Posted on 27 Apr 2010
A Connecticut court took an unprecedented step Monday, saying one of the nation's leading insurance brokers violated the law by steering business to certain insurers -- including Travelers and The Hartford — in return for millions of dollars in fees over several years.
Similar cases have been settled before going to trial.
Insurance broker Acordia Inc., now owned by Wells Fargo & Co., violated its fiduciary duties to its customers by not disclosing that the broker received secret fees in exchange for favoring "preferred" insurers, a state Superior Court found.
Wells Fargo is planning to appeal, spokeswoman Kathryn Ellis said.
Connecticut is one of several states whose attorneys general have sued the broker since 2005, alleging that it took in nearly $200 million in fees between 2000 and 2005 related to its Millennium Agency System Partnership Plan.
Acordia does not have offices in Connecticut, though it sold insurance to about 300 Connecticut residents. But the court decided that the Connecticut residents did not suffer monetary harm from Acordia's fee arrangement and that premiums "were the same as they would have been" without the fee arrangement, the Wells Fargo spokeswoman said.
The court decision Monday is believed to be a first in U.S. history — the first to go to trial on the issue of whether an insurance broker has a fiduciary duty to customers to disclose the fees, called "contingent commissions."
The lawsuits also were part of industrywide investigations dating to 2004 that shook up the industry and led to one of the largest restitution payouts to customers in U.S. history. "This case is a significant victory for insurance consumers — and honest, competitive businesses that were illegally shut out of the market by Wells Fargo's exclusive pay-to-play club," said Connecticut Attorney General Richard Blumenthal.
Acordia's Millennium Agency System Partnership Plan was launched in January 1999 to help pay for AMS Segetta, an agency-management system that linked Acordia offices with a few insurers, giving those companies "the inside track for future business development."
In hopes of increasing their business, The Hartford Financial Services Group, The Travelers Cos., Chubb, Atlantic Mutual and Royal SunAlliance agreed by August 1999 to pay Acordia a 1 percent commission — also called an override.
The court did not name a dollar amount for restitution, but is trying to find out how much of Acordia's increased revenues were derived from violating its fiduciary obligation.