Alliance Responds to Lawsuit Aimed at Agent/Broker Contingency Commissions

February 2, 2005

The American Agents Alliance, representing over 2,000 independent agents and brokers in California and Arizona, criticized attorney Norman Goldman for filing an amendment to a compliant he filed in 2003 against Aon Insurance Company subsidiary Auto Insurance Specialists (AIS), a member of the Alliance. The complaint was amended last month to include contingent commissions.

“There was an indictment filed last year against Marsh & McLennan, a large New York brokerage house, by New York Attorney General Eliot Spitzer. It dealt with insurance brokers and broker fees, and has nothing to do with brokers in California. The fact that the plaintiffs represented by Goldman have not produced one person who has suffered any financial harm is very telling as to the catalyst for this complaint,” said Alliance Executive Director Ken Nigohosian.

“Goldman is trying to make some money off of a New York issue by taking a transparent stab at brokers in California. If allowed to stand, it would have a devastating impact on the healthy, competitive personal lines market in California. That translates into harming thousands of good, hardworking insurance consumers in this state.”

Nigohosian noted that Goldman was in attendance at the recent workshop held by the California Department of Insurance regarding Insurance Commissioner John Garamendi’s newly proposed broker fiduciary regulations, which the Alliance, along with a coalition of industry trade groups, has vociferously opposed

Alliance Vice President Gary Jensen called the amended complaint “flawed” for several reasons:

• First, it draws the conclusion that contingency commissions are illegal. They are not.

• Second, it is incomprehensible that AIS is being accused of steering business to Mercury because of potential contingency payments, especially when one of (Commissioner) Garamendi’s own proposed regulations would require a broker to place business with the “best available market.”

“Mercury is definitely one of the many carriers in this competitive arena offering affordable rates, products and services to consumers.” said Jensen, who also pointed out that the Department of Insurance has the final approval for all rate filings in California, which include contingency commission formulas as well as other producer compensation. In fact, consumers are able to view rate comparisons on the Department’s Web site.

“This lawsuit could be interpreted as an attack on the Department’s own rate approval process, and we are surprised they haven’t come out strongly against Goldman’s obvious attempt to latch on to (New York Attorney General Eliot) Spitzer’s success with Marsh & McLennan,” concluded Jensen. “The facts in this so-called lawsuit will eventually expose Goldman’s underlying agenda to make money from false accusations.”

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