A Connecticut court has ruled that Wells Fargo-owned insurance brokerage Acordia Inc. broke the law by failing to disclose it received contingent commissions from five insurers.
At issue in the case was an internal marketing program within Acordia known as the Millennium Partnership. The program was set up in 1999 to pay for an agency management system that would streamline paperwork and processing for insurers that agreed to join the program – namely, Atlantic Mutual, Chubb, The Hartford, Travelers and Royal SunAlliance.
As part of their participation, the insurers agreed to pay an additional 1 percent commission on each of their policies sold through the Acordia program; those funds would be used in part to pay for the installation of the system.
In his ruling, Judge Kevin Dubay found no case in which Acordia brokers steered business to Millennium Partnership insurers, and in one example, cited the case of a broker who, acting in his client’s best interest, placed an account with a non-Millennium insurer – a move that “cost” Acordia $500,000 in commission.
However, the judge ruled, because the Millennium arrangement was never disclosed to customers, it constituted a breach of fiduciary duty by the broker.
“The Millennium Partnership constituted a conflict of interest between Acordla and its clients because… Acordia received more money when Millennium insurers’ products were sold to Acordia clients and Acordia agreed to present Millennium insurer products more frequently to Acordia clients in return for those increased payments,” Dubay wrote.
Acordia must now account for any non-disclosed commissions that were paid for by Connecticut consumers in order to determine a penalty.
In a press release, Blumenthal called the decision “a resounding message to insurance brokers about their legal duty to be open and honest with clients.”
In his ruling, the judge wrote “The State of Connecticut did not prove that (Acordia) brokers did anything other than act in their clients’ best interest. Three of the four producers” who testified in the case “had never even heard of the Millennium Partnership Program while it was in effect and therefore its existence could not possibly have influenced their behavior. The remaining producer may have heard about the MPP but it did not affect his obligations to his client. The brokers’ behavior is not surprising in as much as the personal relationship with the client is paramount to a producer.”
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