Liberty Mutual Paying $7.5M to Settle Bid-Rigging Charges

By | December 30, 2010

Boston-based insurer Liberty Mutual will pay a combined $7.5 million to New York and Connecticut to settle allegations that it steered insurance contracts by paying kickbacks large insurance brokers.

In settling the suits, New York will receive $5.5 million and Connecticut gets $2 million.

The settlement, announced by Connecticut Attorney General Richard Blumenthal, is the last pending litigation that stems from the state’s 2005 investigation of the insurance industry’s business practices. The suit has been pending since 2006. It’s one of several suit brought by state prosecutors across the country, most notably in New York by former Attorney General Eliot Spitzer.

Blumenthal alleged that Liberty Mutual, along with several large insurance carriers and brokers participated in a scheme to carve up the commercial insurance market into profitable segments of steering certain clients toward particular carriers and then paying so-called contingent commissions — a bonus for a profitable volume of business — to the brokers that helped steer the business.

Most brokers, including Willis, Marsh and Aon, settled with the states and agreed to cease taking the commissions as part of those original settlements.

Liberty Mutual, however, fought the charges brought by Blumenthal, and others and has always maintained it did nothing illegal — particularly in paying the commissions.

A New York state court even agreed with that assessment, ruling in 2008 that there was nothing in fact illegal about its contingent commission payments.

Despite that victory, a Liberty Mutual spokesperson said the company has “always maintained Liberty had done nothing wrong” but “at this stage we think it better to pay these relatively small amounts and put the matter behind us.”

In Connecticut, however, Blumenthal blasted the company. “Liberty Mutual’s conduct was reprehensible, illegally increasing insurance premiums for consumers and businesses and undermining the free market… The company brazenly broke the law, using underhanded, unethical and illegal methods to rip off its customers.

In all, Blumenthal’s prosecution of the insurance industry has resulted in $35 million in civil penalties for state, including the $2 million settlement with Liberty.

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