Agents Take Aim at Zurich Compensation, Disclosure Settlement

September 20, 2006

An association for independent insurance agents has urged a federal court to reject recent settlement provisions between Zurich Insurance and states that affect thousands of agents who were not involved in the original dispute with the states.

The National Association of Professional Insurance Agents (PIA) has filed an amicus curiae brief with the United States District Court for the District of New Jersey, in opposition to certain limited aspects of a proposed settlement involving Zurich Insurers.

PIA National said it objects to recent multi-state settlements because it says they create disparate impact on PIA members’ livelihood by prohibiting the payment by carriers of certain contingency payments and because they introduce legal confusion of insurance buyers’ rights with their disclosure notice requirements.

PIA National also claims that the Zurich settlements further discriminate against PIA members since leading mega-brokers including Marsh, Aon and Willis have had their similar settlements revised so they can now receive some contingency payments whereas settlements referred to in this class action suit could.

“A key mission of PIA is to defend the integrity of our members and protect their business interests,” said PIA Executive Vice President & CEO Len Brevik. “The alleged abuses that led to these settlements were not committed by Main Street insurance agents. Regrettably, this settlement agreement and others like it attempt to create a remedy for alleged wrongdoing and then impose it on those who were not involved in any wrongdoing. As a result, PIA is compelled to address these issues formally through our direct involvement in this class action, on behalf of our members and their business interests.”

According to Brevik, PIA’s filing also addresses efforts by several state attorneys general to use the settlement process to compel making incentive compensation illegal. In the case of the proposed settlement involving Zurich, this includes a provision requiring the company to “support legislation and regulations in the United States to abolish contingent compensation for insurance products or lines.”

“State attorneys general should not usurp the policymaking authority of state legislatures,” Brevik said. “Specifically, they should not use their law enforcement powers in an effort to bring about a fundamental change in the American system of free enterprise. Performance-based compensation is not a threat to that system; it is the basis of that system. Certain provisions contained in these agreements are grossly unfair to PIA agents, and grossly unfair to carriers by restricting their ability to compensate their producers in a legal and honest manner.”

The agent group notes that several of the original settlements reached in 2004 have, in recent weeks, been amended by state attorneys general to liberalize earlier prohibitions against receiving any contingency earnings, in signed settlements involving Marsh, Aon and Willis, among others — while not changing aspects of settlements that may adversely impact Main Street agents, who were never accused of any wrongdoing.

“These voluntary settlement agreements, which are not truly voluntary, are being entered into by carriers under threat of legal sanction by various state attorneys general,” said PIA National President-elect Donna Pile. “Provisions in these settlements place the burden of these sanctions squarely on the shoulders of the local Main Street agents, creating an enormous financial strain on our PIA agencies. It is dangerously disconcerting that the Main Street agent force is paying the price for a few wrongdoers from a totally different arena. This is not due process.”

As part of the proposed settlement of a class action lawsuit filed in August 2005 against Zurich, which was prompted by investigations of alleged bid-rigging conducted by several state attorneys general, professional independent insurance agents would be required to use a court-mandated mandatory disclosure statement that PIA claims is “inaccurate, violates existing state and common law and is rife with serious and fatal flaws.”

While pointing out to the court that PIA has no intent to obstruct the consummation of the Zurich class settlement, nevertheless “any perceived need for expediting the settlement process cannot justify the serious and fatal flaws” in the mandated disclosure statement.

PIA said it tried to participate in the drafting of the mandatory disclosure statement, but was locked out of those negotiations. “Unfortunately, the carriers involved in this process are in no position to make modifications to these imposed results,” maintains PIA National Vice President/Treasurer-elect Kenneth R. Auerbach, an attorney. “So, the system left PIA with no other option to be heard.”

Auerbach said PIA has been “compelled to file our comments together with our proposed changes to the disclosure statement directly with the court, as a friend of the court, for its consideration.”

PIA is a national trade association that represents member insurance agents and their employees.

Source: PIA

Brief of Amicus Curiae, Unites States District Court, District of New Jersey in opposition to Proposed Class Settlement with Zurich Insurers, National Association of Professional Insurance Agents

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