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AJ Gallagher in $37mn contingent commission settlement

US insurance broker AJ Gallagher said last week that it will take a $5mn-$10mn fourth quarter charge following a $36.9mn deal to settle a class-action lawsuit over contingent commissions.

Gallagher – which did not admit wrongdoing – agreed to pay $28mn to current and former clients between 1994 to 2005. In addition it will pay some $8.85 in legal fees.

The firm said it had decided to settle rather than “prolong what could be a costly and burdensome lawsuit".

Like its international broking rivals, Gallagher settled regulatory investigations into its remuneration practices in 2005 and has agreed to stop charging contingent commissions.

Separately, US life insurance giant MetLife agreed to pay $19mn last month to settle investigations by the former New York attorney general Eliot Spitzer into its use of contingent commissions.

Spitzer – who was inaugurated as state governor yesterday – continued to act against the use of contingent commissions last year despite the settlements with the US’ four largest broking groups.

Other insurers who have settled investigations into their use of contingent commissions – which Spitzer characterises as “kickbacks” – include AIG, Chubb, St Paul and Zurich Financial Services.

While in one of his last actions before the Christmas break, Spitzer filed a lawsuit against Acordia Inc accusing the US’ fifth largest insurance broker of illegally steering business to companies who paid them kickbacks.

He accused the firm of placing its “own financial interests ahead of the well-being of its clients” in charging contingent commissions.

In a statement accompany the news, Spitzer’s spokesperson exclaimed: “Contingent commissions is a ten-dollar word for kickbacks.”

He added those brokers who continue to use them “have sold out the interests of their own customers in order to generate greater profits for themselves”.

Spitzer’s allegations – which were filed in the State Supreme Court in Manhattan on 20 December – were mirrored by suits against the firm from the Illinois and Connecticut attorney generals.

Acordia deny any wrongdoing.  

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