List of Cases of Attorney General Eliot Spitzer - Insurance

Insurance

• Contingent commissions (2004): In the commercial insurance business "contingent commissions" or "overriders" are fees paid based on the volume and profitability of insurance business generated by brokers. They provide incentive for agents and brokers to underwrite carefully as contingent commissions often serve as rewards for good loss ratios. Without contingency commissions, there is little incentive for agents or brokers to be selective in the risks that they submit to companies. However, some argue that contingent commissions may provide an incentive for insurance brokers to recommend more costly insurance to their clients, presenting a conflict of interest. While many large brokerages such as Marsh & McLennan Companies (against whom Spitzer filed his original suit), Aon and Willis announced plans to stop the practice of contingent commissions, many argued that the practice was not to blame for the rigged bids uncovered by Spitzer. Indeed, the practice accounted for about only five to seven percent of total revenues for brokers and did address a traditional misalignment of interests in insurance between the carrier and the producer. Under a traditional flat commission structure the latter has less incentive to submit risks with an eye for long-term loss potential in mind. So-called finite insurance products, which may more closely resemble a loan than insurance, were also investigated, even if there was "transference of risk" involved.
• American International Group (2005): On May 26, 2005, Spitzer filed a civil complaint against Maurice R. "Hank" Greenberg (Chairman and CEO) and Howard I. Smith (ex-CFO of AIG), alleging fraudulent business practice, securities fraud, common law fraud, and other violations of insurance and securities laws. Despite tough talk on a television news show, Spitzer declined to bring any criminal charges against Greenberg, and two of the civil charges were dropped in September 2006. Four civil charges, 'the heart of the case', remain outstanding.
• On December 22, 2005, John C. Whitehead, chairman of the Lower Manhattan Development Corporation, alleged that Spitzer had threatened him during a telephone call that took place in April 2005. In a letter to The Wall Street Journal, Whitehead alleged that Spitzer called him regarding a Wall Street Journal opinion piece that he wrote about Spitzer's public comments regarding Maurice R. Greenberg. According to the allegation, Spitzer threatened, "Mr. Whitehead, it's now a war between us and you've fired the first shot. I will be coming after you. You will pay the price. This is only the beginning and you will pay dearly for what you have done. You will wish you had never written that letter." Spitzer has denied the allegation.
• The insurance investigation started by Spitzer spread to other states. Illinois Attorney General Lisa Madigan announced a parallel investigation of insurance brokerages headquartered in Chicago, which led to substantial out-of-court settlements from AJ Gallagher and Willis. Although the practices of these insurance brokerages did not violate criminal law, they violated the code of professional ethics required by the state to obtain licenses. One of the practices alleged by Madigan was "steering" insurance clients to purchase insurance policies that would produce higher commissions for the brokerage.