Gallagher agreed to pay $27 million into a fund on Jan. 16, 2006, which will then pay clients whose insurance placements were subject to contingent fees. No portion will be used to pay legal costs.

Under the voluntary agreement, Gallagher admits no wrongdoing or guilt.

Mr. Gallagher said there was no evidence of “bid-rigging, leveraging, no play-for-pay arrangements,” and “no findings that clients were disadvantaged.” He added that “while we have disclosed our contingent arrangements since 1999, the [attorney general] felt that those disclosures could potentially lead to a conflict of interest.”

However, in a statement, Illinois State Attorney General Lisa Madigan and the state's insurance director, Michael McRaith, said their investigation showed that Gallagher–considered the fourth largest such firm in the world–accepted contingency fees in exchange for steering clients toward favored companies.

“Our comprehensive investigation revealed Gallagher sought and obtained huge payments from insurers in return for steering them enough business to meet secret threshold targets,” said Ms. Madigan.

She said that while the firm did disclose the existence of contingent commissions, by not revealing the arrangements, it created a conflict of interest.

Mr. Gallagher addressed the attorney general's opinion on the potential conflict of interest. “As a young manager, and ultimately as the CEO of the company, I am unaware of any of us asking or ordering anyone to do something detrimental to a client's best interest,” said Mr. Gallagher.

The firm would not comment as to whether the loss of contingent commissions would result in layoffs, as has happened with the other three major brokerage firms.

As part of a form 8-K filing with the Securities and Exchange Commission, the Assurance of Voluntary Compliance detailed some of the activity Gallagher was accused of participating in. In it, the attorney general's office cited a number of written communications on the subject.

In one note dated in the late 1990s, said the attorney general, Walter F. McClure, chairman of Gallagher's Brokerage Service Division, approved a performance goal for a branch manager, stating: “Maximize contingency opportunities and steer business to hit target thresholds.”

In a confidential memo from Craig Van der Voort, then the branch manager of Gallagher-Great Lakes, Inc.–dated Feb. 27, 1997–he described the need to “push” business to the Hartford. “None of these offices would have received any Hartford bonus in 1997 had it not been for the fact that we pushed to write about $400,000 new [business]” the exhibit said.

In another memo, he told managers to “direct” business to Chubb. “Contingent income and 'side' bonus payments from various markets is an extremely important source of revenue to our branch,” it read.

Infographic: (in sidebar type)

Flag: Terms Of The Deal

Head: What Did Gallagher Agree To Do?

Under the settlement agreement announced last week in Illinois, in addition to the payment of $27 million into a policyholder restitution fund, Gallagher also agreed to:

o Eliminate all contingent commissions (which it did as of Jan. 1).

o Disclose all compensation for services to retail clients, including wholesale commissions.

o Provide training in ethics and compliance to employees and issue written standards companywide.

o Create an independent compliance committee.

o Not to accept any payments or gifts of $500 or more from an insurer, except commissions as part of the normal course of business.

o Maintain a record of complaints on compensation.

o To file annual reports with state agencies for three years.