A group of seven insurers and two insurance brokers according to the agreement must pay a combined $36.8 million to clients that purchased business insurance from 1998 to 2004, according to a March 18 memorandum outlining the terms of the preliminary settlement agreement.
The putative class-action case had alleged that insurance brokers worked with insurers to manufacture fake bids to present to large insurance buyers alongside legitimate bids to make the process of finding coverage appear more robust than it actually was. The suit also alleged the plaintiffs had conspired to hide some commissions paid by the insurers to the brokers, and leveled other accusations about how insurers and brokers marketed and sold coverage.
The case, an amalgam of several that were consolidated in U.S. District Court for the District of New Jersey in 2005, expanded on allegations raised in an investigation by New York's then-attorney general, Eliot Spitzer. The insurers and brokers had earlier settled with Mr. Spitzer and other attorneys general.
Some brokers agreed in their settlements with Mr. Spitzer to stop accepting some fees from insurers called "contingent commissions" that are based on the amount of business or profits the brokers generate for companies for a period of years. Mr. Spitzer's investigation of the insurance industry also resulted in other allegations concerning AIG accounting that caused AIG Chief Executive Hank Greenberg to step down in 2005.
The other insurers that agreed to settle the lawsuit last week are Liberty Mutual, XL Group PLC, CNA Financial Corp., Hartford Financial Services Group Inc. and Crum & Forster. The settling brokers were Aon Corp. and Willis Group Holdings PLC.
The insurance industry had been fighting in court to get the case dismissed, and won a victory in the U.S. Court of Appeals last year that resulted in portions of the case being thrown out.
Under the terms of the prospective settlement, AIG, Travelers, Liberty Mutual and XL will each pay $6.75 million, plus some administrative fees. Aon, Willis, Crum & Forster, CNA and Hartford will pay a combined total of $9.75 million.
The settlement still must be approved by the judge who has overseen the case.
A spokesman for AIG said the insurer was "pleased to have reached an agreement to resolve this matter," and noted the settlement "brings an end to another long-standing lawsuit about events from many years ago."
The settlement amounts agreed to last week are substantially less than the sums paid by the companies that settled with the same defendants earlier. Zurich Financial Services AG, for example, agreed to pay $100 million about five years ago to settle.
Spokespersons for Travelers, Liberty Mutual, XL, Aon, Willis, Crum & Forster, CNA and Hartford either had no immediate comment, couldn't immediately be reached or declined to comment beyond confirming their participation in the settlement agreement.
Some insurers named in the suit, including Ace Ltd. and Chubb Corp., have yet to agree to settle.