Spitzer Says Liberty Mutual Rigged Bids

New York Atty. Gen. Eliot Spitzer on Friday charged Liberty Mutual Group, the sixth-largest U.S. property casualty insurer, with rigging bids and making payoffs to steer business its way.

Liberty Mutual denied the charges, saying it was “preparing to resolve the issues in court.”

The civil complaint in New York State Supreme Court alleges that Boston-based Liberty Mutual conspired with Marsh & McLennan Cos. Inc., the world’s largest insurance broker.

Last year, Marsh & McLennan paid $850 million to Spitzer’s office and other regulators to settle these charges. The attorney general now wants Liberty to disgorge its “illegal” profit, reimburse damaged policyholders and pay triple damages.

In a statement, Liberty Mutual called the demands “excessive and unreasonable, both in terms of magnitude and in their demands that we change legitimate business practices.”

Spitzer said Liberty and Marsh conspired to rig the excess casualty market, in which businesses get coverage beyond their regular insurance policies.

From 2001 to 2004, Spitzer said, Marsh repeatedly asked Liberty to provide higher, fake bids to allow other Marsh clients, such as American Insurance Group Inc., to win with a lower, arranged bid.

“Through this scheme, Marsh was able to deceive its clients into thinking that the insurance policies and premiums it offered were the result of true competition,” Spitzer said.

Meanwhile, consumers and businesses paid inflated premiums, he added. In return, Liberty Mutual received favorable treatment from Marsh, Spitzer said.

In February, AIG paid $1.64 billion to settle its regulatory charges.

In August of last year, a former Liberty Mutual executive pleaded guilty to criminal charges in connection with the bid rigging.

In addition to bid rigging, Spitzer’s lawsuit raises the issue of “contingent commissions,” which insurers pay to some brokers based on how much business they bring to them.

Although such schemes are not technically illegal, the cost is “borne by customers steered to more expensive and perhaps even inferior products,” Spitzer’s lawsuit says.

Liberty Mutual said Spitzer’s allegations of wrongdoing regarding commission payments and reinsurance were incorrect. It said two former lower-level employees had violated its standards and were no longer with the company.