California Insurance Commissioner John Garamendi says he will follow New York’s lead and file a civil action against a sector of the insurance industry as part of his campaign against brokerage fee irregularities.[@@]

Garamendi says he will file the lawsuits next week but would not disclose specifics. He made his announcement during a press conference where he proposed new state rules designed to counter illicit fee arrangements,

He also revealed that the National Association of Insurance Commissioners held a conference call today to discuss possible actions they could take to deal with the widening broker-insurer kickback scandal. Garamendi declined to give any details on their deliberations.

An NAIC spokesman referred calls to Oregon Insurance Superintendent Joel Ario, who was not immediately available.

Last Thursday, New York Attorney General Eliot Spitzer filed a civil action accusing Marsh, the world’s biggest brokerage, of rigging bids and fixing prices with major insurers in exchange for payoffs disguised as fees. At the time, California had planned to file a civil action as well, but “hit a speed bump,” Garamendi says.

Garamendi says he had been investigating insurer incentive payments or contingency fees for brokers since February ,when the Washington Legal Foundation, a public interest group in Washington, D.C., had written to suggest there was conflict.

The California investigators have been working with Spitzer, whose investigation of national companies including Marsh, Aon, American International Group, ACE, The Hartford and Munich American Risk Partners. That investigation revealed information about practices in California, Garamendi says. He adds that he “will be working with that information” in his own lawsuit.

The investigation started with broker fee arrangements involving large commercial lines, and according to Garamendi, “as we moved along, we discovered problems in other areas. What’s going to be next? I don’t know.”

The new rules, the civil action filed, and his continuing investigation are “the first pages in a long and sordid book,” commented Garamendi.

All of his proposed rules for agents and brokers, strengthen and clarify existing regulations requiring full disclosure of agent broker compensation agreements and setting fiduciary duty requirements for brokers, he says.

The new rules would provide that violations could be punished with fines of $10,000 per incident and revocation of a company’s or broker’s license.

Brokers are not required to make their disclosures in writing, but . Garamendi says he would “highly recommend they do so.”

The new rules call for brokers to provide clients with the best insurer proposal available. It calls for punishment for failure to alert client to the best insurer selection, for advising not to select the best available insurer, and for failing to take reasonable measures to obtain a quote from an insurer that might be the best available.

Meanwhile, in Connecticut, officials confirmed that a joint investigation of brokers begun in August by Insurance Commissioner Susan Cogswell and Attorney General Richard Blumenthal has been expanded to look at antitrust activity.

The initial probe examining potential conflicts in the commercial insurance brokerage industry was kicked off with a questionnaire asking for dozens of details about commercial and group health insurance company commission agreements with brokers–whether they were written or verbal, and whether they were tied to volume or profitability, premium size or quality of risk.

As part of the expanded inquiry, a spokeswoman for Blumenthal’s office, Tara York, says that various parties have recently been served with subpoenas. She did not specify which firms were subpoenaed.