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Life Health > Life Insurance

Spitzer Indicts 8%2C Says More News In Pipeline

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After close to a year of civil litigation and plea bargain deals, New York Attorney General Eliot Spitzer has announced the indictment of 8 insurance brokers on charges of bid-rigging and defrauding clients.[@@]

The 37-count indictment, unveiled today in a New York state court in New York City before Judge James Yates, charges the 8 former executives from the insurance brokerage firm Marsh, a subsidiary of Marsh & McLennan Companies Inc., New York, with grand larceny, scheming to defraud, and restraint of trade and competition.

Under the felony charges, of grand larceny, the executives could face a maximum sentence of 15 to 25-years in prison.

Charged in the indictment were William Gilman, executive marketing director and managing director; Joseph Peiser, head of global broking excess casualty and managing director; Edward J. McNenney, global placement director and managing director; Greg J. Doherty, ACE local broking coordinator team leader and senior vice president; Thomas T. Green Jr., senior vice president; Kathleen M. Drake, local broking coordinator team leader and managing director; William L. McBurnie, coverage and carrier specialist and senior vice president; and Edward J. Keane Jr., assistant vice president.

All of the individuals indicted have pleaded not guilty.

Gilman was released on $100,000 bail. Peiser and McNenney were released on $75,000 bail; Doherty was released on $50,000 bail; Green, Drake and McBurnie were released on $35,000 bail. Keane was released on his own recognizance.

According to a Marsh & McLennan spokesman, the 8 executives have left within the last 11 months.

In a statement, Marsh & McLennan President Michael Cherkasky emphasizes that the new charges do not involve the firm and that his company reached an agreement with Spitzer earlier this year.

“This indictment is about the past,” Cherkasky says. “MMC today is focused on the future and is committed to excellence and the highest standards of professionalism and service.”

The indictments against the 8 former Marsh executives stem from Spitzer’s ongoing investigation of the insurance industry. The investigation, started more than a year ago, produced a suit against Marsh & McLennan that eventually led to more than $1 billion in settlement payments, the ouster of Marsh & McLennan’s chief executive, and agreements to abolish contingent commissions by Aon Corp., Willis Group Ltd., and Arthur J. Gallagher & Company as well as by Marsh & McLennan.

Spitzer’s new indictments allege that the 8 former Marsh executives named “colluded” from November 1998 to September 2004 with executives at American International Group Inc., Zurich American Insurance, ACE USA, Liberty International Insurance Company and other companies to “rig the market for excess casualty insurance,” Spitzer’s office says.

The 8 former Marsh executives worked with the insurers to determine who would win business, set a target premium for the predetermined winner, and obtain losing bids to make the process look genuine, according to the indictment.

The arrangements earned millions of dollars for both the carriers and for Marsh, Spitzer said.

“Not only was this wrong, but it was harmful to the economy,” Spitzer said. “It skewed the system and added to the already high cost of insurance. It subverted the fundamental principal of our economy, which is full, free and fair competition.”

Spitzer said the companies defrauded include State Farm Mutual Automobile Insurance Company, Fortune Brands Inc., Vivendi Universal S.A.. Intel Corp., Fidelity National Financial Inc., Cisco Systems Inc., E & J Gallo Winery, Merle Norman Cosmetics and Neiman Marcus Group Inc.

Spitzer said a total of 17 executives at 5 companies have pleaded guilty as a result of his office’s insurance industry probe, and he said he expects to obtain more pleas.

Spitzer said there will be additional individual actions and actions against the carriers his office is investigating.

“The work in this area is not complete,” Spitzer said of his office’s review of what he says are unfair bidding practices. “As part of our ongoing investigation, I am currently negotiating an end to such practices with several insurance entities.”

Spitzer said his office continues to proceed with a previously announced action involving a benefits broker, Universal Life Resources Inc., San Diego.

Spitzer also said he believes that changes in leadership at AIG, New York, and other changes at AIG should help lead to a resolution of his office’s investigation of AIG.


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