Attorney general Eliot Spitzer has filed a lawsuit against Liberty Mutual alleging that the firm participated in bid-rigging scheme.
The civil complaint details how the group made payoffs to insurance brokers and independent agents to steer their clients to Liberty Mutual.
The complaint says Liberty Mutual was explicit with brokers and agents about what it expected in exchange for the payments, describing the payoffs as an "incentive . . . to encourage your Agency to place an increased amount of profitable business with our company."
Brokers and agents apparently responded to these incentives, steering their clients to Liberty Mutual and in many cases violating their duty to assist their clients in finding the best insurance for the lowest price.
Attorney General Spitzer, said: "It is simply appalling that a major financial institution would rig bids and induce brokers and agents to abuse their position of trust with the insurance-buying public."
From 2001 through 2004, Marsh repeatedly solicited from Liberty Mutual and other insurers fake bids - called "B quotes" - that were intentionally higher or otherwise less favorable to the customer in order to "support" or "protect" the bid of a favored insurer.
Through this scheme, Marsh was able to deceive its clients into thinking that the insurance policies and premiums it offered were the result of true competition among insurers.
Liberty Mutual Group responded to the allegations in a statement that said: "We have tried to reach resolution and can only describe their settlement demands as excessive and unreasonable: both in terms of magnitude and in their demands that we change legitimate business practices in states outside their legal jurisdictions. We have declined these demands and are preparing to resolve the issues in court.
Allegations of wrongdoing regarding commission payments and reinsurance brokering are incorrect. Liberty Mutual's conduct in both areas was appropriate and lawful.
Unfortunately, two former lower level employees seriously violated our trust and our standards of conduct in their quotation activity. One employee left in 2001 and the other resigned in the course of our investigation in 2005. Liberty Mutual has a culture not just of compliance, but of 'doing the right thing.'
Despite cooperating with the Attorneys General investigations for nearly two years, we have been unable to reach a reasonable consensual resolution. Thus it is in the best interest of our policyholders and employees that we vigorously defend these allegations and allow the judicial process to work."
