Arthur J. Gallagher & Co. said it will pay $36.85 million to settle a suit by current and former clients after accusations by state attorneys general that Gallagher and other brokerages were involved in rigging bids for commercial insurance.
The Itasca, Ill.-based insurance broker said the agreement will end its involvement as a defendant in a multidistrict class action pending against commercial carriers and brokers filed with U.S. District Court in Newark, N.J.
The suit followed allegations from state attorneys general that insurance brokers engaged in the steering of insurance contracts to certain carriers willing to pay lucrative volume-based contingent commissions. The brokers allegedly did not reveal the relationships or payments to their clients.
Gallagher has ended contingent commission payments on retail business.
In a statement, Gallagher said it admitted no wrongdoing in the case, but chose to conclude its involvement "rather than prolong what could be a costly and burdensome lawsuit."
Gallagher said it will pay $28 million to current and former clients and others that used the broker's services to purchase retail insurance from 1994 to 2005. The firm will also pay $8.85 million in plaintiff's attorney fees.
The agreement is still subject to court approval.
The firm reserved for this outcome in 2005 and will record a pretax charge in its fourth-quarter 2006 earnings of between $5 million and $10 million to increase its reserve for administration to conclude the settlement and to resolve other regulatory and civil litigation.
"We are pleased to put this legal matter behind us so we can focus all of our efforts on doing what we do best--providing our clients with high quality, cost effective insurance and risk management services," said J. Patrick Gallagher Jr., chairman and chief executive officer.
The suit in addition to Gallagher named other major brokers including Marsh, Aon, Willis, Brown & Brown, and USI Holdings as well as a number of insurance carriers.
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