Conn. AG Blumenthal Expands Suit Against Marsh to Include Bid Rigging, Kickback Allegations

September 22, 2005

Connecticut Attorney General Richard Blumenthal announced new allegations in his lawsuit against insurance broker Marsh & McLennan Inc., including bid rigging, price fixing and illegally steering Connecticut businesses and consumers to favored insurers in exchange for tens of millions of dollars in undisclosed kickbacks.

Previous allegations involving a state contract remain pending against Marsh – and have now expanded to include allegations of bid rigging and insurance contract steering potentially involving thousands of Connecticut clients. Blumenthal’s suit seeks restitution and damages for Connecticut consumers.

“We have uncovered powerful evidence of a systematic scheme to raise insurance prices,” Blumenthal said. “We also have strong evidence of bid rigging, victimizing specific Connecticut consumers and companies. In essence, Marsh established a toll both between insurers and consumers, and the toll exacted was heavy. Creating the illusion of free and open competition, insurers agreed to provide Marsh with rigged or fictitious quotes in exchange for the prospect of submitting winning bids on future placements. Marsh threatened retaliation against non-players.”

Blumenthal is seeking restitution for the hundreds of Connecticut consumers – corporate, nonprofit, government and individuals – he alleges were harmed by Marsh’s illegal kickback schemes. “Marsh concocted a free market mirage. In reality, it coerced insurers into a ‘pay to play’ scheme. Marsh was more concerned about getting the best concealed kickback, not the best deal for consumers,” he charged.

According to Blumenthal, Marsh’s scheme violated the Connecticut Antitrust Act and the Connecticut Unfair Trade Practices Act, and increased insurance costs for Connecticut consumers because insurers funded the concealed commissions by raising premium rates.

According to the lawsuit, when a Marsh customer wanted to purchase insurance or renew insurance it already had, Marsh brokers decided which insurer should be given the business and at what price. Marsh’s price was typically a substantial increase – as much as 15 to 20 percent – over the previous year’s price. After Marsh decided who would win its bogus competition, all insurers were expected to fall into line to ensure the chosen carrier won the “competition.”

One insurer wrote about a Marsh “broking plan”: “This is another protection job… Our rating has risk at $890,000 and I advised (Marsh) that we could get to $850,000 if needed. (A Marsh broker) gave me song & dance that game plan is for AIG at $850,000 and not to commit our ability in writing!”

The amended complaint identifies several major Connecticut businesses that were harmed by Marsh’s bid-rigging and price-fixing plan, including Hubbell Inc., Kaman Corp., Hexcel Corp., and Bridgeport Hospital.

Marsh has about 2,800 policyholder clients in Connecticut – 300 of them large businesses or government entities. Its corporate clients in the state also include Bic Corporation, United Technologies Corporation, Carvel Corporation, Ethan Allen Furniture, Timex Corporation, Xerox Corporation and General Electric Company.

The company’s state and municipal clients include the Connecticut Department of Administrative Services (DAS), and the cities and towns of Hartford, New Haven, Stamford, Manchester, West Hartford, and West Haven. Marsh was also the insurance broker for several large, publicly supported state construction projects, including Adriaen’s Landing.

Marsh’s nonprofit clients include Yale University, Mystic Seaport and the Save the Children Federation.

The announcement of the expanded charges against Marsh came the same day Blumenthal announced that insurer ACE Financial Solutions Inc. had agreed to pay $40,000 to the state to settle allegations for a scheme in which ACE paid Marsh a secret $50,000 commission to steer an $80 million state contract to the company.

“ACE has rightfully recognized the need to settle allegations that it paid to play – paying Marsh in exchange for business, but baking it into consumers’ costs,” Blumenthal said.

Blumenthal’s amended complaint also comes on the heels of the announcement that 30 unidentified states have agreed to follow a settlement with Marsh engineered by New York Attorney General Eliot Spitzer and several days after the Massachusetts attorney general indicated he might soon be filing suit against Marsh.

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