UPDATE: Marsh & McLennan Settles Class-Action Suits For $435 Million
November 13 2009 - 2:16PM
Dow Jones News
Insurance broker Marsh & McLennan Cos. (MMC) agreed Friday
to pay $435 million to settle two of the largest remaining
shareholder lawsuits triggered by a 2004 investigation into
payments by insurance companies to brokers.
"We are happy to put it behind us," Brian Duperreault, Marsh
& McLennan's chief executive, said of the settlements. He was
speaking on the sidelines of an insurance conference Friday in New
York.
Marsh & McLennan agreed to pay $400 million to settle a
securities suit and $35 million to settle another suit related to
charges under the Employee Retirement Income Security Act. Of the
total, $230 million will be covered by insurance. The remainder
will be come from cash on hand. Duperreault said the settlement
will have an impact on the company's fourth-quarter results as well
as a tax effect.
The 2004 scandal, uncovered by then-New York Attorney General
Eliot Spitzer, started out as an examination of so-called
contingent commissions that insurers pay to brokers based on the
profitability or volume of business they bring in. It evolved into
a criminal investigation after evidence was uncovered of active bid
rigging in order to steer customers to favored insurers.
Spitzer's October 2004 civil complaint charged Marsh &
McLennan with setting up fake bids to steer customers to favored
insurers. The company settled the civil complaint, agreeing to pay
$850 million in settlement and customer restitution charges.
Criminal charges were also filed against some insurer and broker
employees. The charges led to a shake-up of the industry and dozens
of shareholder and state lawsuits.
Debt analyst Kathleen Shanley of GimmeCredit upgraded Marsh
& McLennan to stable from deteriorating, an acknowledgment that
the broker "has finally put the contingent commission scandal
behind it," she said in a Friday note.
Marsh & McLennan shares recently traded unchanged at $23.99.
The stock is trading down 1.2% year to date.
Another lasting side effect of the scandal--a ban on
insurer-paid commissions to the largest brokers based on
profitability or the volume of business they bring in-- may also
come to an end this year, as regulators consider setting new rules
for disclosure of the commissions.
Marsh & McLennan and rival brokers Aon Corp. (AOC), Willis
Group Holdings Ltd. (WSH) and Arthur J. Gallagher & Co. (AJG),
all agreed to stop taking the commissions after the 2004
investigation.
That ban has already been lifted for Arthur J. Gallagher and may
be lifted by the end of the year for the other three. Smaller
brokers were never required to give up the commissions, and Willis
Group Holdings has vowed to forgo the payments even once they are
allowed.
Marsh & McLennan's securities class action settlement is
still subject to court approval in the Southern District of New
York.
-By Lavonne Kuykendall and Joan E. Solsman, Dow Jones Newswires;
(312) 750 4141; lavonne.kuykendall@dowjones.com
(Serena Ng in New York contributed to this story.)
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