For Immediate Release
ACORDIA SUED IN FRAUD INVESTIGATION
Chicago — Attorney General Lisa Madigan today filed a lawsuit against the fifth largest insurance brokerage company in the United States, alleging that the company authored and participated in a several business-steering schemes that raised insurance prices for Illinois consumers.
The civil complaint, filed today in Cook County Circuit Court, alleges that Acordia, Inc., a subsidiary of Wells Fargo Bank, violated the Illinois Consumer Fraud and Deceptive Business Practices Act by demanding and receiving undisclosed contingent commissions from insurance companies to induce Acordia to steer business to those insurance companies, regardless of the price or quality of their policies. Contingent commissions are payments that insurers pay to brokers, such as Acordia, in addition to the base commissions. Contingent commission amounts generally are based on the volume and profitability of the business a broker or agent produces for an insurance company. Madigan’s investigation found that, because contingent commissions are based on volume and profitability, they encourage brokers to improperly steer their clients to particular insurers in violation of the fiduciary duty they owe their clients.
“It is of great concern that one of the country’s largest insurance brokerage companies, which hold itself out as an unbiased customer representative, would demand payments to steer its clients to specific insurance companies in the ways we have alleged in this lawsuit,” Madigan said.
In its lawsuit, the state seeks restitution for injured policyholders, civil penalties under the Consumer Fraud Act and an injunction that would bar Acordia, Inc. from engaging in the alleged conduct in the future.
As an example of the conduct at issue in the lawsuit, the complaint alleges that, from 1999 through to the present, Acordia initiated its “Millennium Partnership Program,” consolidating all of its insurance business to a small number of insurance companies that paid Acordia substantial fees to place high volumes of Acordia’s clients with these “Millennium Partners.” These fees included prepayments for steering future customers to a “Millennium Partner.” So, that Acordia was obligated to place business with that Millennium Partner or pay back the advance. None of these agreements were disclosed to Acordia’s clients.
For those insurance companies that refused to become “Millennium Partners,” Acordia is alleged to have threatened not to place any business with them or got them to enter into second tier contingent agreements for lesser payments.
Madigan’s complaint alleges that Acordia worked to transfer large blocks of customers to the “Millennium Partners,” including enlisting its parent company Wells Fargo bank to refer its banking customers to Acordia, so that Acordia could funnel those clients to the “Millennium Partners.”
The New York and Connecticut Attorney General’s offices also filed complaints against Acordia, Inc. today based on their investigations of customer steering. Madigan’s office has been working cooperatively with the Attorneys General of New York and Connecticut.
The Acordia lawsuit is part of the Illinois Attorney General’s wider investigation of the insurance industry, which began in late 2004. To date, Illinois has settled with several insurers and brokers, resulting in the recovery of tens of millions of dollars in restitution and penalties.
Public Interest Division Chief Benjamin Weinberg, Public Interest Division Deputy Chief Brent Stratton and Assistant Attorney General Mark Kaminski of the Special Litigation Bureau are handling the case for Madigan’s office.