Justice Department and Actuaries’ Captive Settle Antitrust Suit

June 26, 2005

The U.S. Department of Justice has reached a settlement that will require captive insurer Professional Consultants Insurance Company Inc. and its actuarial consulting firm members to stop sharing certain information on the use of contractual limitations of liability in their dealings with clients.

The action will restore competition among actuarial consulting firms on an important term in their client contracts, the Justice Department said.

The settlement does not constitute an admission of any issue of fact or law by PCIC or its owners. PCIC’s attorney, Sean F. Boland of Howrey LLP, stated that the firm “elected to settle this matter in order to put a costly and distracting investigation behind us. The settlement is not an admission that PCIC’s conduct violated the antitrust laws and PCIC strongly believes that it did not do so.”

The federal agency’s antitrust division filed a civil complaint in the U.S. District Court in Washington, D.C., alleging that PCIC, its members, and other actuarial consulting firms exchanged competitively sensitive information about their use of LOL in providing actuarial consulting services to employee benefit plans. This was termed a violation of Section 1 of the federal antitrust Sherman Act.

At the same time, the department filed a proposed consent decree that, if approved by the court, would resolve the lawsuit and the department’s competitive concerns.

“Public and private sponsors and administrators of pension funds and other employee benefit plans require no less than free and unfettered competition among their actuarial service providers,” said J. Bruce McDonald, deputy assistant attorney general in the antitrust division. “It is essential to preserve and maintain competition in this important industry that affects the retirement and benefit funds of our nation’s workers.”

PCIC, located in Burlington, Vermont, provides its members with professional liability insurance. PCIC’s members are competing actuarial consulting firms that provide actuarial risk analysis and management services to clients engaged in financial businesses and services, including pension funds and other benefit plans established to serve public or government employees, private corporate employees, and members of labor unions.

According to the complaint, actuarial consulting firms historically served their clients under terms that did not limit the consultants’ liability for damages due to actuarial mistakes, which can result in substantial monetary losses or other damages to pension funds or other employee benefit clients. The complaint alleges that as early as 1999, PCIC’s members began to consider requiring clients to accept LOL, which would contractually limit the amount of damages recoverable by the clients to a specified dollar amount, multiple of fees paid by a client, or certain types of damages sustained by a client.

The complaint further alleges that PCIC unlawfully enabled and facilitated communications among its members and other actuarial consulting firms with respect to competitively sensitive information about firms’ implementation and planned usage of LOL. The justice department alleges aslo that these communications facilitated decisions of PCIC members and other competitors to implement LOL and that as a result, employee benefit clients were denied significant competition among the actuarial consultants in their setting of contract terms.

The proposed consent decree aims to prevent PCIC and its members from sharing LOL information among themselves, or with other providers of actuarial consulting services, in a manner that may significantly lessen competition. Under the proposed decree, PCIC must require that its members be fully bound by the terms of the decree prohibiting them from communicating among themselves about LOL, except where subject to safeguards reflecting PCIC’s reasonable need to provide its members with professional liability insurance coverage.

The decree also prohibits PCIC and its members from entering into or participating in any agreement, among themselves or with any other providers of actuarial consulting services, as to any actual or potential use of LOL; and it prohibits PCIC and its members from communicating with other providers of actuarial consulting services as to any firm’s current or future plans, policies, or practices relating to the use of LOL. In addition, the decree requires PCIC and its members to establish antitrust compliance programs and notification procedures.

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