Marsh Senior Executive Pleads Guilty In Ongoing Spitzer Probe; Complaint Explains Bid Rigging Process

January 6, 2005

A senior vice president for Marsh Inc. has pleaded guilty to criminal charges in connection with an ongoing investigation of fraud and bid rigging in the insurance industry, according to New York Attorney General Eliot Spitzer.

In his guilty plea, Robert Stearns admitted that between 2002 and 2004, he instructed insurance companies to submit noncompetitive bids for insurance business and conveyed these bids to Marsh clients under false and fraudulent pretenses.

Stearns pleaded guilty before Justice James Yates in New York County Supreme Court to the crime of scheme and defraud in the first degree, a felony, which carries a maximum sentence of one and one-third to four years, according to Spitzer.

Six executives in four insurance firms have now pleaded guilty to criminal charges in Spitzer’s probe. Two executives at AIG, two from Zurich American, and one from ACE previously entered pleas to similar charges.

The felony complaint against Stearns cites e-mails, meeting notes and memos.

“The goals of the scheme included controlling the market for excess casualty insurance coverage, protecting incumbent insurance carriers when their business was up for renewal, and maximizing Marsh’s profit,” the complaint states.

The complaint says that the solicited phony quotes were variously referred to as “backup quotes,”protective quotes,” “B quotes,” or “B’s” and resulted in a rigged bidding process that defrauded insurance clients.

As one example, the complaint cites a March 19, 2003 email in which Stearns wrote to a colleague, William McBurnie, in connection with one account: “Chubb have quoted lead renewal at…$135,000. Would you please have AIG provide a B.”

Several minutes later, another email from Stearns explained: “A ‘B’ would be a quote from AIG which is higher in premium and more restrictive in coverage thus supporting the Chubb quote.”

Another example involved a quote on an account which St. Paul quoted at $270,000 and Stearns requested a colleague to ask Zurich American for a “B” quote of $325,000 or higher.

Also, the complaint cites an Oct. 29, 2003 e-mail sent to five colleagues at Marsh’s Global Broking Unit that attached a document outlining protocols on how they were to place coverage. According to the complaint, the document provided, in part, that they were to request “B” quotes early because the “last week of every month markets only focus on ‘live’ opportunities vs. quoting B’s (careful that alternative ‘B’ doesn’t beat incumbents quote— it’s not always price, it could be attachment point or coverage.”

Stearns is expected to testify in future cases, as are the other five who entered criminal pleas, Spitzer added.

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