Attorney General: Attorney General Announces $77 Million Settlement with the ST. Paul Travelers

Connecticut Attorney General's Office

Press Release

Attorney General Announces $77 Million Settlement with the ST. Paul Travelers

August 1, 2006

Attorney General Richard Blumenthal today announced that The St. Paul Travelers Companies, Inc., (St. Paul Travelers) has agreed to pay $77 million to settle charges of illegal business steering, customer allocation, and bid rigging. St. Paul Travelers was formed in 2004 by the St. Paul and Travelers merger.

The settlement – with Connecticut, Illinois and New York – provides $37 million in restitution to policyholders who purchased St. Paul excess casualty insurance through Marsh, Inc., from 2000 through 2004, including approximately 44 Connecticut businesses. The settlement also provides $40 million in penalties paid to the states – $24 million to New York and $8 million each to Connecticut and Illinois.

Since the mid-1990s, St. Paul and Travelers paid hundreds of millions of dollars in so-called contingent commissions to insurance brokers and agents, including Marsh, Aon Corporation, Willis Group Holding Ltd., Hilb Rogal & Hobbs (HRH), Arthur J. Gallagher & Co. and Acordia, Inc. Under hidden agreements, brokers and agents steered new business or helped retain existing business for St. Paul and Travelers in exchange for secret commissions.

“This victory is another blow to a business culture of concealed kickbacks, bid rigging and business steering,” Blumenthal said. “These companies charged higher premiums to subsidize their pay-to-play schemes. Now that money will go back to policyholders and taxpayers, directly and promptly”.

“When consumers called for customer service, they were disserved by customer deception. The company applied hard ball tactics like book rolling – switching entire accounts in return for hidden fees without consumers’ informed consent”.

“St. Paul Travelers is joining the ranks of cooperating companies and assisting our very active and ongoing investigation into the insurance industry. We anticipate more enforcement actions, adding to several national settlements and legal actions already taken. We will continue to use the information we obtain from cooperating insurers to build additional cases”.

"I commend St. Paul Travelers for taking the high road by cooperating in my investigation. St. Paul Travelers is a vital and responsible corporate citizen in Hartford, and it no doubt will continue to be so,” Blumenthal added.

Blumenthal said St. Paul’s participation in the Marsh bid rigging scheme gave St. Paul an illegal advantage over its competitors, and inflated premium costs for consumers by about 15 percent.

In addition to St. Paul’s bid rigging, Travelers improperly deceived its policyholders when it established “service centers” where Travelers employees posed as the customer’s insurance agent. Customers who called a so-called independent insurance agent like HRH or Acordia were secretly transferred to a Travelers service center employee who answered the phone simply “customer service” without disclosing that they were a Travelers employee.

Travelers also entered into secret “book roll” arrangements in which brokers switched thousands of customers wholesale to Travelers in exchange for an extra undisclosed fee paid to the broker. Under the arrangements, Travelers had the right to increase the premium of their new customers by as much as 10 percent.

Under the customer allocation scheme, Travelers was one of the “Big 3” insurers – with The Hartford and CNA – who secretly agreed with HRH that insurers would divvy up HRH’s small business customers in exchange for paying greater undisclosed contingent commissions to HRH.

In another instance, Acordia claimed in promotional materials that “Acordia’s core values center around doing what is ethical and what is right for the customer.” It boasts, “If it is right for the customer it is right for Acordia.” Contradicting this statement, Travelers and Acordia entered into secret agreements where Acordia agreed to “sweep more business to Travelers.” Acordia steered thousands of unsuspecting individuals and small businesses in return for millions of dollars in contingent commissions from Travelers.

St. Paul Travelers did not deny Blumenthal’s findings, and has agreed to continue cooperating with his ongoing investigation of hidden fees, steering and other illegal corruption in the insurance industry.

Under the settlement, St. Paul Travelers has also agreed to adopt business reforms, including prohibitions on bid rigging and pay-to-play agreements with brokers, and no contingent commission agreements for at least two years.

Companies with significant Connecticut operations directly victimized by St. Paul’s bid rigging include MassMutual, Fidelity National Financial, Inc., and Kaman Corporation. Policyholders eligible for settlement money will receive notice of their eligibility by November. Checks will be sent out in June 2007.

Blumenthal thanked those in his office who worked on the investigation – Assistant Attorneys General Matthew Budzik, Dinah Bee and Darren Cunningham, Paralegal Holly MacDonald, and Chief Information Officer Evelyn Godbout, under the direction of Assistant Attorney General Michael Cole, Chief of the Attorney General’s Antitrust Department.

Settlement Agreement (pdf - 168kb)