Ten Subpoenas Issued in Fla., Ala., N.C.–Investigations Underway

Several southeast states, including Florida, Alabama and North Carolina are trying to ferret out brokerages and other firms engaged in bid rigging, price-fixing and anti-trust activities. They are eyeing commercial group accounts; property and casualty insurance transactions; life and health policies.

The Florida Department of Financial Services (DFS) and the Attorney General’s Office launched unrelated investigations during the first and second weeks of November. Both are searching for evidence of anti-trust activities taking place in local transactions written by brokers and insurance companies–Attorney General Charlie Crist pledged to cooperate with a task force established by DFS.

The task force was established by Tom Gallagher, Florida’s Chief Financial Officer, to determine if activities uncovered by New York Attorney General Eliot Spitzer are common in Florida.

Crist issued 10 subpoenas Nov. 5 and planned to follow up with six more, seeking documents and records as Florida insurance industry investigations widened.

Crist is investigating arrangements between insurers and brokers for commercial group accounts for property and casualty insurance as well as life and health policies. The investigation stems from a complaint by a Florida resident.

The 10 Florida firms receiving subpoenas are: Acordia Inc., doing business as Acordia Southeast Inc.; Arthur J. Gallagher & Company; AON Inc.; Brown & Brown Inc.; Heath Lambert Group dba. Heath Lambert Miami LLC; Hilb Rogal & Hobbs of Vero Beach Inc.; HUB Investment Corporation; Marsh & McLennan Companies; USI Holdings Corp., doing business as USI Insurance Services of Florida Inc., and The Willis Group Inc. Additional firms, being considered by Crist to receive subpoenas include ACE Ltd., American International Group, Inc. (AIG), Chubb Corporation, The Hartford Financial Services Group, Inc. Munich American Reinsurance Co., and Zurich American Insurance Company.

Insurance Journal Southeast obtained copies of the subpoenas, which state they are an “antitrust civil investigation demand.” Companies receiving them must respond by Dec. 13.

“At this point we are investigating the brokers and insurance companies for possible violations of anti-competitive activities,” Crist said. “The subpoenas are part of a larger effort to ascertain whether insurance practices are being conducted lawfully, with no conflict, with insured citizens’ best interest at the forefront.”

The attorney general seeks to determine the current manner in which brokers and insurers use contingency commissions and arrangements. Crist cited indications that brokers have improperly steered business to insurers who pay the brokers the highest fees, rather than seeking the best deals. There are also indications that companies may have engaged in bid-rigging.

The alleged practices could violate Florida’s antitrust laws, Chapter 542, Florida Statutes. Penalties allow fines of $1 million for corporate violations, $100,000 for individuals and for three times the amount lost due to illegal activities.

Crist said he looks forward to working with Gallagher’s task force. The Florida AG is among several state attorneys general, including New York, Massachusetts, California, Connecticut and Ohio, that have opened investigations into insurance industry practices.

Tami Torres, a DFS spokesperson said the establishment of the task force is the second step in an ongoing investigation, following the establishment of a preliminary review by department attorneys. Its goal is to investigate if similar activities have been taking place in transactions by brokers and insurance companies in Florida.

Torres said Gallagher initially asked for the preliminary review for department attorneys to determine if problems existed and now has decided to set up a more formal review. The task force includes Steven Burgess, Florida’s insurance consumer advocate.

Alabama interviewing brokers
The Alabama Department of Insurance is interviewing brokers and companies tied to entities that have attracted the attention of prosecutors in New York and other states.

“There have been serious allegations of criminal conduct involving some of the nation’s largest insurance companies and brokerage firms,” Commissioner Walter A. Bell said. “We are engaging in a fact-finding mission to see if similar behavior has been conducted in Alabama.

“To that end, we have coordinated with the governor’s office, Attorney General Troy King, and other state insurance departments,” Bell said. “We have no evidence at this point of any wrong-doing in Alabama. But if any company or broker has abused the system for personal gain, rest assured we will pursue appropriate charges.”

The states’ insurance commissioners met via conference call to formulate strategies to deal with the situation, which primarily involves commercial insurance lines.

“The coordination between the states is an important one because we can share information,” Commissioner Bell said. “Our first priority is consumer protection. No one–an individual, a family, a small business or a large company–should be taken advantage of. We will investigate to what extent, if any, these practices have occurred in Alabama, and we will determine the proper course of action.”

North Carolina Insurance Commissioner Jim Long is analyzing returns from his “demand to produce information” order to closely scrutinize the records and practices of more than 5,000 insurance companies and brokers licensed in his state. The request for certified statements was issued on Oct. 28, and only gave one week for recipients to respond.

The goal of the request was to reveal: 1) persons who have solicited, sold or negotiated insurance; 2) persons that participated in bid rigging; 3) copies of the bids, quotes, applications and policies relating to such bid rigging; and 4) all information regarding how the respondent became aware of this information.

As of Nov. 9, 73 insurers and 340 brokers in North Carolina had responded to the request; 330 insurers, three brokerage firms and seven brokers were granted extensions.