAS eventually selected both Marsh and Hagedorn. In its contract, Marsh agreed to limit its commission to a $100,000 fee from the state.

Despite that express limit, Marsh reportedly demanded that ACE pay Marsh a commission on the DAS contract if it wanted to continue receiving similar contracts. On Dec. 3, 2001, less than two weeks after the deal was finalized, a Marsh executive informed the company’s New York office that ACE had agreed to pay a $50,000 commission on the DAS contract. The two companies then reportedly signed a confidentiality agreement preventing ACE from revealing the terms of the deal.

In selecting ACE, Marsh also reportedly failed to inform the DAS of the company’s dire financial condition resulting from claims stemming from the Sept. 11 terrorist attacks.

The DAS awarded ACE the contract in November 2001, paying the firm $80 million to take over the portfolio of cases.

Blumenthal’s suit accuses Marsh of violating Connecticut consumer protection laws by accepting a commission other than the $100,000 paid by the state, falsely claiming that it considered only the state’s best financial interests in arranging the contract, and falsely claiming that it recommended ACE solely on ACE’s qualifications.

The attorney general’s action seeks actual and punitive damages, information allowing determination of how much Marsh was falsely paid and reimbursement for legal and investigative expenses.

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