Suit Says Marsh and Ace Misled the State

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The attorney general of Connecticut sued the Marsh & McLennan Companies and a unit of the Ace Group of Companies on January 21, accusing them of working together to mislead the state and increase costs on an $80 million contract for workers' compensation insurance.

The lawsuit follows one brought by the New York attorney general in October that makes similar, but unrelated accusations that Marsh took payments to steer business. The Connecticut lawsuit widens the scope of investigations into insurance industry practices with its focus on workers' compensation, one of the largest lines of insurance coverage.

Richard Blumenthal, the Connecticut attorney general, said his investigation into suspicions of concealed payments and increased costs for customers of workers' compensation coverage extended to other major insurance brokers and insurance companies.

"We've opened a new area, but it's only one of a number of problematic areas in the insurance industry," Blumenthal said.

The compliant cites email messages from unnamed executives at three unidentified insurance companies saying that they had received demands for incentive payments from Marsh to be considered for the sale of coverage to corporate clients. Clients paid Marsh a fee for unbiased recommendations and, according to the lawsuit, were often unaware of the incentive payments.

"The more we look, the more we find in illegal or improper kickbacks and anticompetitive abuses," Blumenthal said. "The more rocks we turn over, the more there seems to be problems."

Blumenthal's lawsuit focuses on a transaction in which Connecticut asked Marsh to find an insurance company that would take over the administration and payment claims of 678 state employees. At Marsh's recommendation, the state agreed to pay $80 million to Ace Financial Solutions to take on the work and to pay Marsh a fee of $100,000. Unknown to the state, the lawsuit said, Marsh demanded and received an additional payment of $50,000 from Ace.

Ace told the state that the $80 million to take over the workers' compensation cases did not included any payments to Marsh. Blumenthal said he had evidence that the $50,000 to Marsh had come from the $80 million payment.

The transaction involved a form of insurance often referred to as finite insurance. In the Connecticut case, the $80 million was the amount estimated by both sides to resolve the workers' compensation claims. To make a profit, Ace would hope to settle the cases for less and to also earn interest on the $80 million while the settlements were being negotiated.

The Connecticut suit accuses Marsh and Ace of violating the state's consumer protection laws and could result in restitution and punitive damages. Ace was one of many large insurers that New York Attorney General Eliot Spitzer accused of cooperating with Marsh in misleading and cheating customers.

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