Ohio Enters into $7 Million Settlement Agreement with Zurich

Attorney General Jim Petro and Ohio Department of Insurance Director Ann Womer Benjamin announced that they have reached a settlement with Zurich American Insurance Co., resolving allegations that the company conspired with other insurers and insurance broker Marsh & McLennan to eliminate competition, mislead customers and inflate premiums paid for commercial casualty insurance policies in Ohio, all violations of Ohio’s antitrust and insurance laws.

As a part of the settlement, Zurich, without admitting to these allegations, has agreed to pay $5 million in civil penalties and $2 million to reimburse the State for attorneys’ fees and investigative costs. The company also agreed to adopt comprehensive business reforms and cooperate with the state’s continuing investigation of the conspiracy. In connection with the resolution of other investigations and a class action lawsuit now awaiting approval, Zurich would pay nearly 79,000 of its business and government policyholders in Ohio their proportionate share from nationwide settlement funds exceeding $209 million.

The settlement comes as a part of Petro and Womer Benjamin’s joint investigation, launched in October 2004, of allegations that Zurich and other insurers participated in a market allocation scheme with Marsh & McLennan, dividing commercial customers among themselves by agreeing not to compete with each other for those customers.

Insurers participating in the scheme allegedly submitted fictitious and artificially high premium quotes designed to deceive the customer into believing that the winning quote was the best available premium as determined by a competitive process. Such agreements among competitors to divide markets or customers violate the Valentine Act, Ohio’s antitrust law. The use of misleading, unfair or deceptive practices by brokers or insurers to manipulate insurance markets also violates state insurance laws enforced by the Department of Insurance.

The settlement agreement prohibits Zurich from providing false quotes and from entering into so-called “pay-to-play” arrangements under which insurers compensate brokers for being included on a list of companies from which the brokers solicit bids or quotes. In addition, Zurich must institute business reforms that result in disclosure of information to consumers about the compensation it pays to insurance producers, including brokers. Zurich must also designate a compliance officer and create a compliance program to make sure it adheres to the terms of the agreement.

Petro and Womer Benjamin did not identify other targets of their investigation because of confidentiality restrictions imposed by law.

The lines of insurance affected by the alleged conspiracy are purchased primarily by business and government entities and include umbrella, excess casualty, directors & officers, errors & omissions and commercial auto. There is no indication that personal lines of insurance, such as homeowner, personal auto, life or health, were affected.

Source: Ohio Insurance Commissioner’s Office