$1.3M Arthur J. Gallagher Refund Motivates Fla. AG to Continue Brokerage Investigation

The Florida Attorney General’s Office is investigating why Arthur J. Gallagher & Co. sent a $1.3 million refund check to the City of Gainesville, Fla. to reimburse the city for overcharges that took place over 14 years. The Attorney General’s Office began a statewide examination of insurance brokerages last November and is now closely scrutinizing Gallagher’s offices in Gainesville and Alachua County.

When Insurance Journal contacted the Florida Attorney General’s office, a spokesperson referred to two press releases issued Nov. 5, 2004, and Jan. 31, 2005, in which the office said it had launched statewide investigations across Florida and listed companies it was investigating, including Arthur J. Gallagher & Co.

The Attorney General’s Office said this investigation is part of an on-going investigation announced by Charlie Crist in November, 2004. At that time the office was investigating how brokers and insurers utilize contingency commission arrangements.

In the news release the Attorney General’s Office said: “There are indications that insurance brokers have improperly steered business to insurers who pay the brokers the highest fees rather than seeking the best deals for their customers. There are also indications that the companies may have engaged in bid-rigging. The alleged practices could be in violation of 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.

“The Attorney General is investigating arrangements between insurers and brokers for commercial group accounts for property and casualty insurance as well as life and health policies. The Attorney General’s Office has been conducting joint investigations in cooperation with a task force established last November by Tom Gallagher, Florida’s CFO.”

JoAnn Carin, an official spokeswoman for the Florida Attorney General’s office, was unavailable to discuss additional details about the investigation with Insurance Journal.

According to the Sun report, Attorney General’s Office investigators began calling city staff this week for information on a check delivered to city employees by Gallagher in June for $1.3 million to cover overcharges made over the past 14 years. The investigation comes on top of internal city reviews of the issue delving into whether the amount of Gallagher’s payment is correct, why the problem was only discovered during an internal audit by the company, and why city staff did not immediately disclose the overcharges to the interim city manager or city commissioners.

Carrin told the Sun she could not provide details on the office’s activities because the investigation is on-going. The initial investigation was not focused on Gallagher & Co., she said.

“We’re looking at the industry as a whole, not just this one situation,” Carrin said.

The Attorney General’s Antitrust Division has been investigating insurance brokerages statewide since at least January, when the city’s Risk Management Department received a generic request for information on the city’s contract and correspondence with its broker.

After learning about this investigation last week, City Attorney Marion Radson informed the Attorney General’s Office about the situation in Gainesville, prompting specific calls about the situation, he said.

“They said they were interested in the dealings of Arthur J. Gallagher & Co. and the various cities they may be dealing with,” Radson said.

City officials revealed last week that city staff had received the $1.3 million check in late June, just before city commissioners began debating whether to award the company a new contract.

Alachua County received a check for more than $117,000 and Lakeland, which also uses Gallagher, received a check for more than $1 million.

Gainesville staff are reviewing Gallagher’s records to ensure the payment is for the correct amount. City officials are also looking into why members of the city’s Administrative Service Department didn’t tell interim City Manager Barbara Lipscomb or city commissioners about the overcharges during commission debate over Gallagher’s contract.

John Liston, a Gallagher employee who deals with Gainesville out of the company’s Clearwater office, declined to comment to the Sun on the situation when reached by phone. Company officials in Gallagher’s Chicago headquarters could not be reached for comment.

Topics Florida Agencies A.J. Gallagher