Putting another major legal battle behind them on one coastwhile a new attack was launched on the other, Marsh & McLennanCompanies reached an agreement with the California InsuranceDepartment to settle charges of bid-rigging and other improperconduct, regulators announced last week.

The arrangement, requiring the company to aid in an ongoinginquiry, piggybacks on an earlier $850 million settlement MMC madewith New York officials.

According to an insurance department statement, the Californiasettlement follows a lengthy investigation in which multipleinstances of improper practices by Marsh Inc.–MMC's brokerageunit–were uncovered.

“Importantly, the settlement requires Marsh's ongoingcooperation as the [insurance] commissioner continues toinvestigate questionable practices in the brokerage and insuranceindustries,” the department said.

According to California officials, their investigation foundthat former Marsh employees would direct insurers to submit false,fictitious or inflated bids to help the broker retain currentbusiness and keep its prices high.

“For example, a Marsh broker might ask an insurer to submit aquote. But rather than seek the best quote, the Marsh brokerspecified an amount designed to help Marsh retain its currentpolicyholder at the desired rate or higher,” the departmentstated.

As part of the deal:

o An estimated $100 million will go to wronged Californiapolicyholders from the $850 million fund established by the globalsettlement reached between Marsh and New York State in January2005. The California department will monitor distribution of thosefunds.

o Going forward, the California settlement requires Marsh todisclose in “plain, unambiguous” language the terms of thecommissions it receives.

o The New York-based brokerage is also required to implementstandards of conduct regarding compensation from insurersconsistent with the terms of the settlement.

o Marsh must establish a Compliance Committee among its board ofdirectors to monitor the company's adherence to the standards ofconduct regarding compensation from insurers.

Improper conduct by brokerages in the sale of commercialinsurance surfaced in October 2004, when New York Attorney GeneralEliot Spitzer's office revealed evidence of bid-rigging and insureruse of hefty, hidden, volume-based contingency commissions toreward brokerages that steered business their way, regardless ofwhether it was the best bid available.

Since that time, the major brokerages have done away with thosecontingency commissions.

While MMC hoped to put the scandal behind them with its New Yorksettlement, last week Florida filed a civil racketeering suitagainst the brokerage for commercial insurance bid-rigging.