Lockyer Opens Insurance Probe

Atty. Gen. Bill Lockyer said Friday that he had opened a formal investigation into possible bid rigging and other anti-competitive activities in the insurance industry.

Lockyer said his initial inquiry would seek to determine whether insurance companies and brokers violated state antitrust laws by conspiring to fix prices. Violations carry both civil and criminal penalties.

“Businesses cannot conspire to give themselves an unfair advantage over competitors or harm consumers by keeping prices artificially inflated,” Lockyer said in a statement. “They cannot breach their duty to tell customers the whole truth.”

Lockyer’s action comes two weeks after New York Atty. Gen. Eliot Spitzer sued the nation’s largest insurance broker, Marsh & McLennan Cos., asserting that it had steered clients to insurance companies that paid it special commissions. Last week, California Insurance Commissioner John Garamendi proposed rules that would require more detailed disclosure of these commissions and penalize brokers who put their own interest ahead of clients.

Lockyer said he was cooperating with Garamendi in an investigation into commission payments. But the attorney general said his staff was looking more closely at actions that would clearly violate the law -- such as brokers soliciting phony bids to deceive clients into thinking they were getting the best insurance deal. He did not name any specific targets.

Lockyer’s investigators have a number of powerful tools at their disposal, including the ability to file criminal violations, said Norman Goldman, a Los Angeles attorney who regularly files cases against insurance companies and brokers.

“This whole area has been rife with abuses,” Goldman said. “People have been overpaying for their insurance.”

Stephen Young, general counsel of the Insurance Agents & Brokers of the West, a trade group, said he welcomed Lockyer’s investigation. Still, Young speculated that the kinds of “serious allegations that are evident in New York state ... will prove to be completely isolated and limited.”

In a related development, attorneys representing insurance policyholders asked San Francisco Superior Court Judge Richard Kramer on Friday to rule that commissions paid by insurance companies to brokers are illegal under California’s unfair-business-practices law.

The request is the latest development involving four related lawsuits, filed in 2002, that contend that the payments gave brokers a “powerful incentive to steer business to the insurance company instead of finding its clients the best insurance at the best price and pressing for payment of claims.”

The defendants are Hartford Fire Insurance Co., American International Group Inc.’s AIU Insurance Co. unit, Allianz Insurance Co. and its Fireman’s Fund unit and Chubb Indemnity Corp.

Representatives of all four declined to comment.

New York attorney Finlay T. Harckham, whose firm Anderson Kill & Olick filed the lawsuits, said he was hoping for a court order forcing the insurers to disclose the payments and to cease making them in the future. A ruling is not expected until early next year, he said.

The same firm in 1999 sued the three largest insurance brokers -- Marsh, Aon Corp. and Willis North America Inc. -- in connection with insurer commissions, under a California statute that allows lawyers to act as private attorneys general on behalf of the public. That lawsuit was settled in 2001, and as part of the settlement the brokers agreed to improve their disclosures about commission payments.

In another insurance development Friday, consumer activist Harvey Rosenfield filed a suit in San Francisco Superior Court accusing Fireman’s Fund of providing financial incentives to insurance agents to discourage them from providing “good drivers” discounts to certain motorists. The complaint alleged that Fireman’s Fund had established “target markets” and discouraged its agents from writing coverage for qualified drivers in those markets.

The company declined to comment on the lawsuit.

Lifsher reported from Sacramento and Reckard reported from Orange County.