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Florida insurer sues Benfield over loyalty fees

Global reinsurance broker Aon Benfield is being sued by a cedant company over a loyalty fee that was alledgedly withheld after the insurer switched its account to Guy Carpenter.

The dispute, filed in the District Court of Minnesota, revolves around payments that Benfield (pre-Aon) was allegedly supposed to pay to Florida-based Olympus Insurance Company in exchange for placing its reinsurance protection.

On 1 June 2008, Olympus appointed Benfield as its reinsurance broker for the period of one year. Under the terms of the agreement, Olympus paid an annual service fee of $1mn, but was entitled to share the brokerage revenue earned from the placement of the business, according to the filing.

Lawyers for Olympus claim that Benfield acquired brokerage revenues of more than $2.3mn in placing the business. Olympus is entitled to $611,854 of this, according to the writ.

The insurer's legal team is asking the court to force Aon Benfield to pay the sum, as they argue the broker has breached its contractual obligations.

According to a letter submitted by the plaintiff in evidence, Aon Benfield has rejected the monetary claims on the grounds that it believes the agreement to share revenues was a loyalty reward.

The letter, dated 2 November 2009 and signed by Aon Benfield's chief counsel Daniel O'Keefe, argues that the agreement was terminated the moment Olympus appointed Guy Carpenter as its reinsurance broker for its next renewal on 17 February 2009.

"Aon Benfield was willing to share a portion of its brokerage with Olympus in an effort to foster mutual loyalty, but only if Olympus in turn was willing to continue to employ Aon Benfield as its reinsurance broker," the letter said.

O'Keefe said that Aon Benfield was prepared to defend its position in the courts if necessary.

Under the terms of the agreement, Benfield agreed to provide 70 percent of brokerage received less the $1mn service fee "unless either party notifies the other party of its intent not to renew this agreement at least 30 days prior to the end of the initial term or any subsequent one-year renewal term".

Lawyers for the plaintiff have argued that the appointment of alternative brokers for a period commencing after the contract with Benfield meant that the agreement was not broken or terminated during the period the contract actually covered.

The writ also accuses Benfield of trying to have its cake and eat it too. It alleges that the broker has argued in other lawsuits that commissions in the reinsurance context are earned at the time the business is placed in order to protect its own interests, but was now arguing the contrary position against Olympus to enrich itself.

It is understood that Aon Benfield has filed a motion to dismiss, though the court has not ruled on this yet.

Olympus buys a reasonable chunk of reinsurance and currently carries £250mn of cover, mostly from Bermudians and Lloyd's reinsurers, according to documents on its website.

The insurer has more than 67,000 policies in force with over $100mn of premiums.

A spokesperson for Aon Benfield said he was unable to comment at this time.

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