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Case No. 14-56140
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CALIFORNIA COALITION FOR FAMILIES AND CHILDREN, PBC, a Delaware public benefit corporation, and COLBERN C. STUART, III, an individual,
Plaintiffs-Appellants,
v.
SAN DIEGO COUNTY BAR ASSOCIATION, et al.,
Defendants-Appellees
Appeal From The United States District Court For The Southern District of California Case No. 03-cv-1944 CAB (JLB) The Honorable Cathy Ann Bencivengo
APPELLANTS’ MOTION TO TAKE JUDICIAL NOTICE
Colbern C. Stuart III, J.D. Law Offices of Dean Browning California Coalition for Families Webb and Children, PBC 515 E 39th St. 4891 Pacific Highway Ste. 102 Vancouver, WA 98663-2240 San Diego, CA 92110 Telephone: 503-629-2176 Telephone: 858-504-0171 Email: [email protected] EMail: [email protected] Counsel for Plaintiff-Appellant California Coalition for Families and Plaintiff-Appellant In Pro Se Children, PBC
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I. MOTION TO TAKE JUDICIAL NOTICE
Under Federal Rule of Evidence 201 and in connection with the Joint
Opening Brief of Plainitffs-Apellants California Coalition for Families and
Children, PBC and Colbern C. Stuart, III (collectively “California Coalition”), filed concurrently with this motion, California Coalition moves this Court to take judicial notice of 4 court records from other district courts including the following:
Exhibit 1: The 131 page Complaint in U.S. v. Philip Morris, United States
District Court for the District of Columbia, Case No. 1:99-02496 (GK) filed
September 22, 1999.
Exhibit 2: The 213 page “Second Consolidated Amended Commercial Class
Action Complaint” from In Re: Insurance Brokerage Cases, United States District
Court for the District of New Jersey, Case No. 04-5184 (GEB) filed June 29, 2007.
Exhibit 3: The 138 page “Revised Particularized Statement Describing the
Horizontal Conspiracies Alleged in the Second Consolidated Amended
Commercial Class Action Complaint” from In Re: Insurance Brokerage Cases,
United States District Court for the District of New Jersey, Case No. 04-5184
(GEB) filed June 29, 2007.
Exhibit 4: The 94 page “Third Amended Commercial Insurance Plaintiffs’
RICO Case Statement” from In Re: Insurance Brokerage Cases, United States
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District Court for the District of New Jersey, Case No. 04-5184 (GEB) filed June
29, 2007.;
Exhibit 5: An excerpted recording of the oral argument in Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047 (9th Cir. 2011) is available by link to an internet website located at http://youtu.be/SGCo1ISXo9U;
Exhibit 6: A RICO Case Statement used by the United States District Court
for the Southern District of California;
Exhibit 7: “Complaint Under the Civil Rights Act 42 U.S.C. §1983”
available at:
https://www.casd.uscourts.gov/Attorneys/Lists/Forms/Attachments/36/Civil%20Ri
ghts%20Complaint.pdf.
II. AUTHORITY
“The court may take judicial notice at any stage of the proceeding,”
including for the first time on appeal. Fed. R. Evid. 201(d); see Bryant v. Carleson,
444 F.2d 353, 357 (9th Cir. 1971). Paragraph (b)(2) of Rule 201 states in part that
“[t]he court may judicially notice a fact that is not subject to reasonable dispute
because it: . . . can be accurately and readily determined from sou-rces whose
accuracy cannot reasonably be questioned.” “[T]he most frequent use of judicial
notice of ascertainable facts is in noticing the content of court records.” Colonial
Penn Ins. Co. v. Coil, 887 F.2d 1236, 1239 (4th Cir. 1989). Records subject to
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judicial notice on appeal include “the records of an inferior court in other cases.”
U.S. v. Wilson, 631 F.2d 118, 119 (9th Cir. 1980).
III. DISCUSSION
California Coalition proffers the exhibits as examples of initiating pleadings in complex civil racketeering matters similar to the case below. The exhibits include two complaints, a “particularized case statement” and a RICO
Case Statement. The exhibits are not proffered from the facts therein asserted or any controversial matter.
The materials are relevant to demonstrate the following:
A. Use of acronyms and defined terms are common in complex racketeering litigation:
The district court’s July 9, 2014 Order Dismissing Case with Prejudice (ER
6) found California Coalition’s FAC violated Rule 8 by virtue of its use of “unique acronyms, defined terms, and terms with no discernable meaning” ER 8. The highlighted portions of the attached exhibits demonstrate that use of acronyms and defined terms are common in racketeering matters. Plaintiffs asserting the plausible existence of “associations in fact” enterprises under 18 U.S.C. § 1962(c) commonly must describe lose affiliations—gangs, groups, or individuals undertaking coordinated purposeful effort—that operate without formal designation. See, e.g., Boyle v. United States, 129 S. Ct. 2237, 2244 (2009) (“[A]n
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association-in-fact enterprise . . . . need not have a hierarchical structure or a ‘chain of command’ . . . . The group need not have a name, regular meetings, dues, established rules and regulations, disciplinary procedures, or induction or initiation ceremonies.”); Odom v. Microsoft, 486 F.3d 541, 551 (9th Cir. 2007) (enterprise consisting of an unnamed marketing joint venture); Countrywide Financial Corp.
Mortgage Marketing and Sales Practices Litigation, 601 F. Supp.2d 1201, 1212-
1214 (S.D. Calif. 2009) (alternative “Countrywide Broker Enterprise” and
“Countrywide Enterprise”); Friedman v. 24 Hour Fitness Co., 580 F.Supp.2d 985,
993 (C.D. Calif. 2008) (enterprise of “contractual relationship for ordinary financial services”).
The FAC follows this practice, assigning each of five defined enterprises and several conspiracies an acronym moniker far simpler than repetition of the extended names of the enterprises. “Domestic Dispute Industry Criminal
Enterprise” is “DDICE” and may be pronounced “dice” (ER 642); “Domestic
Dispute Industry Forensic Investigator Criminal Enterprise” is “DDI-FICE” pronounced “device” (ER 646); “DDI-IACE” is pronounced “de (“the”) ace” (ER
645); “Stuart AHCE” is pronounced “Stuart ache” (ER 647-648); DDIL pronounced “dull” or “dill” (ER 649); “Federal Indictable Civil Rights Offense” conspiracy is “FICRO” (ER 684), etc. The court criticized use of “defined terms” such as “STUART ASSAULT” and “MALICIOUS PROSECUTION” which refer
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to lengthy passages of foundational facts that constitute relevant “facts in support” to numerous claims. Labeling them enables pleading “short, plain” claims throughout the complaint. The court is incorrect that there are “terms with no discernable meaning” (ER 8); the court overlooked definitions for the terms it identified, located at FAC ¶955 (“black hat”) and ¶985 (“poser advocacy,”
“paperwads,” and “kite bombs”). Such practices are not prohibited by any rule or
order, and facilitates pleading “short, plain” claims referring to supporting facts
and complex entities throughout the litigation.
B. Lengthy, difficult to manage complaints are common in racketeering litigation:
The district court also found the FAC violated Rule 8 because it “is even
longer than the original and remains unmanageable, argumentative, confusing, and
frequently incomprehensible.” ER 10. These exhibits demonstrate that RICO
complaints are commonly lengthy and can at times be confusing, argumentative,
and arguably verbose, prolix, and even “frequently incomprehensible.” Yet these
district courts have not dismissed the complaints with prejudice for violations of
Rule 8. Indeed, the titles of the pleadings indicate multiple amendments.
Exhibits 2-4 from In Re Insurance Brokerage Cases racketeering and
antitrust litigation consist of a 213-page second amended complaint, a 138 page
“Revised Particularized Statement” attachment identifying the “horizontal”
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racketeering conspiracies, and a 94 page RICO Case Statement, for a total of 445 pages. The complaint (Exhibit 2) contains several lengthy narratives containing what could be regarded as “prolixity” “verbiage” and “argument” such as that
criticized by the district court.
Exhibit 1 contains highly argumentative—indeed attacking—passages
describing the tobacco industry’s 53 year -long fraudulent schemes to deceive
smokers using “independent” scientists, public relations firms, and even some of
our nation’s most prestigious law firms.
C. District Courts have many tools to manage complex litigation:
The exhibits demonstrate several methods for managing complicated
racketeering cases, including amendment (all exhibits), a RICO case statement
(Exhibit 4), and the “revised particularized statement” (Exhibit 3) plaintiffs filed
concurrent with the complaint (Exhibit 2) to flesh out the critical issue in that
case—whether the “horizontal” enterprise (aka “hub and spoke”) was a cognizable
“enterprise” under 18 U.S.C. § 1961(c). See, In re Ins. Brokerage Antitrust Litig.,
618 F.3d 300, 327 (3d Cir. 2010).
Exhibits 6 is the RICO Case Statement from the Southern District attached
to demonstrate a tool readily available to the district court to assist in managing
this litigation.
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D. This Court’s recorded oral argument in Cafasso, U.S. ex rel. v. Gen.
Dynamics C4 Sys., Inc., 637 F.3d 1047 (9th Cir. 2011) shows the bizarre procedural posture of that case is inapposite to this action.
The district court below dismissed the First Amended Complaint based largely on this Court’s decision in Cafasso. California Coalition argues in its briefing that Cafasso is inapposite. See Enlarged Brief Sec. VI.B.2.c. The oral argument from Cafasso makes clear the bizarre procedural history leading to the filing of a 733 page complaint without a single claims. An edited version of this court’s hearing in Cafasso is provided at Exhibit 5.
E. The Southern District of California’s form for “short, plain” pleading of Civil Rights Act claims requires mere recitation of a prima facia case.
The district court dismissed the FAC below for failure to observe the court’s vague instructions on amendment. Exhibit 7 is the Southern District’s form for pleading civil rights claims. Presumably it satisfied Rule 8 as the court created it for civil rights actions. It does not require plaintiff to plead to the specificity the district court below commanded. The claims of the complaint contain similar
“short, plain” recitations of statutory language and abundant factual detail in support. Nothing more is required.
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IV. CONCLUSION
California Coalition respectfully requests the Court to take judicial notice of the attached Exhibits.
Dated: October 22, 2014 By: s/ Colbern C. Stuart III Colbern C. Stuart, III President, California Coalition for Families and Children, PBC, in Pro Se
Dated: October 22, 2014 By: s/ Dean Browning Webb, Esq. Dean Browning Webb, Esq. Law Offices of Dean Browning Webb Counsel for Plaintiff-Appellant California Coalition for Families and Children, PBC
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Case No. 14-56140 UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
CALIFORNIA COALITION FOR FAMILIES AND CHILDREN
v.
SAN DIEGO COUNTY BAR ASSOCIATION, et al.,
Appeal From The United States District Court For The Southern District of California Case No. 03-cv-1944 CAB (JLB) The Honorable Cathy Ann Bencivengo
Exhibits to Motion to Take Judicial Notice
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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA ) United States Department of Justice ) 950 Pennsylvania Avenue, N.W. ) Washington, D.C. 20530-0001, ) ) Plaintiff, ) ) COMPLAINT FOR DAMAGES vs. ) AND INJUNCTIVE AND ) DECLARATORY RELIEF PHILIP MORRIS, INC. ) 120 Park Avenue ) New York, New York 10017; ) ) R.J. REYNOLDS TOBACCO COMPANY ) 401 North Main Street ) Winston-Salem, North Carolina 27102; ) ) Civ. No. BROWN & WILLIAMSON TOBACCO CORPORATION ) 1500 Brown & Williamson Tower ) Louisville, Kentucky 40202, ) directly and as successor by merger to ) AMERICAN TOBACCO COMPANY ) 1500 Brown & Williamson Tower ) Louisville, Kentucky 40202, ) ) LORILLARD TOBACCO COMPANY ) 714 Green Valley Road ) Greensboro, North Carolina 27408; ) ) THE LIGGETT GROUP, INC. ) PLAINTIFF DEMANDS A 300 North Duke Street ) TRIAL BY JURY Durham, North Carolina 27702, ) directly and as parent to ) LIGGETT & MYERS, INC. ) 810 Craghead Street ) Danville, Virginia 24541; ) ) AMERICAN TOBACCO COMPANY ) 1500 Brown & Williamson Tower ) Louisville, Kentucky 40202, ) directly and as successor to ) the tobacco interests of ) AMERICAN BRANDS, INC. ) 1700 East Putnam Avenue ) Old Greenwich, Connecticut 06870; ) ) PHILIP MORRIS COMPANIES, INC. ) 120 Park Avenue ) New York, New York 10017; ) Case: 14-56140 10/22/2014 ID: 9287316 DktEntry: 12 Page: 12 of 605
BRITISH AMERICAN TOBACCO, P.L.C. ) Windsor House ) 50 Victoria Street ) London SW1H ONL, England, ) directly and as successor to ) B.A.T. INDUSTRIES P.L.C. ) Windsor House ) 50 Victoria Street ) London SW1H ONL, England; ) ) BRITISH AMERICAN TOBACCO ) (INVESTMENTS) LTD. ) Globe House ) 1 Water Street ) London WC2R 3LA, England, ) directly and as successor to ) BRITISH-AMERICAN TOBACCO ) COMPANY, LTD. ) Globe House ) 4 Temple Place ) London WC2R 2PG, England; ) ) THE COUNCIL FOR TOBACCO ) RESEARCH--U.S.A., INC. ) 900 Third Avenue ) New York, New York 10022; and ) ) THE TOBACCO INSTITUTE, INC. ) 1875 I Street N.W., Suite 800 ) Washington, D.C. 20006, ) ) Defendants. ) ______)
COMPLAINT
The United States of America, plaintiff herein, by and through its undersigned attorneys, for its complaint herein, alleges as follows:
INTRODUCTION
This is an action to recover health care costs paid for and furnished, and to be paid for and furnished, by the federal government for lung cancer, heart disease, emphysema, and other tobacco-related illnesses caused by the fraudulent and tortious conduct of defendants, and to
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restrain defendants and their co-conspirators from engaging in fraud and other unlawful conduct in the future, and to compel defendants to disgorge the proceeds of their unlawful conduct.
This action is brought pursuant to the Medical Care Recovery Act, 42 U.S.C. §§
2651, et seq. (Count One), and the Medicare Secondary Payer provisions of Subchapter 18 of the
Social Security Act, 42 U.S.C. § 1395y(b)(2)(B)(ii) &(iii) (Count Two), and the civil provisions of
Chapter 96 of Title 18, United States Code, codified at 18 U.S.C. §§ 1961 through 1968, entitled
Racketeer Influenced and Corrupt Organizations ("RICO"), that authorize the United States to seek a judicial order preventing and restraining certain unlawful conduct (Counts Three and Four).
Defendants, who manufacture and sell almost all of the cigarettes purchased in this
country, and their co-conspirators have for many years sought to deceive the American public
about the health effects of smoking. Defendants have repeatedly and consistently denied that
smoking cigarettes causes disease, even though they have known since 1953, at the latest, that
smoking increases the risk of disease and death. Defendants have repeatedly and consistently
denied that cigarettes are addictive even though they have long understood and intentionally
exploited the addictive properties of nicotine. Defendants have repeatedly and consistently stated
that they do not market cigarettes to children while using advertising and marketing techniques to
make their products attractive to children. Even though they have long understood the hazards
caused by smoking and could have developed and marketed less hazardous cigarette products,
defendants chose and conspired not to do so. Instead, they have knowingly marketed cigarettes --
called "low tar/low nicotine" cigarettes -- that consumers believed to be less hazardous even
though consumers actually receive similar amounts of tar and nicotine as they receive from other
cigarettes; and therefore these cigarettes are in fact not less hazardous than other cigarettes.
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In all relevant respects, defendants acted in concert with each other in order to further their fraudulent scheme. Beginning not later than 1953, defendants, their various agents and employees, and their co-conspirators, formed an "enterprise" ("the Enterprise") as that term is defined in 18 U.S.C. § 1961(4). That Enterprise has functioned as an organized association-in-fact for more than 45 years to achieve, through illegal means, the shared goals of maximizing their profits and avoiding the consequences of their actions. Each defendant has participated in the operation and management of the Enterprise, and has committed numerous acts to maintain and expand the Enterprise.
In order to avoid discovery of their fraudulent conduct and the possibility that they might be called to account for their conduct, defendants engaged in a widespread scheme to frustrate public scrutiny by making false and deceptive statements and by concealing documents and research that they knew would have exposed their public campaign of deceit. This scheme included making false and deceptive statements to the public and in congressional, judicial, and federal agency proceedings.
Defendants' tortious and unlawful course of conduct has caused consumers of defendants' products to suffer dangerous diseases and injuries. As a consequence of defendants' tortious and unlawful conduct, the Federal Government spends more than $20 billion annually for the treatment of injuries and diseases caused by defendants' products. The effect of defendants' fraudulent scheme and wrongful conduct continues to this day; defendants are continuing to prosper and profit from their unlawful and tortious conduct; and, unless restrained by this Court, defendants are likely to continue their unlawful activities into the future.
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I. JURISDICTION
Jurisdiction in this action is predicated upon 28 U.S.C. §§ 1331, 1345, and 2201, and 18 U.S.C. §§ 1964(a) and (b).
II. VENUE
Venue for this action is predicated upon 18 U.S.C. § 1965 and 28 U.S.C. §§
1391(b) and (c). The United States invokes the expanded service of process provisions of 18
U.S.C. § 1965(b). Each defendant cigarette company, or its predecessor or successor, has marketed cigarettes for sale in the District of Columbia and elsewhere from at least 1953 to the present. In addition, the Departments of Health and Human Services and Veterans Affairs and the
Office of Personnel Management, federal agencies with their headquarters in Washington, D.C., among others, have paid for and provided health care to millions of smokers whose smoking related injuries were caused by defendants.
III. THE PARTIES
Plaintiff UNITED STATES OF AMERICA (the "United States"), is a sovereign and body politic.
A. Cigarette Company Defendants
Defendant PHILIP MORRIS, INC. ("Philip Morris") is a Virginia corporation with its principal place of business at 120 Park Avenue, New York, New York. Philip Morris is a subsidiary of PHILIP MORRIS COMPANIES, INC. At relevant times, Philip Morris has manufactured, advertised, and sold cigarettes, including Alpine, Basic, Dunhill, Benson & Hedges,
Cambridge, English Ovals, Galaxy, Marlboro, Merit, Parliament, Philip Morris, Players, Saratoga, and Virginia Slims brand cigarettes throughout the United States, including in the District of
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Columbia. In addition, on or about January 12, 1999, Philip Morris entered into an agreement with defendant LIGGETT GROUP, INC. to purchase certain brands of cigarettes previously manufactured by Liggett, including Lark, Chesterfield, and L&M, which Philip Morris also has sold throughout the United States and in the District of Columbia. At times pertinent to this
Complaint, Philip Morris, individually and through its agents, alter egos, subsidiaries, divisions, or parent companies, materially participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United States, including the District of Columbia.
Defendant R.J. REYNOLDS TOBACCO COMPANY ("Reynolds" or "RJR") is a
New Jersey corporation with its principal place of business at 401 North Main Street, Winston-
Salem, North Carolina. At relevant times, Reynolds has manufactured, advertised, and sold cigarettes, including Best Value, Bright Rite, Camel, Century, Doral, Magna, Monarch, More,
Now, Salem, Sterling, Vantage, and Winston brand cigarettes throughout the United States, including in the District of Columbia. At times pertinent to this Complaint, Reynolds, individually and through its agents, alter egos, subsidiaries, divisions, or parent companies, materially participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United
States, including the District of Columbia.
Defendant BROWN & WILLIAMSON TOBACCO CORPORATION ("Brown &
Williamson") is a Delaware corporation with its principal place of business at 1500 Brown &
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Williamson Tower, Louisville, Kentucky. Brown & Williamson is a wholly owned subsidiary, directly or indirectly, of BATUS Holdings, Inc., a Delaware corporation, and its ultimate parent company is defendant BRITISH AMERICAN TOBACCO P.L.C. At relevant times, Brown &
Williamson has manufactured, advertised, and sold cigarettes, including Barclay, Bel Air, Capri, Eli
Cutter, GPC, Kool, Laredo, Prime, Private Stock, Raleigh, Richland, Summit, Tall, Tareyton, and
Viceroy brand cigarettes throughout the United States, including in the District of Columbia. As a result of its acquisition of defendant AMERICAN TOBACCO COMPANY in 1994 (either directly or through BAT Industries, p.l.c., the predecessor to BRITISH AMERICAN TOBACCO P.L.C.),
Brown & Williamson has succeeded to the liabilities of defendant American either by operation of law, or as matter of fact. At times pertinent to this Complaint, Brown & Williamson, individually and through its agents, alter egos, subsidiaries, divisions, or parent companies, materially participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United
States, including the District of Columbia.
Defendant LORILLARD TOBACCO COMPANY, INC. ("Lorillard") is a
Delaware corporation with its principal place of business at 1 Park Avenue, New York, New
York. Lorillard is a subsidiary of Loews Corp., a Delaware corporation. At relevant times,
Lorillard has manufactured, advertised, and sold cigarettes, including Golden Lights, Harley-
Davidson, Heritage, Kent, Maverick, Max, Newport, Newport Red, Old Gold, Satin, Spring,
Spring Lemon Lights, Style, Triumph, and True brand cigarettes throughout the United States, including in the District of Columbia. At times pertinent to this Complaint, Lorillard, individually
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and through its agents, alter egos, subsidiaries, divisions, or parent companies, materially participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United
States, including the District of Columbia.
Defendant LIGGETT GROUP, INC. ("Liggett") is a Delaware corporation with its principal place of business at 700 West Main Street, Durham, North Carolina. Liggett is the successor to the tobacco interests of Liggett & Myers, Inc., and Liggett & Myers Tobacco Co.
Liggett is a subsidiary of the Brooke Group, a Delaware corporation. At relevant times, Liggett has manufactured, advertised, and sold cigarettes, including Chesterfield, Decade, Dorado, Eve,
Generic, Lark, L&M, Pyramid, and Stride brand cigarettes throughout the United States, including in the District of Columbia. At times pertinent to this Complaint, Liggett, individually and through its agents, alter egos, subsidiaries, divisions, or parent companies, materially participated in the
Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United States, including the
District of Columbia.
Defendant the AMERICAN TOBACCO COMPANY ("American") is or was a
Delaware corporation with its principal place of business at 1500 Brown Williamson Tower,
Louisville, Kentucky. At relevant times, American manufactured, marketed, and sold American,
Bull Durham, Carlton, Iceberg, Lucky Strike, Malibu, Misty, Montclair, Newport, Pall Mall, Silk
Cut, Silva Thins, Sobrania, and Tareyton cigarettes throughout the United States, including in the
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District of Columbia. American is successor to the tobacco interests of American Brands, Inc. In
1994, American was purchased by and merged into Brown & Williamson, which has succeeded to the liabilities of American. At times pertinent to this Complaint, American, individually and through its agents, alter egos, subsidiaries, parent companies and divisions, materially participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United States, including the District of Columbia.
Defendants PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON,
LORILLARD, LIGGETT, and AMERICAN are referred to herein collectively as the "Cigarette
Companies," each of which marketed cigarettes for sale in the District of Columbia and elsewhere.
B. The Parent Company Defendants
Defendant PHILIP MORRIS COMPANIES, INC. ("Philip Morris Companies"), is
a Virginia corporation whose principal place of business is located at 120 Park Avenue, New
York, New York 10017. Philip Morris Companies is the parent corporation of Philip Morris and
Philip Morris International, Inc., and has participated in the manufacture and distribution of
cigarettes and tobacco products both individually and through its agents defendant Philip Morris
and Philip Morris International, Inc. In acting as alleged herein, Philip Morris and Philip Morris
International, Inc., have acted within the course and scope of their agency and employment, and
with the knowledge, consent, permission, and authorization of Philip Morris Companies. Actions
of Philip Morris were ratified and approved by the officers and managing agents of Philip Morris
Companies. At times relevant herein, Philip Morris Companies has participated substantially in the
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management and control of Philip Morris. Through Philip Morris, Philip Morris Companies has placed cigarettes into the stream of commerce with the expectation that substantial sales of cigarettes would be made in the United States, including in the District of Columbia, and elsewhere. At times pertinent to this Complaint, Philip Morris Companies, individually and through its agents, alter egos, subsidiaries, or divisions, materially participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United States, including the District of
Columbia.
Defendant BRITISH AMERICAN TOBACCO, P.L.C. (“BAT p.l.c.”) is a British corporation with its principal place of business at Globe House, 4 Temple Place, London WC2R
2PG, England. BAT p.l.c. is sued directly and as successor to B.A.T. INDUSTRIES, P.L.C.
("B.A.T. Industries"). (This Complaint will refer to this defendant alternatively as “BAT p.l.c” and
"BAT Industries"). Defendant Brown & Williamson is the agent of defendant BAT p.l.c. In acting as alleged herein, Brown & Williamson has acted within the course and scope of its agency and employment, and with the consent, permission, and authorization of BAT p.l.c. Actions of Brown
& Williamson were ratified and approved by the officers and managing agents of BAT p.l.c.
Through a succession of intermediary corporations and holding companies, BAT p.l.c. is the sole shareholder of Brown & Williamson. At times relevant herein, BAT p.l.c. has participated substantially in the management and control of Brown & Williamson. Through Brown &
Williamson, BAT p.l.c. has placed cigarettes into the stream of commerce with the expectation that substantial sales of cigarettes would be made in the United States, including in the District of
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Columbia. At times pertinent to this Complaint, BAT p.l.c., individually and through its agents, alter egos, subsidiaries, or divisions, materially participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United States, including the District of Columbia.
Defendant BRITISH AMERICAN TOBACCO (INVESTMENTS) LTD. ("BAT
Investments") is a British corporation whose registered office is at Millbank, Knowle Green,
Staines, Middlesex, TW18 1DY, England. BAT Investments is sued directly and as successor to
BRITISH AMERICAN TOBACCO COMPANY, LTD. ("BAT Co."). (This Complaint will refer to this defendant generally as “BAT Co.”). At relevant times pertinent to this Complaint, BAT Co. was a parent corporation of defendant Brown & Williamson and BATUS Holdings. In acting as alleged herein, Brown & Williamson has acted within the course and scope of its agency and employment, and with the consent, permission, and authorization of BAT Co. Actions of Brown &
Williamson were ratified and approved by the officers and managing agents of BAT Co. At times relevant herein, BAT Co. has participated substantially in the management and control of Brown &
Williamson. At times pertinent to this Complaint, BAT Co., individually and through its agents, alter egos, subsidiaries, divisions, or parent companies, materially participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United States, including the District of
Columbia.
Defendants PHILIP MORRIS COMPANIES, BAT P.L.C., and BAT
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INVESTMENTS are referred to herein collectively as the "Parent Companies.''
C. The Industry "Research," Public Relations, and Lobbying Defendants
Defendant COUNCIL FOR TOBACCO RESEARCH -- U.S.A., Inc. ("CTR"), is or was a New York non-profit corporation with its principal place of business at 900 Third Avenue,
New York, New York. CTR is the successor in interest to the Tobacco Industry Research
Committee ("TIRC"). TIRC and CTR were not primarily "research" organizations but they were established by the Cigarette Companies to carry out their fraudulent course of conduct beginning in
January 1954. At all relevant times, TIRC and CTR operated as public relations and lobbying arms of the Cigarette Companies and as agents and employees of the Cigarette Companies. They also acted as facilitating agencies and co-conspirators in furtherance of the Cigarette Companies' combination and conspiracy as described in this Complaint. In acting as alleged herein, TIRC and
CTR acted within the course and scope of their agency and employment, and with the knowledge, consent, permission, and authorization of the Cigarette Companies. All actions of TIRC and CTR were ratified and approved by the officers and managing agents of each of the Cigarette Companies.
At times pertinent to this Complaint, TIRC and CTR, individually and through their agents, materially participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and have affected foreign and interstate commerce in the United States, including the District of Columbia.
Defendant THE TOBACCO INSTITUTE, INC. ("Tobacco Institute" or "TI") is or was a New York non-profit corporation with its principal place of business at 1875 I Street N.W.,
Suite 800, Washington, D.C. At all relevant times, the Tobacco Institute has operated as a public
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relations arm of the Cigarette Companies, and as an agent and employee of the Cigarette
Companies. It has also acted as a participant and facilitating agent and co-conspirator in furtherance of the conspiracy of the Cigarette Companies as described in this Complaint. In acting as alleged herein, the Tobacco Institute has acted within the course and scope of its agency and employment, and with the knowledge, consent, permission, and authorization of each of the
Cigarette Companies. All actions of the Tobacco Institute were ratified and approved by the officers and managing agents of the Cigarette Companies. At times pertinent to this Complaint, the
Tobacco Institute, individually and through its agents, materially participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United States, including the District of
Columbia.
At all relevant times, each defendant was a "person" within the meaning of 18 U.S.C.
§1961(3), because each defendant was "capable of holding a legal or beneficial interest in property."
The Cigarette Companies, the Parent Companies, CTR, and the Tobacco Institute are referred to herein collectively as "defendants."
IV. THE FACTS
A. The Impact of Cigarette Smoking on the American Public
Cigarette smoking is the single largest preventable cause of premature death in the
United States. Each year, millions of people suffer from smoking-related diseases, which often require a long-term course of medical and surgical treatment. Each year more than 400,000
Americans die from cigarette smoking. Nearly one in every five deaths in the United States is
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smoking related.
Each year, as a result of the diseases, illness, or injuries caused by cigarettes, the
United States spends more than $20 billion under a variety of programs to pay for or furnish medical care to smokers.
Cigarette smoking causes lung and other types of cancers, emphysema and other chronic lung diseases, heart attacks, strokes, and a variety of other diseases. Cigarette smoking by pregnant women is also a leading cause of low birth weight infants.
Cigarettes contain nicotine, which is an addictive drug. The addictiveness of cigarette smoking significantly increases the adverse health consequences of cigarette smoking.
Although it is illegal to sell cigarettes to children, the vast majority of adults who smoke began smoking before they were 18. Children are particularly susceptible to cigarette advertising, especially advertising that presents smoking as a rite of passage into adulthood. When they first begin to smoke, children do not believe that they will have difficulty in quitting, but because of the addictive nature of nicotine, many are unable to quit once they have started.
More than one million children under age 18 begin smoking each year in America.
Of these children, most continue as adult smokers and will suffer from some smoking-related illness and diminished health, which will directly and indirectly have an enormous adverse effect on public welfare and the public fisc; and approximately one in three of these children who become regular smokers will die of a smoking-related disease.
B. The Formation of the Enterprise and the Nature of the Conspiracy
In the 1940's and early 1950's, scientific researchers published findings that indicated a relationship between cigarette smoking and diseases, including lung cancer.
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Senior Cigarette Company executives and researchers closely monitored such research and knew that if the public came to understand that cigarette smoking causes cancer and other diseases, the Cigarette Companies' profits would decline and the industry would face the prospect of civil liability and government regulation. In response to the published research linking cigarettes and disease, in December 1953, Paul Hahn, President of American Tobacco Company, sent a telegram to the other Cigarette Company presidents, suggesting a meeting to formulate "an industry response" to the studies.
As a direct result of Mr. Hahn's telegram, on December 15, 1953, the chief executives of American, Brown & Williamson, Lorillard, Philip Morris, and Reynolds met at the
Plaza Hotel in New York City. At that meeting, these chief executives agreed that the published studies were "extremely serious" and "worthy of drastic action." At the meeting, the chief executives determined to respond to this serious public health issue with a concerted public relations campaign intended to preserve their profits.
The decisions made by these chief executives at the Plaza Hotel meeting have shaped the actions of the Cigarette Companies, including companies not in attendance at the meeting, to this day. The chief executives at the Plaza Hotel agreed that the strategy they were implementing was a "long-term one" that required defendants to act in concert with each other on the current health controversy, as well as on issues that would face them in the future. This Enterprise and conspiracy still continues today.
The fundamental goal of the Enterprise and conspiracy was to preserve and expand the market for cigarettes and to maximize the Cigarette Companies' profits. To achieve this goal, defendants' strategy was to respond to scientific evidence of the adverse health consequences of
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cigarette smoking with fraud and deception. Rather than provide full disclosure to the public and in congressional, federal agency, and judicial proceedings about what they knew or learned about the dangers of cigarette smoking, defendants and their agents determined, in furtherance of this
Enterprise and conspiracy, to deny that smoking caused disease and to maintain that whether smoking caused disease was an "open question," despite having actual knowledge that smoking did cause disease.
Defendants sought to ensure that no company -- in the United States or overseas -- - broke ranks from defendants' public posture, which was based on falsehood and deception. If any
Company admitted that smoking was hazardous, that nicotine was addictive, that the delivery of nicotine was manipulated by the Cigarette Companies, that defendants' research commitment was a sham, or that the Cigarette Companies marketed to children, the conspiracy would be endangered.
To further and protect the Enterprise and conspiracy and their profits, defendants:
C made false and misleading statements to the public through press releases,
advertising, and public statements, such as before Congress, that were intended to be
heard by the consuming public.
C adhered to their common scheme of deception and falsehood in lawsuits, including,
among other things, destroying and concealing documents.
Throughout the course of the Enterprise and conspiracy and to the present day, defendants have engaged in these acts knowingly and intentionally and with a common purpose.
Their own documents -- secreted in internal files and revealed only in recent years despite defendants' involvement in continuous litigation about their products for more than 45 years -- demonstrate that defendants:
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C sought to create false doubt about the health effects of smoking because they knew
that such doubt would influence consumers to begin or to continue smoking;
C falsely denied that nicotine was addictive and controlled the nicotine delivery of
cigarettes so that they could addict new users and make it more difficult for addicted
cigarette smokers to quit;
C suppressed research, destroyed documents, and took steps to prevent discovery of
such documents;
C aggressively targeted children as new smokers because children fail to appreciate the
hazards of smoking and the addictiveness of nicotine and are more easily induced to
start an addiction that would lead to a lifetime of cigarette purchases; and
C knew that use of their product was unreasonably and unnecessarily dangerous to the
lifelong customers that they sought to addict.
C. False Statements About Smoking and Disease
Consistent with the recommendations made in connection with the December 1953 meeting at the Plaza Hotel, defendants formed the TIRC and, on January 4, 1954, caused to be published a full-page statement to the American public called "A Frank Statement to Cigarette
Smokers" in 448 newspapers in the United States. The "Frank Statement" explained that:
Recent reports on experiments with mice have given wide publicity to a theory that cigarette smoking is in some way linked with lung cancer in human beings.
Although conducted by doctors of professional standing, these experiments are not regarded as conclusive in the field of cancer research. However, we do not believe results are inconclusive, should be disregarded or lightly dismissed. At the same time, we feel it is in the public interest to call attention to the fact that eminent doctors
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and research scientists have publicly questioned the claimed significance of these experiments.
Distinguished authorities point out:
That medical research of recent years indicates many possible causes of lung cancer.
That there is no agreement among the authorities regarding what the cause is.
That there is no proof that cigarette smoking is one of the causes.
That statistics purporting to link cigarette smoking with the disease could apply with equal force to any one of many other aspects of modern life. Indeed the validity of the statistics themselves is questioned by numerous scientists.
We accept an interest in people's health as a basic responsibility, paramount to every other consideration in our business.
We believe the products we make are not injurious to health.
We always have and always will cooperate closely with those whose task it is to safeguard the public health.
For more than 300 years tobacco has given solace, relaxation, and enjoyment to mankind. At one time or another during those years critics have held it responsible for practically every disease of the human body. One by one these charges have been abandoned for lack of evidence.
Regardless of the record of the past, the fact that cigarette smoking today should even be suspected as a cause of a serious disease is a matter of deep concern to us.
Many people have asked us what we are doing to meet the public's concern aroused by the recent reports. Here is the answer:
We are pledging aid and assistance to the research effort into all phases of tobacco use and health. This joint financial aid will of course be in addition to what is already being contributed by
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individual companies.
For this purpose we are establishing a joint industry group consisting initially of the undersigned. This group will be known as TOBACCO INDUSTRY RESEARCH COMMITTEE.
In charge of the research activities of the Committee will be a scientist of unimpeachable integrity and national repute. In addition there will be an Advisory Board of scientists disinterested in the cigarette industry. A group of distinguished men from medicine, science, and education will be invited to serve on this Board. These scientists will advise the Committee on its research activities.
This statement is being issued because we believe the people are entitled to know where we stand on this matter and what we intend to do about it.
Before the Frank Statement's claim that "there is no proof that cigarette smoking is one of the causes" of lung cancer, defendants knew of the published literature on smoking and health and researchers employed by the Cigarette Companies had reported the relationship between smoking and disease. Moreover, although the Cigarette Companies refrained from doing much of the basic biological research related to the effects of their products, by January, 1954, the
Companies had identified the presence of carcinogenic substances in tobacco smoke. Thus, defendants were well aware of the health hazards posed by smoking.
Despite their knowledge, which only increased in the ensuing years, at no time did defendants disclose to the public that smoking caused disease or make public their own analyses which confirmed the published literature. Instead, over the last forty-five years, defendants have made false and misleading statements to persuade the American public that there was an "open question" as to whether smoking caused disease. In every available regulatory, judicial, and congressional proceeding, as well as in every public forum, including through press releases and
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advertisements, defendants denied that smoking caused disease or claimed that there was insufficient proof that smoking caused disease.
The Cigarette Companies went so far as to claim that they would cease selling tobacco if they determined that smoking was harmful or would change the product in order to make certain that it was no longer harmful. For example,
C George Weissman, Vice-President of Philip Morris, told the Pioneer Press on
March 31, 1954, that the cigarette industry would "stop business tomorrow"
if it believed smoking was harmful.
C Bowman Gray, the head of RJR, testified before Congress in June of 1964,
that "the tobacco industry is profoundly conscious of the gravity of questions
concerning smoking and health." *** "If it is proven that cigarettes are
harmful, we want to do something about it regardless of what somebody else
tells us to do. And we would do our level best. This is just being human."
Even those companies that were not involved in the issuance of the Frank Statement joined, and committed acts in furtherance of, the Enterprise and conspiracy. Defendant Liggett, which joined TIRC/CTR in 1964, maintained the same false and misleading public positions as the other Cigarette Companies until 1997, when Liggett admitted that smoking is harmful, nicotine is addictive, and that the Cigarette Companies have marketed to children. The Parent Company defendants also acted in furtherance of the Enterprise and conspiracy by committing acts as described in the Appendix to this Complaint (which Appendix is essential to determination of this action, see LCvR 5.1(g)) and by using their corporate families, particularly overseas, to keep documents and research out of reach of courts and others in the United States. For example, BAT
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p.l.c., by itself or through its agents, subsidiaries, or co-conspirators, has conducted significant research for Brown & Williamson on the topics of smoking, disease, and addiction. Brown &
Williamson also sent to England research conducted in the United States on the topics of smoking, disease and addiction in order to remove sensitive and inculpatory documents from United States jurisdiction, and such documents were subject to the control of BAT p.l.c.
In addition to the false statements made by the Cigarette Companies themselves and in furtherance of their scheme to defraud, in 1958 defendants created the Tobacco Institute, a public relations organization whose function was to make certain that defendants' false and misleading positions on issues related to, among other things, the connection between smoking and disease, were kept constantly before the public, doctors, the press, and the government. At all times, defendants controlled the Tobacco Institute, including its public statements made on behalf of defendants. Examples of the Tobacco Institute's false and misleading statements are identified in the attached Appendix.
In contrast to defendants, who long knew and understood the adverse health effects of cigarette smoking, many members of the public did not fully appreciate the risk to their health posed by cigarettes. At all times, defendants made such false and misleading statements with the express purpose of deceiving the public and inducing smokers and non-smokers to minimize the health risks and continue or start smoking. Defendants also had full knowledge that, as their fraud succeeded, more Americans would suffer from tobacco-related disease. Because they failed to warn consumers and lied about the health effects of smoking, many Americans, including millions of children, became addicted to cigarettes, and many people who were already smoking had more difficulty quitting, with resulting damage to their health.
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D. The Myth of Independent Research
1. The "Gentleman's Agreement"
As a means to further the aims of the Enterprise and conspiracy and as an adjunct to their claims that there was an open question as to whether smoking causes disease, defendants -- in the "Frank Statement" and repeatedly over the 45 years since then -- undertook an obligation to protect the public health by conducting and disclosing unbiased and authenticated research on the health risks of cigarette smoking. This promise was false when made, has been repeatedly reaffirmed throughout the years, and has never been fulfilled.
Contrary to their repeated promises, the Cigarette Companies had a "gentleman's agreement" -- so called by defendants themselves -- not to perform or commission internal research designed to investigate the relationship between smoking and health. They did not routinely employ or support scientists to conduct such research; and, in the rare instances that the companies did conduct such research internally, they did so in secret and suppressed the results, in some cases by destroying documents and in other cases by taking other steps to shield documents and materials from discovery.
Two components to this "gentleman's agreement" were: (1) any company discovering an innovation permitting the manufacture of an essentially "safe" cigarette would share the discovery with others in the industry; and (2) no domestic company would perform in-house biomedical research on animals.
Although they recognized that research and testing were essential to evaluating the health risk posed by their products, defendants, pursuant to the "gentleman's agreement," generally did not perform biological research on smoking and health. In a secret internal communication in
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1964, Philip Morris Research and Development Vice President Helmut Wakeham acknowledged the legal jeopardy inherent in defendants' joint agreement, when he (unsuccessfully) recommended that "[t]he industry should abandon its past reticence with respect to medical research. Indeed, failure to do such research could give rise to negligence charges." Despite Mr. Wakeham's warning, defendants persisted in their agreement.
By the late 1960's, individual companies were performing limited biological research in violation of the "gentleman's agreement." Nonetheless, the fundamental understanding and agreement remained intact: information and activities that would tend to establish the harmfulness of cigarettes would be restrained, suppressed, and concealed. This included restraining, concealing, and suppressing research on the adverse health effects of smoking, including the addictive qualities of cigarettes.
The biological research that the Cigarette Companies did perform was closely controlled to ensure that, if it resulted in additional evidence that smoking causes disease, it would not become public or subject to discovery in court proceedings. This control included performing much of the research outside the United States in order to keep documents and witnesses hidden and out of the reach of State and Federal courts, and by taking other steps to shield documents and materials from discovery.
Philip Morris, for example, conducted in-house research in Europe in order to avoid disclosure of unfavorable results to the public. In 1970, Philip Morris purchased a research facility in Cologne, Germany, known as INBIFO. One perceived value of INBIFO was that Philip Morris could control the research conducted there; therefore, overseas experiments could be terminated at will. Philip Morris took steps to conceal this arrangement. Company scientists shipped documents
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from locations in the United States to Cologne for storage in order to remove unfavorable or embarrassing research results from Philip Morris' files during and in advance of litigation and thereby to avoid discovery of adverse documents. Discussing how to handle records relating to the
INBIFO arrangement, senior Philip Morris scientist Thomas Osdene characterized the arrangement as follows: "Ship all documents to Cologne . . . . Keep in Cologne . . . . If important letters have to be sent please send to home & I will act on them and destroy."
Brown & Williamson conducted some biological research in the United States in conjunction with its English parent company, BAT p.l.c. When the company sought to avoid discovery of these documents in a number of personal injury lawsuits, Brown & Williamson sent much of the American company's biological research to England so that it would not have to be produced. Brown & Williamson sent sensitive research documents to London to avoid production in litigation, stamped scientific documents "attorney/client, work product," and edited and suppressed the minutes of scientific meetings to remove references to topics that might be the subject of litigation.
Brown & Williamson also endeavored in litigation brought by smokers to prevent the disclosure of research documents created by its affiliate, BAT Co., which contained information contrary to Brown & Williamson's public positions that smoking did not cause disease and that cigarettes were not addictive. To further this effort, a Brown & Williamson research scientist received scientific reports and designated documents harmful to Brown & Williamson as protected by the attorney work product privilege.
Defendants also enforced the conspiracy by stopping inconsistent research efforts by any member of the group. For example, in the 1960's Reynolds established a facility in
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Winston-Salem, North Carolina, to research the health effects of smoking using mice. In the facility that Reynolds nicknamed the "Mouse House," Reynolds scientists researched a number of specific areas, including studies of the actual mechanism whereby smoking causes emphysema. Internally, a
Reynolds-commissioned report favorably described the Mouse House work as the most important of the smoking and health research efforts because it had come close to determining the underlying mechanism of emphysema.
In 1970, Philip Morris' president complained to Reynolds about the work going on in the Mouse House. Despite the progress made there, Reynolds responded to the complaint by closing the Mouse House -- disbanding in one day, without notice to the staff, the entire research division, firing all 26 scientists working there, and destroying years of smoking and health research.
Reynolds also sought to prevent documents containing research reports contrary to the company's public positions regarding smoking and health from being disclosed in smoking and health litigation in which Reynolds was a defendant or witness. In December 1969, the Reynolds
Research Department reported that it did "not foresee any difficulty in the event a decision is reached to remove certain reports from Research files. Once it becomes clear that such action is necessary for the successful defense of our present and future suits, we will promptly remove all such reports from our files. . . . As an alternative to invalidation [of adverse reports], we can have the authors rewrite those sections of the reports which appear objectionable."
2. The Lack of Independence of CTR
Rather than perform relevant research in-house, the Cigarette Companies claimed that they would fulfill their promise to research and publish their findings about smoking and health by funding independent research through the Tobacco Industry Research Committee ("TIRC"),
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which was later renamed the Council for Tobacco Research ("CTR"). In the "Frank Statement" of
January 1954 and repeatedly over the 45 years since then, the Cigarette Companies told the public,
Congress, federal agencies, and the courts that CTR's purpose was to fund and to perform independent scientific research on the issue of smoking and health.
For example, in 1954, TIRC told the United States Department of Justice that its function was to fulfill the "responsibility on the part of the management of the tobacco manufacturers and others engaged in the tobacco industry to aid in the final determination of this controversy [as to whether smoking causes disease]," and that TIRC would "communicate authoritative factual information on the subject to the public." Further, TIRC assured the
Department of Justice that it was "in nowise to be considered or to operate as a trade association or to participate in any activity, or give consideration to any matters, affecting the business conduct or activities of its members."
For example, in 1963, TIRC and TI ran an advertisement captioned, "A Statement
About Tobacco and Health," which included the statements:
C "We recognize that we have a special responsibility to the public — to help scientists determine the facts about tobacco and health, and about certain diseases that have been associated with tobacco use."
C "We accepted this responsibility in 1954 by establishing the Tobacco Industry Research Committee, which provides research grants to independent scientists. We pledge continued support of this program of research until all the facts are known."
C "Scientific advisors inform us that until much more is known about such diseases as lung cancer, medical science probably will not be able to determine whether tobacco or any other single factor plays a causative role — or whether such a role might be direct or indirect, incidental or important."
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C "We shall continue all possible efforts to bring the facts to light."
In numerous court cases, defendants made similar claims about their search for the
"truth" about smoking and disease. Indeed, in the very first personal injury suit litigated in federal court following the 1954 "Frank Statement," the Reynolds Tobacco Company stated in interrogatory answers that the purposes of TIRC was to sponsor research into the health aspects of tobacco and to advance medical knowledge on smoking and disease.
These and similar statements were false and misleading when made. From its inception, TIRC (later CTR) was essentially a public relations organization designed to counter adverse publicity concerning smoking and health, and not as an independent research organization dedicated to getting to the bottom of the smoking and health controversy. TIRC/CTR's true purpose, as acknowledged by Cigarette Company executives, was to provide a cover for defendants' efforts to conceal the truth about smoking and health. While TIRC/CTR served as a front for the Cigarette Companies' claim that they were committed to independent research,
TIRC/CTR funds were actually funneled into research controlled by defendants and designed to advance defendants' interests in litigation.
TIRC/CTR's purported independence derived from the Scientific Advisory Board
("SAB"), which defendants claimed controlled TIRC/CTR's research priorities. By directing attention to the SAB, defendants were able to appear to be furthering research efforts while their true aim was to preserve and foster false doubt about the adverse health effects of smoking in order to dissuade existing smokers from quitting and to encourage non-smokers to start.
Defendants and their agents falsely represented in public and in court that the SAB grant process functioned independently from industry influence and was the mechanism by which
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they were fulfilling the obligations they had undertaken in the "Frank Statement" and elsewhere. In fact, defendants "deliberately isolated" the SAB from the activities ongoing in other parts of CTR so that the SAB could be held out as a group of independent scientists, while CTR operated under defendants' control. The SAB controlled only a grant process for certain research, and even that process was closely controlled by the Cigarette Companies through their agents and attorneys, who helped to screen proposals, to ensure that the SAB did not approve research that might suggest a link between smoking and disease.
Consequently, the research that was funded through the SAB addressed general issues of cancer causation and incidence -- without a focus on smoking or its role in causing disease
-- and was deliberately designed to avoid developing information on the relationship between smoking and disease or on other science that might result in findings that were harmful to defendants. Nor did other parts of TIRC/CTR fund objective research on the link between smoking and disease.
While defendants promoted the SAB as an "independent" board, they funneled funds through TIRC/CTR to conduct non-SAB research projects that were not objective or independent as the industry had promised, but instead were designed to conclude that there was no link between smoking and disease, and to develop favorable research and expert witnesses to defend the industry in court. These components of TIRC/CTR were controlled by the Cigarette Companies' agents, including attorneys, and included activities known as Special Projects. TIRC/CTR Special Projects were initiated and developed by the Cigarette Companies through their agents, including outside counsel, who used them to provide research funding for scientists and doctors who might be willing to provide testimony favorable to the Cigarette Companies on smoking and health matters.
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Special Projects were often funded when the SAB would not approve the proposed research or when the Cigarette Companies needed favorable research for litigation and wanted it done quickly. On occasion, the industry would use TIRC/CTR to publicize the results of carefully selected Special Projects-funded work that was favorable to the industry, so that the work would be more credible due to TIRC/CTR's purported independence. Defendants also planned to protect the projects funded through Special Projects by invoking the attorney-client privilege and work product doctrine. Through Special Projects, the Cigarette Companies funded many research projects that were controlled by their lawyers and intended to advance the Companies' interests in lawsuits and legislative proceedings. By design, these projects were secret unless and until defendants decided to make them public.
The Cigarette Companies knew that the "Special Projects" work was neither independent science nor good science. Internal company documents express concern about the
"degree to which [Special Projects] make advocacy primary and science becomes secondary," and that, to aid in litigation, the companies, through Special Projects, were funding science that was
"not worth a damn."
When researchers funded by TIRC/CTR reached conclusions that threatened to confirm the link between smoking and disease, the companies, at times, terminated the research and concealed the results. For example, when Dr. Freddy Homburger concluded in 1974 that his study of smoke exposure on hamsters indicated that cigarettes were addictive and caused disease, CTR
Scientific Director Robert Hockett and CTR lawyer Ed Jacob threatened to cut off Dr.
Homburger’s funding if his paper were published without deleting the word "cancer."
When Special Projects came under scrutiny in the 1990s, defendants ceased to
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administer Special Projects through CTR. In fact, counsel for Lorillard suggested in an internal document that using Special Projects to "purchase favorable judicial or legislative testimony. . .
[was] perpetrating a fraud on the public." On information and belief, defendants have continued to fund such projects, but have moved them out of CTR and placed them directly under the auspices of their agents and attorneys, who had long been involved in control of CTR.
In addition to Special Projects, CTR maintained various "Special Accounts" for funding research projects that the Companies believed needed to be conducted for their own information, but which they did not want to be discovered, in litigation or otherwise. As with
Special Projects, defendants sought to hide the existence of Special Accounts projects by taking steps to protect documents and materials from disclosure, including instructing Cigarette Company witnesses not to mention the existence of such accounts in legislative hearings.
E. Misrepresentations about Nicotine’s Addictiveness and Manipulation of Nicotine Delivery
The primary factor that prevents cigarette smokers from quitting smoking is their addiction to nicotine, and their need for continuing intake of nicotine in order to avoid nicotine withdrawal. The addictive nature of nicotine is directly related to the harm caused by cigarettes, because the risk from smoking increases with prolonged use.
Defendants and their agents have long known that nicotine is an addictive drug and have sought to hide its addictive and pharmacological qualities. They also have long recognized that getting smokers addicted to nicotine is what preserves the market for cigarettes and ensures their profits. In contrast, the average consumer has not been fully aware of the addictive properties of nicotine, and most beginning smokers — particularly children — falsely believe that they will be
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able to quit after smoking for a few years and thereby avoid the diseases caused by smoking. By hiding their knowledge of nicotine and making false and misleading statements concerning nicotine, defendants have induced existing smokers to continue using their products, and induced others to begin to smoke, particularly children, who believe, usually mistakenly, that they will be able to quit and avoid the diseases caused by smoking.
Defendants have understood nicotine’s addictive properties since the early 1960's at the latest. For example, Philip Morris internally discussed methods for increasing the nicotine content of cigarettes as early as 1960. Sir Charles Ellis, scientific advisor to the board of directors of BAT Industries, asserted in a 1962 meeting attended by Brown & Williamson representatives that "smoking is a habit of addiction," and scientists in the Geneva laboratories of the International
Division of the Battelle Memorial Institute reported to BAT Industries on the mechanics of nicotine addiction in 1963. BAT sponsored research at the Battelle Memorial Institute at Geneva to investigate the physiological aspects of smoking. B&W general counsel Addison Yeaman stated in
1963 that "nicotine is addictive" and that "we are . . . in the business of selling nicotine, an addictive drug[.]" Reynolds, understanding the importance of retaining sufficient nicotine to maintain dependence on its so-called "low tar/low nicotine" cigarettes, internally proposed in 1971 that the company undertake research into determining more exactly the "habituating level of nicotine."
Defendants concealed their research on the addictiveness of nicotine because they have known that revelation of that research might substantially change the market for cigarettes and result in successful lawsuits against defendants. The Cigarette Companies thus performed much of their research clandestinely, and in at least one case threatened scientists who sought to publish their research on addiction. All of this constituted a comprehensive campaign by the Cigarette
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Companies to keep secret their knowledge of nicotine's addictive nature. For example,
C A 1977 Philip Morris study on the withdrawal effects of nicotine was
permitted to proceed only if the results were what the Cigarette Companies
wanted. If not, as a Philip Morris researcher explained, "we will want to
bury it."
C An internal 1978 Brown & Williamson memo discussed addictiveness of
nicotine and characterized nicotine as a poison, while noting that most
consumers are unaware of this. "Very few consumers are aware of the
effects of nicotine, i.e. its addictive nature and that nicotine is a
poison...hardly any consumers use nicotine numbers as a basis for their
purchase."
C In March 1980, a Philip Morris scientist produced an internal memorandum
discussing company research into the psychopharmacology of nicotine. The
research was "aimed at understanding that specific action of nicotine which
causes the smoker to repeatedly introduce nicotine into his body." The
internal memorandum noted that it was "a highly vexatious topic" that
company lawyers did not want to become public because nicotine's drug
properties, if known, would support regulation of tobacco by the federal
Food and Drug Administration (“FDA”). Consequently, the memorandum
observed, "[o]ur attorneys . . . will likely continue to insist on a clandestine
effort in order to keep nicotine the drug in low profile."
C In the early 1980's, Philip Morris hired Victor DeNoble and Paul Mele to
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study the effects of nicotine on the behavior of rats and to research and test
potential nicotine analogues. DeNoble and Mele' s research demonstrated
that nicotine was addictive and that in terms of addictiveness, "nicotine
looked like heroin." In August 1983, Phillip Morris ordered DeNoble to
withdraw a research paper on nicotine that had already been accepted for
publication after a full peer review by the journal Psychopharmacology. Less
than a year later, Philip Morris abruptly closed DeNoble's nicotine research
lab. Philip Morris executives threatened DeNoble and Mele with legal action
if they published or talked about their nicotine research. The animals were
killed, the equipment was removed, and all traces of the former lab were
eliminated.
As with the adverse health effects of smoking, defendants failed to warn consumers and others of the addictive nature of nicotine and made false and misleading statements to the public and others about addiction. For example,
C In 1963, when the Surgeon General was preparing his first report on
smoking and health, Brown & Williamson considered whether to provide its
research indicating the addictiveness of nicotine, but withheld this research
from the Surgeon General. The Surgeon General's Report did not conclude
that nicotine is addictive.
C In 1988, when the Surgeon General finally concluded, based on non-industry
research, that nicotine is addictive, the Tobacco Institute, on behalf of the
Cigarette Companies, attacked the report by saying that "claims that
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cigarettes are addictive contradict common sense. . . . The claim that
cigarette smoking causes physical dependence is simply an unproven attempt
to find some way to differentiate smoking from other behaviors."
Statements such as this, frequently repeated by the Cigarette Companies and their agents, were knowingly false and misleading when made.
Defendants' efforts to suppress information on the addictiveness of nicotine continue today. For example, in 1997, Liggett broke ranks and began placing a statement on the packs of cigarettes manufactured by it specifically warning that smoking is addictive. On or about January
12, 1999, Philip Morris entered into an agreement with Liggett to purchase certain brands of cigarettes previously manufactured by Liggett, including Lark, Chesterfield, and L&M, each of which, at the time of their sale to Philip Morris, contained the warning concerning the addictiveness of smoking. After it purchased these brands, Philip Morris altered the packaging of Lark,
Chesterfield, and L&M cigarettes to eliminate the warning concerning addictiveness. These brands of cigarettes were no less addictive after their purchase by Philip Morris than when they had been manufactured by Liggett. This alteration continued defendants’ efforts to conceal from cigarette purchasers, and from the public in general, the addictive nature of cigarette smoking.
As a result of the defendant’s false statements denying the addictive nature of cigarettes, and their suppression of information demonstrating the addictive nature of cigarettes, more people have become addicted or remained addicted to the product. In fact, among 12-17 year old smokers, 70% regret their decision to start smoking, and 66% want to quit. Similarly, 70% of cigarette smokers would like to stop completely.
At the same time they were denying the addictiveness of nicotine, the Cigarette
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Companies were developing and using highly sophisticated technologies designed to deliver nicotine in precisely calculated ways that are more than sufficient to create and sustain addiction in the vast majority of individuals who smoke regularly. The Cigarette Companies control the nicotine content of their products through selective breeding and cultivation of plants for nicotine content and careful tobacco leaf purchasing and blending plans, and control nicotine delivery (i.e., the amount absorbed by the smoker) with various design and manufacturing techniques. For example, as explained in an internal 1973 Reynolds document:
Methods which may be used to increase smoke pH and/or nicotine "kick" include: (1) increasing the amount of (strong) burley in the blend, (2) reduction of casing sugar used on the burley and/or blend, (3) use of alkaline additives, usually ammonia compounds, to the blend, (4) addition of nicotine to the blend, (5) removal of acids from the blend, (6) special filter systems to remove acids from or add alkaline materials to the smoke, and (7) use of high air dilution filter systems. Methods 1-3, in combination, represent the Philip Morris approach, and are under active investigation [by Reynolds].
The Cigarette Companies have also investigated a wide variety of other additives, ingredients, and techniques aimed at improving their control of nicotine and thereby their ability to manipulate the addictiveness of cigarettes. Cigarette Companies’ use of certain ingredients in their products has been predicated on the belief that they increased the potency, absorption, or effect of nicotine.
The Cigarette Companies have repeatedly (and falsely) denied that they manipulate the nicotine levels and nicotine delivery in their products.
For example, the Cigarette Companies have sought to mislead the public about whether they manipulate nicotine by maintaining that nicotine levels follow tar levels. In his 1994 testimony before the Subcommittee on Health and the Environment of the Committee on Energy
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and Commerce, United States House of Representatives ("Health Subcommittee"), the Vice
Chairman and Chief Operating Officer of Lorillard, Dr. Alexander Spears, stated that "[n]icotine follows the tar level," and the correlation between the two "is essentially perfect," and "shows that there is no manipulation of nicotine." In a 1981 study, however, Dr. Spears had previously stated explicitly that “low-tar” cigarettes use special blends of tobacco to keep the level of nicotine up while tar is reduced: "[T]he lowest tar segment [of product categories] is composed of cigarettes utilizing a tobacco blend which is significantly higher in nicotine." Dr. Spears did not inform
Congress of his earlier statement.
Reynolds, Lorillard, B&W, American, and TI have also represented to the public and to the FDA that the nicotine levels in their products are purely a function of setting the tar levels of such products. American told the Health Subcommittee in an October 14, 1994 letter that "nicotine follows 'tar' delivery, i.e., high 'tar' -- high nicotine, low 'tar' -- low nicotine." Similarly, a 1994
Reynolds advertisement appearing after the Health Subcommittee hearings stated: "We do not increase the level of nicotine in any of our products in order to addict smokers. Instead of increasing the nicotine levels in our products, we have in fact worked hard to decrease 'tar' and nicotine." (emphasis in original). The ad further touted Reynolds' use of "various techniques that help us reduce the 'tar' (and consequently the nicotine) yields of our products."
By falsely denying that the Cigarette Companies manipulate the delivery of nicotine levels in cigarettes, defendants furthered their common efforts to deceive the public concerning the addictive nature of nicotine and consequently of cigarettes that contain nicotine.
F. Deceptive Marketing to Exploit Smokers' Desire for Less Hazardous Products
The Cigarette Companies have misled consumers by marketing products that
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consumers believe are less harmful, even though they are not.
Despite the existence of evidence that smoking causes disease, the Cigarette
Companies claimed in the 1940's and 50's both that their products did not cause health problems, and that cigarette smoking was good for people's health. These health claims were false and misleading and made without adequate investigation or testing of the products sold. During the
1940's and 50's, the United States Federal Trade Commission ruled that some of the Cigarette
Companies' health claims were false and deceptive.
In response to concern among smokers about the adverse health effects of cigarette smoking, the Cigarette Companies sought to boost sales during the 1950's by advertising filtered cigarettes with explicit warranties of tar/nicotine content and health claims. These claims were also misleading and made without adequate investigation or testing of the Cigarette Companies' products.
Consumers continued to be concerned about the adverse health effects of smoking, and, in the 1960's, the Cigarette Companies responded by developing and marketing so-called
"light" or "low tar/low nicotine" cigarettes. These cigarettes are designed to generate lower tar and nicotine on standard machine smoking tests than do other cigarettes, and they do so. Consequently, the Cigarette Companies have marketed these products with claims such as "light" and "ultra low tar" to suggest to consumers that smokers of these products inhale less tar and nicotine than smokers of other cigarettes. Consumers therefore believe that these products are less hazardous.
However, the Cigarette Companies deliberately designed these cigarettes in a way that, as actually smoked by most cigarette smokers, they typically do not actually deliver less tar or nicotine. As a result, there is no basis for believing they are safer than other cigarettes.
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The Cigarette Companies manipulate the design of such cigarettes in order to decrease the smoking machine's intake of tar and nicotine in a way that is not replicated by human smokers. One common means by which Cigarette Companies achieve "low tar/low nicotine" levels on the standard machine tests is through the use of tiny ventilation holes in the filter. These ventilation holes are so small that they are virtually invisible except under magnification and are placed so that consumers routinely block them with their lips or fingers during smoking, but the smoking machine does not block them. Most smokers are either unaware of the use of ventilated filters on cigarettes or are unaware that blocking the vents has the effect of increasing the tar and nicotine yield of the cigarettes as they are actually smoked. In addition, as the Cigarette Companies have long known, smokers unconsciously tend to "compensate" for a lower nicotine yield, either by inhaling more deeply or taking more puffs, so that they receive sufficient nicotine to satisfy their addiction. Thus, while the Cigarette Companies lead smokers to believe they are reducing their health risk by switching to a "low tar/low nicotine" brand, those smokers are in fact not appreciably reducing their health risk.
In addition to the use of ventilated filters, the Cigarette Companies have increased the potency of the nicotine that "low tar/low nicotine" cigarettes contain by a variety of methods, including blending.
Despite the Cigarette Companies' knowledge that addicted smokers compensate to obtain sufficient nicotine, and that "low tar/low nicotine" cigarettes are not appreciably less hazardous than other cigarettes, the Cigarette Companies have recognized, contributed to, and exploited — for their own profit — consumers' misconception that "low tar/low nicotine" cigarettes are less hazardous.
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By advertising "light," "ultra-light," and "low tar/ low nicotine" cigarettes, the
Cigarette Companies have lulled smokers into believing that they can reduce the health risk created by cigarette smoking by switching to these "light" products, and have thereby reduced the incentive for smokers to quit smoking. The effectiveness of this marketing effort is demonstrated by the fact that "low tar/low nicotine" cigarettes now account for a substantial majority of the American cigarette market.
The Cigarette Companies have advertised for "low tar/low nicotine" cigarettes through misleading advertising that emphasizes the health of those pictured without expressly making health claims. The Cigarette Companies know and intend that these advertisements mislead consumers into believing that the products pictured are less hazardous than other cigarettes.
Despite their knowledge that "low tar/low nicotine" cigarettes were in fact not significantly less hazardous than other cigarettes, the Cigarette Companies expressly marketed such cigarettes as a viable alternative to quitting smoking from a health standpoint. For example, in 1975, Lorillard advertised "True" cigarettes by depicting a female smoker saying, "I thought about all I'd read and said to myself, either quit or smoke True. I smoke True," as well as by depicting a male smoker saying, "I'd heard enough to make me decide one of two things: quit or smoke True. I smoke
True." Similarly, in 1976, Reynolds’ advertising campaign for its Vantage cigarettes told smokers,
"If you're like a lot of smokers these days, it probably isn't smoking that you want to give up. It's some of that 'tar' and nicotine you've been hearing about." The Cigarette Companies are continuing to advertise their products in the national news media in such a manner as to lull smokers into believing that they can, by using so-called "low tar/low nicotine" cigarettes, reduce their exposure to the harmful constituents of cigarette smoke, despite knowledge on the part of the Cigarette
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Companies that most smokers do not substantially reduce their tar and nicotine exposure by switching to them.
G. Targeting the Youth Market
For most of this century, it has been illegal to sell cigarettes to children in most states. Currently, it is illegal to sell cigarettes to children under the age of 18 in all states.
Defendants used the Tobacco Institute to shield the Cigarette Companies' advertising to minors. In 1964, defendants publicized a voluntary "cigarette advertising code" that had been agreed to by all the major cigarette manufacturers. The code prohibited advertising directed at young people or the use of celebrities or sports figures in advertisements for cigarettes. Over the next thirty years, defendants, primarily through publications of the Tobacco Institute and in congressional testimony, reiterated their pledge to avoid advertising directed at young people, while at the same time individual companies were aggressively marketing cigarettes to young people through advertising.
Despite the illegality of sales to children, and despite denying that they do so, the
Cigarette Companies have engaged in a campaign to market cigarettes to children. The Cigarette
Companies have long known that recruiting new smokers when they are teenagers ensures a stream of profits well into the future because these new smokers will become addicted and continue to smoke for many years, and the young smokers are "replacements" for older smokers who either reduce or cease smoking or die.
Recognizing the profits to be had from this illegal market, the Cigarette Companies researched how to target their marketing at children and actively marketed cigarettes to children.
As a result of this research -- including research conducted in the 1950's into the smoking habits of
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12-year-olds -- defendants have long known that young people tend to begin smoking for reasons unrelated to the presence of nicotine in cigarette smoke, but then become confirmed, long-term smokers because they become addicted to nicotine. Defendants are further aware that although beginning smokers realize that there are some health risks associated with long-term smoking, beginning smokers almost universally fail to appreciate the addictive nature of cigarette smoking, and therefore fail to appreciate the risk that, by engaging in smoking while they are adolescents, they will become long-term smokers because of the development of an addiction to nicotine.
Moreover, the earlier a person begins to smoke, the more likely it is that he or she will develop a smoking related disease.
The Cigarette Companies have aggressively targeted their advertising campaigns to children. Cigarette Companies' advertising glamorizes smoking and its content is intended to entice young people to smoke, for example, as a rite of passage into adulthood or as a status symbol.
Among the techniques used by the Cigarette Companies to attract underage smokers were advertising in stores near high schools, promoting brands heavily during spring and summer breaks, giving cigarettes away at places where young people are likely to be present in large numbers, paying motion picture producers for product placement in motion pictures designed to attract large youth audiences, placing advertisements in magazines commonly read by teenagers, and sponsoring sporting events and other activities likely to appeal to teenagers.
During the 1970's and 1980's, Reynolds' substantial market research indicated that
Philip Morris, and particularly its Marlboro brand, was dominating the youth market. Reynolds recognized that, in order to maintain its profits over the long term, it was critically important to attract its own cadre of teen-age smokers. Internal Reynolds documents specifically cited the need
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to recruit youths as "replacement smokers." Thus, Reynolds developed the Joe Camel campaign — based on a cartoon character — to appeal to the youngest potential smokers. In 1988, Reynolds began a massive dissemination of products such as matchbooks, signs, clothing, mugs and drink can holders advertising Camel cigarettes. The advertising was effective in attracting adolescents and, as a result of the campaign, the number of teenage smokers who smoked Camel cigarettes rose dramatically.
Despite the overwhelming evidence that they have deliberately sought to target young people for the sale of cigarettes, defendants have denied such activities in false and misleading communications to the public, to legislative and regulatory bodies, and in judicial proceedings. For example, in 1981, Brown & Williamson denied that it geared its advertising to young people following criticism in a press report. Others have followed suit: Reynolds ran a series of advertisements in 1984 claiming that "We don't advertise to children."
To avoid full disclosure of its practices regarding Joe Camel, in 1991, while the
Federal Trade Commission was investigating Reynolds' practices of advertising and marketing to children, Reynolds instructed its advertising agency to destroy documents in the advertising agency's possession related to the Joe Camel campaign.
The Cigarette Companies have long maintained that their expenditures on advertising and promotion — more than $68 billion between 1954 and 1997— was directed solely at persuading current smokers to switch brands, not to attracting new smokers and not to attract children. These statements were false and misleading, and were intended to ensure that they could continue to entice young people to smoke and become addicted by defeating potential efforts by parents and governmental entities to stop such marketing efforts.
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In July 1969, the Chairman of the Tobacco Institute, Joseph F. Cullman, III, testified before a Senate Commerce subcommittee: "It is the intention of the cigarette manufacturers to avoid advertising directed to young persons . . . to avoid advertising which represents that cigarette smoking is essential to social prominence, success, or sexual attraction; and to refrain from depicting smokers engaged in sports or other activities requiring stamina or conditioning beyond those required in normal recreation."
In 1983, the Tobacco Institute published a pamphlet entitled "Voluntary Initiatives of a Responsible Industry." The pamphlet noted that "in 1964, the industry adopted a cigarette advertising code prohibiting advertising, marketing and sampling directed at young people." The pamphlet made the claim that "all companies continue to observe the principles of this code."
The Cigarette Companies actively targeted their marketing to children with full knowledge that sales to children were illegal, that children would not appreciate the dangers of the product or its addictiveness, that most of the children who began to smoke would become addicted, and that a significant percentage would develop smoking-related diseases or suffer premature death as a result. They denied doing so with full knowledge that such denials were false and misleading.
H. Defendants' Concerted Plan Not To Make Cigarettes Less Hazardous
Defendants also retained and maintained their agreement by restraining, concealing, and suppressing the research and marketing of less hazardous cigarettes. The Cigarette Companies have been and are able to develop an alternative product that is less hazardous than the products that they have been selling. Cigarettes are much more complex products than simple rolled tobacco. The Cigarette Companies manipulate their products in many ways. They add chemicals and flavorings (some of which are harmful when burned and inhaled), manipulate levels of nicotine
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and other chemicals, and engineer the delivery of tobacco smoke though filters, ventilation holes, and other means. At least since the early 1960's, the Cigarette Companies have been able to remove potential carcinogens and to independently alter the delivery of tar and nicotine respectively. Many alternative designs are possible, some of which are less hazardous than the cigarettes that the
Cigarette Companies actually manufactured and sold.
By the early 1960s, defendants discovered that many specific constituents in tobacco smoke were carcinogens, or were linked to other diseases. By November 1961, Philip Morris had conducted sufficient research to conclude that a "medically acceptable low-carcinogen cigarette may be possible." Although Philip Morris never publicly released the results of this research, the research and development department at Philip Morris continued research into less hazardous cigarettes in order to be prepared to compete in the event that another cigarette company marketed such a product. Based on the extensive research it had conducted and its preparation for competition with other manufacturers, in 1964, defendant Philip Morris test marketed the Saratoga cigarette, which used a charcoal filter and which was, in their researchers' view, "superior to anything in the market place" from a health standpoint.
In the late 1980's, defendant Reynolds selectively marketed Premier, a smokeless cigarette that Reynolds believed was less hazardous than its conventional products. Research relevant to the development of the Premier cigarette at Reynolds dates back to the 1960's.
Liggett also developed, but did not market, a product that Liggett believed was a less hazardous cigarette. The product was developed through a research project called "Project
XA" that had first begun in the late 1960's. After extensive research, Liggett employees believed that they had discovered which cigarette smoke constituents were carcinogens and had found a way
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to remove them.
Despite their demonstrated ability to design cigarettes that they believed were less hazardous, defendants have refused to test and/or actively promote such products, and have suppressed the marketing of such products by others, and have refused to acknowledge the possibility of a less hazardous product.
The Cigarette Companies' refusal to acknowledge the possibility of a less hazardous product is in part a result of their efforts to avoid liability for, among other things, negligence and product liability claims. To state that a less hazardous product could be — or has in fact been — developed would constitute an admission that the products they currently sell are hazardous, or unreasonably so. Just as they suppressed information about the health effects and addictive nature of smoking, defendants also suppressed any information they developed about less hazardous design.
Philip Morris' research and development of the Saratoga cigarette, for example, was intended as a scheme to defeat any effort by its competitors to market a less hazardous cigarette. A presentation to the Philip Morris Board of Directors, in October 1964, noted: "[T]he Research and
Development Department is working to establish a strong technological base with both defensive and offensive capabilities in the smoking and health situation. Our philosophy is not to start a war, but if war comes, we aim to fight well and to win." Their strategy was to develop a less hazardous product but to market it only if necessary, and to use it as a deterrent to marketing of such products by other companies. Although internal company documents demonstrate that Philip Morris researchers thought the product to be a less hazardous cigarette, Philip Morris discontinued production after the initial phase of test marketing.
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Despite Liggett officials' belief that the cigarette developed as a result of Project XA was commercially marketable, the company never promoted the less hazardous cigarette and suppressed the research that led to its development.
Another reason why some of defendants did not produce and market a less hazardous cigarette was because other defendants threatened retribution in the event the company proceeded. For example, Liggett's assistant research director, Dr. James Mold, said that Liggett's president had reported that he was "told by someone in the Phillip Morris Company that if we tried to market such a product [as XA] that they would clobber us."
A further mechanism defendants employed to deter the development and marketing of less hazardous products was the "gentleman's agreement." The Cigarette Companies' mutual commitment to share discovery of a "safe" cigarette with all other Cigarette Companies, by design, substantially reduced the financial incentive any Cigarette Company might otherwise have had to develop and market such a product.
I. The Present and Continuing Threat
Defendants' conspiracy to deceive, mislead, and withhold information from the public, and from public legislative, regulatory, and judicial bodies about the adverse health effects of smoking, the addictiveness of nicotine, the manipulation of the delivery of nicotine, marketing to children, and the possibility of less hazardous designs has continued up through the present day.
In 1994, the chief executive officers of the Cigarette Companies testified under oath before the Health Subcommittee and once again repeated defendants' "party line." These executives knowingly provided misleading testimony regarding smoking, health, and addiction.
The Cigarette Company executives made these representations, among others,
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despite the substantial body of evidence, including information developed by the Cigarette
Companies themselves dating back for many years prior to their testimony, indicating that nicotine is addictive and is the central reason why people continue to smoke, that the Cigarette Companies sought to ensure that smokers stayed addicted and that cigarettes are potentially lethal to smokers when used as intended by the Cigarette Companies.
In their public statements, the Cigarette Companies continued to deny that nicotine is addictive and, instead, used various misleading explanations for the role of nicotine, such as
"enhances the taste of the smoke" and affects "the way it feels on the smoker's palate," and that it provides "satisfaction," "strength," "rich aroma," "mouth impact," and "pleasure," despite widespread agreement in the medical and scientific communities that the primary, if not sole, function of nicotine is to provide a pharmacological effect on the smoker that leads to addiction.
According to the 1988 U.S. Surgeon General report: "The pharmacologic and behavioral processes that determine tobacco addiction are similar to those that determine addiction to drugs such as heroin and cocaine."
In addition to their repetition of the same false and misleading statements discussed above, the Cigarette Companies also continued to suppress and conceal documents and information in their possession concerning, inter alia, smoking and health, addiction, the addictiveness of nicotine, the health effects of low tar and low nicotine products, the potential availability of a less hazardous product, and their efforts to market to children.
In January 1998, as Congress was considering comprehensive legislation that might have limited the industry's liability, the Cigarette Companies finally acknowledged that smoking may cause disease. Philip Morris Companies admitted that "a substantial body of evidence which
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supports the judgment that cigarette smoking plays a causal role in the development of lung cancer and other diseases in smokers." Similarly, the Chairman and CEO of RJR Nabisco, Reynolds' parent corporation, stated his belief that "smoking plays a role in causing cancer, lung cancer in some people."
The Cigarette Company executives also conceded that cigarettes are addictive under some accepted definitions. In early 1998, Brown & Williamson and RJR Nabisco executives agreed that nicotine is addictive under the "man in the street's definition" and as "people use the term
[addiction] today." Moreover, the CEO of Brown & Williamson admitted that his personal position
-- that smoking is not addictive -- was at odds with "the rest of the world," and did not dispute the
"rest of the world's" use of the word addiction in relation to cigarette smoking.
The Cigarette Companies' careful, semantic admissions were short-lived. In the spring of 1998, during the state of Minnesota's trial against the Cigarette Companies, defendants' officials returned to the same false and misleading statements that they have always made and denied the addictiveness of nicotine and the health effects of smoking.
The Cigarette Companies eventually settled their suits with the states in the fall of
1998. Despite the injunctive relief obtained by the states, defendants continue to market their products in many of the same ways they had before the settlement, and continue to keep secret research and other documents that would provide the public and regulators with a fuller understanding of the health effects of cigarettes, particularly the addictiveness of nicotine. In particular, the results of defendants' research overseas for the last few decades have not been made public.
Indeed, to this day, defendants are continuing to block disclosure of the very
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documents that reveal the deception in the Cigarette Companies' half-century false and misleading promotion of TIRC/CTR — in public, in Congress, and in court — as an independent organization designed to find out the truth about smoking and health.
The Cigarette Companies, who hold 99% of the market for cigarettes in the United
States, pose a continuing threat to the health and well-being of the American public and there is every reason to believe that they will continue with their fraudulent and unlawful conduct.
The effects of defendants' conspiracy will be felt for many years into the future, and the Cigarette Companies continue to benefit from their fraudulent statements, and suppression of information. Smokers remain addicted and will be far into the foreseeable future, and they, as well as the federal government, will be forced to furnish and pay for medical care and treatment for smoking-related diminished health, diseases, illnesses, and injuries well into the next century — all while the tobacco companies continue to earn enormous profits from addicted smokers.
V. DEFENDANTS' LIABILITY FOR THE UNITED STATES' HEALTH CARE COSTS
A. Count One: Liability Under The Medical Care Recovery Act
The United States of America realleges and incorporates by reference in this Count the allegations contained in Sections I. through IV., above, and in the Appendix to this Complaint, as if fully set forth herein.
The Medical Care Recovery Act, 42 U.S.C. § 2651, et seq., authorizes the United
States to recover the reasonable value of certain hospital, medical, surgical, or dental care and treatment. Pursuant to the Medical Care Recovery Act, the United States is entitled to recover for such care or treatment under circumstances creating a tort liability upon a third person.
Each year, the United States, pursuant to various statutory entitlement programs,
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furnishes and pays for hospital, medical, surgical, and dental care (hereinafter collectively referred to as "health care services") for numerous current and former consumers of the Cigarette Companies' products. The statutes pursuant to which the United States furnishes and pays for such health care costs include, but are not limited to,
(1) the Medicare statute, Subchapter XVIII of the Social Security Act, 79 Stat. 290,
as amended, 42 U.S.C. § 1395 et seq., pursuant to which the Health Care Financing
Administration ("HCFA"), which is part of the Department of Health and Human
Services, pays for certain health care services, including, but not limited to, the costs
of hospital care, post-hospital care, home health services, and hospice care as well as
services rendered by physicians and other health care practitioners, for tens of
millions of eligible beneficiaries, including, but not limited to, individuals over the age
of 65, individuals with disabilities, and individuals with end-stage renal disease
(hereinafter referred to as the "Medicare Program");
(2) Chapter 17 of Title 38 of the United States Code, 38 U.S.C. § 1701 et seq.,
pursuant to which the Department of Veterans Affairs ("VA"), through the Veterans
Health Administration ("VHA") and the Civilian Health and Medical Program for the
VA ("CHAMPVA"), provides and pays for inpatient and outpatient health care
services for veterans and their dependents and survivors as well as nursing home care
for many veterans (hereinafter referred to as the "VA Health Benefits Program");
(3) Chapter 55 of Title 10 of the United State Code, 10 U.S.C. § 1071 et seq.,
pursuant to which the Department of Defense ("DOD") provides and pays for health
care services, through military hospitals, clinics, and other facilities and through the
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Civilian Health and Medical Program for the Uniformed Services ("CHAMPUS"),
and the newer program known as TRICARE, for millions of current members and
certain former members of the uniformed services and their dependents (hereinafter
referred to as the "Military Health System" or "MHS");
(4) the Federal Employees Health Benefits Act ("FEHBA"), 5 U.S.C. § 8901 et seq.,
pursuant to which the United States, through the Office of Personnel Management
("OPM"), pays for a large portion of the cost of the health care services provided to
millions of Federal Government employees and certain other individuals (hereinafter
referred to as the "Federal Employees Health Benefits Program" or "FEHBP").
Pursuant to these statutes and to other laws, the United States furnishes and pays for, and will in the future be authorized and required to continue to furnish and pay for, hospital, medical, surgical and dental care for diseases, illnesses, and injuries resulting from cigarette smoking. Care provided for the diseases, illness, and injuries caused by cigarette smoking and furnished or paid for by the United States has a reasonable value of more than $20 billion per year.
The cigarette smokers on whose behalf the United States furnishes or pays for hospital, medical, surgical, and dental care have been injured or suffer disease under circumstances that create a tort liability upon defendants. That tort liability arises as follows:
1. Defendants' Liability for Fraud (Fraudulent Misrepresentation, Concealment, and Nondisclosure)
Defendants and their co-conspirators have engaged in a consistent course of conduct
through which they have fraudulently misled past, present and prospective smokers, governmental
authorities, and other members of the public. Defendants and their co-conspirators have made false
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and misleading statements that there is no causal connection between cigarette smoking and adverse health effects or that there is an open question as to whether smoking causes disease. They have made false promises to conduct and disclose objective research on the issue of smoking and health, and they have fraudulently concealed information relating to the issue of smoking and health.
Defendants and their co-conspirators have made affirmative material misrepresentations, have omitted material facts, and have concealed material information concerning the health risks associated with smoking cigarettes, particularly "light" or "low tar/ low nicotine" cigarettes. They have made false and misleading statements and concealed material information concerning both the addictiveness of nicotine and their own manipulation of the nicotine delivery in cigarettes. They have falsely denied marketing cigarettes to children.
At the time that these false or misleading statements and representations were made, defendants and their co-conspirators knew or should have known that their statements were materially fraudulent, false or misleading, and they intentionally omitted or concealed material information. Additionally or in the alternative, defendants and their co-conspirators made the statements recklessly with conscious disregard for the truth or falsity of their representations to the public.
Defendants and their co-conspirators had superior access to information about smoking and health, had made public promises to be completely forthcoming with such information and made misleading partial disclosure as to these issues. They had therefore assumed a duty to disclose to government regulators and to the public material facts concerning the relationship between cigarette smoking and disease generally, including material facts about the addictiveness of nicotine, their own manipulation of the nicotine delivery in cigarettes, and the health risks associated
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with cigarettes, including "light" or "low tar/low nicotine" cigarettes. Defendants also had a legal duty to disclose their efforts and ability to research, develop, and market a less hazardous and less addictive cigarette. They had a duty not to market their products to children. Nevertheless, defendants and their co-conspirators intentionally or recklessly failed to disclose or deliberately concealed those material facts from the public and from governmental agencies.
Defendants and their co-conspirators committed hundreds, and perhaps thousands, of acts involving material fraudulent misrepresentations, fraudulent concealment, and fraudulent nondisclosures over the course of the last forty-five years. Defendants' and their co-conspirators' acts of concealment took a number of forms, many of which are unknown to Plaintiff because such actions and concealment are within the exclusive knowledge of defendants. The United States is unable to allege in full the numerous advertisements, press releases, and other communications that defendants and their co-conspirators released over the past forty-five years because the United States does not have access to this information. Indeed, it is defendants themselves who are in the best position to know the contents of each and every such misrepresentation and fraudulent statement.
Specific examples of the material fraudulent misrepresentations, fraudulent concealment, and fraudulent nondisclosure of defendants and their co-conspirators include, but are not limited to, the acts set forth in Section IV, above, and in the Appendix to this Complaint, which are alleged and relied upon here as if fully set forth herein.
Defendants and their co-conspirators made these and other fraudulent misrepresentations and omissions intending to deceive consumers, and to induce members of the public and governmental agencies to believe that cigarettes are not addictive and to believe that cigarettes are not dangerous to health or to harbor false doubts about the health risks of cigarettes.
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By making the false and misleading representations and omissions, defendants and their co- conspirators intended to create a false controversy about smoking and disease and to induce smokers and prospective smokers to buy and smoke cigarettes. Defendants and their co-conspirators also intended to discourage smokers from reducing their consumption of cigarettes and from trying to quit smoking.
Members of the public believed in the truth and completeness of the statements made by defendants and their co-conspirators. They relied upon the statements by defendants and their co- conspirators, including statements that created a false controversy about smoking and disease, and demonstrated that reliance by purchasing and smoking cigarettes, and by refraining from trying to quit or reduce their consumption of cigarettes. The belief in and reliance upon defendants' and their co-conspirators' representations by members of the public was intended by defendants and was both justifiable and reasonable.
As a direct and proximate result of the fraudulent misrepresentations, omissions, and concealment by defendants and their co-conspirators, individually and collectively, members of the public began to smoke and continued smoking and, as a result, they suffered harm. Among other things, smokers experienced diminished overall health and an increased risk of disease and illness, and endured smoking-related diseases, and injuries. Among those who suffered injury as a result of defendants' and their co-conspirators' fraudulent conduct are persons for whom the United States was authorized and required to furnish and pay for, has furnished and paid for, and will furnish and pay for, hospital, medical, surgical, or dental care and treatment under various federal programs, including those referred to in the third numbered paragraph of Section V. A., above.
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2. Defendants' Liability for Violations of State Consumer Protection Statutes (Unfair, Unconscionable, and Deceptive Acts or Practices)
All of the states and the District of Columbia have consumer protection statutes that
prohibit unfair, unconscionable, deceptive and misleading trade practices directed toward consumers,
and private consumers may recover damages for conduct that violates these statutes. See Ala. Code
Ann. § 8-19-1 et seq.; Alaska Stat. § 45.50.471 et seq.; Ariz. Rev. Stat. § 44-1521 et seq.; Ark.
Code Ann. § 4-88-101 et seq.; Cal. Civ. Code § 1750 et seq.; Colo. Rev. Stat. § 6-1-101 et seq.;
Conn. Gen. Stat. § 42-110a et seq.; Del. Code tit. 6 §§ 2511 et seq., 2531 et seq.; D.C. Code § 28-
3901 et seq.; Fla. Stat. §§ 501.201 et seq., 817.40 et seq.; Ga. Code § 10-1-390 et seq.; Haw. Rev.
Stat. §§ 480-1 et seq.; Idaho Code § 48-601 et seq.; Ill. Rev. Stat. ch. 815 §§ 505, 510; Ind. Code §
24-5-0.5-1 et seq.; Iowa Code §§ 714.16 et seq., 611.21; Kan. St. Ann. § 50-623 et seq.; Ky. Rev.
Stat. §§ 367.110 et seq., 517.020, 517.030, 446.070; La. Rev. Stat. § 51:1401 et seq.; Me. Rev.
Stat. tit. 5 § 205A et seq.; Md. Com. Law Code § 13-101 et seq.; Mass. Gen Laws ch. 93A; Mich.
Comp. Laws §§ 445.901 et seq., 445.356 et seq.; Minn. Stat. §§ 8.31, 325D.09 et seq., 325D.44 et
seq., 325F.67, 325F.68 et seq.; Miss. Code § 75-24-1 et seq.; Mo. Rev. Stat. § 407.010 et seq.;
Mont. St. Ann. § 30-14-101 et seq.; Neb. Rev. Stat. §§ 59-1601 et seq.; Nev. Rev. Stat §§ 41.600 et
seq., 598.0903 et seq.; N.H. Rev. Stat. § 358-A:1 et seq.; N.J. Stat. Ann. § 56:8-2 et seq.; N.M.
Stat. § 57-12-1 et seq.; N.Y. Gen. Bus. Law §§ 349, 350; N.C. Gen. Stat. § 75-1.1 et seq.; N.D.
Cent. Code §§ 51-15-01 et seq., 51-12-01 et seq.; Ohio Rev. Code §§ 1345.01 et seq.; 4165; Okla.
Stat. tit. 15 § 751 et seq.; Okla. Stat. tit. 78 § 51 et seq.; Or. Rev. Stat. § 646.605 et seq.; Pa. Stat.
tit. 73 § 201-1 et seq.; R.I. Gen. Law § 6-13.1-1 et seq.; S.C. Code § 39-5-10 et seq.; S.D. Codified
Laws Ann. § 37-24-1 et seq.; Tenn. Code Ann. § 47-18-101 et seq.; Tex. Bus. & Com. Code
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§ 17.41 et seq.; Utah Code §§ 13-11-1 et seq., 13-11A-1 et seq.; Vt. Stat. tit. 9 § 2451 et seq.; Va.
St. §§ 59.1-196 et seq., 18.2-216, 59.1-68.3; Wash Rev. Code § 19.86.010 et seq.; W. Va. Code
§ 46A-6-101 et seq.; Wis. Stat. §§ 100.18, 100.20; and Wyo. Stat. § 40-12-101 et seq.
The conduct of defendants and their co-conspirators, as set forth above, violated their
duty imposed upon them by the above-cited statutes to refrain from engaging in unfair, deceptive,
and unconscionable trade practices. In particular, the knowingly fraudulent misrepresentations,
fraudulent omissions, and fraudulent concealment of material facts described in Section IV, above,
and in the Appendix to this Complaint, had the capacity, tendency, or effect of deceiving or
misleading consumers and constituted unfair, deceptive, and unconscionable trade practices for
which defendants were and are subject to tort liability under the above-cited statutes.
Defendants and their co-conspirators made false and misleading statements that there
is no causal connection between cigarette smoking and adverse health effects or that there is an open
question as to whether smoking causes disease. They have made false promises to conduct and
disclose objective research on the issue of smoking and health, and they have fraudulently concealed
information relating to the issue of smoking and health. Defendants and their co-conspirators have
made affirmative material misrepresentations, have omitted material facts, and have concealed
material information concerning the health risks associated with smoking cigarettes, particularly
"light" or "low tar/low nicotine" cigarettes. They have made false and misleading statements and
concealed material information concerning both the addictiveness of nicotine and their own
manipulation of nicotine delivery in cigarettes. They have falsely denied marketing cigarettes to
children. In so doing, defendants further violated their duties under the state consumer protection
statutes to refrain from representing that their products are of a particular standard, grade, or quality
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when they are not, from representing that their cigarettes have characteristics, ingredients, uses, or benefits that they do not have, and from engaging in false and misleading advertising.
Defendants and their co-conspirators further engaged in unconscionable conduct prohibited by the state consumer protection statutes by knowingly and intentionally causing cigarettes to be marketed and sold to the vulnerable population of children, in part by: (a) designing their marketing campaigns with the intent that children be induced by defendants' advertisements to smoke cigarettes; (b) engaging in other conduct with the purpose of causing children to smoke; (c) concealing that their marketing was designed to encourage children to smoke and publicly claiming that they discouraged children from smoking; and (d) concealing that their products are addictive and harmful, and defrauding and misleading the public, including children, on these subjects.
Defendants' and their co-conspirators' knowing violations of their duty under the state consumer protection statutes to refrain from engaging in unfair, unconscionable, deceptive, and misleading trade practices had the tendency to deceive consumers. Consumers relied upon defendants' and their co-conspirators' misleading and deceptive statements to their detriment by purchasing and smoking cigarettes, or by refraining from trying to quit, or by failing to reduce their consumption of cigarettes. Consumers suffered harm from smoking. Among other things, consumers who smoke have experienced diminished overall health and an increased risk of disease and illness, and endured smoking-related diseases, and injuries. Among those who suffered injury as a result of defendants' and their co-conspirators' tortious and unlawful conduct are persons for whom the United States has furnished or paid for, and will furnish and pay for, hospital, medical, surgical, or dental care and treatment under various federal programs, including those referred to in the third numbered paragraph of Section V. A., above.
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3. Defendants' Liability for Breach of Manufacturers' Duties, Including Failure to Warn, Failure to Test, Sale of Defective and Unreasonably Dangerous Products (Strict Liability, Negligence, and Breach of Implied Warranty)
All states and the District of Columbia impose duties on manufacturers and suppliers of products intended for human use and consumption, to exercise reasonable care and to refrain from selling products that are defective or unreasonably dangerous when used as intended by foreseeable users of the product. The Cigarette Companies' duties included the duty to test their products adequately to determine that they were safe for their intended use; to design their products so that, when used as intended, they were reasonably fit and safe for their foreseeable users; and to warn foreseeable users of dangers related to their products' use. The Cigarette Companies have also impliedly warranted that their products had been adequately tested and were not defective or unreasonably dangerous when used as intended by foreseeable users.
In breach of their duty and implied warranty, the Cigarette Companies manufactured and supplied products that were defective and unreasonably dangerous when used as intended by foreseeable users of their product. The Cigarette Companies' products were defective, unreasonably dangerous, and not fit for ordinary use when they left the possession of the Cigarette Companies.
The cigarettes manufactured by the Cigarette Companies were expected to, and did, reach the consumer in substantially unchanged condition from that in which they were manufactured. The
Cigarette Companies have had superior knowledge and access to information about their products and knew that consumers, particularly children whom they targeted, were unaware of the full range of health risks caused by the companies' products, including addictiveness, the companies' manipulation of their products, and the effects such manipulation would have on the users' health.
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The Cigarette Companies manufactured and sold cigarettes that, when used as intended, caused a large percentage of users to become addicted and to develop often fatal diseases, including lung cancer, emphysema, stroke, and heart disease.
Rather than testing to determine whether their products were safe for their intended use or how hazardous their cigarette products were, the Cigarette Companies, along with their co- conspirators, deliberately designed a research program so as to avoid determining the full scope of the dangers posed by their products, and acted to suppress and terminate research that threatened to expose the health dangers and addictiveness of smoking.
The Cigarette Companies knew or should reasonably have known, in light of methods available at the time of manufacture, about less hazardous, feasible alternative designs for their products. Despite the feasibility of less hazardous alternative designs for their products, the
Cigarette Companies failed to research or adopt such less hazardous alternatives, and did instead fail to reduce by a meaningful amount the harmful components of tobacco smoke in the cigarettes they sold to the public; and misled the public by marketing so-called "low tar/low nicotine" cigarettes that, defendants well knew, were not significantly lower in tar or nicotine not less hazardous as smoked by defendants' customers.
Prior to the time that warnings were specifically required by the federal government under the Public Health Cigarette Smoking Act of 1969 and despite knowledge by the Cigarette
Companies, many years before the addition of such warnings, that smoking posed serious health hazards, the Cigarette Companies also failed to warn the foreseeable users of their products of the dangers associated with the use of those products, including the extremely addictive nature of nicotine and the high risk of disease and death. Instead of warning of such dangers, the Cigarette
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Companies, along with their co-conspirators, actively sought to stifle or contradict, and thereby, neutralize any such warnings that might be issued by other entities and further intentionally directed their marketing toward children and adolescents, who would be less likely to be aware of cigarettes' dangerous and addictive properties or able to appreciate the risks of smoking. The presence of an adequate warning, including a warning about the addictive properties of nicotine, would have limited injuries caused by use of the Cigarette Companies' products.
The extreme dangers of disease and death caused by using the Cigarette Companies' products, including the risk that consumers would become addicted and thus unable to stop smoking before developing smoking-caused diseases, were known or reasonably should have been known to the Cigarette Companies.
The true nature of the health risks of smoking cigarettes were beyond that reasonably contemplated by the ordinary smoker, and in particular beyond that contemplated by the ordinary beginning smoker who was not yet dependent upon nicotine. The full range of health risks of smoking cigarettes was beyond that contemplated by children, whom defendants targeted with their marketing. Moreover, the true risks of their products, as designed, engineered, and marketed by defendants, were not open or obvious to consumers, particularly children.
Because defendants had available to them means to reduce the hazards of cigarette smoking but chose not to develop or effectively implement them, the extreme danger of the design of the cigarettes manufactured by the Cigarette Companies — including the danger of diseases arising from their long term use — substantially outweighed the utility of the design.
The Cigarette Companies failed to use reasonable care in testing the safety of the cigarettes manufactured by them, in designing the cigarettes manufactured by them, and, in providing
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instructions to users and, prior to the enactment of the Public Health Cigarette Smoking Act of
1969, in providing adequate warnings concerning the use of the cigarettes manufactured by them.
The Cigarette Companies' breach of their duties and implied warranty was done in reckless and wanton disregard of the safety of cigarette smokers, and with actual knowledge of the fact that the conduct of the Cigarette Companies would cause serious illness or death to large numbers of cigarette smokers.
As a direct and proximate result of the breach of their duties and implied warranty by the Cigarette Companies, individually and collectively, millions of users of the Cigarette Companies' products have suffered and will continue to suffer physical harm. Among other things, smokers experienced diminished overall health and an increased risk of disease and illness, and endured smoking-related diseases, injuries, and death. Among those who suffered injury as a result of
Defendants' tortious conduct are persons for whom the United States has furnished or paid for, and will furnish and pay for, hospital, medical, surgical, or dental care and treatment under various federal programs, including those referred to in the third numbered paragraph of Section V. A., above.
4. Defendants' Liability For Negligent Performance of Voluntary Undertakings
Defendants, along with their co-conspirators, deliberately and voluntarily made statements to the public and to governmental agencies, public officials, and others who advance and protect the public health, in which they made the following undertakings: (a) to accept an interest in the public’s health as a basic and paramount responsibility; (b) to cooperate closely with those who safeguard the public health; (c) to aid and assist the research effort into all phases of tobacco use and health; (d) to continue research and all possible efforts until all the facts are known; and (e) to
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provide complete and authenticated information about cigarette smoking and health.
These statements were made to reassure the public of the safety of defendants' products and their commitment to ensure that defendants' products were as safe as possible. In fact, however, defendants had no intention of determining the safety of their products, advising their customers of their safety, or ensuring that their products were as safe as possible. Defendants, acting in concert, used these promises to gain credibility for their false and misleading statements, and intended to create a false controversy about the relationship between smoking and disease.
By making such undertakings, defendants voluntarily assumed duties under the laws of the states and the District of Columbia to render services for the protection of the public health.
Defendants owed and continue to owe these duties to the consumers and potential consumers of cigarettes, including consumers and potential consumers for whom the United States is obligated or authorized to pay costs of health care. Defendants also owed and continue to owe these duties to governmental agencies, public officials, and others who advance and protect the public health.
Defendants intended consumers and government officials to rely upon them to fulfill their publicly stated commitment, and recognized or should have recognized that truly independent research and full disclosure consistent with that publicly stated commitment was necessary to protect the health of the consumers and potential consumers of cigarettes. Defendants realized that their conduct would affect the smoking behavior and health of millions of Americans.
Defendants have failed to exercise reasonable care in the performance of their undertaking. Through such failure, they have breached and continue to breach their assumed duties.
Defendants' failure to exercise reasonable care has increased and continues to increase the risk of physical harm to consumers and potential consumers of cigarettes, including those for whom the
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United States is obligated to pay costs of health care.
As a direct and proximate result of defendants’ failure to exercise reasonable care in
the performance of their undertaking, cigarette smokers have suffered and will continue to suffer
physical harm. Among other things, smokers have experienced diminished overall health and an
increased risk of disease and illness, and have endured smoking-related diseases, and injuries.
Among those who suffered injury as a result of defendants' tortious conduct are persons for whom
the United States has furnished or paid for, and will furnish and pay for, hospital, medical, surgical,
or dental care and treatment under various federal programs, including those referred to in the third
numbered paragraph of Section V. A., above.
5. Defendants' Liability for Civil Conspiracy
At all times material to this action, defendants participated in a civil conspiracy
among themselves, and with other persons known and unknown, the purposes of which were, inter alia: (a) to conceal knowledge of the harmful effects of cigarette smoking from the public, the medical and scientific community, and governmental authorities; (b) to create an illusion of conducting scientific research on cigarettes and cigarette smoking so as to mislead the public concerning the health effects of smoking and the industry's knowledge of those health effects; (c) to create an illusion of a genuine scientific controversy concerning whether smoking was harmful to health, when no such genuine controversy actually existed; (d) to mislead the general public, the medical and scientific community, and governmental authorities concerning the addictive properties of nicotine; (e) to mislead the general public, the medical and scientific community, and governmental bodies about the actual nicotine and tar delivery of supposedly "low tar" and "low nicotine" cigarettes as they are actually smoked, in order to mislead smokers into believing that
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switching to such cigarettes was a reasonable alternative to smoking cessation; (f) to suppress research into smoking and health; (g) to prevent development and marketing of less hazardous products; (h) to market cigarettes to minors in order to insure a lucrative future market for cigarettes; (i) to mislead the public concerning their efforts to market cigarettes to minors, and to interfere with effective anti-youth smoking efforts; and (j) to maintain a market for their defective and unreasonably dangerous products.
During the course of the conspiracy, the conspirators, acting in concert, engaged in numerous concerted acts to further the purposes of the conspiracy, including but not limited to those described in Section IV., above, and in the Appendix to this Complaint.
Each act of the conspiracy was ratified by the other co-conspirators, who acted as each other's agents in carrying out the conspiracy.
As a direct and proximate result of the conduct of defendants, numerous smokers have suffered illness or disease, with respect to whom the United States has furnished or paid for, and will furnish and pay for, hospital, medical, surgical, or dental care and treatment under various federal programs.
Each defendant is jointly and severally liable for the torts of the other members of the conspiracy which were committed in furtherance of the goals of the conspiracy.
B. Count Two: Liability under The Medicare Secondary Payer Provisions
The United States of America realleges and incorporates by reference in this Count the allegations contained in Sections I. through IV., and Section V.A., above, and in the Appendix to this Complaint, as if fully set forth herein.
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Each year, the United States, through the Health Care Financing Administration
("HCFA") of the United States Department of Health and Human Service ("HHS"), expends extraordinary amounts, pursuant to the Medicare Program, 42 U.S.C., § 1395 et seq., paying for the care and treatment of Medicare beneficiaries inflicted with and suffering from diseases, illnesses, injuries, and diminished health caused by defendants' acts and omissions.
The Medicare Secondary Payer ("MSP") provisions of Subchapter 18 of the Social
Security Act, 42 U.S.C. § 1395y(b)(2), provide that the Medicare Program will not pay for the cost of medical care if certain third parties -- such as liability insurance plans, including self-insured plans
-- have paid, or can reasonably be expected to pay promptly for those costs. 42 U.S.C.
§ 1395y(b)(2)(A)(i) and (ii). Where the Medicare Program does reimburse the beneficiary's health care costs, it does so "conditioned on reimbursement" to HHS by the responsible third party. 42
U.S.C. § 1395y(b)(2)(B)(i).
The MSP provisions authorize the United States to bring a direct statutory action, independent of the rights of the Medicare beneficiary, to recover payments that HCFA has made but with respect to which such third parties are "required or responsible . . . to make payment." 42
U.S.C. § 1395y(b)(2)(B)(ii). In addition, the United States is also subrogated to the rights of the beneficiary and may recover in any instance in which the beneficiary would be able to recover from the party required or responsible to pay. 42 U.S.C. § 1395y(b)(2)(B)(iii).
As a result of the conduct described herein, defendants are required and responsible to make payment for the health care costs of Medicare beneficiaries that were caused by defendants' tortious and unlawful conduct, which costs have been and will be unlawfully shifted to the United
States.
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VI. DEFENDANTS' LIABILITY FOR VIOLATIONS OF THE RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS STATUTE
A. Count Three: Violation of Title 18, United States Code, Section 1962(c)
Conducting the Affairs of the Enterprise Through a Pattern of Racketeering Activity
The United States of America realleges and incorporates by reference in this Count the allegations contained in Sections III and IV, above, and in the Appendix to this Complaint, as if fully set forth herein.
From at least the early 1950's and continuing up to and including the date of the filing of this complaint, in the District of Columbia and elsewhere, defendants,
PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON,
LORILLARD, LIGGETT, AMERICAN, PHILIP MORRIS
COMPANIES, BAT PLC, BAT INVESTMENTS, COUNCIL FOR
TOBACCO RESEARCH, and TOBACCO INSTITUTE, and others known and unknown, being persons employed by and associated with the Enterprise described in Section VI. B., below, did unlawfully, knowingly, and intentionally conduct and participate, directly and indirectly, in the conduct, management, and operation of the affairs of the aforementioned Enterprise, which was engaged in, and the activities of which affected, interstate and foreign commerce, through a pattern of racketeering activity consisting of numerous acts of racketeering in the District of Columbia and elsewhere, indictable under 18 U.S.C. §§ 1341 (mail fraud) and 1343 (wire fraud), including, but not limited to, the acts of racketeering alleged in the
Appendix to this Complaint which are incorporated by reference and realleged as if fully set forth
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herein, in violation of 18 U. S. C. § 1962 (c).
B. The Enterprise Manner and Means
From at least the early 1950s, and continuing up to and including the date of the filing of this complaint, in the District of Columbia and elsewhere, defendants
PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON,
LORILLARD, LIGGETT, AMERICAN, PHILIP MORRIS
COMPANIES, BAT PLC, BAT INVESTMENTS, COUNCIL FOR
TOBACCO RESEARCH, and TOBACCO INSTITUTE, and others known and unknown, including agents and employees of defendants, collectively have constituted an "enterprise," as that term is defined in 18 U.S.C. § 1961(4), that is, a group of business entities and individuals associated in fact, which was engaged in, and the activities of which affected, interstate commerce and foreign commerce. Each defendant participated in the operation and management of the Enterprise.
The Enterprise functioned as a continuing unit for more than 45 years to achieve shared goals through unlawful means including the following: (1) to preserve and enhance the market for cigarettes and defendants' own profits, regardless of the truth, the law, or the health consequences to the American people; (2) to deceive consumers into starting and continuing to smoke by maintaining that there was an open question as to whether smoking causes disease, despite the fact that defendants knew otherwise; (3) to deceive consumers into starting and continuing to smoke by undertaking an obligation to do everything in its power, including fund independent research, in order to determine if smoking causes cancer or other diseases, while concealing and suppressing relevant research and funding biased or irrelevant research; (4) to deceive consumers
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into becoming or staying addicted to cigarettes by maintaining that nicotine is not addictive, despite the fact that defendants knew that nicotine is addictive; (5) to deceive consumers into becoming or staying addicted to cigarettes by manipulating the design of cigarettes and the delivery of nicotine to smokers, while at the same time denying that they engaged in such manipulation; and (6) to deceive consumers, particularly parents and children, by claiming that they did not market to children, while engaging in marketing and advertising with the intent of addicting children into becoming lifetime smokers.
The Enterprise came into existence not later than December 15, 1953, at the above- described meeting at the Plaza Hotel in New York, New York. The participants agreed at that meeting to conduct a false and misleading public relations and advertising campaign to deceive consumers and others about the health effects of cigarettes in order to protect the profits of
Cigarette Companies. In furtherance of the Enterprise, the participants agreed to form TIRC (later
CTR), a New York non-profit corporation that was falsely held out to the public as an independent research organization that would consider whether smoking caused disease. In reality, TIRC was created as the centerpiece of a public relations campaign to protect the cigarette market from the perceived threat posed by adverse medical reports.
The Enterprise has pursued a course of conduct of deceit and misrepresentation and conspiracy to defraud the public, to withhold from the public facts material to the decision to purchase and use tobacco products, to promote and maintain sales of tobacco products, and the profits derived therefrom, as well as to shield themselves from public, judicial, and governmental scrutiny. The fraudulent, misleading and unlawful efforts of the Enterprise have continued from its inception to the present and threaten to continue into the future.
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The participants in this Enterprise have repeatedly utilized advertisements and promotions, and have made numerous other public statements through the mails and in broadcasts and other media, Congressional hearings, and other public appearances as part of a concerted and coordinated campaign to reaffirm their January 1954 promise to put people's health before every other consideration in their business, and to support and reveal unbiased and trustworthy research to answer questions about smoking and health. Defendants and their co-conspirators used the
Enterprise to make these material fraudulent representations to induce public acceptance of their representations, to avoid civil liability, and to conceal their efforts to misrepresent, suppress, distort, and confuse the facts about the health dangers of tobacco products, including nicotine addiction.
Behind the shield of its public disinformation campaign and the false claims that
TIRC/CTR would conduct unbiased research and publicly reveal all results thereof, the Enterprise has repeatedly concealed, suppressed, and/or misrepresented the material facts concerning that research. The Enterprise, through CTR and other entities supported by defendants, suppressed negative health and addiction research results from the public. In some cases, members of the
Enterprise shut down research before final data could be obtained and reported. The participants in the Enterprise also funded research studies designed to buttress defendants' knowingly fraudulent claims that the causal link between smoking and disease remained an "open question."
The participants in the Enterprise have not disclosed, and have denied, contrary to fact, that the Cigarette Companies manipulate and control the content, delivery, and potency of nicotine in their products to create and sustain consumers' addiction to tobacco products.
The Enterprise has further suppressed the development, testing, and marketing of less hazardous cigarettes, while fraudulently maintaining that cigarettes are safe and that there are no
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safer alternatives to their products.
The formation, existence, and actions of the Enterprise were essential to the success of the campaign of deceit, concealment, and misinformation. The constituent members of the
Enterprise were aware that, unless they agreed to act and acted as an enterprise, their sales of tobacco products would substantially decrease, and accordingly, the profits of the Cigarette
Companies would substantially diminish. The participants were also aware that, if the truth about the health effects of smoking, the addictiveness of nicotine, and the Cigarette Companies' targeting of children became known, profits would have substantially decreased, and the future of the cigarette industry would have been threatened.
At all relevant times, the Enterprise has existed separate and apart from defendants' racketeering acts and their conspiracy to commit such acts. The Enterprise has an ascertainable structure and purpose beyond the scope and commission of defendants' predicate acts. It has a consensual decision making structure that is used to coordinate strategy, manipulate scientific data, suppress the truth about the consequences of smoking, and otherwise further defendants' fraudulent scheme.
The Enterprise is an ongoing organization whose constituent elements function as a continuing unit in maximizing the sales of the products of all of the Cigarette Companies, misleading the public, the Congress, federal agencies, and the courts as to the health hazards of cigarettes, concealing and suppressing the truth concerning the addictive properties of nicotine and of the
Cigarette Companies' control of nicotine delivery, marketing to children, and carrying out other elements of defendants' scheme. The Enterprise continues actively to disguise the nature of defendants' wrongdoing and to conceal defendants' participation in the conduct of the Enterprise in
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order to avoid and/or minimize their exposure to criminal and civil penalties and damages.
In order to further the conspiracy and as part of their Enterprise that was engaged in a pattern of racketeering activity, defendants formed the TIRC (later CTR) and the Tobacco
Institute. Each of these organizations furthered the goals of the Enterprise in numerous ways:
C They served as a principal channel of communication among defendants to
ensure that the companies continued to espouse the party line and to react to
new threats to the industry.
C They served to provide a uniform voice to propagate defendants' and their co-
conspirators' false and misleading material statements about smoking and
health, defendants' commitment to research, and other issues.
C They provided an "independent" front for defendants' activities. CTR, for
example, was used by defendants to claim falsely that they were funding
independent research into smoking and health. Similarly, the Cigarette
Companies were able to market to youth and to deny doing so under the
cover of TI's print campaign which purported to discourage children from
smoking.
C They were mechanisms for enforcing the conspiracy and ensuring that all
defendants continued to participate in the Enterprise. Defendants and/or their
attorneys were in constant contact with each other through CTR and TI. The
numerous committees and boards that exercised control over TI and CTR
provided regular opportunities for defendants' agents to meet and to ensure
that defendants were continuing to act in concert.
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At all times, CTR and TI were controlled by the Cigarette Companies and their agents and employees. Defendants controlled each organization directly and through the web of committees made up of representatives of the Cigarette Companies and outside counsel. Over time, defendants' in-house and outside counsel took on a greater role in controlling the activities of
TIRC/CTR and TI. Although CTR and TI have been or will be dissolved, on information and belief, the functions they have served continue to be served by the Companies' agents and employees.
TIRC/CTR's Board of Directors was comprised of the Presidents of the member
Cigarette Companies. TIRC/CTR was funded by the member companies, and the TIRC/CTR Board of Directors approved the annual budget of the organization. The Board handled administrative matters and was responsible for ensuring the necessary funds were available to maintain TIRC/CTR.
TIRC/CTR also had a Scientific Director and a scientific staff. The Scientific Director and the
TIRC/CTR scientific staff were selected by representatives of defendants .
TIRC/CTR's Industry Technical Committee ("ITC"), made up of the Research
Directors of the various member companies, and representatives of Hill & Knowlton, a public relations firm that at various times represented both TIRC/CTR and TI, selected the first members of the SAB. Subsequent appointments were approved by TIRC/CTR's Chairman, a position that was usually filled by a retired tobacco company president or general counsel.
Defendants, through their attorneys and other agents, took an active role in controlling TIRC/CTR's research and other priorities. The Research Liaison Committee ("RLC"), formed in 1974, approved projects and monitored all phases of TIRC/CTR, including approving grants. The RLC had grant approval authority. The Cigarette Companies' in-house attorneys operated through the "Committee of Counsel," a group that included the General Counsel of each
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Cigarette Company, along with outside counsel who represented the Cigarette Companies. The
Committee of Counsel also reviewed and controlled TIRC/CTR's research priorities. Outside counsel for the Cigarette Companies even administered some of TIRC/CTR's research funds through
Special Projects and Special Accounts, in order to funnel money to the development of expert witnesses.
The Tobacco Institute (TI) is or was a non-profit organization formed in January
1958 whose member companies were manufacturers of tobacco products, including the five largest
Cigarette Companies. TI was formed, at least in part, in response to a growing resentment by some
SAB members of the public relations functions of the SAB and TIRC/CTR.
TI served as defendants' propaganda arm and was controlled by defendants. As part of the Enterprise, TI served to disseminate defendants' "party line" on issues such as smoking and health, regardless of what defendants knew.
TI was run by a variety of Committees, which were made up of representatives from the Cigarette Companies, each of whom initially had two members on TI's Executive Committee.
The Executive Committee had the "final voice on TI matters" and TI's statements. TI's Management
Committee met six to eight times per year to direct its activities, and its Communications Committee cleared TI's advertisements. Through these Committees, defendants, through their agents and attorneys, controlled TI and set policy, including the misleading and fraudulent statements about material matters made by TI. Over time, this structure changed somewhat, but defendants always maintained control over TI's activities.
The Cigarette Companies funded TI as well. The member companies paid dues to TI
"based on a set membership fee and then an additional fee was added based on the number of
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cigarettes the member company had manufactured in the previous year."
The Cigarette Companies also exercised control over TI through the Committee of
Counsel. The Committee of Counsel assisted TI in setting strategy, preparing witnesses on smoking and health issues, briefings, reviewing press releases, advertisements, and other public statements, and "follow-up" activities.
TI's stated goal was to bring "about a greater awareness that the cigarette controversy is not a closed question" -- i.e., to provide misleading information on the issue of smoking and health. TI took an active role in designing, writing, and seeking the publication of advertisements for defendants' products and prepared literally hundreds of advertisements from 1958 to 1998 that advanced defendants' primary position that "the question of smoking and health is still a question." TI regularly issued public statements questioning or disputing statements from health organizations that smoking caused disease and reiterating defendants' positions on other issues.
TI produced scores of witnesses for testimony in Congress, the courts, and state legislatures to advocate the false and misleading industry line — often without noting sponsorship by the Cigarette Companies or TI. TI also sponsored radio and TV campaigns. TI lobbied on behalf of the Cigarette Companies to prevent the release of public information about the effect of cigarettes on public health. TI also furthered the Enterprise by coordinating the Cigarette Companies' position with those of tobacco companies throughout the world.
Despite the fact that TI was formed in order to distance TIRC/CTR from defendants' public relations activities, after TI was created, TIRC/CTR continued its public relations functions, and continued to retain public relations counsel.
Although CTR purported to be "independent," TI and TIRC/CTR often worked
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together to advance defendants' positions. TI used TIRC/CTR's research material to further the goal of maintaining defendants' "open controversy" position.
In furtherance of their common goals, including preserving, protecting, and enhancing the market for cigarettes, the Cigarette Companies jointly created and funded TIRC/CTR and TI.
By the Cigarette Companies' frequent and continuous interaction as controlling participants on the boards, committees, and other structures within TIRC/CTR and TI, defendants and others have constituted an association-in-fact enterprise as defined in 18 U.S.C. § 1961(4).
On information and belief, by frequent and continuous communications among, and coordinated activities of, defendants and their agents that continue to the present day, defendants and others continue to constitute an association-in-fact enterprise as defined in 18 U.S.C. § 1961(4).
C. Count Four: Violation of Title 18, United States Code, Section 1962(d); Conspiracy to Violate Title 18, United States Code, Section 1962(c)
Conspiracy to Conduct the Affairs of the Enterprise Through a Pattern of Racketeering Activity
The United States of America realleges and incorporates by reference in this Count the allegations contained in Sections I. through IV., and in Section VI. B., above, and in the
Appendix to this Complaint, as if fully set forth herein.
From at least the early 1950's up to and including the date of the filing of this
Complaint, in the District of Columbia and elsewhere, defendants,
PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON,
LORILLARD, LIGGETT, AMERICAN, PHILIP MORRIS
COMPANIES, BAT PLC, BAT INVESTMENTS, COUNCIL FOR
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TOBACCO RESEARCH, and TOBACCO INSTITUTE,
and others known and unknown, being persons employed by and associated with the Enterprise
described in Section VI. B., above, did unlawfully, knowingly and intentionally combine, conspire,
confederate, and agree together with each other, and with others whose names are both known and
unknown, to conduct and participate, directly and indirectly, in the conduct of the affairs of the
aforementioned Enterprise, which was engaged in, and the activities of which affected, interstate and
foreign commerce, through a pattern of racketeering activity consisting of multiple acts indictable
under 18 U.S.C. §§ 1341 and 1343, in violation of 18 U.S.C. § 1962(d).
The Enterprise Manner and Means: Section VI. B, above, is incorporated by
reference and realleged as if fully set forth herein.
Each defendant agreed that at least two acts of racketeering activity would be
committed by a member of the conspiracy in furtherance of the conduct of the Enterprise. It was
part of the conspiracy that defendants and their co-conspirators would commit numerous acts of
racketeering activity in the conduct of the affairs of the Enterprise, including, but not limited to, the
acts of racketeering set forth in the Appendix, in the District of Columbia and elsewhere.
D. THE PATTERN OF RACKETEERING ACTIVITY
Racketeering Acts Related to The Mail And Wire Fraud Scheme
Racketeering Acts 1 through 116: The following sub-paragraphs a. through n. are realleged as a part of each of Racketeering Acts Nos. 1 through 116 relating to mail fraud and wire fraud set forth in the Appendix to the Complaint.
a. From at least as early as December 1953, and continuing until the time of filing of this complaint, in the District of Columbia and elsewhere, defendants and others known and
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unknown did knowingly and intentionally devise and intend to devise a scheme and artifice to defraud, and obtain money and property from, members of the public by means of material false and fraudulent pretenses, representations, and promises, and omissions of material facts, knowing that the pretenses, representations, and promises, were false when made.
b. It was part of said scheme and artifice that the Cigarette Companies would and did sell products for purchase by smokers that were represented to pose no proven substantial risk of disease, and that were not addictive, and that smoking was a matter of free choice by adults, when in fact, cigarette smoking posed substantial health risks, that nicotine in cigarettes is highly addictive, and that the Cigarette Companies had targeted children as "replacement smokers" for adult smokers who either reduced or ceased smoking or had died.
c. It was further part of said scheme and artifice that defendants and their co-conspirators would and did maintain sales and profits of the Cigarette Companies, by concealing, and suppressing material information regarding the health consequences associated with smoking, including that cigarette smoking posed substantial health risks, that nicotine in cigarettes is highly addictive, that they had the ability to manipulate and manipulated nicotine delivery, and that the
Cigarette Companies had targeted children as "replacement smokers" for adult smokers who either reduced or ceased smoking or had died.
d. It was further part of said scheme and artifice that, in order to conceal the health risks of cigarette smoking and the addictiveness of nicotine, defendants and their co-conspirators would and did make false representations and misleading statements in national publications, would and did falsely represent that defendants would fund and conduct objective, scientific research, and disclose the results of such research, to resolve concerns about
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tobacco-related diseases, would and did falsely represent that defendants did not target children for sales of cigarettes, would and did suppress and destroy documents to hide adverse research results, would and did misrepresent and fail to disclose their ability to manipulate and the manipulation of nicotine delivery and the addictive qualities of cigarettes, would and did conceal the availability of less hazardous and less addictive cigarettes, and would and did misrepresent their actions to government personnel and others and in judicial proceedings.
e. It was further part of said scheme and artifice that defendants and their co-conspirators would seek to impair, impede, and defeat government authorities' ability to understand the actual risks of cigarette smoking and the addictiveness of nicotine, and to impair, impede, and defeat governmental efforts to regulate and control the manufacture and distribution of cigarettes, and to impair, impede, and defeat parties in litigation from learning the adverse health effects and addictiveness of cigarette smoking, in that defendants and their co-conspirators would and did attempt to cover up their knowledge of the adverse health risks of smoking, the addictiveness of nicotine, and their efforts to recruit children as smokers, and would and did misrepresent that adverse health effects of smoking and addictiveness were unknown or unproven; and would and did attempt to prevent to the public, Congress, courts and government officials from uncovering those activities.
f. It was further part of said scheme and artifice that defendants' communications directed toward government officials and courts would be and were designed to preserve and increase the market for cigarettes while concealing the deleterious health effects caused by smoking cigarettes. Examples of such communications include defendants' communications with government agencies, and communications with congressional subcommittees, members, and staff,
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as well as their communications among themselves regarding what should not be disclosed to government agencies and to courts and Congress.
g. It was further a part of said scheme and artifice that defendants communicated to the public nationwide in newspapers, magazines, and other periodicals that were distributed through the mails, as well as through the broadcast media, to deceive the public.
h. It was further part of said scheme and artifice that defendants would cause assurances and guarantees that the Cigarette Companies were seeking answers to public health issues to be disseminated by mail and by interstate wire transmissions.
i. It was further part of said scheme and artifice that defendants would take and receive and cause to be taken and received from the mails communications concerning research relating to the health effects of smoking.
j. It was further part of said scheme and artifice that defendants and their co-conspirators would mail and otherwise distribute press releases and other public statements addressing public health concerns and commenting on particular research issues.
k. It was a further part of said scheme and artifice that defendants and their co-conspirators would and did misrepresent, conceal, and hide and cause to be misrepresented, concealed, and hidden, the purpose of, and acts done in furtherance of, the scheme to defraud.
l. It was a further part of said scheme and artifice, and in furtherance thereof, that defendants would and did communicate with each other and with their co-conspirators and others, in person, by mail, and by telephone and other interstate and foreign wire facilities, regarding health effects of smoking, health research and research into the effects of nicotine, and ways to suppress such information, and regarding ways to identify and target children for the sale of cigarettes.
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m. For the purpose of executing and attempting to execute the scheme and artifice described herein, defendants and their co-conspirators would and did: knowingly place and cause to be placed in any post office or authorized depository for mail matter, matters and things to be sent and delivered by the United States Postal Service (and its predecessor, the United States Post Office
Department); took and received therefrom such matters and things; and knowingly caused to be delivered by mail according to the direction thereon, and at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter and thing, in violation of 18 U.S.C.
§ 1341, including, but not limited to, the instances set forth in Racketeering Acts 1 through 102 of the
Appendix to the Complaint.
n. For purposes of executing and attempting to execute that scheme and artifice, defendants and their co-conspirators would and did knowingly transmit and cause to be transmitted in interstate and foreign commerce by means of wire, radio and television communication writings, signs, signals, pictures and sounds (collectively "transmissions") in violation of 18 U.S.C. § 1343, including, but not limited to, the transmissions set forth in Racketeering Acts 103 through 116 of the
Appendix to the Complaint.
Racketeering Acts Nos. 1 through 116 appearing in the Appendix to this Complaint are realleged and incorporated by reference into the Complaint as if fully set forth herein.
E. Summary of the Racketeering Acts Charged Against Each Defendant
Set forth below is a chart indicating those Racketeering Acts, in which each defendant that is named in this Complaint in its individual capacity, personally participated. Each of these Acts was committed pursuant to and in furtherance of the above-described Enterprise, and such Acts include false and misleading statements, as well as other uses of the mails and wire transmissions, to
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further and execute defendants' scheme and artifice to defraud. The Racketeering Acts are set forth in the attached Appendix, which is incorporated by reference and realleged as if fully set forth herein:
DEFENDANT RACKETEERING ACTS VIOLATIONS PHILIP MORRIS 1, 2, 3, 5, 6, 7, 8, 10, 12, 13, 16, 17, 18, 19, 18 USC § 1341 20, 21, 22, 23, 24, 26, 27, 28, 29, 31, 33, 18 USC § 1343 34, 35, 38, 40, 41, 42, 43, 44, 46, 47, 48, 49, 56, 58, 59, 66, 67, 70, 73, 77, 79, 81, 87, 88, 91, 93, 98, 100, 105, 108, 109, 114 REYNOLDS 1, 2, 3, 4, 5, 6, 7, 8, 10, 12, 13, 17, 18, 21, 18 USC § 1341 22, 23, 24, 26, 27, 28, 29, 31, 33, 34, 35, 18 USC § 1343 36, 38, 39, 42, 43, 44, 46, 49, 56, 61, 62, 64, 65, 66, 67, 68, 70, 73, 76, 77, 79, 81, 82, 83, 84, 85, 86, 87, 88, 89, 91, 93, 94, 96, 97, 98, 99, 102, 104, 107, 110 BROWN & WILLIAMSON 1, 2, 3, 5, 6, 7, 8, 10, 11, 12, 13, 17, 18, 21, 18 USC § 1341 22, 23, 24, 27, 28, 29, 30, 31, 32, 33, 34, 18 USC § 1343 35, 38, 42, 43, 44, 45, 46, 49, 50, 51, 52, 53, 54, 55, 56, 57, 60, 63, 66, 67, 70, 73, 77, 79, 81, 87, 88, 91, 93, 98, 103, 106, 115, 116 LORILLARD 1, 2, 3, 5, 6, 7, 8, 10, 12, 13, 17, 18, 21, 22, 18 USC § 1341 23, 24, 27, 28, 29, 31, 33, 34, 35, 37, 38, 18 USC § 1343 42, 43, 44, 46, 49, 56, 66, 67, 70, 73, 77, 79, 81, 87, 88, 91, 93, 98, 104, 111 LIGGETT 13, 17, 22, 28, 31, 38, 44, 66, 67, 70, 73, 18 USC § 1341 77, 88, 112 18 USC § 1343 AMERICAN 1, 2, 3, 5, 6, 7, 8, 10, 12, 13, 17, 18, 21, 22, 18 USC § 1341 23, 24, 27, 29, 31, 33, 34, 35, 38, 42, 43, 18 USC § 1343 44, 46, 49, 56, 66, 67, 70, 73, 77, 79, 81, 87, 88, 90, 91, 93, 98, 113 PHILIP MORRIS 69, 71, 72, 74, 75, 78, 80, 92, 95 18 USC § 1341 COMPANIES 18 USC § 1343 BAT PLC 55, 59, 101, 108 18 USC § 1341 (BAT INDUSTRIES) 18 USC § 1343
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DEFENDANT RACKETEERING ACTS VIOLATIONS BAT INVESTMENTS 11, 30, 50, 51, 53, 54, 57, 60, 63, 103, 106 18 USC § 1341 (BAT Co.) 18 USC § 1343 COUNCIL FOR 2, 9, 13, 14, 15, 17, 22, 25, 31, 38, 44, 66, 18 USC § 1341 TOBACCO RESEARCH / 67, 70, 73, 77, 88, 98 18 USC § 1343 TOBACCO INDUSTRY RESEARCH COMMITTEE TOBACCO INSTITUTE 3, 5, 6, 7, 8, 10, 12, 18, 21, 23, 24, 27, 29, 18 USC § 1341 33, 34, 35, 42, 43, 46, 49, 56, 79, 81, 87, 18 USC § 1343 91, 93
F. Equitable Relief Is Necessary to Prevent and Restrain Defendants' Unlawful Conduct in the Future
Defendants' affirmative and intentional acts of fraudulent concealment, suppression, and denial of the facts as alleged above has continued unabated over a span of many decades.
Defendants have maintained a unified scheme to thwart public awareness of adverse scientific and medical information concerning the health risks of cigarette smoking by suppressing and subverting medical and scientific research. They have concealed and denied the addictive properties of nicotine and the Cigarette Companies' manipulation of the levels of nicotine in their products. They have misrepresented the tobacco industry's targeting of youth smokers and their endeavors to exploit the addictive properties of nicotine to maintain a market for cigarettes -- all through an uninterrupted pattern of fraudulent and deceitful conduct aimed at maintaining a market for their products and increasing industry profits at the expense of the smokers they endeavored to deceive.
The pattern of defendants' conduct reflects an unwillingness to concede, and affirmative efforts to conceal from the public, from courts, and from regulatory bodies, pertinent and
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properly available information concerning the dangers of their products. After a span of more than forty-five years of deception and fraud, it would be unreasonable to believe that defendants will voluntarily cease their unlawful conduct, or that their pattern of racketeering activity will cease without intervention by this Court.
Unless restrained, defendants will continue their attempts to keep internal information from public disclosure. They will refuse to admit, and continue to conceal, the fact that smoking cigarettes causes disease and kills and that the nicotine in their products is addictive. Affirmative relief is required to ensure that defendants fulfill their duty to disclose non-public information over which defendants have had exclusive control, and which is crucial to the consuming public in making informed purchasing decisions. Equitable relief is necessary to ensure an end to defendants' continued efforts to confuse and mislead the public concerning the health consequences of smoking and the addictive nature of nicotine, and to end their deceptive campaign to induce children and minors to become addicted and subject to a high risk of disease.
Defendants' violations of 18 U.S.C. § 1962, and their continuing pattern of racketeering acts will continue in connection with the affairs of the Enterprise unless this Court implements the relief requested below.
VII. PRAYER FOR RELIEF
WHEREFORE, the United States of America prays for relief and judgment against all defendants, jointly and severally, as follows:
A. Remedies at Law:
Awarding damages, along with pre-judgment and post-judgment interest as provided by law, to the United States of America, pursuant to Counts One and Two, for defendants' tortious and
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wrongful acts, as alleged above, as follows:
1. Under Count One, awarding the United States money damages for an amount that is sufficient to provide restitution and repay the United States for the sums it has spent or will spend, constituting, as provided by law, the reasonable value of hospital, medical, surgical, and dental care and treatment furnished and to be furnished, paid for and to be paid for, by the United States to or on behalf of beneficiaries of various federal programs including those referred to in the third numbered paragraph of Section V. A., above, as a result of the wrongful conduct of defendants, which amount is to be determined at trial by a jury. The United States has suffered and in the future will continue to incur substantial monetary damages as a result of this same conduct. An actual, justiciable controversy exists between plaintiff and defendants regarding the ultimate legal and financial responsibility for these future medical expenditures.
2. Under Count Two, awarding the United States money damages for an amount that is sufficient to provide restitution and repay the United States for the sums it has spent or will spend, past and present, pursuant to the United States' right, independent of the rights of Medicare beneficiaries, to recover compensation for the costs that the United States has paid, pursuant to the
Medicare Program, to reimburse health care providers for treating Medicare beneficiaries suffering from diseases and other health problems as a result of defendants' wrongful and unlawful conduct, which payments HCFA has made but with respect to which defendants are "required or responsible
. . . to make payment," as provided by law (42 U.S.C. § 1395y(b)(2)(B)(ii) & (iii)), which amount is to be determined at trial by a jury. The United States has suffered and in the future will continue to incur substantial monetary damages as a result of this same conduct. An actual, justiciable controversy exists between plaintiff and defendants regarding the ultimate legal and financial
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responsibility for these future medical expenditures.
3. Awarding the United States the costs of this suit, together with such other and further
relief as may be necessary and appropriate.
B. Equitable Remedies:
Pursuant to the provisions of 18 U.S.C. § 1964, that this Court issue an Order and Judgment,
jointly and severally, against defendants, providing the following relief:
1. That this Court order that all of the defendants who are found to have violated 18
U.S.C. § 1962, disgorge all proceeds derived from any violation of 18 U.S.C. § 1962.
2. That this Court issue a permanent injunction that will do the following:
a. Prohibit each defendant and its successors, officers, employees, and all persons acting in concert with each defendant, from committing any act of racketeering, as defined in 18
U.S.C. § 1961(1), and from associating directly or indirectly, with any other person known to them to be engaged in such acts of racketeering or with any person in concert or participation with them.
b. Enjoin and restrain each defendant and all other persons in concert with each defendant from participating in any way, directly or indirectly, in the management and/or control of any of the affairs of CTR and TI, or, if either CTR or TI has been or becomes dissolved, any successor entities of CTR and TI, or other entity affiliated with CTR and TI, known to them to be engaged in acts of racketeering, and from having any dealings about any matter that relates directly or indirectly to the management and/or control of CTR and TI or any successor or affiliated entities known to them to be engaged in acts of racketeering.
c. Enjoin each defendant and persons in concert with each defendant from making false, misleading or deceptive statements or representations concerning cigarettes.
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d. Prohibit each defendant and its agents from engaging in any public relations endeavor that misrepresents, or suppresses information concerning, the health risks associated with cigarette smoking or the addictive nature of nicotine, and from associating with any other persons for the purpose of engaging in such conduct.
e. Order each defendant to disclose, disseminate, and make available to the
Department of Justice and such public health and regulatory authorities as the Court may select, all documents relating to research previously conducted directly or indirectly by themselves and their respective agents, affiliates, servants, officers, directors, employees, and all persons acting in concert with them, that relate to the health consequences of cigarette smoking and nicotine addiction, and the ability to develop less hazardous cigarettes.
f. Order each defendant to fund, but have no part of or influence over the control of or decision making relating to, a legitimate and sustained corrective public education campaign, administered and controlled by an independent third party, relating to the public health issues of cigarette smoking and nicotine addiction.
g. Order each defendant to disclose, disseminate, and make available to the
Department of Justice and such public health and regulatory authorities as the Court may select, all documents relating to marketing or advertising campaigns that target and/or encourage children to purchase and consume cigarettes; enjoin each defendant from engaging in any such campaigns in the future; and order each defendant to provide mechanisms to ensure compliance.
h. Order each defendant to make corrective statements regarding the health risks of cigarette smoking and the addictive properties of nicotine in future advertising, marketing, and promotion of their tobacco products.
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i. Order each defendant to fund, but have no part of or influence over the control of or decision making relating to, sustained cessation programs including the provision of medically approved nicotine replacement therapy for dependent smokers.
j. Order each defendant to fund, but have no part of or influence over the control of or decision making relating to, a sustained educational campaign devoted to the prevention of smoking by children.
3. That this Court award the United States the costs of this suit, together with such other and further relief as may be necessary and appropriate to prevent and restrain further violations of 18
U.S.C. § 1962, and to end the ongoing wrongful conduct of defendants.
C. DECLARATORY RELIEF:
Pursuant to 28 U.S.C. § 2201, that this Court declare that defendants are liable, jointly and severally, for future costs of hospital, medical, surgical, or dental care and treatment (including prostheses and medical appliances) to be furnished, or to paid for, by the United States resulting from the past tortious and wrongful conduct of defendants.
VIII. DEMAND FOR JURY TRIAL
The United States of America demands a trial by jury on all issues so triable under
Counts One and Two in this action.
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DATED: September 22, 1999
David W. Ogden Wilma A. Lewis Acting Assistant Attorney General United States Attorney Civil Division for the District of Columbia D.C. Bar No. 555 Fourth Street, Room 5806 Washington, D.C. 20001
William B. Schultz J. Patrick Glynn Deputy Assistant Attorney General Director D.C. Bar No. 218990 D.C. Bar No. 219162
Thomas J. Perrelli Sharon Y. Eubanks Deputy Assistant Attorney General Deputy Director D.C. Bar No. 438929 D.C. Bar No. 420147
United States Department of Justice United States Department of Justice Tobacco Litigation Team Civil Division Torts Branch, Civil Division 950 Pennsylvania Avenue, N.W. 950 Pennsylvania Avenue, N.W. Washington, D.C. 20530-0001 Washington, D.C. 20530-0001 202/616-4185
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UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA ) United States Department of Justice ) 950 Pennsylvania Avenue, N.W. ) Washington, D.C. 20530-0001, ) ) Plaintiff, ) APPENDIX TO COMPLAINT ) vs. ) ) PHILIP MORRIS, INC. ) 120 Park Avenue ) New York, New York 10017; ) ) R.J. REYNOLDS TOBACCO COMPANY ) 401 North Main Street ) Winston-Salem, North Carolina 27102; ) ) CIV. NO. BROWN & WILLIAMSON TOBACCO CORPORATION ) 1500 Brown & Williamson Tower ) Louisville, Kentucky 40202, ) directly and as successor by merger to ) AMERICAN TOBACCO COMPANY ) 1500 Brown & Williamson Tower ) Louisville, Kentucky 40202; ) ) LORILLARD TOBACCO COMPANY ) 714 Green Valley Road ) Greensboro, North Carolina 27408; ) ) THE LIGGETT GROUP, INC. ) 300 North Duke Street ) Durham, North Carolina 27702, ) directly and as parent to ) LIGGETT & MYERS, INC. ) 810 Craghead Street ) Danville, Virginia 24541; ) ) AMERICAN TOBACCO COMPANY ) 1500 Brown & Williamson Tower ) Louisville, Kentucky 40202, ) directly and as successor to ) the tobacco interests of ) AMERICAN BRANDS, INC. ) 1700 East Putnam Avenue ) Old Greenwich, Connecticut 06870; ) ) PHILIP MORRIS COMPANIES, INC. ) 120 Park Avenue ) New York, New York 10017; ) ) Case: 14-56140 10/22/2014 ID: 9287316 DktEntry: 12 Page: 100 of 605
BRITISH AMERICAN TOBACCO, P.L.C. ) Windsor House ) 50 Victoria Street ) London SW1H ONL, England, ) directly and as successor to ) B.A.T. INDUSTRIES P.L.C. ) Windsor House ) 50 Victoria Street ) London SW1H ONL, England; ) ) BRITISH AMERICAN TOBACCO ) (INVESTMENTS) LTD. ) Globe House ) 1 Water Street ) London WC2R 3LA, England, ) directly and as successor to ) BRITISH-AMERICAN TOBACCO ) COMPANY, LTD. ) Globe House ) 4 Temple Place ) London WC2R 2PG, England; ) ) THE COUNCIL FOR TOBACCO ) RESEARCH--U.S.A., INC. ) 900 Third Avenue ) New York, New York 10022; and ) ) THE TOBACCO INSTITUTE, INC. ) 1875 I Street N.W., Suite 800 ) Washington, D.C. 20006, ) ) Defendants. ) ______)
APPENDIX TO COMPLAINT1/
Set forth below is a listing of Racketeering Acts, all of which are alleged, in the Complaint filed by the United States of America in the above-entitled action, to have been committed as part of a pattern of racketeering activity. The Racketeering Acts set forth in this Appendix are incorporated by reference and re-alleged as if fully set forth in the Complaint filed by the United
States of America.
1/ This Appendix is essential to the determination of this action under LCvR 5.1(g).
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RACKETEERING ACTS RELATING TO MAIL FRAUD
1. Racketeering Act No. 1: On or about January 4, 1954, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, AMERICAN, and co- conspirators caused to be placed in numerous newspapers nationwide, including The Washington
Post, a daily newspaper, an advertisement entitled "A Frank Statement To Smokers," which newspaper was then sent and delivered by the United States mails to subscribers and others. In this advertisement, defendants promised to safeguard the health of smokers, support disinterested research into smoking and health, and reveal to the public the results of research into the effects of smoking on smokers' health.
2. Racketeering Act No. 2: On or about July 15, 1957, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through the TOBACCO INDUSTRY RESEARCH COMMITTEE (predecessor to defendant COUNCIL
FOR TOBACCO RESEARCH), did knowingly cause a press release entitled "Scientist
Comments on Benzypyrene Report" to be sent and delivered by the United States mails to newspapers and news outlets. This press release disputed the United States Surgeon General's report that Benzypyrene had been identified in cigarette smoke, and stated that scientists had
"generally concluded" that Benzypyrene in cigarette smoke cannot be a cause of cancer in smokers.
3. Racketeering Act No. 3: On or about November 27, 1959, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release contained
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statements attacking an article written by then-United States Surgeon General Leroy Burney about the hazards of smoking.
4. Racketeering Act No. 4: On or about December 9, 1959, defendant
REYNOLDS did knowingly receive from the mails a letter addressed to W.A. Sugg, R.J.
Reynolds Tobacco Company, Winston-Salem, North Carolina, from George McGovern of
William Esty Company, 100 East 42nd Street, New York, New York. The letter included a marketing study of the smoking habits of high school and college students.
5. Racketeering Act No. 5: On or about July 6, 1961, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release was titled "Allen
Gives Tobacco Institute Position on 'Health Scares'" and stated that "[t]he tobacco industry itself is more interested than anyone else in finding out and making public the true facts about tobacco and health" and that "research in recent years has produced findings that weaken rather than support the claim that smoking is a major contributor to lung cancer."
6. Racketeering Act No. 6: On or about July 9, 1963, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release stated "the tobacco industry's position that smoking is a custom for adults and that it is not the intent of the industry to promote or encourage smoking among youth" and "[t]he industry wants to make it demonstrably clear that it does not wish to promote or encourage smoking among youth."
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7. Racketeering Act No. 7: On or about November 3, 1963, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. Through this press release, defendants stated that they were on a "crusade" to find answers to the "questions about smoking and health," and that it "should be a crusade neither for nor against tobacco. It is a crusade for research . . . ." Defendants asserted the position that the question of causation was still unresolved.
8. Racketeering Act No. 8: On or about March 6, 1964, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release announced the reorganization of the Tobacco Industry Research Committee into the Council for Tobacco
Research and represented that CTR's research policy would be set by doctors and scientists independent of the tobacco industry.
9. Racketeering Act No. 9: On or about November 23, 1965, defendant
COUNCIL FOR TOBACCO RESEARCH did knowingly receive from the mails a letter addressed to Edwin J. Jacob, Esq., Cabell Medinger Forsyth & Decker, 51 West 51st Street,
Rockefeller Center, New York, New York, counsel to CTR, from Alvan R. Feinstein, Associate
Professor of Medicine, Yale School of Medicine, New Haven, Connecticut, requesting funding for research on data indicating that the clinical effects of cancers were no worse in smokers than in nonsmokers.
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10. Racketeering Act No. 10: On or about December 29, 1965, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. Through this press release, defendants stated that research had not established whether smoking causes disease and this was still an "open question." "If there is something in tobacco that is causally related to cancer or any other disease, the tobacco industry wants to find out what it is, and the sooner the better."
11. Racketeering Act No. 11: On or about February 28, 1966, defendants BROWN
& WILLIAMSON did knowingly cause to be sent and delivered by the United States mails, and
BRITISH-AMERICAN TOBACCO COMPANY (predecessor to BAT INVESTMENTS) thereafter received, a letter addressed to A. D. McCormick, Esq., BAT Co., P.O. Box 482,
7 Millbank, London, SW1, England, from Addison Yeaman, Esq., General Counsel of Brown &
Williamson, promoting cooperation among defendants in resisting regulation by Congress and by the Federal Trade Commission by attacking existing scientific studies linking smoking to disease, by making representations to governmental regulators that defendants were engaged in accelerated research, and by suppressing information unfavorable to defendants.
12. Racketeering Act No. 12: On or about October 21, 1966, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. Through this press release, defendants stated that they knew "of no valid scientific evidence demonstrating that either 'tar' or nicotine is responsible for any human illness."
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13. Racketeering Act No. 13: On or about January 12, 1967, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, LIGGETT, and
AMERICAN, through defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause to be sent and delivered by the United States mails letters addressed separately to each member of
CTR's Ad Hoc Committee:
Miss Janet Brown, Esq., Chadbourne Park, Whiteside & Wolff, 25 Broadway, New York,
New York 10004, counsel to American; Kevin L. Carroll, Esq., Donald J. Cohn, Esq., and
Francis K. Decker, Esq., Webster Sheffield Fleischmann Hitchcock & Chrystie,
1 Rockefeller Plaza, New York, New York 10020, counsel to Liggett; Edward J. Cooke,
Jr., Esq., Davis, Polk, Wardwell, Sunderland, & Kiendl, 1 Chase Manhattan Plaza, New
York, New York 10005, counsel to Reynolds; Alexander Holtzman, Esq., Conboy,
Hewitt, O'Brien & Boardman, 20 Exchange Place, New York, New York 10005, counsel
to Philip Morris; Edwin J. Jacob, Esq., Cabell Medinger Forsyth & Decker, 51 W. 51st
Street, New York, NY 10019, counsel to CTR; William W. Shinn, Esq., Shook, Hardy,
Ottman, Mitchell & Bacon, 915 Grand Avenue, Kansas City, MS 64106; and Edward
DeHart, Hill & Knowlton, 1735 K Street, NW, Washington, DC 20006, each of which was from David R. Hardy, Esq., counsel to CTR's Ad Hoc Committee, requesting the recipients to recommend persons who could act as witnesses before Congressional hearings to perpetuate defendants' "open question" position, and assigning the members of the Ad Hoc
Committee oversight of CTR "special projects" designed to be of "practical use" for defendants during congressional hearings.
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14. Racketeering Act No. 14: On or about February 2, 1967, defendant COUNCIL
FOR TOBACCO RESEARCH did knowingly cause to be sent and delivered by the United States mails a letter addressed to David R. Hardy, Esq., counsel to CTR's Ad Hoc Committee, from
William W. Shinn, Esq., Shook, Hardy, Ottman, Mitchell & Bacon, 915 Grand Avenue, Kansas
City, Missouri 64106, a member of CTR's Ad Hoc Committee, and copied the Ad Hoc
Committee and Ed DeHart of Hill & Knowlton. The letter responded to Hardy's request for recommendations of persons who could act as witnesses before congressional hearings to perpetuate defendants' "open question" position.
15. Racketeering Act No. 15: On or about May 19, 1967, defendant COUNCIL
FOR TOBACCO RESEARCH did knowingly cause to be sent and delivered by the United States mails a letter addressed to Alexander Holtzman, Esq., Conboy, Hewitt, O'Brien & Boardman,
20 Exchange Place, New York, New York 10005, counsel to Philip Morris, from William W.
Shinn, Esq., regarding CTR Special Projects, outlining a proposal to support and publicize research advancing the theory of smoking as beneficial to health as a stress reducer, even for
"coronary prone" persons; representing that stress (rather than nicotine addiction), explains why smoking clinics fail; and proposing to publicize the "image of smoking as 'right' for many people .
. . as a scientifically approved 'diversion' to avoid disease causing stress."
16. Racketeering Act No. 16: On or about October 3, 1968, defendant PHILIP
MORRIS did knowingly cause to be sent and delivered by the United States mails a letter addressed to David R. Hardy, Esq., Shook, Hardy, Ottman, Mitchell, and Bacon, 915 Grand
Avenue, Kansas City, Missouri from Philip Morris Assistant General Counsel Alexander
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Holtzman, proposing "Special Project" funding for a scientist whose application to CTR for funding was previously turned down but who was likely to produce data useful to defendants.
17. Racketeering Act No. 17: On or about October 21, 1968, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, LIGGETT, and
AMERICAN, through defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause to be sent and delivered by the United States mails letters separately addressed to Liggett General
Counsel Frederick P. Haas, Esq.; American General Counsel Cyril Hetsko, Esq.; Reynolds
General Counsel H. Henry Ramm, Esq.; Philip Morris General Counsel Paul D. Smith, Esq.; and
Brown & Williamson General Counsel Addison Yeaman, Esq., from David R. Hardy, Esq.,
Shook, Hardy & Bacon, 915 Grand Avenue, Kansas City, Missouri, counsel to CTR's Committee of Counsel. The letter proposed "Special Project" funding for a scientist whose application to
CTR for funding was previously turned down but who was likely to produce data useful to defendants.
18. Racketeering Act No. 18: In or about 1968, the exact date being unknown, defendants PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD,
AMERICAN, and co-conspirators, through defendant TOBACCO INSTITUTE, did knowingly distribute reprints of an article written by Stanley Frank and originally published in True magazine, and caused copies of said document to be sent and delivered by the United States mails, addressed to various physicians and civic leaders. This article disputed the link between smoking and disease, and was distributed anonymously.
19. Racketeering Act No. 19: On or about May 27, 1969, defendant PHILIP
MORRIS did knowingly cause to be sent by the United States mails a letter from Philip Morris
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Vice President for Corporate Research and Development, Helmut Wakeham, to defendant Dr.
M. Hausermann, Director of Research and Quality Control, Fabriques de Tabacs, Reunies S.A.,
Neuchatel-Serrieres, Switzerland. The letter communicated the approval of Paul Smith, Philip
Morris' General Counsel, for the publication by Dr. Hausermann of a paper describing the Smoke
Exposure Machine developed at Philip Morris' Cologne, Germany, Institute for Biological
Research, known as INBIFO. The letter clarified the scope of the article, and stated that "[t]he paper should not include any statements with regard to the effect of smoke on the rats in terms of initiation of disease, etc."
20. Racketeering Act No. 20: On or about September 10, 1969, defendant PHILIP
MORRIS did receive from the United States mails a letter from M. Hausermann, Fabriques de
Tabacs, Reunies S.A., Neuchatel Switzerland, addressed to Philip Morris Vice President for
Corporate Research and Development, Dr. Helmut Wakeham, in which Dr. Hausermann reported that he had, following consultation with Alex Holtzman, Esq., in-house counsel at Philip Morris, decided not to submit for presentation a paper entitled "Cigarette Consumption Related to
Cigarette 'Strength.'" Dr. Hausermann reported that Mr. Holtzman felt "that this paper should not be presented, because it might be used as an argument for tar-and-nicotine delivery indication on the pack and in ads."
21. Racketeering Act No. 21: On or about April 30, 1970, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release falsely stated that
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the American Cancer Society had refused to release experimental data underlying the Auerbach/
Hammond "smoking beagles" study.
22. Racketeering Act No. 22: On or about July 22, 1970, defendants REYNOLDS,
PHILIP MORRIS, BROWN & WILLIAMSON, AMERICAN, LIGGETT, and LORILLARD did knowingly cause to be sent and delivered by the United States mails, and defendant COUNCIL
FOR TOBACCO RESEARCH thereafter received, a letter from H.H. Ramm, Esq., General
Counsel for Reynolds, addressed to Dr. Robert C. Hockett, Associate Scientific Director, CTR,
110 E. 59th Street, New York, New York. The letter states that "counsel representing Philip
Morris, Brown & Williamson, American Brands, Liggett & Myers and Lorillard which companies together with Reynolds participate in Special Projects have advised that if the Scientific Advisory
Board does not approve this project the same can be treated as an approved Special Project."
23. Racketeering Act No. 23: On or about December 1, 1970, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause to be placed in The Washington Post, a daily newspaper, an advertisement entitled "The question about smoking and health is still a question," which newspaper was then sent and delivered by the United States mails to subscribers and others. In this advertisement, the Tobacco Institute discredited the causal link between smoking and disease, stated that "in the interest of absolute objectivity" defendants "ha[ve] supported totally independent research efforts with completely non-restrictive funding," and deliberately created the false impression that all research results have been freely published.
24. Racketeering Act No. 24: On or about May 25, 1971, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through
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defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release contained statements indicating that "many eminent scientists" believe that "the question of smoking and health is still very much a question."
25. Racketeering Act No. 25: On or about July 1, 1971, defendant COUNCIL FOR
TOBACCO RESEARCH did knowingly caused to be sent and delivered by the United States mails a letter from CTR Associate Scientific Director Robert C. Hockett, to Reynolds Vice
President and General Counsel Henry H. Ramm, Esq., in which Hockett endorsed and passed along to Ramm a suggestion from two employees of Philip Morris that CTR sponsor a scientific conference on the "benefits" of smoking, in the wake of a private conference on the effects of nicotine and smoking on the central nervous system. Dr. Hockett also requested that the
Committee of General Counsel guarantee the financing of the conference.
26. Racketeering Act No. 26: On or about August 20, 1971, defendant
REYNOLDS did knowingly cause to be sent and delivered by the United States mails, and defendant PHILIP MORRIS did receive, a letter addressed to Joseph F. Cullman, III, Chairman of the Board, Philip Morris Inc., 100 Park Avenue, New York, New York 10017, from Alexander
H. Galloway, Chairman, R.J. Reynolds Industries, Inc., Winston-Salem, North Carolina, discussing defendants' joint position with respect to smoking and health research.
27. Racketeering Act No. 27: On or about November 15, 1971, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release contained
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statements suggesting that smoking is not harmful to pregnant women or their babies and indicating that many doctors and scientists believe that "the question of smoking and health is an open one."
28. Racketeering Act No. 28: On or about December 22, 1971, defendant PHILIP
MORRIS did knowingly cause to be sent and delivered by the United States mails, and defendants
LIGGETT, LORILLARD, REYNOLDS, and BROWN & WILLIAMSON did thereafter receive, copies of a memorandum separately addressed to Liggett employee Dr. W.W. Bates, Reynolds employee Dr. Murray Senkus, Lorillard employee Dr. Alexander W. Spears, and Brown &
Williamson employee Dr. Iver W. Hughes, from Philip Morris employee Dr. Helmut Wakeham, describing a research proposal of Drs. Auerbach and Hammond concerning the effects of smoking on health, indicating that the National Cancer Institute's likely funding of the research "is a matter of considerable concern to the tobacco industry," and discussing defendants' plan to have lawyers and scientists meet with [the National Cancer Institute ("NCI")] to discourage NCI from funding the research.
29. Racketeering Act No. 29: On or about February 1, 1972, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release contained the statement that "[t]he cigarette industry is as vitally concerned or more so than any other group in determining whether cigarette smoking causes human disease, whether there is some ingredient as found in cigarette smoke that can be shown to be responsible, and if so, what it is," and that
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"despite this effort the answers to the critical questions about smoking and health are still unknown."
30. Racketeering Act No. 30: On or about May 19, 1972, defendant BROWN &
WILLIAMSON did knowingly cause to be sent by the United States mails, and defendant
BRITISH-AMERICAN TOBACCO COMPANY (predecessor to BAT INVESTMENTS) thereafter received, a letter addressed to A.D. McCormick, Esq., BAT Co., P.O. Box 482,
7 Millbank, London SW1P 3JE, England, from Addison Yeaman, Esq., General Counsel, Brown
& Williamson, in which Yeaman provided comments on a statement BAT Co. proposed to make in response to a statement anticipated from a British government minister. Yeaman referred to a cablegram sent to him by McCormick on May 17, 1972, and to a telephone conversation in which
McCormick and Yeaman had participated on May 18, 1972. Yeaman commented that BAT Co.’s proposed statement concerning the causal relationship between cigarette smoking and disease "is somewhat less affirmative in tone than would be welcome on this side." He gave his approval to alternative versions that described the controversy on this issue. Finally, Yeaman stated in a postscript, "In the penultimate sentence of the B.A.T. draft statement would you object to changing the word 'habit' to 'practice?'"
31. Racketeering Act No. 31: On or about November 7, 1973, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, LIGGETT, and
AMERICAN, through defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause to be sent and delivered by the United States mails letters separately addressed to Thomas F.
Ahrensfeld, Esq., Philip Morris; DeBaun Bryant, Esq., Brown & Williamson; Frederick P. Haas,
Esq., Liggett; Cyril F. Hetsko, Esq., American; Henry C. Roemer, Esq., Reynolds, and Arthur J.
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Stevens, Esq., Lorillard, from Donald K. Hoel, Esq., Shook, Hardy & Bacon, 915 Grand
Avenue, Kansas City, Missouri. The letter recommends approval to fund research by Dr. Richard
J. Hickey as a CTR Special Project for two years, beginning September 1973, and cites Hickey's efforts to show that air pollution is primarily responsible for many chronic diseases attributed to smoking.
32. Racketeering Act No. 32: On or about November 26, 1973, defendant BROWN
& WILLIAMSON did knowingly cause to be sent and delivered by the United States mails a letter from DeBaun Bryant, Esq., counsel to Brown & Williamson, addressed to Donald K. Hoel,
Esq., Shook, Hardy & Bacon, 915 Grand Avenue, Kansas City, Missouri. The letter conveys
Brown & Williamson's approval to fund research by Dr. Richard J. Hickey as a CTR Special
Project, beginning September 1973, while noting that "[a]s is usual our support is contingent upon the participation in this project by the other companies."
33. Racketeering Act No. 33: On or about January 11, 1974, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release attacked the 1964
U. S. Surgeon General's Report on smoking and health and dismissed scientific research linking smoking to lung cancer, emphysema, and low birth weight in babies born to women who smoked during pregnancy.
34. Racketeering Act No. 34: On or about January 14, 1975, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered
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by the United States mails to newspapers and news outlets. This press release contained the statement that "domestic tobacco companies . . . have committed some $50 million to help support researchers who are seeking the truth."
35. Racketeering Act No. 35: In or about September 1975, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release contained statements noting that, as early as 1963, the Tobacco Institute had issued statements denying that the Cigarette Companies targeted youth smokers. The press release also noted that in July 1969, the Chairman of the Tobacco Institute, Joseph F. Cullman, III, testified before a Senate
Commerce subcommittee that the Cigarette Companies intended to avoid advertising representing cigarette smoking as essential to social prominence, success, or sexual attraction or depicting smokers engaged in sports or other activities requiring exceptional stamina or conditioning.
36. Racketeering Act No. 36: During 1975, the exact dates being unknown, defendant REYNOLDS caused to be placed in various print media, including Newsweek, a weekly magazine, an advertisement for Vantage cigarettes, which magazine was then sent and delivered by the United States mails to subscribers and others. This text included the language,
"If you're like a lot of smokers these days, it probably isn't smoking that you want to give up. It's some of that 'tar' and nicotine you've been hearing about."
37. Racketeering Act No. 37: During 1975, the exact dates being unknown, defendant LORILLARD caused to be placed in various print media, including Family Circle magazine, an advertisement for True cigarettes, which magazine was then sent and delivered by
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the United States mails to subscribers and others. This advertisement depicted a young woman and contained text stating, "I thought about all I'd read and said to myself, either quit or smoke
True. I smoke True."
38. Racketeering Act No. 38: On or about January 4, 1976, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, LIGGETT, and
AMERICAN, through defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause to be sent and delivered by the United States mails letters separately addressed to Thomas F.
Ahrensfeld, Esq., Philip Morris, Joseph Greer, Esq., Liggett, Cyril F. Hetsko, Esq., American,
Ernest Pepples, Esq., Brown & Williamson, Henry C. Roemer, Esq., Reynolds, and Arthur J.
Stevens, Esq., Lorillard, from Donald K. Hoel, Esq., Shook, Hardy & Bacon, Mercantile Bank
Tower, 1101 Walnut, Kansas City, Missouri. The letter recommends funding Dr. Richard J.
Hickey as a CTR Special Project during 1977, noting a report of Dr. Hickey that states, "Our findings for lung cancer appear to raise doubt concerning claims . . . that cigarette smoking is the primary cause of lung cancer, particularly in males."
39. Racketeering Act No. 39: During 1976, the exact dates being unknown, defendant REYNOLDS caused to be placed in various print media an advertisement for Vantage cigarettes, which newspapers and magazines were then sent and delivered by the United States mails to subscribers and others. The advertisement included text stating, "Vantage cuts down substantially on the 'tar' and nicotine you may have become concerned about."
40. Racketeering Act No. 40: On or about January 13, 1977, defendant PHILIP
MORRIS did knowingly cause to be sent and delivered by the United States mails a letter from
Alexander Holtzman, Esq., counsel to Philip Morris addressed to Donald K. Hoel, Esq., Shook,
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Hardy & Bacon, Mercantile Bank Tower, 1101 Walnut, Kansas City, Missouri, approving Philip
Morris' participation in a grant to fund Dr. Richard J. Hickey's CTR Special Project during 1977.
41. Racketeering Act No. 41: On or about March 31, 1977, defendant PHILIP
MORRIS did knowingly cause to be sent and delivered by the United States mails a letter addressed to: Dr. Max Hausermann, Philip Morris Europe S.A., P.O. Box 11, 2003 Neuchatel,
Switzerland, from Robert B. Seligman, Vice President for Research and Development, suggesting that the recipient comply with company policy of avoiding direct mail contact with Philip Morris'
Cologne, Germany research facility by sending materials to a "dummy" mail address.
42. Racketeering Act No. 42: On or about December 29, 1977, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release contained statements suggesting that the contribution of smoking to disease was still an "open question" and that tobacco smoke does not harm nonsmokers.
43. Racketeering Act No. 43: On or about January 17, 1979, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release contained statements that defendants had spent 75 million dollars on research over 20 years to learn whether smoking is harmful but that "the case against cigarettes is not satisfactorily demonstrated."
44. Racketeering Act No. 44: On or about November 20, 1979, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, LIGGETT, and
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AMERICAN, through defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause to be sent and delivered by the United States mails letters separately addressed to Thomas F.
Ahrensfeld, Esq., Philip Morris; Max Crohn, Esq., Reynolds; Joseph Greer, Esq., Liggett; Arnold
Henson, Esq., American; Ernest Pepples, Esq., Brown & Williamson; Arthur J. Stevens, Esq.,
Lorillard; and William Shinn, Esq., Shook, Hardy & Bacon, Kansas City, Missouri, from CTR counsel Edwin J. Jacob, Jacob & Medinger, New York, New York. The memorandum described a proposal to research the relationship between stress and cardiac disorder, and stated, "I have discussed this with Bill Shinn, who agrees with me that this study is well worth doing and that we should recommend it to you for approval, financing to be handled through Special Account #4."
45. Racketeering Act No. 45: On or about November 27, 1979, defendant BROWN
& WILLIAMSON did knowingly cause to be sent and delivered by the United States mails a letter from Ernest Pepples, Esq., Brown & Williamson Vice President and General Counsel, addressed to CTR counsel Edwin J. Jacob, Esq., Jacob & Medinger, 1270 Avenue of the
Americas, New York, New York 10020, regarding a proposal to fund a study on the relationship between stress and cardiac disorder, and agreeing that the study should be financed through
Special Account #4.
46. Racketeering Act No. 46: In or about 1979, the exact date being unknown, defendants PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and
AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly publish a document entitled "Fact or Fancy?" and caused copies of said document to be sent and delivered by the
United States mails to newspapers and news outlets. This publication contained statements
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asserting that smoking does not contribute to low birth weight in babies and suggesting that cigarette smoking is not harmful to women.
47. Racketeering Act No. 47: During 1979, the exact dates being unknown, defendant PHILIP MORRIS caused to be placed in various national magazines an advertisement for Merit cigarettes entitled "Best Move Yet," which magazines were then sent and delivered by the United States mails to subscribers and others. The advertisement stated that Merit's "ability to satisfy over long periods of time could be the most important evidence to date that MERIT science has produced what it claims: The first real alternative for high tar smokers."
48. Racketeering Act No. 48: During 1979, the exact dates being unknown, defendant PHILIP MORRIS caused to be placed in various national magazines an advertisement for Merit cigarettes entitled "Merit Taste Eases Low Tar Decision," which magazines were then sent and delivered by the United States mails to subscribers and others. The advertisement stated that Merit's "ability to satisfy over long periods of time could be the most important evidence to date that MERIT is what it claims to be: The first real alternative for high tar smokers."
49. Racketeering Act No. 49: On or about May 13, 1981, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release contained statements that members of the Tobacco Institute had a "long-standing policy" of discouraging smoking by children and suggested that smoking is a free choice when done by adults.
50. Racketeering Act No. 50: On or about November 9, 1981, defendant BRITISH-
AMERICAN TOBACCO COMPANY (predecessor to BAT INVESTMENTS) did knowingly
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cause a letter to be delivered by the United States mails, and defendant BROWN &
WILLIAMSON did thereafter receive, a letter addressed to Mr. J. Kendrick Wells III, Esq.,
Brown & Williamson, 1600 West Hill Street, P.O. Box 35090, Louisville, Kentucky 40232, and signed by Sarah Mash, Secretary to M.J. Leach, BAT Co. The letter referenced an enclosed
"copy of the Parliamentary Brief in order that you can see how the B & W amendments have been incorporated into the text," and sought Wells' approval of the revised document. Brown &
Williamson's amendments intended to ensure that the Brief did not contain anything that could be construed as an admission regarding the health effects of smoking.
51. Racketeering Act No. 51: On or about December 17, 1981, defendant
BRITISH-AMERICAN TOBACCO COMPANY (predecessor to BAT INVESTMENTS) did knowingly cause to be delivered by the United States mails, and defendant BROWN &
WILLIAMSON did thereafter receive, a letter addressed to J. Kendrick Wells III, Esq., Brown &
Williamson, 1600 West Hill Street, P.O. Box 35090, Louisville, Kentucky 40232, and copied to
Don Hoel, Esq., Shook, Hardy & Bacon, Kansas City, Missouri, from M.J. Leach, BAT Co. The letter enclosed, for review by Wells and Ernest Pepples, another Brown & Williamson attorney, a draft "UK Parliamentary Brief" in which BAT Co.'s position on smoking and health incorporates
"open controversy" language urged by Brown & Williamson.
52. Racketeering Act No. 52: On or about February 12, 1982, defendant BROWN
& WILLIAMSON did knowingly cause to be sent and delivered by the United States mails a letter from Ernest Pepples, Esq., Brown & Williamson General Counsel, addressed to Patrick M.
Sirridge, Esq., Shook, Hardy & Bacon, 20th Floor, Mercantile Tower, 1101 Walnut, Kansas City,
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Missouri. The letter concurs in the recommendation to renew an annual grant to Dr. Arthur Furst to be paid from Special Fund 4.
53. Racketeering Act No. 53: On or about April 7, 1982, defendant BRITISH-
AMERICAN TOBACCO COMPANY (predecessor to BAT INVESTMENTS) did knowingly cause to be delivered by the United States mails, and defendant BROWN & WILLIAMSON did thereafter receive, a letter addressed to W.L. Telling, Esq., Brown & Williamson International
Tobacco, 1600 West Hill Street, Louisville, Kentucky 40232, from G.O. Brooks, BAT Co. The letter replied to a request from Telling for a report on a Smoker Compensation Study that examined how a cigarette smoker's method of smoking alters tar and nicotine delivery, and enclosed "a paper from one of our recent Product Knowledge Seminars [entitled "Human
Smoking Behaviour"] which contains a summary of the work and a number of the tables from the report."
54. Racketeering Act No. 54: On or about April 8, 1982, defendant BRITISH-
AMERICAN TOBACCO COMPANY (predecessor to BAT INVESTMENTS) did knowingly cause to be delivered by the United States mails, and defendant BROWN & WILLIAMSON did thereafter receive, a letter addressed to J. Kendrick Wells III, Esq., Corporate Counsel, Brown &
Williamson, 1600 West Hill Street, Louisville, Kentucky 40232, from L.C.F. Blackman, BAT
Co., in which Blackman informed Wells that "[w]e have acted on the various points you have made" regarding a BAT Co. position paper relating to smoking and health.
55. Racketeering Act No. 55: On or about April 14, 1982, defendant BAT
INDUSTRIES (predecessor to BAT P.L.C.) did knowingly cause to be delivered by the United
States mails, and defendant BROWN & WILLIAMSON did thereafter receive, a letter addressed
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to Dr. I.W. Hughes, Brown & Williamson, 1600 West Hill Street, P.O. Box 35090, Louisville,
Kentucky 40232, from T.J. Walker, BAT Industries, Windsor House, 50 Victoria Street, London
SW1H ONL, England. The letter referenced materials regarding the "BAT Board Guidelines" on public affairs matters, and referred to enclosed "secret" papers entitled "Assumptions and
Strategies of the Smoking Issues."
56. Racketeering Act No. 56: On or about March 17, 1983, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release contained statements disputing the addictiveness of cigarette smoking.
57. Racketeering Act No. 57: On or about July 20, 1983, defendant BRITISH-
AMERICAN TOBACCO COMPANY (predecessor to BAT INVESTMENTS) did knowingly cause to be delivered by the United States mails, and defendant BROWN & WILLIAMSON did thereafter receive, a letter addressed to K. Wells, Esq., Brown & Williamson, 1600 West Hill
Street, P.O. Box 35090, Louisville, Kentucky 40202, from Miss A. Johnson, BAT Co. The mailing included "the T.I.'s Australian booklet on the Waxman Hearings" and a note that Johnson had written "to Public Affairs Department about the way in which they can use Dr. Colby's article and the Waxman Hearings' summary in relation to the overseas companies." Johnson also informed Wells that BAT Co. intended to make the smoking and health "controversy" a "central issue" in future presentations to members of the British Parliament.
58. Racketeering Act No. 58: On or about July 27, 1983, defendant PHILIP
MORRIS, did receive from the United States mails a letter addressed to Frederic S. Newman,
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Esq., Philip Morris International, 120 Park Avenue, New York, New York 10017, from Patrick
M. Sirridge, Esq., Shook, Hardy & Bacon, Kansas City, Missouri, enclosing a memorandum summarizing research on the addictive features of nicotine conducted by Philip Morris and recommending suppression of such research.
59. Racketeering Act No. 59: On or about September 9, 1983, defendant BAT
INDUSTRIES (predecessor to BAT P.L.C.) did knowingly cause to be delivered by the United
States mails, and defendant PHILIP MORRIS did thereafter receive, a letter from P. Sheehy,
Chairman of BAT Industries, addressed to George Weissman, Philip Morris, Inc., 120 Park
Avenue, New York, New York, 10017. The letter discussed an advertisement of Philip Morris'
Holland affiliate, and stated: "I find it incomprehensible that Philip Morris would weigh so heavily the short-term commercial advantage from deprecating a competitor's brand while weighing so lightly the long-term adverse impact from an on-going anti-smoking programme. . . . In doing so,
Philip Morris . . . makes a mockery of Industry co-operation on smoking and health issues. . . ."
60. Racketeering Act No. 60: On or about January 23, 1984, defendant BRITISH-
AMERICAN TOBACCO COMPANY (predecessor to BAT INVESTMENTS) did knowingly cause to be delivered by the United States mails, and defendant BROWN & WILLIAMSON did thereafter receive, a letter addressed to Mr. E.E. Kohnhorst, Brown & Williamson, P.O. Box
35090, Louisville, Kentucky 40232, from C.I. Ayres, Group Research & Development Centre,
BAT Co., Southampton, England, in which Ayres discussed and sought Kohnhorst's comments concerning an upcoming conference on nicotine to be held in Southampton on June 6-8, 1984.
Ayres acknowledged the existence of articles in the scientific literature linking nicotine with various diseases and predicted that the Cigarette Companies would be "under pressure to reduce
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the delivery of nicotine. My translation is that, in the future, we have to evolve ways and means of ensuring that smaller amounts of nicotine continue to give a satisfactory 'reward' to the smoker."
61. Racketeering Act No. 61: In or about April 1984, the exact date being unknown, defendant REYNOLDS did knowingly cause to be placed in numerous publications nationwide, including U.S. News and World Report, a weekly magazine, an advertisement entitled "We don't advertise to children," which magazine was then sent and delivered by the United States mails to subscribers and others. This advertisement contained the statement "we don't want young people to smoke," and further stated, "Kids don't pay attention to cigarette ads, and that's exactly as it should be."
62. Racketeering Act No. 62: In or about July 1984, the exact dates being unknown, defendant REYNOLDS did knowingly cause to be sent and delivered by the United States mails letters from Reynolds' employee Ann Griffin, addressed to various children who wrote to
Reynolds. In the letter, Reynolds claimed to be engaged in an effort to determine the harmful effects of smoking for the benefit of smokers, promised to support disinterested research into smoking and health, and claimed that research had not revealed any "conclusive" evidence linking smoking to disease.
63. Racketeering Act No. 63: On or about August 28, 1984, defendant BROWN &
WILLIAMSON did knowingly cause to be sent and delivered by the United States mails, and defendant BRITISH-AMERICAN TOBACCO CO., LTD. (predecessor to BAT
INVESTMENTS) did thereafter receive, a letter addressed to Mr. Ray Pritchard, Deputy
Chairman, BAT Co., P.O. Box 482, Westminster House, 7 Millbank, London, England, from
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Ernest Pepples, Esq., Senior Vice President and General Counsel of Brown & Williamson,
enlisting the recipient's help in suppressing a BAT employee's conclusions regarding the
addictiveness of nicotine because the conclusion contradicted the position taken by Brown &
Williamson in ongoing litigation.
64. Racketeering Act No. 64: In or about 1984, the exact date being unknown,
defendant REYNOLDS did knowingly cause to be placed in daily newspapers an advertisement
entitled "Can we have an open debate about smoking?" which newspapers were then sent and
delivered by the United States mails to subscribers and others. In this advertisement Reynolds
claimed that "studies which conclude that smoking causes disease have regularly ignored
significant evidence to the contrary," that this "significant evidence" comes from research
"completely independent of the tobacco industry," and that "reasonable people" would consider
the link between smoking and disease to be an "open controversy."
65. Racketeering Act No. 65: In or about 1984, the exact date being unknown,
defendant REYNOLDS did knowingly cause to be placed in numerous newspapers and magazines
nationwide, including The New York Times, a daily newspaper, an advertisement entitled
"Smoking and health: Some facts you've never heard about," which newspapers and magazines
were then sent and delivered by the United States mails to subscribers and others. This
advertisement contained the statement, "You hear a lot these days about reports that link smoking
to certain diseases. This evidence has led many scientists and other people to conclude that
smoking causes these diseases. But there is significant evidence on the other side of this issue. It
is regularly ignored by the critics of smoking. And you rarely hear about it in the public media.
But, it has helped persuade many scientists that the case against smoking is far from closed."
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Further, the advertisement contained the statement, "No one wants to know the real answers more than R.J. Reynolds. That is why we are providing major funding for scientific research. The funds are given at arms length to independent scientists who are free to publish whatever they find. We don't know where such research may lead. But this much we can promise: when we find the answers, you'll hear about it."
66. Racketeering Act No. 66: On or about February 18, 1986, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, LIGGETT, and
AMERICAN, through defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause to be sent and delivered by the United States mails letters addressed separately to Alexander
Holtzman, Esq., Philip Morris; Wayne W. Juchatz, Esq., Reynolds; Josiah Murray III, Esq.,
Liggett; Ernest Pepples, Esq., Brown & Williamson; Paul Randour, Esq., American; and Arthur J.
Stevens, Esq., Lorillard, from Donald K. Hoel, Esq., Shook, Hardy & Bacon, Mercantile Bank
Tower, 1101 Walnut, Kansas City, Missouri. The letter recommends funding the work of Dr.
Theodor Sterling for the years 1986-1988 as a CTR Special Project.
67. Racketeering Act No. 67: On or about February 25, 1986, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, LIGGETT, and
AMERICAN, through defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause to be sent and delivered by the United States mails letters addressed separately to Alexander
Holtzman, Esq., Philip Morris; Wayne W. Juchatz, Esq., Reynolds; Josiah S. Murray III, Esq.,
Liggett; Ernest Pepples, Esq, Brown & Williamson; Paul A. Randour, Esq., American; and Arthur
J. Stevens, Esq., Lorillard, from Patrick M. Sirridge, Esq., Shook, Hardy & Bacon, 1101 Walnut,
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Kansas City, Missouri, counsel to CTR. The letter advised the Cigarette Companies to continue funding through CTR research by a "Special Fund" scientist.
68. Racketeering Act No. 68: On or about March 11, 1986, defendant REYNOLDS did knowingly cause to be sent and delivered by the United States mails a letter from Reynolds counsel Wayne W. Juchatz, Esq., and addressed to Patrick M. Sirridge, Esq., Shook, Hardy &
Bacon, 1101 Walnut, Kansas City, Missouri, counsel to CTR, in which Reynolds approved payment through CTR to a scientist conducting "Special Fund" research.
69. Racketeering Act No. 69: On or about March 13, 1986, defendant PHILIP
MORRIS COMPANIES did knowingly cause to be sent and delivered by the United States mails a letter from Philip Morris Companies employee Helen Frustace addressed to Donald K. Hoel,
Esq., Shook, Hardy & Bacon, Mercantile Bank Tower, 1101 Walnut, Kansas City, Missouri, indicating approval of request to support Dr. Theodore Sterling's research project "provided it is also approved by four other companies."
70. Racketeering Act No. 70: On or about April 1, 1986, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, LIGGETT, and
AMERICAN, through defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause to be sent and delivered by the United States mails letters addressed separately to Alexander
Holtzman, Esq., Philip Morris; Wayne W. Juchatz, Esq., Reynolds; Josiah S. Murray III, Liggett;
Ernest Pepples, Esq, Brown & Williamson; Paul A. Randour, Esq., American; and Arthur J.
Stevens, Esq., Lorillard, from Donald K. Hoel, Esq., Shook, Hardy & Bacon, 1101 Walnut,
Kansas City, Missouri, counsel to CTR. The letter advised the Cigarette Companies to continue funding through CTR research by a "Special Project" scientist.
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71. Racketeering Act No. 71: On or about April 23, 1986, defendant PHILIP
MORRIS COMPANIES did knowingly cause to be sent and delivered by the United States mails a letter from Eric A. Taussig, Esq., Assistant General Counsel, Philip Morris Companies, addressed to Dr. Paul C. Mele, 3205 Whispering Pines Drive, Silver Spring, Maryland. The letter alleged that Dr. Mele had violated a confidentiality agreement with Philip Morris and warned that
"[i]n the future, you are expected to comply" with the agreement.
72. Racketeering Act No. 72: On or about April 23, 1986, defendant PHILIP
MORRIS COMPANIES did knowingly cause to be sent and delivered by the United States mails a letter from Eric A. Taussig, Esq., Assistant General Counsel, Philip Morris Companies, addressed to Dr. Victor J. DeNoble, 5603 Fox Run Drive, Plainsboro, New Jersey. The letter alleged that Dr. DeNoble had violated a confidentiality agreement with Philip Morris and warned that "[i]n the future, you are expected to comply" with the agreement.
73. Racketeering Act No. 73: On or about September 4, 1986, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, LIGGETT, and
AMERICAN, through defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause to be sent and delivered by the United States mails letters addressed separately to Alexander
Holtzman, Esq., Philip Morris; Wayne W. Juchatz, Esq., Reynolds; Josiah S. Murray III, Liggett;
Ernest Pepples, Esq, Brown & Williamson; Paul A. Randour, Esq., American; and Arthur J.
Stevens, Esq., Lorillard, from Patrick M. Sirridge, Esq., Shook, Hardy & Bacon, 1101 Walnut,
Kansas City, Missouri, advising the companies to continue funding research by a former "Special
Project" scientist through the "Shook, Hardy & Bacon Special Account."
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74. Racketeering Act No. 74: On or about September 10, 1986, defendant PHILIP
MORRIS COMPANIES did knowingly cause to be sent and delivered by the United States mails a letter from Eric A. Taussig, Esq., Assistant General Counsel, Philip Morris Companies, addressed to Dr. Paul C. Mele, 3205 Whispering Pines Drive, Silver Spring, Maryland. The letter alleged that Dr. Mele and Dr. DeNoble had violated their respective confidentiality agreements with Philip Morris and stated that "The Company cannot tolerate this kind of conduct. . . . Any further breach of your agreement will result in action being taken."
75. Racketeering Act No. 75: On or about September 10, 1986, defendant PHILIP
MORRIS COMPANIES did knowingly cause to be sent and delivered by the United States mails a letter from Eric A. Taussig, Esq., Assistant General Counsel, Philip Morris Companies, addressed to Dr. Victor J. DeNoble, 5603 Fox Run Drive, Plainsboro, New Jersey. The letter alleged that Dr. DeNoble and Dr. Mele had violated their respective confidentiality agreements with Philip Morris and stated that "The Company cannot tolerate this kind of conduct. . . . Any further breach of your agreement will result in action being taken."
76. Racketeering Act No. 76: From about April 1, 1988, through about June 30,
1988, defendant REYNOLDS caused an advertisement for Camel cigarettes to be placed in various print media, including the "Sporting News and other Jumbo Jr. Size Magazines," which magazines were then sent and delivered by the United States mails to subscribers and others. This advertisement was captioned "Get On Track With Camel's 75th Birthday!" and depicted the Joe
Camel character in a Formula One-type automobile racing suit, opening a bottle of champagne, with racing cars whizzing by in the background.
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77. Racketeering Act No. 77: On or about April 19, 1988, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, LIGGETT, and
AMERICAN, through defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause to be sent and delivered by the United States mails letters separately addressed to Alexander
Holtzman, Esq., Philip Morris; Wayne W. Juchatz, Esq., Reynolds; Josiah Murray III, Esq.,
Liggett; Ernest Pepples, Esq., Brown & Williamson; Paul Randour, Esq., American; and Arthur J.
Stevens, Esq., Lorillard, from Bernard V. O'Neill, Jr., Esq., Shook, Hardy & Bacon, One Kansas
City Place, 1200 Main Street, Kansas City, Missouri. The letter recommended funding Dr. Alvan
Feinstein's work in clinical epidemiology as a CTR Special Project for two years.
78. Racketeering Act No. 78: On or about May 9, 1988, defendant PHILIP
MORRIS COMPANIES did knowingly cause to be sent and delivered by the United States mails a letter from Philip Morris Companies employee Helen Frustace addressed to Bernard V. O'Neill,
Jr., Esq., Shook, Hardy & Bacon, One Kansas City Place, 1200 Main Street, Kansas City,
Missouri, indicating approval Dr. Rodger L. Bick's request for a one-year extension of the funding for his CTR Special Project.
79. Racketeering Act No. 79: On or about May 16, 1988, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release contained statements disputing the addictiveness of cigarette smoking.
80. Racketeering Act No. 80: On or about May 16, 1988, defendant PHILIP
MORRIS COMPANIES did knowingly cause to be sent and delivered by the United States mails
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a letter from Philip Morris Companies employee Helen Frustace addressed to Donald K. Hoel,
Esq., Shook, Hardy & Bacon, One Kansas City Place, 1200 Main Street, Kansas City, Missouri
64105. The letter indicated the approval of Alexander Holtzman, Esq., Philip Morris Companies, to renew Dr. Carl Seltzer's CTR Special Project funding.
81. Racketeering Act No. 81: On or about July 1, 1988, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release contained statements disputing the addictiveness of cigarette smoking.
82. Racketeering Act No. 82: On or about August 18, 1988, defendant REYNOLDS did knowingly cause to be sent and delivered by the United States mails a letter from Reynolds employee Jo F. Spach addressed to Mr. Anthony A. Christina, 815 188th Street, Court E,
Spanaway, WA 98387. The letter denied any causal link between smoking and disease.
83. Racketeering Act No. 83: During 1988, the exact dates being unknown, defendant REYNOLDS caused a multi-page advertisement for Camel cigarettes to be placed in various print media, including Sports Illustrated, which magazines were then sent and delivered by the United States mails to subscribers and others. The second page of the advertisement, which was captioned, "Some have it. Most don't," stated, "You can have it free!" and contained a coupon for a free pack of Camels. The advertisement depicted Joe Camel in the foreground, with a beautiful woman sitting on the hood of a convertible automobile in the background.
84. Racketeering Act No. 84: During 1989, the exact dates being unknown, defendant REYNOLDS caused advertisements for Camel cigarettes, to be placed in various print
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media, including magazines, which magazines were then sent and delivered by the United States mails to subscribers and others. The advertisements were part of Program No. 900162, which involved "buy one, get one free coupons" and included the following advertisements:
a. An advertisement with the words "Bored? Lonely? Restless? What you need is . . . ." This advertisement featured the face of a beautiful woman gazing at the reader.
b. An advertisement captioned "Camel Smooth Moves." One such advertisement offered "Smooth Move #325 - Foolproof Dating Advice," and "Smooth Move #334 - How to impress someone at the beach." The "Foolproof dating advice" concluded with "[a]lways break the ice by offering her a Camel." The "advice" concerning the beach facetiously suggested that the reader "[r]un into the water, grab someone and drag her back to the shore, as if you've saved her from drowning. The more she screams, the better" and "[a]lways have plenty of Camels ready when the beach party begins."
c. An advertisement captioned "Smooth Move #437 - How to get a FREE pack even if you don't like to redeem coupons."
85. Racketeering Act No. 85: On or about January 11, 1990, defendant
REYNOLDS did knowingly cause to be sent and delivered by the United States mails a letter addressed to Principal, Willow Ridge School, Amherst, New York, from Jo F. Sprach, Manager,
Public Relations Department, Reynolds, claiming that defendants, in a sincere attempt to determine what harmful effects, if any, smoking might have on human health, established CTR, claiming that scientists do not know the causes of the chronic diseases reported to be associated with smoking, and stating that Reynolds intends to continue to support scientific research in a
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continuing search for answers. The letter asked the recipient to pass this information along to her students.
86. Racketeering Act No. 86: On or about March 5, 1990, defendant REYNOLDS did knowingly cause to be sent and delivered by the United States mails a letter addressed to
Mark Green, New York City Commissioner of Consumer Affairs, from James W. Johnston,
Chairman and CEO of Reynolds. In response to a letter sent by Green to Louis V. Gerstner, Jr.,
Chairman and CEO of RJR Nabisco (predecessor to RJR Tobacco Holdings), in which Green had complained about the design of the "Joe Camel" advertising campaign in such a manner as to appeal to youths, Johnston stated that it "has long been an R.J. Reynolds policy not to induce youths to smoke," further stating that, as CEO of Reynolds, "I have reinforced this policy," and "I see no basis to conclude that R.J. Reynolds has conducted itself in an unethical, illegal or misleading manner."
87. Racketeering Act No. 87: On or about May 24, 1990, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release contained statements suggesting that Cigarette Companies actively discourage smoking by young people.
88. Racketeering Act No. 88: On or about August 31, 1990, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, LIGGETT, and
AMERICAN, through defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause to be sent and delivered by the United States mails letters addressed separately to Wayne W.
Juchatz, Esq., Reynolds; Josiah S. Murray III, Esq., Liggett; Ernest Pepples, Esq, Brown &
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Williamson; Paul A. Randour, Esq., American; Arthur J. Stevens, Esq., Lorillard; Charles R. Wall,
Esq., Philip Morris Companies, from Patrick M. Sirridge, Esq., Shook, Hardy & Bacon, 1200
Main Street, Kansas City, Missouri 64105, advising that the Companies fund research to be conducted by a scientist who generated favorable results for defendants.
89. Racketeering Act No. 89: On or about September 18, 1990, defendant
REYNOLDS did knowingly cause to be sent and delivered by the United States mails a letter addressed to Joanna Brown, from Joan F. Cockerham of the Reynolds Public Relations
Department. Responding to concerns expressed by Ms. Brown about the "Joe Camel" ad campaign appealing to youth, the letter stated, "Our intention with this campaign, as with all of our advertising, is to appeal only to adult smokers. We would not have launched the current
Camel campaign if we thought its appeal was to anyone other than this group."
90. Racketeering Act No. 90: On or about October 2, 1990, defendant
AMERICAN did knowingly cause to be sent and delivered by the United States mails a letter addressed to Patrick M. Sirridge, Esq., Shook, Hardy & Bacon, 1200 Main Street, Kansas City,
Missouri 64105, from Paul A. Randour, Esq., American Vice President and General Counsel, approving payment to a "Special Project" researcher.
91. Racketeering Act No. 91: On or about October 11, 1990, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release entitled "Major New
Initiatives to Discourage Youth Smoking Announced" to be sent and delivered by the United
States mails to newspapers and news outlets. This press release contained statements suggesting that defendants had a "longstanding policy" of discouraging and preventing smoking by youth.
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92. Racketeering Act No. 92: On or about June 4, 1991, defendant PHILIP
MORRIS COMPANIES did knowingly cause to be sent and delivered by the United States mails a letter from Philip Morris Companies' Charles R. Wall, Esq., Vice President and Associate
General Counsel, in New York, to: Philippa J. Casingena, Esq., British American Tobacco
Company Ltd., England; John Evans, Esq., Ashurst Morris Crisp, England; Marion Funck, Esq.,
Reemtsma Cigaretten Fabriken GmbH, Germany; Alan D. Porter, Esq., Imperial Tobacco
Limited, England; and James W. Seddon, Esq., Rothmans International Limited, in which Mr.
Wall enclosed "a brief statement and a somewhat longer statement discussing the 'risk factor' language" relating defendants' position on the health effects of smoking.
93. Racketeering Act No. 93: On or about December 11, 1991, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered by the United States mails addressed to newspapers and news outlets. This press release contained statements suggesting that the majority of smokers in the United States are of legal age when they begin smoking and that defendants have discouraged youth smoking.
94. Racketeering Act No. 94: On or about January 28, 1992, defendant
REYNOLDS did knowingly cause to be sent and delivered by the United States mails a letter addressed to James Harrison, President of the Vermont Retail Grocers Association, from Yancey
W. Ford, Jr., Executive Vice President for Sales of Reynolds, stating "R.J. Reynolds Tobacco Co. does not want youth to smoke" and denying in substance that the "Joe Camel" advertising campaign was directed at youth.
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95. Racketeering Act No. 95: On or about May 18, 1992, defendant PHILIP
MORRIS COMPANIES did knowingly cause to be sent and delivered by the United States mails a letter from Charles R. Wall, Esq., Vice President and Associate General Counsel, Philip Morris
Companies, addressed to Bernard O'Neill, Esq., Shook, Hardy & Bacon, 1200 Main Street,
Kansas City, Missouri. The letter accompanied a check representing Philip Morris' contribution to the research efforts of Theodor D. Sterling.
96. Racketeering Act No. 96: On or about August 28, 1992, defendant REYNOLDS did knowingly cause to be sent and delivered by the United States mails a letter addressed to Dr.
Francis A. Neelon, Editor of the North Carolina Medical Journal, purporting to be from Dr.
Robert G. Fletcher, Medical Director of Reynolds, but bearing a handwritten notation on the copy retained by Reynolds stating that it was "written by SWM for Dr. Fletcher," complaining about an article in the North Carolina Medical Journal, and stating about the author of the article, "He claims the tobacco industry spends huge amounts of money promoting its products to youth. This is blatantly false. None of Reynolds Tobacco's product advertising or promotions are directed toward anyone under the legal age to smoke."
97. Racketeering Act No. 97: During 1992, the exact dates being unknown, defendant REYNOLDS caused an advertisement captioned "Camel Lights" to be placed in various print media, including Sports Illustrated, a magazine, which magazines were then sent and delivered by the United States mails to subscribers and others. The advertisement depicted Joe
Camel wearing sunglasses, a tee shirt, and blue jeans, with a pack of cigarettes rolled up in his sleeve and a lit cigarette hanging from his mouth, and casually leaning against a convertible automobile.
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98. Racketeering Act No. 98: On or about March 11, 1993, defendants PHILIP
MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause to be sent and delivered by the United States mails letters addressed separately to Wayne W. Juchatz, Esq.,
Reynolds; Ernest Pepples, Esq., Brown & Williamson; Gilbert L. Klemann, II, Esq., American;
Arthur J. Stevens, Esq., Lorillard; and Charles R. Wall, Esq., Philip Morris Companies, from
Bernard V. O'Neill, Jr., Esq., Shook, Hardy & Bacon, 1200 Main Street, Kansas City, Missouri
64105, advising that the Cigarette Companies continue to fund research to be conducted by a scientist who generated favorable results for defendants and seeking financial contributions in proportion to each Cigarette Company's "market share" to support such research.
99. Racketeering Act No. 99: On or about November 12, 1993, defendant
REYNOLDS did knowingly cause to be sent and delivered by the United States mails a letter addressed to Mr. Mark E. Smith, 26582 Mocine Avenue, Hayward, California 94544, from
Reynolds employee Catherine Clinton. The letter denied the existence of any proof that smoking causes lung cancer, heart disease, or emphysema, and asserted that "a cause and effect relationship between smoking and disease has not been established."
100. Racketeering Act No. 100: In or about December 1994, the exact date being unknown, defendant PHILIP MORRIS did knowingly cause a press release to be sent and delivered by the United States mails to newspapers and news outlets. This press release stated that "Philip Morris is taking aggressive steps to keep cigarettes out of the hands of young people" and that the company sought to eliminate access to cigarettes by minors.
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101. Racketeering Act No. 101: On or about October 31, 1996, defendant BAT
INDUSTRIES (predecessor to BAT P.L.C.) did knowingly cause to be transmitted in interstate commerce by means of the mails comments for publication in the Wall Street Journal, which newspaper was then sent and delivered by the United States mails to subscribers and others. The
Chief Executive of BAT Industries, Martin Broughton, denied charges that BAT Industries, including its Brown & Williamson subsidiary, concealed research linking smoking and disease. He stated: "We haven't concealed, we do not conceal and we will never conceal. We have no internal research which proves that smoking causes lung cancer or other diseases or, indeed, that smoking is addictive."
102. Racketeering Act No. 102: During 1996, the exact dates being unknown, defendant REYNOLDS caused multi-page advertisements captioned "Take a Rockin' Road Trip" and "Go ahead, it's on me," to be placed in various print media, including magazines which were then sent and delivered by the United States mails to subscribers and others. The advertisements depicted Joe Camel and offered gift certificates in the amount of $25 to purchase tickets "to just about any Ticketmaster event," in exchange for 100 Camel Cash C-Notes.
All in violation of Title 18, United States Code, Sections 1341, and 2.
RACKETEERING ACTS RELATING TO WIRE FRAUD
103. Racketeering Act No. 103: On or about July 3, 1963, defendant BROWN &
WILLIAMSON did knowingly cause to be sent by cable, and BRITISH-AMERICAN
TOBACCO COMPANY (predecessor to BAT INVESTMENTS) received, a message from
Addison Yeaman, Esq., Brown & Williamson General Counsel, to A.D. McCormick, Esq., BAT
Co., in London, England, with copies to Messrs. Finch, Wade, and Griffith, reporting that W.T.
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Hoyt, Executive Director of the TIRC had agreed to withhold a Battelle report from TIRC members or the Scientific Advisory Board, and further agreed that submitting certain information to the Surgeon General would be "undesirable."
104. Racketeering Act No. 104: On or about July 22, 1970, defendant LORILLARD did knowingly cause to be sent by telegram, and defendant REYNOLDS did receive, a message from Arthur J. Stevens, Esq., Lorillard General Counsel, to Henry Ramm, Esq., Reynolds Vice
President and General Counsel, transmitting Lorillard's agreement to participate in a CTR Special
Project that involved sponsoring a conference on the benefits of smoking.
105. Racketeering Act No. 105: On or about January 3, 1971, defendant PHILIP
MORRIS did knowingly cause to be transmitted on the nationally televised CBS program Face the Nation, air date January 3, 1971, statements before a live television and radio audience by
Joseph Cullman III, President and CEO of Philip Morris, that misrepresented Philip Morris' funding of independent research and denied that cigarettes are hazardous or pose a hazard to pregnant women or their infants.
106. Racketeering Act No. 106: On or about September 16, 1976, defendants
BROWN & WILLIAMSON did knowingly cause to be transmitted, and BRITISH-AMERICAN
TOBACCO COMPANY (predecessor to BAT INVESTMENTS) did receive, a letter cable addressed to G.C. Hargrove, BAT Co., London, England, from Ernest Pepples, Esq., Brown &
Williamson, counseling BAT to maintain the same position in England as Brown & Williamson maintained in America that the use of tobacco is not unduly dangerous.
107. Racketeering Act No. 107: On or about February 25, 1981, defendant
REYNOLDS did knowingly cause to be sent by telex a message from Reynolds' employee Frank
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Colby addressed to Wilfried Dembach, Cologne, Germany, discussing the disciplining of a company employee who admitted publicly that smoking plays a significant role in causing cancer.
108. Racketeering Act No. 108: On or about October 26, 1983, defendants BAT
INDUSTRIES (predecessor to BAT P.L.C.)and PHILIP MORRIS did knowingly cause to be transmitted a telephone conversation between BAT Industries employee Eric Alfred Albert Bruell,
Esq., and Philip Morris Vice President Hugh Cullman, in which the participants agreed to continue the Cigarette Companies' internal agreement not to compete with one another on issues relating to smoking and health.
109. Racketeering Act No. 109: On or about April 14, 1994, defendant PHILIP
MORRIS did knowingly cause to be transmitted the testimony of the President and Chief
Executive Officer of Philip Morris, William I. Campbell, which was presented at a nationally televised hearing of the House Subcommittee on Health and the Environment. During this hearing, Mr. Campbell denied that nicotine is addictive, denied that Philip Morris research establishes that smoking is addictive, and denied that Philip Morris manipulates the amount of nicotine contained in cigarettes.
110. Racketeering Act No. 110: On or about April 14, 1994, defendant REYNOLDS did knowingly cause to be transmitted the testimony of the Chairman and Chief Executive Officer of Reynolds, James Johnston, which was presented at a nationally televised hearing of the House
Subcommittee on Health and the Environment. During this hearing, Mr. Johnston denied that nicotine is addictive and denied that Reynolds manipulates the amount of nicotine contained in cigarettes.
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111. Racketeering Act No. 111: On or about April 14, 1994, defendant
LORILLARD did knowingly cause to be transmitted the testimony of the Chief Executive Officer of Lorillard, Andrew H. Tisch, which was presented at a nationally televised hearing of the House
Subcommittee on Health and the Environment. During this hearing, Mr. Tisch denied that
Lorillard manipulates the amount of nicotine contained in cigarettes.
112. Racketeering Act No. 112: On or about April 14, 1994, defendant LIGGETT did knowingly cause to be transmitted the testimony of the Chairman and Chief Executive Officer of Liggett, Edward A. Horrigan, Jr., which was presented at a nationally televised hearing of the
House Subcommittee on Health and the Environment. During this hearing, Mr. Horrigan denied that Liggett manipulates the amount of nicotine contained in cigarettes.
113. Racketeering Act No. 113: On or about April 14, 1994, defendant AMERICAN did knowingly cause to be transmitted the testimony of the Chief Executive Officer of American,
Donald S. Johnston, which was presented at a nationally televised hearing of the House
Subcommittee on Health and the Environment. During this hearing, Mr. Johnston denied that
American manipulates the amount of nicotine contained in cigarettes.
114. Racketeering Act No. 114: On or about May 9, 1994, defendant PHILIP
MORRIS did knowingly cause to be transmitted a telefax letter addressed to The Honorable
Henry Waxman, Chairman, Subcommittee on Health and the Environment, Committee on Energy and Commerce, 2415 Rayburn House Office Building, Washington, D.C. 20515-6118, from Dr.
Cathy Ellis, Director of Research, Philip Morris. The letter denied that nicotine causes addiction, based on a definition of addiction overwhelmingly rejected by public and mental health
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professionals: "intoxication, pharmacological tolerance, and physical dependence in a manner that would impair the smokers' ability to exercise a free choice to continue or to quit smoking."
115. Racketeering Act No. 115: On or about April 27, 1995, defendant BROWN &
WILLIAMSON did transmit and cause to be transmitted a telephone call placed by Brown &
Williamson employee Melanie Gnadinger to Brown & Williamson Japan employee Hiromi Mikami in furtherance of defendants' public assertions that smoking does not cause disease.
116. Racketeering Act No. 116: During 1999, the exact dates being unknown, defendant BROWN & WILLIAMSON did knowingly cause to be posted on the Brown &
Williamson Internet web site a document entitled "Hot Topics: Smoking and Health Issues."
Although Brown & Williamson recognized "that, by some definitions, including that of the
Surgeon General in 1988, cigarette smoking would be classified as addictive," the company stated:
Brown & Williamson believes that the relevant issue should not be how or whether one chooses to define cigarette smoking as addictive based on an analysis of all definitions available. Rather, the issue should be whether consumers are aware that smoking may be difficult to quit (which they are) and whether there is anything in cigarette smoke that impairs smokers from reaching and implementing a decision to quit (which we believe there is not).
All in violation of Title 18, United States Code, Sections 1343 and 2.
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Case No. 14-56140 UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
CALIFORNIA COALITION FOR FAMILIES AND CHILDREN
v.
SAN DIEGO COUNTY BAR ASSOCIATION, et al.,
Appeal From The United States District Court For The Southern District of California Case No. 03-cv-1944 CAB (JLB) The Honorable Cathy Ann Bencivengo
Exhibits to Motion to Take Judicial Notice
Exhibit 2 Case Case:2:04-cv-05184-CCC-JAD 14-56140 10/22/2014 Document ID: 1240 9287316 Filed 06/29/07 DktEntry: Page 12 1 Page: of 213 143 PageID: of 605 33971
UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY ______x IN RE: INSURANCE BROKERAGE : MDL No. 1663 ANTITRUST LITIGATION : : Civil No. 04-5184 (GEB) APPLIES TO ALL COMMERCIAL : INSURANCE BROKERAGE ACTIONS : Hon. Garrett E. Brown, Jr. : : JURY TRIAL DEMANDED ______x
SECOND CONSOLIDATED AMENDED COMMERCIAL CLASS ACTION COMPLAINT
* * REDACTED VERSION * * Case Case:2:04-cv-05184-CCC-JAD 14-56140 10/22/2014 Document ID: 1240 9287316 Filed 06/29/07 DktEntry: Page 12 2 Page: of 213 144 PageID: of 605 33972
TABLE OF CONTENTS
1) INTRODUCTION...... 1
2) JURISDICTION AND VENUE ...... 1
3) PARTIES ...... 2
1 Plaintiffs...... 2
2 Defendants ...... 9
a) Broker Defendants ...... 9
b) Insurer Defendants...... 12
A. STATEMENT OF FACTS ...... 18
1) The Antitrust Claims ...... 18
a) Overview of the Antitrust Claims...... 18
b) The Commercial Brokerage and Insurance Markets in the United States ...... 20
c) The Rise of Contingent Commissions and Their Role in the Customer Allocation Schemes Alleged Herein ...... 23
d) Overview of the Conspiracies...... 26
e) Operation of the Broker Centered Conspiracies ...... 30
(1) The Marsh Broker-Centered Conspiracy...... 30
(a) Participants in the Conspiracy...... 30
(b) Operation of the Conspiracy ...... 31
(i) The Participants in the Marsh Broker-Centered Conspiracy Agreed that the Bulk of Marsh’s Customers would be Allocated to the Conspiring Insurers...... 32
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(ii) The Participants in the Marsh Broker-Centered Conspiracy Agreed not to Compete for each others’ Customers ...... 35
(iii) Marsh and Its Preferred Carriers Conspired to Protect Each Other’s Incumbent Business Through Bid-Rigging and Other Overt Acts ...... 37
(iv) Marsh and Its Preferred Carriers Agreed that In Return for Contingent Commission Payments, The Insurer Would Be Guaranteed Access to a Specific Amount of Premium Volume ...... 42
(v) The Insurer Defendants Understood their Role in the Conspiracy and Were Disciplined if they Did Not Go Along...... 44
(vi) Communications Among the Participants in the Marsh Broker- Centered Conspiracy Facilitated By Marsh Furthered the Conspiracy...... 45
(vii) The Co-Conspirators benefited from The Operation of the Conspiracy...... 48
(2) The AON Broker-Centered Conspiracy...... 49
(a) Participants in the Conspiracy ...... 49
(b) Operation of the Conspiracy ...... 49
(i) The Participants in the Aon Broker- Centered Conspiracy Agreed that the Bulk of Aon’s Book of Business Would Be Allocated to Aon’s Strategic Partners in Exchange for Contingent Commission Payments...... 50
(ii) The Insurer Participants Agreed to Refrain from Competing for Each Others’ Customers and Expected Aon to Protect their Renewal Business from Competition...... 53
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(iii) The Participants Agreed that in Return for their Contingent Commission Payments, They Would Be Guaranteed Access to a Minimum Amount of Premium Volume...... 54
(iv) Aon Monitored and Enforced the Terms of the Conspiracy...... 58
(v) Communications Among the Participants in the Aon Broker-Centered Conspiracy, Facilitated by Aon, Made the Conspiracy Plausible...... 58
(vi) The Co-Conspirators Benefited from the Operation of the Conspiracy ...... 60
(3) The Wells Fargo/Acordia Broker-Centered Conspiracy...... 60
(a) Participants in the Conspiracy ...... 60
(b) Operation of the Conspiracy ...... 61
(i) The Participants in the Wells Fargo/Acordia Broker-Centered Conspiracy Agreed that a Substantial Portion of its Customers would be Allocated to the Conspiring Insurers...... 61
(ii) The Conspiring Insurers Agreed not to Compete With Each Other for the Wells Fargo/Acordia Business...... 64
(iii) The Insurer Defendants Knew Each Others’ Roles in the Conspiracy ...... 65
(iv) The Co-Conspirators Benefited from The Wells Fargo/Acordia Conspiracy ...... 67
(4) The HRH Broker-Centered Conspiracy...... 68
(a) Participants in the Conspiracy ...... 68
(b) Operation of the Conspiracy ...... 68
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(i) The Participants in the HRH Broker- Centered Conspiracy Agreed that a Large Portion of HRH’s Customers Would be Allocated to the Conspiring Insurers...... 69
(ii) The Three Conspiring Insurers Agreed not to Compete with Each Other for the HRH Business...... 70
(iii) The Insurer Defendants Knew Each Others’ Role in the Conspiracy...... 72
(iv) The Co-Conspirators Benefited From the Operation of the Conspiracy...... 74
(5) The Willis Broker-Centered Conspiracy ...... 75
(a) Participants in the Conspiracy ...... 75
(b) Operation of the Conspiracy ...... 75
(i) The Participants in the Willis Broker- Centered Conspiracy Agreed that a Substantial Portion of its Customers would be Allocated to the Conspiring Insurers...... 76
(ii) The Conspiring Insurers Agreed not to Compete With Each Other for the Willis Business...... 81
(iii) Willis and its Co-Conspirators Agreed that in Return for Contingent Commissions, the Insurers Would be Guaranteed Access to Premium Volume...... 82
(iv) Insurers Understood Their Role And Were Disciplined By Willis If They Did Not Participate ...... 85
(v) Communications among the Participants in the Willis Broker-Centered Conspiracy were Facilitated by Willis ...... 85
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(vi) The Co-Conspirators Benefited from the Willis Conspiracy...... 86
(6) The Gallagher Broker-Centered Conspiracy ...... 88
(a) Participants in the Conspiracy ...... 88
(b) Operation of the Conspiracy ...... 88
(i) The Participants in the Gallagher Broker-Centered Conspiracy Agreed that the Bulk of Gallagher’s Customers would be Allocated to the Conspiring Insurers...... 89
(ii) The Participants in the Gallagher Broker-Centered Conspiracy Agreed not to Compete for each other’s Customers...... 90
(iii) Communications Among the Participants In the Gallagher Broker-Centered Conspiracy Facilitated By Gallagher Furthered the Conspiracy...... 93
(iv) The Co-Conspirators benefited from the Operation of the Conspiracy ...... 94
f) The Global Conspiracy ...... 94
g) The Conspiracies Raised Premium Levels To All Members Of The Class ...... 99
2) The RICO Claims ...... 100
a) Overview of the RICO Claims...... 100
b) The Broker Defendants’ Duties, Fiduciary Status and Representations to Their Clients ...... 101
c) Defendants’ Fraudulent Scheme...... 105
(1) Defendants’ Active Concealment Practices...... 108
(a) The Broker Defendants and Insurer Defendants Agreed to Keep Their Contingency Commission Arrangements Secret...... 109
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(b) Defendants Fail to Disclose That The Cost of Contingent Commissions Was Built Into the Price of Premiums...... 120
(c) The Broker Defendants’ Concerted Actions to Prevent Meaningful Disclosure of Their Contingent Commission Arrangements Is Built Into the Price of Premiums ...... 123
(d) Recent Regulatory Investigations Reveal The Misleading Nature of Defendants’ Representations and Disclosure Practices...... 133
d) Racketeering Allegations...... 142
(1) Enterprise ...... 143
(2) Alternative Enterprise Allegations...... 146
(a) The CIAB Enterprise ...... 146
(3) Predicate Acts ...... 152
e) Conspiracy Allegations...... 155
f) Injury ...... 157
3) FRAUDULENT CONCEALMENT ...... 158
4) CLASS ACTION ALLEGATIONS...... 158
COUNT I - Violation of Section 1 of the Sherman Act By the Marsh Broker-Centered Class Against the Marsh Broker-Centered Defendants ...... 161
COUNT II - Violation of Section 1 of the Sherman Act By the Marsh Broker-Centered Class Against the Marsh Broker-Centered Excess Casualty Defendants ...... 162
COUNT III - Violation of Section 1 of the Sherman Act By the Aon Broker-Centered Class Against the Aon Broker-Centered Defendants ...... 163
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COUNT IV - Violation of Section 1 of the Sherman Act By the Wells Fargo/Acordia Broker-Centered Class Against the Wells Fargo/Acordia Broker-Centered Defendants...... 164
COUNT V - Violation of Section 1 of the Sherman Act By the Gallagher Broker-Centered Class Against the Gallagher Broker-Centered Defendants...... 165
COUNT VI - Violation of Section 1 of the Sherman Act By the HRH Broker-Centered Class Against the HRH Broker-Centered Defendants ...... 166
COUNT VII - Violation of Section 1 of the Sherman Act By the Willis Broker-Centered Class Against the Willis Broker-Centered Defendants...... 166
COUNT VIII - Violation of Section 1 of the Sherman Act Against All Defendants...... 167
COUNT IX - Violation of 18 U.S.C. § 1962(c) Against Defendants Associated with the Marsh Enterprise ...... 168
COUNT X - Violation of 18 U.S.C. § 1962(c) Against Defendants Associated with the Aon Enterprise ...... 169
COUNT XI - Violation of 18 U.S.C. § 1962(c) Against Defendants Associated with the Willis Enterprise...... 170
COUNT XII - Violation of 18 U.S.C. § 1962(c) Against Defendants Associated with the Gallagher Enterprise...... 171
COUNT XIII - Violation of 18 U.S.C. § 1962(c) Against Defendants Associated with the Wells Fargo/Acordia Enterprise...... 172
COUNT XIV - Violation of 18 U.S.C. § 1962(c) Against Defendants Associated with the HRH Enterprise...... 173
COUNT XV - Violation of 18 U.S.C. § 1962(d) Against Defendants Associated with the Marsh Enterprise ...... 174
COUNT XVI - Violation of 18 U.S.C. § 1962(d) Against Defendants Associated with the Aon Enterprise ...... 175
COUNT XVII - Violation of 18 U.S.C. § 1962(d) Against Defendants Associated with the Willis Enterprise...... 175
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COUNT XVIII - Violation of 18 U.S.C. § 1962(d) Against Defendants Associated with the Gallagher Enterprise...... 176
COUNT XIX - Violation of 18 U.S.C. § 1962(d) Against Defendants Associated with the Wells Fargo/Acordia Enterprise...... 177
COUNT XX - Violation of 18 U.S.C. § 1962(d) Against Defendants Associated with the HRH Enterprise...... 178
COUNT XXI - Violation of 18 U.S.C. § 1962(d) Against All Broker Defendants ...... 179
COUNT XXII - Violation of 18 U.S.C. § 1962(c) Against All Defendants...... 179
COUNT XXIII - Violation of 18 U.S.C. § 1962(d) Against All Defendants...... 180
COUNT XXIV - State Law Antitrust ...... 181
COUNT XXV - Breach of Fiduciary Duty Against the Broker Defendants ...... 186
COUNT XXVI - Aiding and Abetting Breach of Fiduciary Duty Against the Insurer Defendants...... 187
COUNT XXVII - Unjust Enrichment Against the Broker and Insurer Defendants...... 188
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Plaintiffs, pursuant to the Order of the Court dated April 5, 2007, by and through their
undersigned attorneys, allege upon their own knowledge, or where there is no personal
knowledge, upon investigation of counsel or information and belief:
1) INTRODUCTION
1. Plaintiffs, individually and on behalf of the classes defined below, hereby bring the
following claims arising under the Sherman Act, the Racketeering Influenced and Corrupt
Organizations Act (“RICO”), the antitrust laws of various states, and state common law.
2) JURISDICTION AND VENUE
2. This Court has jurisdiction over the subject matter of this action pursuant to 18
U.S.C. §§1961, 1962 and 1964, 28 U.S.C. §§1331, 1332 and 1367, and 15 U.S.C. §15. This
Court has personal jurisdiction over the defendants pursuant to 18 U.S.C. §§1965(b) and (d).
This Court has supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. §1367.
3. Venue is proper in this district pursuant to 18 U.S.C. §1965(a), 28 U.S.C. §1391(b),
§12 of the Clayton Act, 15 U.S.C. §22, and 28 U.S.C. §1391 because some of the Defendants are
found, do business or transact business within this district, and conduct the interstate trade and
commerce described below in substantial part within this district.
4. The trade and interstate commerce relevant to this action is the purchase and sale of
insurance policies and related services.
5. During all or part of the period in which the events described in this Complaint
occurred, each of the defendants sold insurance and related products and services and/or
provided advice regarding the procurement or renewal of insurance or claims administration
relating thereto to plaintiffs and other members of the classes in a continuous and uninterrupted
flow of interstate commerce.
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6. The activities of defendants and their co-conspirators, as described herein, were
within the flow of, and had a substantial effect on, interstate commerce.
3) PARTIES
a) Plaintiffs
7. Plaintiff OptiCare Health Systems, Inc. (“OptiCare”) is a corporation incorporated
under the laws of Delaware and has its principal place of business in Waterbury, Connecticut.
OptiCare is an integrated eye care services company that, among other things, provides managed
vision and professional eye care products and services. At all material times herein, OptiCare
was a party to agreements with defendant Marsh USA Inc. (Connecticut) (“Marsh Connecticut”)
and Hilb Rogal & Hobbs Company (“HRH”) for the provision of insurance brokerage services
covering a variety of insurance needs and risks. Under these agreements, Marsh USA Inc.
(Connecticut) placed insurance coverage on OptiCare’s behalf with a number of insurance
companies, including (1) Hartford Fire Insurance Company (a subsidiary of The Hartford
Financial Services Group, Inc. [“Hartford”]) ( “Hartford Fire”), (2) Twin City Fire Insurance Co.
(a subsidiary of Hartford.) ( Twin City”), (3) American International Specialty Lines Insurance
Co. (a subsidiary of American International Group, Inc.[“AIG”]) ( “American Specialty”), (4)
Lexington Insurance Company (a subsidiary of AIG ) (“Lexington”), (5) Travelers Indemnity
Company (“Travelers Indemnity”) a subsidiary of St. Paul Travelers Cos., now known as The
Travelers [“Travelers’]) (“Travelers Indemnity”), and (6) Federal Insurance Co. (a subsidiary of
Chubb Corp. [“Chubb”]) (“Federal Insurance”).
8. Plaintiff Comcar Industries, Inc. (“Comcar”) is a corporation incorporated under the
laws of Florida and has its principal place of business in Auburndale, Florida. Comcar is a
trucking company that, among other things, hauls commodities throughout the United States. At
all material times herein, Comcar was a party to agreements with defendant Marsh USA, Inc.
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(“Marsh USA”) for the provision of insurance brokerage services covering a variety of insurance
needs and risks. Under these agreements, Marsh USA placed insurance coverage on Comcar’s
behalf with a number of insurance companies, including: (1) American Alternative Insurance
Corporation (a unit of American Re Corporation Group) (“American Alternative”),
(2) Birmingham Fire Insurance Company of Pennsylvania (a subsidiary of AIG) (“Birmingham
Fire”), (3) Lexington , (4) American Guarantee & Liability Insurance Co. (a subsidiary of Zurich
American Insurance Co.[“Zurich”]) (”American Guarantee”), (5) American Home Assurance
Company (a subsidiary of AIG) (“American Home”), (6) National Union Fire Insurance
Company of Pittsburgh, Pa. (a subsidiary of AIG) (“National Union Pittsburgh”), (7) Insurance
Co. of the State of Pennsylvania (a subsidiary of AIG) (“Insurance of Pennsylvania”), and (8)
Twin City.
9. Plaintiff Sunburst Hospitality Corporation (“Sunburst”), at all material times herein,
was a party to agreements with Marsh USA , Aon Risk Services, Inc. of Maryland (“Aon Risk
Maryland”), and Willis of New York, Inc. (formerly Willis Corroon Corp. of New York and
hereafter “ Willis New York”) for the provision of insurance brokerage services covering a
variety of insurance needs and risks. Under these agreements, Marsh USA placed insurance
coverage with a number of insurance companies, including (1) Lexington, (2) Crum & Forster (a
subsidiary of Crum & Forster Holdings Corp. (“Crum & Forster Holdings”), (3) Travelers, (4)
Zurich, (5) St. Paul Fire & Marine Insurance Co. (a subsidiary of Travelers) (“ St. Paul Fire”),
(6) Hartford, and (7) Westchester Surplus Lines Insurance Co. (a subsidiary of ACE
Ltd.[“ACE”]) (“Westchester Surplus”). Aon Risk Maryland also placed insurance coverage with
a number of insurance companies, including: (1) (a) Wausau Insurance Companies; (b) Wausau
Underwriters Insurance Company; and (c) Employers Insurance of Wausau (all subsidiaries
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and/or affiliates of Liberty Mutual Holding Company, Inc. (“Liberty Mutual Holdings”), (2) Gulf
Insurance Co. (a subsidiary of Travelers) (“Gulf”), (3) Travelers, and (4) National Union Fire
Ins. Co. (a subsidiary of AIG) (“National Union”). Willis New York also placed insurance
coverage with a number of insurance companies, including (1) National Union, and (2) St. Paul
Fire.
10. Plaintiff Robert Mulcahy (“Mulcahy”), at all material times herein was an
independent contractor and a party to agreements with Arthur J. Gallagher & Co. (“AJG”),
through his employer Vestax Securities Corp., for the provision of insurance brokerage services
covering a variety of insurance needs. Under these agreements, AJG placed insurance coverage
with a number of insurance companies, including National Union Pittsburgh.
11. Plaintiff Golden Gate Bridge, Highway and Transportation District (“Golden Gate”)
is a multi-county political subdivision of the State of California. It operates the Golden Gate
Bridge and two public transit systems: The Golden Gate Transit bus system and the Golden Gate
Ferry. At all material times herein, Golden Gate was a party to agreements with Marsh Risk &
Insurance Services, a division of Marsh, Inc. (“Marsh Risk”) for the provision of insurance
brokerage services covering a variety of insurance needs. Under these agreements, Marsh Risk
placed insurance coverage on Golden Gates’s behalf with a number of insurance companies,
including (1) American Specialty , (2) Illinois Union Insurance Co. (a subsidiary of ACE)
(“Illinois Union”), (3) Indemnity Insurance Co. of North America (a subsidiary of ACE)
(“Indemnity Ins.”), (4) Steadfast Insurance Co. (a subsidiary of Zurich (“Steadfast”),
(5) National Union Pittsburgh, (6) Lexington, (7) American Home, (8) Westchester Surplus,
(9) Fidelity & Deposit Company of Maryland (a subsidiary of Zurich) (“Fidelity & Deposit”),
(10) Hartford Steam Boiler Inspection and Insurance Co. (a subsidiary of AIG (“Hartford
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Steam”), (11) United States Fire Insurance Co. (a subsidiary of Crum & Forster Holdings (“US
Fire”), (12) Pacific Insurance Co., Ltd. (a subsidiary of Hartford) (“Pacific Ins.”), (13) Mt.
Hawley Insurance Co. (a subsidiary of RLI Corp. [“RLI”]) (“Mt. Hawley”), (14) The Continental
Insurance Co. (a subsidiary of CNA Financial Corp. [“CNA”]) (“Continental Ins.”), (15) Zurich,
(16) Empire Fire & Marine Insurance Co. (a subsidiary of Zurich) (“Empire Fire”), and (17) St.
Paul Mercury Insurance Co. (a subsidiary of Travelers (“St. Paul Mercury”).
12. Plaintiff Glenn Singer (“Singer”) at all material times herein was a party to
agreements with Marsh USA for the provision of insurance brokerage services covering a variety
of insurance needs and risks. Under these agreements, Marsh USA placed insurance coverage on
Singer’s behalf with a number of insurance companies, including, among others: (1) American
Home, (2) American International Insurance Company (a subsidiary of AIG) (“American
International”), (3) Insurance of Pennsylvania (AIG, (4) AIU Insurance Company (a subsidiary
of AIG), (“AIU”) (5) Lexington and (6) Chubb. .
13. Plaintiff Redwood Oil Company (“Redwood”), at all material times herein, was a
party to agreements with Gallagher Hefferman Insurance Brokers, a division of AJG, for the
provision of insurance brokerage services. Under these agreements, AJG placed insurance
coverage on Redwood’s behalf with a number of insurance companies, including (1) Commerce
and Industry Insurance Co. (a subsidiary of AIG) (“Commerce and Industry”), and (2) New
Hampshire Insurance Company (a subsidiary of AIG) (“NH Insurance”).
14. Plaintiff The Omni Group of Companies (“Omni”) is an affiliation of businesses
with its principal place of business in Phoenix, Arizona. For purposes of this Complaint, Omni
includes its affiliated companies, namely Dominion Pacific Commercial, L.L.C., a construction
company offering consultation, cost analysis, construction drawing supervision, design/build and
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turnkey construction for ground-up commercial buildings and commercial tenant improvements.
Omni is a full service real estate firm that also provides assistance to institutions turning around
troubled properties for leasing or sale. Omni was a party to agreements with Acordia, Inc.
(“Acordia”) for the provision of insurance brokerage services covering a variety of insurance
needs. Under these agreements, Acordia placed insurance coverage on Omni’s behalf with a
number of insurance companies, including (1) Fireman’s Fund Insurance Company (a subsidiary
of Allianz AG) (“Fireman’s Fund”), (2) RLI Insurance Company (a subsidiary of RLI), and (3)
Mt. Hawley.
15. Plaintiff Bayou Steel Corporation (“Bayou”), at all material times herein, was a
party to agreements with Aon Risk Services Inc. of Louisiana (“Aon Risk Louisiana”), Aon Risk
Services of Texas, Inc. (“Aon Risk Texas”) and Marsh USA, for the provision of insurance
brokerage services covering a variety of insurance needs. Under these agreements, Aon Risk
Louisiana and/or Aon Risk Texas placed insurance coverage on Bayou’s behalf with a number of
insurance companies, including: (1) ACE USA, Inc. (a subsidiary of ACE ) (“ACE USA”),
(2) American Guarantee, (3) American Specialty, (4) Executive Risk Indemnity Inc. (a
subsidiary of Chubb) (“Executive Risk”), (5) Federal Insurance (6) Gulf), (7) National Union
Fire Insurance Co. of Louisiana (a subsidiary of AIG) (“National Union Louisiana”), (8) Nutmeg
Insurance Co. (a subsidiary of Hartford) (“Nutmeg Ins.”), (9) St. Paul Fire, (10) Greenwich
Insurance Co. (a subsidiary of XL Capital Ltd. [“XL]) (“Greenwich Ins.”), and (11) Indian
Harbor Insurance Co. (a subsidiary of XL) (“Indian Harbor”). Also, Marsh USA placed
insurance coverage on Bayou’s behalf with a number of insurance companies, including:
(1) ACE American Insurance Co. (a subsidiary of ACE) (“Ace American”), (2) ACE USA,
(3) American Guarantee, (4) Commerce and Industry Co., (5) Executive Risk, (6) Federal
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Insurance, (7) Gulf, (8) Lexington, (9) National Union Pittsburgh, (10) National Union
Louisiana, (11) St. Paul Fire, (12) Twin City, (13) Wausau Underwriters Insurance Company and
Employers Insurance of Wausau, and (14) Indian Harbor.
16. Plaintiff Clear Lam Packaging, Inc. (“Clear Lam”), at all material times herein was
a party to agreements with Arthur J. Gallagher Risk Management Services, Inc. (AJG Risk”), a
subsidiary of AJG (“AJG Risk”), for the provision of insurance brokerage services covering a
variety of insurance needs. Under these agreements, AJG Risk placed insurance coverage on
Clear Lam’s behalf with a number of insurance companies, including: (1) Travelers Casualty &
Surety Company of America (a subsidiary of Travelers) (“Travelers Casualty”), (2) National
Surety Corp. (a subsidiary Fireman’s Fund) (“National Surety”), (3) Twin City, (4) Zurich , and
(5) Liberty Mutual Fire Insurance Company (a subsidiary of Liberty Mutual Holding) (“Liberty
Mutual Fire”).
17. Plaintiff Cellect, LLC (“Cellect”), at all material times herein, was a party to
agreements with Marsh USA for the provision of insurance brokerage services covering a variety
of insurance needs. Under these agreements, Marsh placed insurance coverage on Cellect’s
behalf with a number of insurance companies, including, among others: (1) AIG, (2) Travelers,
and (3) Zurich.
18. Plaintiff The Enclave, LLC (“Enclave”), at all material times herein, was party to
agreements with USI Insurance Services of Florida, Inc., d/b/a/ USI Florida (“USI”) for the
provision of insurance brokerage services covering a variety of insurance needs. Under these
agreements, USI placed insurance coverage on Enclave’s behalf with a number of insurance
companies, including Empire Indemnity Insurance Co. (a subsidiary of Zurich) (“Empire
Indemnity”).
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19. Plaintiff Gateway Club Apartments, Ltd. (“Gateway”), at all material times herein,
was party to agreements with USI for the provision of insurance brokerage services covering a
variety of insurance needs. Under these agreements, USI placed insurance coverage on
Gateway’s behalf with a number of insurance companies, including (1) Federal Insurance,
(2) Lexington, (3) Gulf., (4) Continental Casualty Co. (a subsidiary of CNA) (Continental
Casualty”), (5) Athena Assurance Company (a subsidiary of Travelers (“Athena Assurance”),
(6) American Guarantee, (7) Vigilant Insurance Co. (a subsidiary of Chubb) (“Vigilant Ins.”),
and (8) Mt. Hawley.
20. Plaintiff Michigan Multi-King Inc. (“Michigan Multi-King”), at all material times
herein, was a party to agreements with Aon Risk Services, Inc. of Michigan (“Aon Risk
Michigan”) for the provision of insurance brokerage services covering a variety of insurance
needs and risks. Under these agreements, Aon Risk Michigan placed insurance coverage on
Michigan Multi-King’s behalf with a number of insurance companies, including: (1) Travelers
Casualty & Surety Company of America (a subsidiary of Travelers) (“Travelers Casualty”),
(2) St. Paul Fire, and (3) Federal Insurance.
21. Plaintiff City of Stamford (“Stamford”) is a municipal corporation incorporated
under the laws of the State of Connecticut. At all material times herein, Stamford was a party to
agreements with defendant Marsh USA., and/or Marsh McLennan, Inc., (collectively in this
paragraph “Marsh”) for the provision of insurance brokerage services covering a variety of
insurance needs and risks. Under these agreements, Marsh placed insurance coverage on
Stamford’s behalf with a number of insurance companies, including, among others:
(1) American International Marine Agency of NY (a division of AIG), (2) Hartford Fire, (3) The
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Hartford Fidelity and Bonding (a subsidiary of Hartford) (“Hartford Fidelity”), (4) Lexington,
(5) St Paul Fire, (6) Travelers Casualty, (7) Westchester Surplus, and (8) Zurich.
22. Plaintiff Belmont Holdings Corporation (“Belmont”), or a predecessor, affiliated
company R.P.G. Holding Inc., at all material times herein, was a party to agreements with Willis
Group Holdings Limited for the provision of insurance brokerage services covering a variety of
insurance needs and risks. Under these agreements, Willis Group Holdings Limited (“Willis
Group”) placed insurance coverage on Belmont’s behalf with a number of insurance companies,
including (1) National Union Pittsburg , (2) American Home (3) Insurance of Pennsylvania, (4)
Birmingham Fire (5) Illinois National Insurance Company (a subsidiary of AIG) (“Illinois
National”), (6) National Union Louisiana, and (7) Westchester Fire Insurance Company (a
subsidiary of ACE) (“Westchester Fire”).
23. Plaintiff Tri-State Container Corporation (“Tri-State”) is a manufacturer of
corrugated cartons located at 1440 Bridgewater Road, Bensalem, Pennsylvania. Hilb, Rogal,
Hamilton Co. of Philadelphia (now HRH) provided insurance brokerage services for Tri-State to
cover a variety of needs. On Tri-State’s behalf, HRH placed insurance with a number of
insurance companies, including: (1) American Insurance Company (a subsidiary of Fireman’s
Fund) (2) Executive Risk; and (3) Federal Insurance.
b) Defendants
1 Broker Defendants
24. Defendant Marsh & McLennan Companies, Inc. (“Marsh & McLennan”) is a
corporation incorporated under the laws of Delaware with corporate headquarters in New York,
New York. Marsh & McLennan is a global corporation and the parent of various subsidiaries
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that provide clients with analysis, advice and transactional services in connection with the
procurement and servicing of insurance, as well as investment management and consulting.
25. Marsh & McLennan’s subsidiaries and related companies that are defendants herein
are Marsh Inc., Marsh USA, Marsh Connecticut and Seabury & Smith, Inc. (“Seabury &
Smith”). A description of each of these entities is set forth in Exhibit A. Defendants Marsh &
McLennan, Marsh Inc., Marsh USA, Marsh Connecticut and Seabury & Smith shall be referred
to collectively herein as “Marsh.”
26. Defendant Aon Corporation (“Aon Corp.”) is a corporation incorporated under the
laws of Delaware and has its corporate headquarters in Chicago, Illinois. Aon Corp. is a global
corporation and the parent of various subsidiaries that provide clients with risk and insurance
brokerage services, consulting, and insurance underwriting.
27. Aon Corp.’s subsidiaries and related companies that are defendants herein are Aon
Broker Services, Inc. (“Aon Broker”), Aon Risk Services Companies, Inc. (“Aon Risk”), Aon
Risk Services Inc. U.S. (“Aon Risk U.S.”), Aon Risk Maryland, Aon Risk Louisiana, Aon Risk
Texas, Aon Risk Michigan, Aon Group, Inc. (“Aon Group”), Aon Services Group, Inc. (“Aon
Services”) and Affinity Insurance Services, Inc. (“Affinity”). A description of each of these
entities is set forth in Exhibit A. Defendants Aon Corp., Aon Broker, Aon Risk, Aon Risk U.S.,
Aon Risk Maryland, Aon Risk Louisiana, Aon Risk Texas, Aon Risk Michigan, Aon Group,
Aon Services and Affinity shall be referred to collectively herein as “Aon.”
28. Defendant Willis Group is a corporation incorporated under the laws of Bermuda
with its corporate headquarters in London, England. Willis Group is a global corporation and the
parent of various subsidiaries that provide clients with risk and insurance brokerage services,
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consulting, and insurance underwriting. Willis Group is the third largest global brokerage firm
in the world.
29. Willis Group’s subsidiaries and related companies that are defendants herein are
Willis Group Limited (“Willis Ltd.”), Willis North America, Inc. (“Willis NA”) and Willis New
York. A description of each of these entities is set forth in Exhibit A. Defendants Willis Group,
Willis Ltd., Willis NA and Willis New York shall be referred to collectively herein as “Willis.”
30. Defendant AJG (sometimes referred to herein as “Gallagher”) is a corporation
incorporated under the laws of Delaware with its corporate headquarters in Itasca, Illinois.
Gallagher provides customers with risk management and insurance brokerage services.
Gallagher is the fourth largest global insurance broker by 2003 revenue, providing customers
with risk management and insurance brokerage services worldwide.
31. AJG and its subsidiary and related company Arthur J. Gallagher Risk Management
Service, Inc. (“Gallagher Risk”) are defendants herein. A description of Gallagher Risk is set
forth in Exhibit A.
32. Defendants Gallagher and Gallagher Risk shall be referred to collectively herein as
“Gallagher.”
33. Gallagher and certain of the Plaintiffs entered into a Stipulation of Settlement
Between Class Plaintiffs and Arthur J. Gallagher Co. Defendants on December 29, 2006 (the
“Gallagher Settlement Agreement”). The Gallagher Settlement Agreement, as amended, received
preliminary approval from the Court on April 13, 2007 and is pending final approval. If the
Gallagher Settlement Agreement is approved by the Court and becomes final, Gallagher will be
dismissed as defendants from this Complaint.
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34. Defendant Wells Fargo & Company (“Wells Fargo”) is a corporation incorporated
under the laws of Delaware with its corporate headquarters in San Francisco, California. Wells
Fargo is the parent company of Wells Fargo Insurance Services, Inc., formerly known as
Acordia. Wells Fargo provides customers with risk management and insurance brokerage
services through two separate insurance operations: (i) Wells Fargo Insurance Services, and
(ii) Acordia (now known as Wells Fargo Insurance Services, Inc.), a Wells Fargo subsidiary.
Collectively, Wells Fargo Insurance and Wells Fargo/Acordia (defined in the next paragraph)
comprise the fifth largest broker in the United States, garnering $800.5 million revenues in 2003.
35. Wells Fargo’s subsidiary and related company that is a Defendant herein is Acordia,
Inc., now known as Wells Fargo Insurance Services, Inc. (“Wells Fargo/Acordia”). A
description of Wells Fargo/Acordia is set forth in Exhibit A. Defendants Wells Fargo and Wells
Fargo/Acordia shall be referred to collectively as “Wells Fargo.”
36. Defendant HRH (sometimes referred to herein as “Hilb”) is a corporation
incorporated under the laws of Virginia with its corporate headquarters in Glen Allen, Virginia.
HRH provides customers with risk management and insurance brokerage services.
2 Insurer Defendants
37. Defendant AIG is a corporation incorporated under the laws of Delaware with its
corporate headquarters in New York, New York. AIG and its related companies are the largest
underwriters of commercial and industrial insurance in the United States.
38. AIG subsidiaries and related companies that are defendants herein are Lexington,
American Specialty, Birmingham Fire , American Home , National Union Pittsburgh, National
Union Louisiana, American International, Insurance of Pennsylvania, AIU, Commerce
Insurance, NH Insurance, Hartford Steam, Illinois National, and American General Corporation
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(“American General”). A description of each of these entities is set forth in Exhibit A. Unless
otherwise stated, defendants AIG, Lexington, Birmingham Fire, American Home, National
Union Pittsburgh, National Union Louisiana, American International, AIU, Commerce
Insurance, NH Insurance, Hartford Steam, Illinois National and American General shall be
referred to collectively as “AIG.”
39. Defendant ACE is a corporation incorporated under the laws of the Cayman Islands
with its corporate headquarters in Hamilton, Bermuda. ACE owns ACE INA Holdings, Inc.
(“ACE INA Holdings”) and Ace Group Holdings, Inc. (“ACE Group Holdings”). As described
by ACE itself, the “ACE Group of Companies is one of the world’s largest providers of
insurance and reinsurance.”
40. ACE’s subsidiaries and related companies that are defendants herein are ACE INA
Holdings, ACE USA, ACE American Insurance Company (“ACE American”), Westchester
Surplus, Illinois Union, Indemnity Insurance Company of North America (“Indemnity Ins.”),
ACE Group Holdings, Inc. (“ACE Group Holdings”), ACE US Holdings, Inc. (“ACE US
Holdings”), Westchester Fire, INA Corporation (“INA Corp.”), INA Financial Corporation
(“INA Financial”), INA Holdings Corporation (“INA Holdings”), ACE Property and Casualty
Insurance Company (“ACE Property and Casualty”) and Pacific Employers Insurance Company
(“Pacific Employers”). A description of each of these entities is set forth in Exhibit A. Unless
otherwise stated, defendants ACE, ACE INA Holdings, ACE USA, ACE American, Westchester
Surplus, Illinois Union Indemnity Ins., ACE Group Holdings, ACE US Holdings, Westchester
Fire, INA Corp., INA Financial, INA Holdings, ACE Property and Casualty and Pacific
Employers shall be referred to collectively herein as “ACE.”
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41. Defendant Hartford is one of the largest investment and insurance companies in the
United States. Hartford is a corporation incorporated under the laws of Delaware with its
corporate headquarters in Hartford, Connecticut. Hartford represents that it “is a leading
provider of investment products, life insurance and group and employee benefits; automobile and
homeowners’ products; and business insurance.”
42. Hartford’s subsidiaries and related companies that are defendants herein are
Hartford Fire, Twin City, Pacific, Nutmeg Ins. and Hartford Fidelity. A description of each of
these entities is set forth in Exhibit A. Unless otherwise stated, defendants Hartford, Hartford
Fire, Twin City, Pacific Ins., Nutmeg Ins. and Hartford Fidelity shall be referred to collectively
as “Hartford.”
43. Defendant Travelers is a corporation incorporated under the laws of Minnesota with
its corporate headquarters in St. Paul, Minnesota. Travelers was formed from a 2004 merger
between Travelers Property Casualty Corp. (“TPC”) and The St. Paul Companies, Inc. The
merger created the second largest commercial insurance company in the United Sates offering a
variety of property and casualty insurance products through its various subsidiaries. Travelers
describes itself as “a leading provider of property casualty insurance and surety products and of
risk management services to a wide variety of business and organizations and to individuals”
whose products are distributed through “independent insurance agents and brokers.”
44. Travelers’ subsidiaries and related companies that are defendants herein are St. Paul
Fire Gulf, St. Paul Mercury, Travelers Casualty, Travelers Indemnity, Athena Assurance, and
TPC. A description of each of these entities is set forth in Exhibit A. Unless otherwise stated,
defendants Travelers, St. Paul Fire, Gulf., St. Paul Mercury, Travelers Casualty, Travelers
Indemnity, Athena Assurance and TPC shall be referred to collectively herein as “Travelers.”
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45. Defendant Zurich Financial Services Group (“Zurich Financial”) is a corporation
incorporated under the laws of Switzerland with its corporate headquarters in Zurich,
Switzerland.
46. Zurich Financial’s subsidiaries and related companies that are defendants herein are
Zurich, Steadfast, Fidelity & Deposit, Empire Fire, American Guarantee, Empire Indemnity and
Assurance Company of America (“Assurance Co.”). A description of each of these entities is set
forth in Exhibit A. Unless otherwise stated, defendants Zurich Financial, Zurich , Steadfast,
Fidelity & Deposit, Empire Fire, American Guarantee, Empire Indemnity and Assurance Co.
shall be referred to collectively herein as “Zurich.”
47. Zurich and certain of the plaintiffs entered into a Stipulation of Settlement, dated
July 29, 2006 (the “Zurich Settlement Agreement”). The Zurich Settlement Agreement, as
amended, received preliminary approval from the Court on November 8, 2006 and final approval
from the Court February 16, 2007. If the Zurich Settlement Agreement becomes final, Zurich
will be dismissed as defendants from this Complaint.
48. Defendant Chubb is a corporation incorporated under the laws of New Jersey with
its headquarters in Warren, New Jersey. Chubb is one of the ten largest property and casualty
insurance providers in the United States. Chubb provides its insurances lines through a family of
insurance subsidiaries known informally as the “Chubb Group of Insurance Companies.”
49. Chubb’s subsidiaries and related companies that are defendants herein are Federal
Insurance, Executive Risk, Vigilant Insurance, and Chubb and Son. A description of each of
these entities is set forth in Exhibit A. Unless otherwise stated, defendants Chubb, Federal
Insurance, Executive Risk and Vigilant Ins. shall be referred to collectively herein as “Chubb.”
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50. Defendant Crum & Forster Holdings is a corporation incorporated under the laws of
Delaware with its corporate headquarters in Morristown, New Jersey. Crum & Forster Holdings
represents that it is “a national property and casualty insurance group providing a broad range of
standard and specialty insurance products.”
51. Crum & Forster Holdings and its subsidiary and related company, United States
Fire Insurance Company (“US Fire”), are defendants herein. A description of each of these
entities is set forth in Exhibit A. Defendants Crum & Forster Holdings and US Fire shall be
referred to collectively herein as “Crum & Forster.”
52. Defendant Fireman’s Fund is incorporated under the laws of California, with
headquarters in Novato, California. Fireman’s Fund operates as an underwriter of property and
casualty insurance.
53. Fireman’s Fund’s subsidiaries and related companies that are Defendants herein are
Chicago Insurance Co. and National Surety Corp. Unless otherwise stated, defendants Fireman’s
Fund, Chicago Ins. and National Surety shall be referred collectively herein as “Fireman’s
Fund.”
54. Defendant XL is a corporation incorporated under the laws of the Cayman Islands
with its corporate headquarters in Hamilton, Bermuda. XL is a provider of insurance and
reinsurance services.
55. XL’s subsidiaries and related companies that are defendants herein are Greenwich
Ins., Indian Harbor, XL America and XL Insurance America. A description of each of these
entities is set forth in Exhibit A. Unless otherwise stated herein, Defendants XL, Greenwich Ins.,
Indian Harbor, XL America and XL Insurance America shall be referred to collectively herein as
“XL Capital” or “XL.”
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56. Defendant CNA is a corporation incorporated under the laws of Delaware with its
headquarters in Chicago, Illinois. CNA is an insurance holding company whose primary
subsidiaries consist of property and casualty insurance companies.
57. CNA’s subsidiaries and related companies that are Defendants herein are
Continental Insurance, American Casualty Co. of Reading, PA (“American Casualty”) and
Continental Casualty. A description of each of these entities is set forth in Exhibit A. Unless
otherwise stated, defendants CNA, Continental Insurance, American Casualty and Continental
Casualty shall be referred to collectively herein as “CNA.”
58. Defendant Munich Reinsurance Co. (“Munich Re”) is a provider of reinsurance,
primary insurance and asset management services. Munich Re is a German corporation with
headquarters in Munich, Germany. Munich Re’s shares are traded on several German stock
exchanges.
59. Munich Re’s subsidiaries and related companies that are defendants herein are
American Re Corporation, now known as Munich Re America Corporation, (“American Re”),
Munich-American Risk Partners, Inc. (“Munich-American”), American Re-Insurance Co., now
known as Munich Reinsurance America, Inc., (“American Re-Insurance”) and American
Alternative. A description of each of these entities is set forth in Exhibit A. Defendants Munich
Re, American Re, American Re-Insurance, American Alternative and Munich-American, shall
be referred to collectively herein as “Munich.”
60. Defendant Liberty Mutual Holding is a corporation incorporated under the laws of
Massachusetts, with headquarters in Boston, Massachusetts. Liberty Mutual Holding operates as
a mutual holding company structure, owned by its policyholders, and includes three principal
insurance companies in the group – Liberty Mutual Insurance Company (“Liberty Mutual Ins.”),
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Liberty Mutual Fire Insurance Company (“Liberty Mutual Fire”), and Employers Insurance
Company of Wausau – each of which are stock insurance companies under the ownership of
Liberty Mutual Holding.
61. Liberty Mutual Holding’s subsidiaries and related companies that are defendants
herein are Liberty Mutual Ins., Liberty Mutual Fire, Wausau Insurance Companies, Wausau
Underwriters Insurance Company, Employers Insurance of Wausau, Employers Insurance
Company of Wausau, Wausau Business Insurance Company and Wausau General Insurance
Company. A description of each of these entities is set forth in Exhibit A. Unless otherwise
stated, these defendants shall be referred to collectively herein as “Liberty Mutual.”
62. Defendant AXIS Capital Holdings Limited (“AXIS Capital”) is a corporation
incorporated under the laws of Bermuda. It provides specialty insurance and treaty reinsurance
on a global basis through operating subsidiaries and branch networks. It is the indirect parent of
AXIS U.S. Subsidiaries and is subject to the insurance holding company laws of Connecticut,
New York and Illinois.
63. AXIS Capital’s subsidiaries and related companies that are defendants herein are
AXIS Specialty Insurance Company (“AXIS Specialty”) and AXIS Surplus Insurance Company
(“AXIS Surplus”). A description of each of these entities is set forth in Exhibit A. AXIS
Capital, AXIS Specialty and AXIS Surplus are referred to herein as “AXIS.”
A. STATEMENT OF FACTS
1) The Antitrust Claims
a) Overview of the Antitrust Claims
64. The defendants named above (the “Defendants”) engaged in a series of unlawful
horizontal conspiracies, the purpose and effect of which were to reduce or eliminate competition
among members of the various conspiracies described herein, by among other things, allocating
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customers to and among members of the conspiracies and protecting those conspirators from
competition for those customers’ business. Defendants’ customer allocation agreements and
other schemes were naked restraints of trade in violation of section 1 of the Sherman Act.
65. Defendants organized and operated their unlawful horizontal schemes through six
“Broker-Centered” conspiracies, in each of which a Broker Defendant coordinated a horizontal
agreement among rival Insurer Defendants. The Defendants also organized and operated a
“Global” conspiracy in which the Broker Defendants agreed horizontally not to compete for each
others’ customers by disclosing the existence and adverse premium price impact of their rivals’
Broker-Centered schemes.
66. The purpose and effect of each unlawful Broker-Centered scheme was to illegally
reduce or even eliminate competition for Plaintiffs’ business that would otherwise have existed
among the conspiring insurers in a way that enabled the conspiring Brokers and Insurers to
secure and then share in resulting supra-competitive profits. The method by which the horizontal
conspirators minimized competition for customers and created and shared resulting supra-
competitive profits was twofold. First, in exchange for the payment by the insurer co-
conspirators of special commissions (known as contingent commissions), the participants in each
Broker-Centered Conspiracy agreed with each other that the Broker would allocate the bulk of its
customers’ business to the conspiring insurers. By this process – called “carrier consolidation” --
the Brokers thus protected the conspiring Insurers from having to compete with hundreds of
other non-conspiring insurers, which were deprived access to most of the Broker’s customers.
67. As a second step in Defendants’ unlawful scheme, the participants in each Broker-
Centered Conspiracy agreed to reduce or eliminate competition among the conspiring insurers
themselves as to that secured book of business. Specifically, the Insurer Defendants agreed
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horizontally with each other not to compete for each other’s existing customers and the Broker
Defendants facilitated that agreement through methods such as bid-rigging, “last looks” and
other incumbent protection devices. Moreover, the illegal customer allocation schemes also
included horizontal agreements among the conspiring Insurers that the Insurers would be
guaranteed access to minimum amounts of the Broker Defendants’ book of business, and that the
Broker Defendants would protect the conspiring insurers from competition for that business.
68. These horizontal agreements reduced or eliminated competition among the
conspiring insurers for both new and renewal business controlled by the conspiring brokers.
Freed from the costs and constraints of ordinary competition, the insurers were able to charge
higher premiums and achieve supra-competitive profits. For their roles in orchestrating the
scheme, and in delivering “competition-free” business to their respective insurer co-conspirators,
brokers were kicked-back a portion of the insurers’ supra-competitive profits in the form of
contingent commissions.
69. The Broker-Centered and Global agreements described herein are naked restraints
among horizontal competitors with the purpose and effect of raising prices and/or reducing
output in order to increase profits. The agreements among the Broker and Insurer Defendants to
allocate business to the conspiring insurers, and the Broker Defendants’ conduct to protect its co-
conspirators from competition for that business, deprived insurance customers – the Plaintiff
classes herein – from the prices they would have been able to obtain in a truly competitive
marketplace.
b) The Commercial Brokerage and Insurance Markets in the United States
70. “Commercial” insurance consists of roughly two dozen lines of insurance policies
that cover a variety of commercial property and casualty risks. Commercial insurance includes
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general property and casualty, workers compensation, products liability, surety, boiler and
machinery, directors and officers’ liability, professional malpractice, and commercial auto, fire,
and marine policies, among others. The top ten lines account for approximately 85% of the
commercial premium written in the United States.
71. Although the precise policy terms will vary depending on the type of covered event,
the fundamental nature of the contract between the insured and insurer is the same: the insured
pays a premium to transfer the risk defined in the policy to the insurer in the expectation that the
insurer will make payment if the covered loss occurs. Due in part to the fungibility of risk, the
pricing of different types of commercial insurance is closely aligned, such that a catastrophic
event like a flood will typically raise premiums not just for the directly affected lines of coverage
but for other product lines as well.
72. While insurance contracts are executed between the insured and the insurer,
insurance brokers serve a critical intermediary function in the commercial insurance
marketplace, matching their clients – insurance purchasers – with sellers, the insurers. The
Broker Defendants were retained by members of the class to act as expert advisors in the
procurement of insurance for their clients, and they were duty bound to obtain the best coverage
at the lowest price. Standard brokerage contracts and other communications sent by the Broker
Defendants to their clients provide that the broker will solely represent the client’s interest in
selecting and negotiating the terms of insurance polices. The services brokers provide include
analyzing the client’s risk, assessing the type of insurance needed, comparing and interpreting
policies and, importantly, providing unbiased, sound and accurate advice regarding the insurance
marketplace and the insurers they recommend.
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73. The extreme reliance commercial insureds place on their brokers has resulted in an
extraordinary level of longevity in broker/client relationships, with the same broker placing
business for the same clients year after year. This quality of “stickiness” is natural to the
broker’s consultative role and stems in part from the fact that it costs clients money to change
brokers. The close bond between broker and client gives brokers tremendous influence, and
often decisive control, over the placement of their clients’ insurance business. Given the high
degree of financial investment and trust placed in their broker, clients will rarely if ever seek
quotes from insurers other than those recommended by the broker.
74. The Broker Defendants dominate the commercial insurance brokerage sector in the
United States. The top four firms (Defendants Marsh, Aon, Willis and Gallagher) alone account
for 55% of commercial brokerage revenue nationwide. Those Defendants, together with Broker
Defendants Wells Fargo/Acordia and HRH, account for 60.3% of commercial brokerage revenue
nationwide.
75. Concentration of the brokerage business arose in part from a long series of
acquisitions by which the largest firms bought up their competitors. Of the top twenty U.S.
commercial brokers in 1989, fourteen were acquired by either Marsh or Aon. Between 1997 and
2003, Gallagher and HRH consumed 59 and 28 North American competitors, respectively.
These consolidations have resulted in a small, highly concentrated group of powerful brokerage
firms, each representing thousands of dedicated clients. In part because of their size, each of
these brokers is able to place virtually any line of commercial coverage.
76. The segment of commercial insurers is considerably less concentrated than
commercial brokers. The insurers are therefore largely dependent on the largest brokers to
assure access to business. Despite the somewhat fragmented nature of the insurance
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underwriting industry, the Insurer Defendants’ market shares have remained remarkably stable.
The eight largest Insurer Defendant Groups1 wrote between 38.4% and 40.4% of the total
commercial written premium every year from 1999 through 2003. The Insurer Defendants in
this case wrote over $65 billion in collective net premium in 2003.
c) The Rise of Contingent Commissions and Their Role in the Customer Allocation Schemes Alleged Herein
77. Historically brokers were paid in the form of “standard commissions,” which were
usually a fixed 3% to 20% of the written premium, depending on the product line, and averaged
about 10% across all commercial product lines. Over time, “contingent commission”
arrangements were implemented whereby brokers often gave up some percentage of their
standard commission in exchange for bonuses the insurers paid largely based on the profitability
of the business the broker placed. Typically, these profit-driven contingent commission
agreements set target “loss ratio” thresholds that were a function of the dollars of claims paid by
the insurer compared to the premium dollars received. If the insurer achieved, for example, a
loss ratio of less than 65% in a given year on its policies with insureds that were placed by the
broker, the insurer would pay the broker a contingent commission at year end of an additional
1% to 2% above the broker’s fixed standard commission. If the target loss ratio was not
achieved for the policy year, the broker would receive only its standard commissions.
78. Eventually, by the late 1990s these profit-driven contingent commission agreements
were supplemented or replaced by contingent commission arrangements that were based in large
measure on the sheer volume of premiums placed or renewed with the insurers rather than solely
1 Commercial insurance lines are written by “Property & Casualty” companies, which are frequently organized as affiliated entities in separate states or offering different lines of insurance but controlled by a single parent company. Affiliated insurers are recognized in the industry as a single “Group” and are tracked collectively by their Group identification numbers
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on profitability. Under these agreements, insurers paid extraordinarily lucrative contingent
commissions – as high as 8% or more above the brokers’ standard commissions – in exchange
for the brokers’ deliverance of specified volumes of their clients’ business. For example, if the
contingent commission agreement provided for a broker to meet a $10,000,000 threshold in
premium volume (meaning the broker would have to deliver customers to the insured who
collectively purchased policies costing that amount), a broker that would earn only a 10%
standard commission by delivering $9,000,000 in business could instead earn 18% in total
commissions if it delivered $10,000,000. Thus, a broker that would earn $900,000 on a
$9,000,000 book of business (plus perhaps another point or two if the book was profitable) could
now earn double that amount − $1,800,000 − in commissions for delivering a $10,000,000 book,
regardless of profitability.
79. The volume-driven contingent commission agreements that arose in the mid-1990s
also sometimes contained what were known as “retention” or “persistency” thresholds for
renewal business. These components of commission agreements established dollar volume
thresholds consisting of the percentage of premium that the insurer’s existing customers renewed
from the prior year. In most cases, however, to qualify for the renewal volume contingent
commissions the brokers also had to meet “rate change” thresholds, which meant the brokers
were required to deliver the policy renewals at premium rates that were favorable to the prior
year’s (i.e., without significant discounting). The higher the renewal year premium compared to
the prior year, the larger the contingent commission to which the broker became entitled. Thus,
if a broker had clients coming up for renewal with $10,000,000 in business and the insurer could
redeliver those clients at a $10,000,000 or $11,000,000 premium level the broker would be paid
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a persistency contingent commission, but if the broker only delivered $9,000,000 of the eligible
renewal business it would receive no payment beyond its standard commission.
80. The rise of these primarily volume-driven contingent commission agreements
coincided with the advent of the customer allocation schemes and other restraints of trade
described herein and served as a facilitating mechanism for the schemes. The extraordinarily
lucrative volume-based contingent agreements provided the motive – greed – that incentivized
the Brokers to ignore their duty to find for their clients the best policies at the best price and,
instead, to allocate large volumes of their customers’ premium dollars to the few Insurers who
agreed to pay the largest contingent commissions. The lure of additional profit that these
contingent commission agreements promised also incentivised the Brokers to take steps to
minimize or eliminate competition for the business slotted for a particular Insurer, thus ensuring
that the premium-delivery thresholds required to trigger the contingent payments were met. The
Insurers, on their part, accepted the arrangement as it freed them from the normal rigors of
competition and allowed them to charge supra-competitive prices.
81. Between 1998 and 2004 – when the market allocation schemes were abruptly halted
by the investigations of New York Attorney General Eliot Spitzer and various other state
attorneys general – the Insurer Defendants paid, and the Broker Defendants received ever
increasing amounts of contingent commissions. From 1998 to 2004, the Broker Defendants in
this case (excluding Defendant Gallagher) received nearly 1.9 billion dollars in contingent
commissions from insurers, nearly 70% of which were paid by the Insurer Defendants herein. In
2003 alone, the last full year where contingent commissions were collected, the Broker
Defendants in this case collected more than half a billion dollars in contingent commission
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payments from insurers, more than 70% of which were paid by the Insurer Defendants in this
case.
82. In sum, the broker consolidations of the 1980s and 1990s combined with the advent
of volume-driven contingent commission agreements gave rise to a market structure conducive
to the operation of the Broker-Centered Conspiracies alleged herein. Brokerage is an essential
mechanism for the Insurer Defendants to access commercial customers and premiums, and the
Broker Defendants controlled sufficient premium volume to effectively coordinate a market
allocation scheme. Conversely, the fragmented nature of the insurance underwriting industry
made the insurers dependant upon the major brokers for a flow of premium volume. Thus,
industry conditions and circumstances were ripe for both the Broker and Insurer Defendants to
conspire to divvy up the Brokers’ customers and premiums in a manner that maximized the
conspirators’ profits at the expense of their customers, the Classes herein.
d) Overview of the Conspiracies
83. Beginning in the mid-to late 1990s, each of the Broker Defendants undertook a
dramatic change in their method of doing business. Instead of shopping their clients’ business to
30 or 40 different insurance companies or more, each began to form so-called “strategic
partnerships” with certain insurance companies, to which it would then allocate the bulk of its
business.
84. By this process, known as “market consolidation”2 or “carrier consolidation,” the
Broker Defendants determined that by delivering their business to a relatively small number of
“strategic partners” they could extract increased payments from those insurers in exchange for
the resulting stabilization of market share and reduced pressure on the Insurers to compete based
2 The word “market” is commonly used by industry participants as a synonym for “insurer.”
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upon price. They also determined that the historical practice of paying contingent commissions
would provide a convenient vehicle to extract this added compensation from insurers.
85. The strategic partnerships thus formed by the Broker Defendants grew into classic
“hub and spoke” conspiracies, with the Broker Defendants, acting as the “hub,” coordinating an
illegal horizontal agreement among its Insurer Defendant “spokes.” In each of these Broker-
Centered “hub and spoke” conspiracies, the Broker and Insurer Defendants all agreed with one
another (a) that those insurers outside of the Broker-Centered Conspiracy would be excluded
from accessing the bulk of the Broker’s customers, and (b) that competition among the Insurers
within each Broker-Centered Conspiracy would be minimized or eliminated. As detailed below,
the Defendants in this case formed six Broker-Centered Conspiracies lead by the following
brokers: Marsh, Aon, HRH, Willis, Gallagher and Wells Fargo/Acordia.
86. Insurers were invited to be among a Broker Defendant’s strategic partners, and
therefore a member of a Broker-Centered Conspiracy, when they entered into lucrative
contingent commission arrangements with the brokers and agreed to make contingent
commission payments in return for access to the broker’s book of business. In return for the
payment of these contingent commissions and their elevation to “preferred status,” the Insurer
Defendants agreed with the Broker Defendants and with each other insurer in the conspiracy that
they would receive access to a guaranteed flow of premium volume, as well as protection of their
own business from competition from other insurers both within and outside of the preferred
group.
87. Within each Broker-Centered Conspiracy, the participants agreed that the bulk of
the business controlled by the broker, as much as 70-85%, would be divided among the
“strategic partner” insurers in the conspiracy. The method by which premium volume was
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allocated among the participants in each Broker-Centered Conspiracy was loosely determined by
the structure and content of the contingent commission agreements executed by the parties.
These agreements required the payment of additional contingent commissions to the broker,
based on the achievement of business thresholds measured by premium volume. Many
contingent commission agreements also rewarded Brokers for “persistency” i.e., retention of
renewal business by an insurer. Because of the importance of renewal business (which was, on
average, more than 70% of each Broker Defendants’ book of business), the insurers in each
Broker-Centered Conspiracy agreed with each other that each of them would be allowed to retain
those customers whose policies they wished to renew, and each expected and received from the
Brokers protection from competition from other Insurers for that business.
88. The participants in each Broker-Centered Conspiracy engaged in a variety of
anticompetitive and exclusionary practices designed to carry out the aims of the conspiracy. For
instance, as detailed below, in order to maximize their receipt of contingent commissions and
deliver the premium volume expected by their “partners,” the Broker Defendants agreed with
their insurer conspirators to “shift” or “roll” entire blocks of business to preferred insurers
without the benefit of any competitive bidding. In addition, Broker Defendants shielded their
insurer partners from normal competition by agreeing not to bid renewals competitively, or by
limiting the circumstances under which renewals could be marketed. Broker Defendants also
routinely promised to provide competitive advantages to Insurer partners, by disclosing other
carriers’ bids, providing first or last looks, and other methods.
89. Insurer Defendants, on their part expected an unfair competitive advantage and
protection from competition as a result of their arrangements with their Broker partners.
Moreover, each insurer in each Broker-Centered Conspiracy was aware that each of the other
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insurer members of the conspiracy was also receiving access to a guaranteed flow of premium
volume and protection from competition in return for its contingent payments. Each insurer
conspirator, moreover, accepted and agreed to engage in the Broker-Centered business allocation
scheme based on, and because, each of the other Insurer Defendants had also agreed to
participate in the scheme. In this way, the Broker Defendants orchestrated a horizontal
agreement among rival Insurers not to compete for each others’ customers.
90. Defendants’ horizontal agreements to allocate premium volume among the insurer
co-conspirators and not to compete for each other’s renewal business, was successful. Over
time, an increasing percentage of each Broker Defendants’ business was concentrated in the
hands of the Insurer Defendants. Moreover, the Broker Defendants’ renewal rates with
Defendant Insurers were consistently higher than their renewal rates with non-Defendant
insurers.
91. The facts alleged below illustrate how a conspiracy among all of the participants in
each Broker-Centered Conspiracy was plausible. In each Broker-Centered Conspiracy, the
brokers facilitated an exchange of information among the participants in the conspiracy so that
each conspiracy could operate. Each of the Broker Defendants coordinated the dissemination of
information to and among the insurer conspirators about, among other things: who the other
strategic partner insurers were; details of the contingent commission arrangements that other
insurer partners had with the Broker Defendants; the amount of contingent commissions paid by
other insurer partners; and the amount of premium volume delivered or expected to be delivered
to other insurer partners.
92. In addition to the “hub and spoke” Broker-Centered Conspiracies described herein,
each of the Broker Defendant “hubs” participated (with the complicity of the Insurer Defendants)
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in a broader, common horizontal anticompetitive agreement. Specifically, in this Global
Conspiracy, each Broker Defendant agreed not to compete with the other Broker Defendants by
disclosing any competing broker's contingent commission arrangements, or the consequent
premium price impact of those arrangements, in an effort to win those other brokers’ customers'
business. That is, the Broker Defendants expressly or tacitly agreed horizontally among
themselves not to disclose their contingent commission agreements and resulting supra-
competitive premiums to rival brokers' customers. The Broker Defendants made this unlawful
horizontal agreement to further a common, mutual goal of maintaining their independent
anticompetitive schemes and not having their supra-competitive profits undermined by a
competing broker’s truthful price disclosures or advertising.
93. The Broker Defendants’ agreement not to disclose their excessive contingent
commission agreements and resulting profits was a naked horizontal restraint of informational
output that directly affected the price of insurance, and therefore violated the antitrust laws.
94. The Defendants’ customers, the Classes herein, were damaged in their business or
property by Defendants’ anticompetitive horizontal agreement.
e) Operation of the Broker-Centered Conspiracies
(1) The Marsh Broker-Centered Conspiracy
(a) Participants in the Conspiracy
95. During the Class Period, from January 1, 1998 through December 31, 2004,
participants in the Marsh Broker-Centered Conspiracy have included Marsh and Insurer
Defendants AIG, ACE, CNA, Chubb, Crum & Forster, Hartford, Liberty Mutual, Travelers,
Zurich, Fireman’s Fund, Munich, XL and Axis. (“the Marsh Broker-Centered Defendants”).
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(b) Operation of the Conspiracy
96. Marsh allocated its customer base to and among its conspiring insurers in two steps.
First, Marsh and each of its co-conspirators agreed, and Marsh’s conspiring insurers horizontally
agreed among themselves, that Marsh would “consolidate” its business by directing as much as
80-95% of its commercial business to its “preferred carriers,” co-conspirators AIG, ACE, CNA,
Chubb, Crum & Forster, Hartford, Liberty Mutual, Travelers, Zurich, Fireman’s Fund, Munich,
XL and Axis, thereby eliminating hundreds of other insurers from competing equally with the
conspiring Insurers for a substantial portion of Marsh’s business. As a second step in
Defendants’ unlawful scheme, Marsh and each of its conspirators agreed, and Marsh’s co-
conspiring insurers horizontally agreed, to reduce or eliminate competition among the conspiring
insurers themselves as to that secured book of business. The key aspect of these defendants’
agreement in this regard was that each conspiring insurer would be permitted to keep its own
incumbent business, and that Marsh would protect that business from competition, using a
variety of incumbent protection devices, including the solicitation of false bids. As described
below, Marsh and its insurer co-conspirators each understood and agreed that incumbent
protection was a necessary element in its scheme to allocate Marsh’s premium volume in the
manner calculated to achieve the highest profits, both for Marsh and its co-conspirator insurers.
Because, on average, more than ___ of Marsh’s premium volume was renewal business, the co-
conspirators “incumbent protection racket” effectively reduced or eliminated competition for the
bulk of Marsh’s business.
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(i) The Participants in the Marsh Broker-Centered Conspiracy Agreed that the Bulk of Marsh’s Customers would be Allocated to the Conspiring Insurers
97. In the early to mid 1990s, in an effort to maximize its contingent commission
revenue and increase its profits, Marsh agreed with certain carriers that it was going to place the
bulk of its business with a limited number of “preferred” or “partner” insurers. Carriers were
selected to be a “preferred market” or a “market partner” as it was sometimes called, when they
agreed to pay Marsh contingent commissions based primarily on the volume of the business
steered to the carriers. Marsh referred to the contingent commission agreements as placement
service agreements or “PSA’s.”
98. As part of this consolidation effort, in the early to mid 1990’s, Marsh created and
developed a special division designed to bring the marketing of its insurance brokerage services
under one centralized department -- the Global Broking Division (“Global Broking”). Global
Broking concentrated the marketing and negotiating power of all Marsh regional and local
brokers into a single set of offices headquartered in New York City. ______
______
______With the establishment of
Global Broking, the responsibility for negotiating PSA’s was put into the hands of a small group
of people who were then in the position to control insurance placement so as to maximize
Marsh’s contingent revenue. As Bill Gilman, Executive Marketing Director at Global Broking
Excess Casualty, explained:
If we had control over the business then we could make the insurance companies give us lucrative placement service agreements we would have the ability to reward them or take the business way. We had control over whether or not they got the business.
99. Global Broking handled more than half of the insurance placements for Marsh,
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including excess casualty, healthcare, FINPRO, environmental, property and middle market.
Each of these lines of business was headed by a managing director. Global Broking Excess
Casualty, for example, was run by a Global Excess Casualty Placement Leader and was
organized by Global Broking Coordinators (“GBC’s”) and by placement teams (also referred to
as Local Broking Coordinators) (“LBC’s”). The GBC’s held senior level, leadership roles within
Global Broking and were responsible for groups of regional offices. The GBC’s coordinated the
insurance program for the client including the development of the “broking plan” which set forth
the name of the incumbent carrier as well as the insurance companies to approach for protective
quotes.
100. LBC’s were dedicated to Marsh’s “preferred markets,” that is, those carriers with
which Marsh had its most lucrative contingent commission agreements. LBC’s dealt directly
with the underwriters of the preferred markets and would not allow Marsh’s Client Advisors
(CA’s) to communicate directly with the carrier. In fact, an underwriter quoting “directly” to a
Marsh client advisor interfered with the operation of the conspiracy because it prevented Global
Broking from ensuring “that the incumbent who hits a target and provides the coverages
requested is protected.”
101. Marsh Global Broking closely monitored and controlled the placement of premium
with its preferred carriers. Its Middle Market division, for example, grouped its preferred
insurers into three tiers, classified as A, B and C tiers, based on how much they were paying in
contingent commissions. Tiers A and B were the more preferred markets to which the bulk of
premium was allocated. In fact, a Marsh internal document entitled “Rules of Engagement”
states: ______
______
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______
102. To further its effort to allocate premium to its Tier A and B insurers, Marsh Global
Broking Middle Market created “Tiering Reports” as a tool to monitor premium placements with
its preferred carriers. According to a 2003 Marsh Tiering Report “the purpose of this exercise
was two fold: ______
______All of
the participants in the Marsh Broker-Centered Conspiracy enjoyed either Tier A or Tier B status
at various times during the class period.
103. Success at Marsh Global Broking was defined as placing as much premium as
possible with partner markets. Global Broking employees were required to evaluate themselves
in documents entitled “Balanced Scorecard.” Many of these self-evaluations included the
employees’ success in moving business to Marsh’s partner markets. For example, the self
evaluation for ______(former GBC in Global Broking Excess Casualty) described
that he “direct[ed] business to partner markets that respond to our marketing philosophy.”
Similarly, the self evaluation for ______(former LBC in Global Broking Excess
Casualty) described how she “[s]upported key partner markets AIG & Zurich, [and] actively
directed business to ‘new’ partner markets, e.g., ACE (Holman), St. Paul (Turner & Lend
Lease).”
104. Because of these efforts, Marsh was successful in allocating the bulk of its premium
volume to its preferred carriers. By 1999, Marsh had consolidated 80%-85% of the premium
paid within its top 12 markets. The concentration of premium volume in its preferred markets
continued throughout the Class Period (as defined below), as insurers paid higher and higher
contingent commissions for a guaranteed flow of premium. Furthermore, Marsh’s reports on its
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annual contingent commissions from 1999 to 2003 show that its contingent commission income
from national commercial PSA’s grew from ______in 1996 to ______in 1999 to
______in 2003.
(ii) The Participants in the Marsh Broker-Centered Conspiracy Agreed not to Compete for each Other’s Customers
105. A central element of the agreement among the participants in the Marsh Broker-
Centered Conspiracy was that each insurer would be permitted to keep its incumbent business,
and that Marsh would protect that business from competition, both from insurers inside and
outside of the arrangement. Marsh facilitated this horizontal agreement among its insurer co-
conspirators with a variety of devices designed to protect its co-conspirators’ incumbent status,
including the solicitation of collusive, protective quotes. As described below, Marsh and its co-
conspirators understood and agreed that incumbent protection was a necessary element in its
scheme to allocate its premium volume in the manner calculated to achieve the highest profits,
both for itself and its co-conspirators. As an employee of Munich ruefully observed "the
incumbent protection racket works great when you're the one being protected. Conversely, when
you're on the outside looking in, it creates a barrier to entry on new accounts."
106. Numerous employees of Marsh acknowledged Marsh’s objective to protect its co-
conspirators incumbent business. For example, Kathryn Winter acknowledged that Marsh
protected the incumbent insurers’ renewal business if they hit a target price set by Marsh. As
Ms. Winter stated: “if the incumbent markets meet their target price and does [sic] the coverage
we want, [Marsh Global Broking] will protect them and make sure they get the business.”
107. The insurer partners were aware of and agreed horizontally to participate in the
incumbent protection scheme. An email between employees at Zurich, bearing the subject
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“Protection,” demonstrates this complicity: “We need and expect to be protected on our
renewals just like AIG is protected on theirs.” The email further states:
The only solution I see if we can not get protection against the AWAC’s and ACE’s of the world who have not been there for MMGB in the past when needed favors, is to go after AIG leads which we are very prepared to do. If we can not get proper protection, we will go hard after AIG leads that we feel you are protecting. We will no longer provide you with protective quotes for AIG but will put out quotes that you will be forced to release, just like you tell me you are forced to release AWAC and ACE quotes.
I do not think we are asking for the moon. We just want the same protection given to AIG and MMGB is definitely not doing that for Zurich now.
108. A former ACE employee also acknowledged that Marsh’s system of protecting the
incumbent allowed insurer carriers, like ACE, to obtain last looks on placements and avoid real
competition. According to this former ACE employee, “Marsh [Global Broking] preferred
incumbents to remain on placements, so . . . if you were the incumbent on the game plan, you
would get last shot,” meaning that the incumbent would be “protect[ed] from competition.”
109. According to this former employee, ACE understood that Marsh would protect the
incumbent of an excess casualty risk by not sending submissions on that risk “out to
competition,” or by getting “quotes from other carriers that would support the incumbent as
being the best price.” ACE indicated its willingness to accept these terms from Marsh and
provided losing quotes, so long as “the Ace renewals with Marsh will equally be ‘protected.’”
110. CNA acknowledged the benefits of incumbent protection, including the receipt of
“last looks.” In describing CNA’s relationship with Marsh, a CNA employee stated “we have a
preferred relationship with Marsh. Our results with a $90 million GWP increase attest to this.
This frequently results in ‘last look’ pre-notification of terms and conditions and selected new
business submissions.”
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111. Axis was well aware of how Marsh’s incumbent protection system worked after
being informed by Bill Gilman that “he [Gilman] could keep business with incumbents by
allocating the business among underwriters if he could get renewals without an outside
competitive presence.”
112. A former AIG underwriter, Karen Radke, who pled guilty to a scheme to defraud in
connection with the regulatory action against AIG, stated that Bill Gilman told her about the
“Marsh system” and that it was very important that she “not compete for other business” in order
to retain her business when her accounts were up for renewal.
113. Chubb similarly agreed to eliminate competition by conspiring with Marsh and the
other preferred insurers. In an April 1998 “Joint To Do List” from a meeting between Chubb
and Marsh, Chubb notes that Marsh and Chubb branches “will meet on the top 5-7 renewals for
each branch (beginning with May renewals) to discuss pricing and strategy to retain the accounts
without marketing them.”
(iii) Marsh and Its Preferred Carriers Conspired to Protect Each Other’s Incumbent Business Through Bid-Rigging and Other Overt Acts
114. As detailed in the Revised Particularized Statement, on numerous occasions, insurer
conspirators in the Marsh Broker-Centered Conspiracy provided alternative quotes at Marsh’s
request to protect the incumbent status of a rival insurer or to support the placement of the
business with another conspiring insurer. The conspiring insurers engaged in this conduct in
furtherance of a common scheme to allocate Marsh’s customers to the incumbent Insurer, and
protect those Insurers from having to compete for this business. Because, on average, more than
__ of Marsh’s premium volume was renewal business, the co-conspirators “incumbent protection
racket” effectively reduced or eliminated competition for the bulk of Marsh’s business.
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115. Kathryn Winter admitted that “the primary goal of th[e] scheme was to maximize
Marsh’s profits by controlling the market, and protecting incumbent insurance carriers when
their business was up for renewal.” In fact, Ms. Winter stated that the agreement among Marsh
and its preferred insurers to protect the incumbent required the conspiring Insurers to
“artificially” provide “quotes . . . that were non-competitive.”
116. Marsh’s preferred insurers colluded with Marsh to supply these losing quotes so
that they would be protected from competition when their own business was up for renewal.
These non-competitive fictitious quotes were also known as, “alternative quotes,” ”B Quotes,”
“B’s,” “phony quotes,” “false quotes,” “fake quotes” “protective quotes,” “throwaway quotes,”
“bullshit quotes” and “backup quotes.”
117. These quotes were often part of the “broking plans” that the GBC’s prepared when
an account was up for renewal. The broking plans assigned the business to a specific insurer at a
target price and outlined the coverage. The broking plans also included instructions as to which
preferred Insurers would be asked to provide alternative quotes. If the incumbent Insurer hit the
“target”, it would get the business and then the LBC’s would solicit “alternative”, “B” or non-
competitive quotes from other members of the conspiracy.
118. It was rare for a broking plan to request a competitive quote from a non-incumbent
insurer. Rather, the “alternative” carrier was directed as to what quote to provide, invariably a
non-competitive quote designed to make the incumbent’s quote look attractive. If the non-
incumbent Insurers did not comply with the broking plan and provided a competitive quote,
Marsh harshly retaliated. As Bill Gilman stated:
Important to give alternative market the expiring and target. Thus, if an alternative quotes below then they have made a conscious decision to quote below the market and pull the market down. If that happens, then (according to Bill) we will put this guy in open competition on every acct. and CRUCIFY him.
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Further, we must make sure incumbent keeps this (or another market) and NOT give it to the alternative and reward them.
119. AIG, for example, provided protective quotes when requested, knowing it would be
shielded from normal competition when its business was up for renewal. AIG employee Karen
Radke stated that she provided protective quotes when the broking plan called for it “[t]o show,
to pretend to show competition where there is none.” Radke was told by Bill Gilman that AIG
should provide protective quotes so that AIG would not face competition on its own renewals.
120. In exchange for providing losing quotes, AIG, as promised, was protected on its
own renewals by other members of the conspiracy. For instance, ACE was asked by Marsh to
submit a fictitious quote so that AIG would not lose an account: “We were more competitive
than AIG in price and terms. [Marsh] requested we increase premium to $1.1M to be less
competitive, so AIG does not lose the business.” ACE complied.
121. As detailed in the Revised Particularized Statement, other insurer co-conspirators
submitted “accommodation quotes” in order to protect the business of a rival carrier and receive
similar protection on their own business. For example, on three occasions in late 2001, Munich
provided quotes that were intentionally higher than the quotes submitted by AIG, in order to
protect AIG’s incumbent status on the accounts.
122. Liberty Mutual also provided protective quotes when the broking plan called for it.
According to Kevin M. Bott, an Assistant Vice President Underwriter in the excess casualty
division at Liberty Mutual, Marsh brokers asked Mr. Bott “to submit protective quotes on certain
pieces of business where Marsh had predetermined which insurance carrier would win the bid.”
Mr. Bott “understood that such quotes were intended to allow Marsh to maintain its control of
the market and to protect the incumbent.” Additionally, Mr. Bott “understood that Liberty
benefited from this scheme; when Liberty submitted a ‘B quote’ on the lead layer of insurance,
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Marsh often allowed Liberty either to renew its place on the excess layer or to gain new
business.” In furtherance of the scheme, Liberty Mutual provided losing quotes at Marsh’s
request.
123. Travelers submitted a “B quote” in order to protect the business of XL in the
Schmidt Baking account. Its cooperation paid off when its own renewal was protected despite a
significant rate increase. In order to convince its client that the increase was justified, Marsh
reached out to Zurich and ACE to provide higher non-competitive bids. As a Marsh executive
wrote to Zurich:
I need a protective quote.
Please email me indicating you would need a 2mm per occurrence, and make your premium for [the layer] unattractive, St. Paul is the incumbent and they offered [the layer for] $351,000 . . .
124. XL, on its part, not only received protection of its incumbent status, but provided
such protections as well. The head of XL’s U.S. Excess Casualty Unit, Diane Amodeo,
described her unit’s working relationship with Marsh as follows: “We [XL Excess Casualty] are
generally cooperative in providing ‘backup’ quotes to protect incumbents when required to do
so.” Indeed, XL was repeatedly asked by Marsh to provide “B quotes” to support the proposed
insurer in the broking plan and often did. For example, in connection with the State Farm
account on which the incumbent AIG had hit the target, Marsh requested and received a losing
quote from XL.
125. Chubb also participated in the scheme by providing protective quotes in return for
protection of its own status. When asked for a “bullshit” quote to support the AIG lead, Chubb
complied with an uncompetitive number and the business was retained by AIG. Chubb also
accommodated Marsh and an incumbent rival by declining to bid when asked to do so. Joshua
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Bewlay emailed Kathy Drake, LBC team leader for Chubb on February 27, 2001: “Need Chubb
to say no thank you on a lead basis and excess basis.” Chubb responded just a few hours later
with a declination and the client ended up purchasing its primary layer of insurance with AIG. In
return for its cooperation, Chubb was often protected when its business was up for renewal.
Chubb won the renewal in the Basic American account after Marsh asked Liberty Mutual and
Zurich to provide B quotes. Additionally, Chubb was rewarded with a protective quote from XL,
which supported that Chubb’s “pricing is comparable to the market.”
126. Fireman’s Fund was asked for protective quotes in return for protection of its own
status. When requested to assist in the protection of an incumbent Insurer, Fireman’s Fund
provided a “declination” to the LBC, allowing the incumbent to retain the business. When its
own accounts were up for renewal, Fireman’s Fund was in turn protected with B quotes from
AIG, ACE, Liberty Mutual and Zurich, among others.
127. Axis has admitted that it provided protective quotes to Marsh. In a letter to the
Connecticut Insurance Department dated January 14, 2005, Axis stated that Axis employees
submitted quotes that were “higher than one or more quotes that may have been, or were
anticipated to be submitted on the same account by another insurance company,” and that the
underwriters who submitted the quotes knew they “would not be chose[n] for the primary layer
of coverage on that account.”
128. Marsh also invited other members of the conspiracy to collude. For example, on at
least two occasions, in 2001 and 2002, Marsh requested false quotes from CNA. Specifically
Marsh requested CNA to provide a quote which is “reasonably competitive, but will not be a
winner” and listed the quotes provided by ACE and Zurich.
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(iv) Marsh and Its Preferred Carriers Agreed that In Return for Contingent Commission Payments, The Insurer Participants Would Be Guaranteed Access to a Specific Amount of Premium Volume
129. The customer allocation scheme included agreements among the conspiring insurers
that they would be guaranteed access to a specific amount of Marsh’s business. Indeed, Marsh
made explicit premium commitments to its preferred insurers, promising, for example, to give
ACE $100M in excess casualty business for 2003 and $175M in excess casualty business in
2004.
130. The amount of premium promised to each conspiring insurer was determined by the
premium threshold levels negotiated in the PSA’s between Marsh and its partners. Indeed, more
than 80% of Marsh’s PSA agreements established a volume floor for contingent commission
payments, with the consequence thatt Marsh would receive no payment at all unless it placed a
minimum volume of premium with that particular insurer. These volume threshold
commitments reflected a tacit agreement among the conspiring parties that Marsh was
guaranteeing the delivery of a specified minimum amount of premium volume. For example,
when Marsh and Zurich negotiated its PSA for excess casualty in 2003, Zurich expected to be
delivered premium volume sufficient to meet the negotiated threshold. It also understood that
the premium volume delivered to Marsh’s other preferred insurers for Marsh’s excess casualty
business would be based upon the premium thresholds set forth in those agreements.
131. To meet the premium threshold levels promised in the agreements, Marsh steered
business, with little or no competition, to its insurer co-conspirators. As one Global Broking
Manager said: “Some PSAs are better than others. Shortly we will tier our market and I will give
you clear direction on who we are steering business to and who we are steering business from.”
132. For example, as described more fully in the Revised Particularized Statement:
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• Marsh steered business to Chubb as one of its preferred carriers, in order to trigger a PSA payment: “As [Marsh has] stated before, they are anxious to undertake ‘Operation Switzerland’…their term for moving [Zurich] business to us.”
• Marsh steered business to Crum & Forster, in order “to break through the $50m threshold.”
• Marsh steered business to Liberty Mutual, and protected Liberty from having to compete for it: “See what coaching and/or pricing info we can get from Marsh before releasing our quote. They are supposedly going to try and steer the business our way.”
• Marsh steered business to Travelers, because “St. Paul recently did big favors for Marsh.” Marsh also stated that Travelers should be put in broking plans for any new business so that they could be awarded the business “if they meet the target.”
• Marsh steered business to XL. Kathryn Winter was advised to direct new business to XL by the end of 2002 in return for favors that XL had provided to Marsh. Ms. Winter’s notes from a Monday morning meeting held on November 25, 2002 state that XL should be given four new leads on new business and put in the broking plans so that they can get the accounts if they meet the target prices.
• Marsh steered business to Axis in order “to get over 40mm bar” and asked its employees to make “bigger push.”
• Marsh steered business to Hartford because Hartford was at ___ growth and Marsh would “get an extra point on all business above ____.”
133. To meet the promised volume thresholds, the preferred insurers expected and
received competitive advantages and protection from competition. The conspiring insurers’
expectations in this regard are illustrated in an email written by Liberty Mutual’s Patrick
O’Connor: “again DEMAND, that marsh gives [Liberty Mutual] property the consideration and
preference we mutually and formally agreed to via the psa agreement.” Liberty also made clear
that with its PSA, it “expect[s] preferential treatment in return.”
134. Fireman’s Fund also expected greater business in return for its PSA with Marsh.
The “Bottom Line” is that “Marsh Brokers should only be sending us business (Primary and
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Excess) that are within our appetite – and that we should also be awarded our fair share of that
business.”
(v) The Insurer Defendants Understood their Role in the Conspiracy and Were Disciplined if they Did Not Go Along
135. As in all effective conspiracies, participants who did not play ball were disciplined.
Marsh’s message was loud and clear that if an insurer did not have a PSA with Marsh, it would
not receive any business and would not be protected from competition.
136. Chubb learned as much in 1999, when it refused to pay Marsh the contingent
commissions it sought. As a result, Chubb was informed that it was “no longer a preferred
market” and that “all Chubb renewals will be marketed with the implication that the book will be
depopulated.” When Chubb business was subsequently moved, Chubb was advised that it was
being “punished.”
137. Marsh used the situation with Chubb as a threat to other insurers, promising ACE
and Fireman’s Fund similar treatment if they did not stay in line. CNA also recognized that
defiance would be punished: “Marsh is saying that they are not happy with this agreement for
open brokerage and is already threatening to not place business with us. If we cannot work out
an agreement with Marsh, they likely would reduce their writing.”
138. Liberty Mutual also learned that it was “not on marsh’s ‘preferred partner list’
because of [its] refusal to do a psa in 2002,” and that Marsh was steering business away from
Liberty. When Liberty Mutual “lost a renewal account after matching terms/conditions
requested by the broker,” it questioned Marsh as to why, to which Marsh responded, “no PSA.”
Liberty was so unhappy with its “dismal” 2002 results that it agreed to a PSA with Marsh for
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2003. As soon as Liberty confirmed its intention to proceed with a 2003 PSA, Marsh made clear
that Liberty Mutual was again a market Marsh would use.
139. Likewise, XL knew that a PSA was a “prerequisite” for doing business with Marsh
and that PSA payments determined the level of business that XL could expect from Marsh. One
XL executive stated: “We know they [Marsh] will move even more business away from XL
unless we provide them some incentive to continue.”
140. As AIG observed: “Because we incent Marsh to write more business through us
through a PSA, we expect to get more business as compensation levels are based on growth
thresholds.”
(vi) Communications Among the Participants in the Marsh Broker-Centered Conspiracy Facilitated By Marsh Furthered the Conspiracy
141. Marsh shared information with its preferred insurers in order to ensure that the
conspiracy would operate successfully. In particular, Marsh told its preferred insurers who the
other conspiring insurers were; details of the contingent commission arrangements that the other
insurers had with Marsh; the amount of contingent commissions paid by other insurers; and the
amount of premium volume delivered or expected to be delivered to other partner insurers.
142. The conspiring insurers were aware, for instance, not only what tier or level they
were on, but which other insurers shared their status. For example, a September 1997 internal
Chubb memo shows that Chubb discussed with Marsh: “who the top ten carriers are, the nature
of the placement agreement they have with them, the names of the carriers they expect to close
out in 98…and a review of how their other major carriers are handling the roll in.”
143. Details of competitor’s PSA’s were freely shared among the co-conspirators.
Marsh told ACE that Marsh would be “candid and absolutely honest about where [ACE’s] PSA
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stands relative to similar partners in terms of both %'s and growth thresholds.” The conspiring
Insurers also had access to the proprietary information of their rivals, including “key
components” of PSA’s, and a comparison of payouts based on a uniform set of premium and
expense factors.
144. Documents in Crum & Forster’s possession also show that it had access to
competitor’s proprietary information. A 1999 email entitled “PSAs – The Competition” includes
comparative information on the key components of PSA’s offered by seven of Crum & Forster’s
competitors, and a comparison of payouts of twelve competitors based on a uniform set of
premium and expense factors.
145. Global Broking also told Munich the details of how much the other preferred
insurers paid in contingent commissions, advising Munich of the terms of AIG’s and other
insurer’s PSA’s. In fact, the insurer conspirators communicated with one another about the
terms of their PSA arrangements with Marsh. A Munich employee wrote: “AIG does it this way
and I spoke with ACE and they do something similar.” Indeed, the exchange of this type of
information permitted the conspirators to monitor not only what their co-conspirators were
paying for their premium volume, but also, what they were receiving in return.
146. Marsh provided Liberty Mutual confidential information about the business of other
carriers, including how Liberty Mutual’s hit ratios (sales/proposals) compared to those of other
carriers. Marsh also advised Liberty Mutual it “is one of [Marsh’s] top 9 preferred markets; that
it is “ranked about 5th; but “other than AIG, there’s a very small % difference … that separates
the 2nd - 6th ranked carriers.”
147. Marsh also shared detailed information with its conspiring Insurers regarding
upcoming renewals. This information was detailed in charts, entitled “Account Logs” or
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“Account Assignments” and contained information regarding proposed game plans on accounts,
whether the Insurer would be needed to provide non-competitive quotes and other information
regarding the other preferred Insurers.
148. For example, on June 16, 2003, Greg Doherty, Marsh’s LBC for ACE, sent an
email to underwriters at Liberty Mutual and ACE, among others, attaching a chart entitled
“Doherty Account Assignments.” The chart included information concerning the accounts
where ACE or Liberty Mutual will provide alternative quotes. The chart also included the terms
of the incumbent Insurer’s lead quote.
149. Mr. Doherty sent similar account logs to ACE and/or Liberty Mutual on other
occasions. On each occasion, the account log outlined proposed game plans for a number of
accounts and detailed whether ACE would be providing “B” quotes on certain renewals.
150. Marsh also disclosed to the conspiring insurers information about the amount of
premium Marsh delivered to other conspiring insurers. ACE for example was aware that AIG
was “Marsh’s clear number one market” for excess casualty (with about $800M in premiums)
and that Zurich premium was about $200M. Marsh likewise told AIG that ACE wrote “just
under $200M in excess casualty business.”
151. Marsh facilitated the exchange of information about co-conspirator status by
sponsoring meetings that its preferred insurers attended. Frequent meetings at the annual CIAB
conference at The Greenbrier also afforded Marsh the opportunity to share information about its
arrangements with its preferred carriers and to compare notes on the terms and profitability of
the various contingent commission arrangements. There, Marsh routinely held both private
meetings with carriers as well as meetings with groups of carriers.
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152. In addition to facilitating the exchange of information at The Greenbriar, Marsh and
its most senior executives exchanged information with the executives of its preferred Insurers
about the status of the other preferred insurers, at meetings that were referred to as “Executive
Partnership Meetings.” These meetings provided a forum for review and discussion concerning
the status of the relationship and to comment on the quality of the PSA agreements. In
preparation for these meetings, Marsh compiled briefing materials for its attendees which
included, inter alia, a list of PSAs with the carrier, the quality of the PSA as compared to other
Marsh preferred carriers, and information regarding how to meet thresholds in the PSAs.
(vii) The Co-Conspirators benefited from the Operation of the Conspiracy
153. Both Marsh and its conspiring insurers profited handsomely from their
anticompetitive arrangement. Marsh saw its contingent commission revenue for Global Broking
skyrocket from ______in 1992 to ______in 1999. In 2001, Global Broking’s
contingent commission revenue reached ______and by 2003, Global Broking’s
contingent commission revenue reached ______.
154. Marsh’s insurer co-conspirators saw their gross written premium skyrocket as well.
As Liberty Mutual acknowledged, “I do believe [that] our PSA played a role in seeing our book
of business nearly double with Marsh from 1999 to 2002.” In fact, Liberty Mutual’s book of
business with Marsh grew by 73% from 2000 to 2002, while paying $1.45 million in contingent
commissions which was a “small price for $80M in additional revenue!”
155. Travelers characterized its success with Marsh in 2002 and 2003 as “dramatic” as
its book of business with Marsh increased almost 900%, growing from ______in 2001 to
______in 2002 to ______in 2003. Likewise, ACE’s gross written premium with
Marsh grew from $3.95 million in the first half of 2002 to over $34 million in the same period in
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2003, an 860% increase; Crum & Forster’s gross written premium with Marsh more than
quadrupled from 2000 to 2004, from $35 million to over $170 million; and Fireman’s Fund’s
gross written premium grew from $142,000 in 1997 to $2.6 million in 2001.
156. The Marsh Broker-Centered Defendants understood that it was the clients who paid
the price for this increase in the profitability of the conspirators. As one Marsh manager wrote to
an insurer complaining about the size of the commissions: “In answer to your question ‘does
Marsh understand that the PSA is an expense load to the premium’, their answer is absolutely.
And ever [sic] other market has to cope with the same expense load components as part of their
overall premium ‘equation.’”
(2) The Aon Broker-Centered Conspiracy
(a) Participants in the Conspiracy
157. During the Class Period, from January 1, 1998 through December 31, 2004,
participants in the Aon Broker-Centered Conspiracy have included Aon and its Insurer
Defendants ACE, AIG, AXIS, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford, Liberty
Mutual, Travelers, XL and Zurich (the “Aon Broker-Centered Defendants”).
(b) Operation of the Conspiracy
158. Aon allocated its customer base to and among its conspiring insurers in two steps.
First, Aon and each of its co-conspirators agreed, and each of the conspiring insurers horizontally
agreed, that Aon would “consolidate” its business by directing the bulk of its premium volume to
its “strategic partner” co-conspirators, thereby eliminating hundreds of other insurers from
competing equally with the conspiring insurers for the majority of Aon’s business. As a second
step, the Insurers members of the Aon Broker-Centered Conspiracy all agreed with Aon, and
agreed horizontally among themselves, to reduce or eliminate competition for that secured
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business among the conspiring insurers. One aspect of the conspirators’ agreement was that each
conspiring insurer would be able to keep its own incumbent business, and that Aon would protect
that business from competition by using a variety of incumbent protection devices. Because
more than half of Aon’s premium volume was renewal business, the Insurer Defendants’
agreements not to compete for each other’s customers, in return for protection of their own
business from competition, effectively reduced or eliminated competition for the bulk of the
insurance placed by Aon on behalf of Aon’s clients.
(i) The Participants in the Aon Broker-Centered Conspiracy Agreed that the Bulk of Aon’s Book of Business Would Be Allocated to Aon’s Strategic Partners in Exchange for Contingent Commission Payments
159. Beginning at a time unknown, but certainly by the late 1990s, Aon saw an
opportunity to maximize its contingent commission revenue by placing the majority of its
business with a small number of “strategic” or “premiere” partners with whom it had its most
lucrative contingent commission arrangements. In return for their contingent commission
payments, these “strategic partners” were allocated a guaranteed flow of premium dollars and
were protected from competition from those outside of the arrangement. The insurer co-
conspirators were kept abreast of the terms of the agreements that other members had with Aon,
and shared competitive information that would have been economically irrational to share in the
absence of a conspiracy.
160. Aon’s consolidation efforts were extensive and well coordinated, and were overseen
at the highest levels of the company. Aon’s two top executives, Patrick Ryan (the founder,
chairman of the board and then-CEO) and Michael O’Halleran (the chief operating officer), were
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both focused on the consolidation of markets and movement of business to Aon’s conspiring
Insurers.
161. Its efforts in this regard were communicated to its Insurer co-conspirators. A
Chubb document from 1997 notes:
Aon Group, has formed a new subsidiary, Aon Enterprise Insurance Services, Inc. into which it will consolidate more than $300 million in gross premiums to Aon Group’s smaller accounts. This business will be served by four carriers: Chubb, Kemper Insurance, Wausau Insurance Company (a division of Liberty) and Virginia Surety (an Aon subsidiary)…. [W]e were selected as one of the four partners in the new venture.
Aon not only identified the four partner insurers to Chubb, but also allocated a substantial
premium volume to Chubb. The Chubb document continues:
Our participation in Aon Enterprise will result in more than $70 million of new premiums to Chubb in the short term as Aon Group consolidates its book.
Prior to this consolidation the business was written by over 1000 carriers.
162. To carry out its agreement with its conspiring Insurers to consolidate its business
with them and allocate business among them, Aon concentrated control over national contingent
commission agreements in the hands of a small group of executives known as the Syndication
Group. The Syndication Group’s mandate was to “drive further market consolidation to achieve
. . . improve revenue management . . . [and] greater market leverage.”
163. In keeping with the mandate of Aon’s Syndication Group, Aon executive Bruce
O’Neil, directed Aon’s senior executives to “urge marketing departments to use the ‘Big 10’
carriers” so that Aon could “receive the largest commission possible.” These Aon senior
executives were also instructed “to consolidate business with Strategic Partners and move away
from some of the smaller lines we use.” Joseph Lombardo, a senior executive with Aon Risk
Services (“ARS”), wrote that “[w]e absolutely, undoubtedly, without question, should not be
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doing business with the number of markets that we currently do.” Lombardo estimated that Aon
would be able to “knock off about 20 carriers” in the course of its consolidation effort.
164. In 2000, Aon named as its strategic partners AIG, Royal, Travelers, Hartford,
Zurich, Chubb, Kemper and CNA. A chart from June of 2001 shows that Aon was tracking its
national agreements with ten “Strategic Partners”: CNA, Chubb, Fireman’s Fund, Hartford,
Kemper, Liberty Mutual (through Wausau), Royal, Travelers, and Zurich. Nearly two years later
Aon’s core cast of strategic partners looked quite similar, and included ACE Bermuda, CNA,
Chubb, Hartford, Liberty Mutual, Traveler’s, XL/ELU and Zurich.
165. Senior ARS executive Tom Rodell explained the plan of consolidation and
allocation succinctly: “Our vision is that for each product/industry, we would have a relatively
small number of selected strategic partners where we would place the majority of our business,
and we would have appropriate PEF [a form of contingent commission] Agreements.”
166. Consolidation continued until the end of the relevant time period. When AXIS
wanted to increase its revenue related to smaller, mid-size business, it learned that Aon had
allocated those clients to AIG, Chubb and Travelers. An AXIS internal memorandum from 2004
reported that Aon was “considering adding additional partners” in connection with this business.
While AXIS had “stated [its] interest in participating as a preferred market…Aon has not
concluded their internal conversations as to whether they will be adding markets or not.”
Eventually, because Aon concluded that AXIS had one of the best PSAs, they were granted entry
to the conspiracy and included in Aon’s list of “top ten” carriers.
167. The 2004 ARS business plan confirms that the conspirators’ market consolidation
efforts continued into 2004: “Our Leading Carriers have been condensed into seven carriers,
down from nine, where we enjoy National Professional Enhancement Fund [PEF] Agreements
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with a defined placement strategy. These carriers are Chubb, Hartford, Travelers, St. Paul, CNA,
Liberty Mutual and Zurich. Our strategy in middle market is to create a condensed group of
markets that can handle 80-90 percent of our business obtaining cost efficiencies in dealing in
this market segment.”
(ii) The Insurer Participants Agreed to Refrain from Competing for Each Other’s Customers and Expected Aon to Protect their Renewal Business from Competition
168. The Insurer co-conspirators knew of and understood their role in the conspiracy.
Each was a “strategic partner” of Aon during the relevant time period and each received the
guaranteed premium allocation and the protection from competition that status afforded. Each
Insurer co-conspirator agreed to refrain from competing for other Insurer’s incumbent business
and each expected Aon to protect that renewal status.
169. One of the mechanisms for allocating premium that was agreed upon by Aon and its
conspiring insurers was very simple: protection of incumbent business. Members of the Aon
Broker-Centered Conspiracy understood and agreed that when one of their accounts was due for
renewal, Aon would take steps to keep that account with the incumbent insurer. Aon
accomplished this by failing to seek competitive bids, giving the incumbent a “last look” on the
account, and/or providing other anticompetitive information and advantages.
170. Aon employees oversaw the incumbent protection aspect of the conspiracy. For
example, Rhonda Rayha wrote to Carol Spurlock about an “incident” where Travelers “brought
to my attention that we are not protecting our incumbent, premiere markets.” The email went on
to note that “[i]n addition to our Syndication colleagues I have communicated to the Region our
commitment to our ‘premier-market’ relationships.”
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(iii) The Participants Agreed that in Return for their Contingent Commission Payments, They Would Be Guaranteed Access to a Minimum Amount of Premium Volume
171. The insurer co-conspirators also agreed that access to new business would be
protected from competition, and that they would be allocated a guaranteed level of both types of
business. As an employee of Chubb noted, “Chubb is Aon’s preferred market for all new
business. We will get first look and be guided as to how we stack up against the
competition…he has steered several new lines our way.”
172. ACE understood the competitive advantages of being a strategic partner, noting that
“high front end commissions” were necessary to “focus” Aon’s brokers on providing “value” to
ACE in the form of placements. According to a memo, Aon’s National Property Practice leader
met with ACE and “re-committed to increase submissions to ACE.”
173. Aon regularly tracked the premium levels directed to its insurer co-conspirators in
order to allocate business in accordance with the thresholds embodied in the contingent
commission agreements. For example, ARS employees corresponded about the progress of
allocating the agreed level of premium to Zurich: “Attached is a spreadsheet showing our
production results as of Dec. 17th. Aon’s net premium now stands at slightly more than $82.5
million. Getting very close to the next threshold now. Only $7.5 million to go.”
174. Steering business to conspiring insurers was a well-accepted and important element
of the agreements among Aon and its co-conspirators. In August 2000, Bruce O’Neil wrote to
Patrick Ryan and Michael O’Halleran:
Suggest we use Atlantic Mutual and CGU to “payoff” Chubb to secure $4,300,000 agreement or 1% override (see May 18, 2000 agreement) for our entire Chubb ARS book.
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In other words, Aon would transfer business from carriers who were not conspiring insurers in
order allocate premium in the agreed-upon amounts.
175. As ARS entered into agreements to allocate business in place with various
conspiring insurers, it disseminated internally a mandate to deliver on promises that were made
to steer business to those insurers. Carol Spurlock wrote to a colleague: “Going forward, we are
going to push Zurich. I just today negotiated our incentive so that we will get paid next year.”
176. The effort to allocate business according to the agreements between the co-
conspirators continued. After a 2003 conference call about the status of production to various
strategic partners, Spurlock noted: “St. Paul does not have a last look on Kemper business. We
own the business, preference is to place with Chubb when we can. . . . Need to continue to
replace Royal business with partner carrier. Working on a National deal with C&F. Mainly to
receive payment on what we have with them. Not necessarily to push business there. Need to
push Hartford and Wausau on that business.”
177. ARS also provided financial incentives to employees who steered placements to the
insurer co-conspirators. Needle told one insurer that “[i]nsurer incentives are a key factor in the
property bonus pool.” This message was reiterated by Needle’s subordinates. As Carol
Spurlock explained to an insurance company executive:
Let me further confirm our ability to effect [sic] placement behaviors. . . This is a measurable, compensated item that each syndicator is financially motivated to drive.
178. Aon and its strategic partners often agreed to allocate business based another form
of contingent compensation: reinsurance brokerage fees. Aon’s reinsurance brokerage affiliates,
known generally as Aon Re, charged hefty brokerage fees to retail insurers when those retail
insurers used Aon to place their own reinsurance programs. Aon’s strategic partners often
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agreed to use Aon Re to purchase their own reinsurance (and thus to pay Aon Re’s high
brokerage fees) in exchange for an allotment of business from Aon’s retail brokerage affiliates.
179. In the fall of 2000, for example, Aon allotted retail business to AIG in exchange for
AIG’s agreement to use Aon Re. AIG had indicated that it was considering handling in-house a
particular reinsurance program called CCA, but the parties instead agreed that AIG would gave
the business to Aon Re – and pay Aon Re approximately $750,000 in brokerage fees -- in
exchange Aon steering $10 million in new retail business to AIG. An Aon executive explained:
In return for a commitment of $10,000,000 in new gross premium from ARS US, AIG has agreed to appoint Aon Re for an additional 2.5% placement of the CCA program, which [AIG] has indicated is worth $750,000 in commission for Aon Re.
180. The practice of steering retail business to strategic partners in exchange for
brokerage fees to Aon Re became so common within the Aon broker-centered conspiracy that
the conspirators began memorializing those arrangements in a variety of contracts known
informally as “clawbacks.”
181. Many of these clawbacks shared a similar pattern. Aon Re would offer to discount
its reinsurance brokerage commissions to the strategic partner. To help Aon Re recover the
compensation lost by the discount, Aon Re and its strategic partner would agree to a “clawback,”
allowing Aon Re to reduce or eliminate the reinsurance brokerage discounts by steering an
allocated amount of retail insurance business to the insurer.
182. Significantly, these “clawback” arrangements remained subject to confidentiality
agreements and, as a result, Aon’s retail clients were not informed that Aon steered, or had
incentives to steer, business to selected insurers to recoup the discounts Aon Re offered to these
insurers on the brokerage reinsurance account.
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183. Liberty Mutual gave its reinsurance brokerage contract to Aon Re in 2000. In 2002
and 2003, the parties agreed to a clawback arrangement. Aon agreed to steer retail insurance
premiums to Liberty Mutual in exchange for keeping Aon Re as its property reinsurance broker.
Moreover, Aon agreed to reduce the brokerage commission but negotiated a provision that
allowed it to recapture the discount if Aon met specified targets based on the volume or
premiums for Liberty Mutual on its retail insurance business (i.e., clawback).
184. By 2003, even the relative newcomer to the conspiracy, AXIS, had a clawback in
place with Aon.
185. Aon allocated premiums to its conspiring insurers in a number of other ways. In at
least two instances, Aon’s willingness to place its own interests and that of its co-conspirators
ahead of its clients led it to manipulate the bidding process and cause insurers to submit higher
bids than the insurer otherwise would have tendered.
186. In the first instance, Aon sought to help Zurich recoup funds Zurich had expended
on the Pearlstine Distributors account. Aon’s opportunity to reimburse Zurich came at the
expense of Fieldstone Investment Corp., which had retained ARS. Shortly after Zurich’s initial
bid was submitted, ARS told Zurich it could raise its quote without losing the bid. Zurich won
the account after raising its quote by nearly $45,000.
187. After the account was bound with Zurich, Aon explained what had occurred:
We came back to [Zurich] and allowed [it] to increase [its] initial WC quote to approx. same as expiring, $283,532. We allowed Zurich to get more money on this. . . . This is an example of AON letting Zurich have more rate and premium when we could have held them at a cheaper price.
A later Aon internal email noted that the inflated bid not only settled the Pearlstine debt to
Zurich but helped Aon get closer to achieving payout on its contingent commission goal.
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188. In the second instance, Aon encouraged Zurich to raise its bid on coverage for
Pitcairn Properties, Inc. from the mid-60s to just over $90,000. Zurich provided a formal quote
to ARS of $92,497. Although Zurich still had the lowest quote, ARS advised Pitcairn to reject
Zurich and take a higher AIG quote of $99,519. ARS justified the recommendation by telling
Pitcairn that Zurich had refused to cover certain disposal sites, even though Zurich had agreed
orally to cover the sites.
(iv) Aon Monitored and Enforced the Terms of the Conspiracy
189. During the Class Period, Aon monitored the conspiracy by cutting off premium
volume supply to insurers that did not live up to their end of the bargain. As one ARS executive
informed an insurer that had not yet signed a contingent commission agreement:
We have been operating on the good faith that this [contingent commission agreement] would be mutually agreed quickly after our meeting here in NY. Based on the fact that we are almost halfway through the year, I will be advising our people in the field that we in fact don’t have a [contingent commission agreement] with [Industrial Risk].
190. Aon denied premium flow to carriers who would not cooperate with the aims of the
conspiracy. Munich was told that contingent commission agreements were critical to receiving
any business from Aon: “As they have previously, Aon re-emphasized that all business will be
placed through the newly formed Syndication unit. For a market to see any new or renewal
business we must have PSA in place.”
(v) Communications Among the Participants in the Aon Broker-Centered Conspiracy, Facilitated by Aon, Made the Conspiracy Plausible
191. The insurer co-conspirators were aware of their status with Aon, were advised of
the status of other conspiring insurers, and all agreed to the corresponding allocation of business
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to and among them. Fireman’s Fund was aware of the terms that Chubb, Travelers and Liberty
Mutual had agreed to with Aon.
192. Aon provided Chubb their carrier Contract Checklist, noting that “most of our
strategic partner carriers were interested” in the list. Aon also provided Chubb with copies of its
agreements with its other preferred partners. Competitive information also flowed to Aon. Aon
knew the terms of Chubb’s deal with Marsh and suggested to Chubb: “Alternatively, you could
give us the Marsh deal.”
193. Aon’s top executives passed information about compensation agreements between
the conspiring insurers. An email from XL’s top executive, who wrote to Michael O’Halleran
and referenced their discussions about compensation agreements with other insurers, stated:
“Mike this is in line with our discussions and agreements with other carriers.”
194. In another email exchange, Carol Spurlock made it clear to Liberty Mutual which
other insurers had access to Aon’s business and why. Liberty Mutual asked, “Is this an exclusive
offer to Wausau or is this out with every carrier?” Spurlock responded with the identities of
some of Aon’s other conspiring insurers, saying: “We have had discussion with Chubb and
Hartford. Chubb has picked up some of the business, not allot [sic] of movement . . . We went
to them because our agreement is more favorable. . . . . We are having preliminary conversations
with CNA and St. Paul.”
195. Aon’s information-sharing role is clear in an email regarding AIG: “PEF is in draft
form and Ken has agreed in principle to our terms. . . .They should be falling all over you guys
to reward your placement and encourage you to continue to place business with them. You can
also mention that all their competitors pay us 12 to 13 points on placement.”
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196. The sharing of detailed competitive information is set forth in a Crum & Forster
report respecting a visit with Aon. Aon informed Crum & Forster that its contingency agreement
was “average within the industry” and that Hartford, Royal and Chubb had better plans. The
report notes that Aon “will share competitor . . . plan information with us (we met off-site).”
(vi) The Co-Conspirators Benefited from the Operation of the Conspiracy
197. Liberty Mutual recognized the positive impact of the conspiracy on its bottom line,
forwarding the latest Liberty Mutual/Aon contingent commission agreement with the note “we
would like to execute, announce and get it into play quickly so as to start impacting results.”
198. Aon knew that the concentration of premium in the preferred partners would make
money for Aon: "[O]ur arrangement with CNA will be quite lucrative to ARS, therefore we
need to carefully yet aggressively be certain all casualty syndicators understand this is a
preferred market."
199. Aon’s partnership with XL was profitable for both companies. By 2002 Bob
Needle reported that “with XL America, we grew 82% from $121 million in 2001 to $220
million for 2002.” As a result, Aon’s “XL override for 2002 was $7 million[.]”
200. Indeed, payments from the individual insurer co-conspirators, on an annual basis,
were substantial. For example, in 2004 alone, each of Aon’s strategic partners paid more than a
million dollars in contingent commissions to Aon, with Chubb and AIG each topping $6 million
dollars, and Travelers exceeding a whopping $10 million dollars.
(3) The Wells Fargo/Acordia Broker-Centered Conspiracy
(a) Participants in the Conspiracy
201. During the period from January 1, 1998 through December 31, 2004, participants in
the Wells Fargo/Acordia Broker-Centered Conspiracy included Wells Fargo/Acordia and Insurer
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Defendants Chubb, Travelers, Hartford, CNA and Fireman’s Fund (“The Wells Fargo/Acordia
Broker-Centered Defendants”).
(b) Operation of the Conspiracy
202. Wells Fargo/Acordia allocated its customer base to and among its conspiring
insurers in two steps. First, Wells Fargo/Acordia and each of its co-conspirators agreed, and the
conspiring insurers agreed among themselves, that Wells Fargo/Acordia would “consolidate” its
business by directing a significant portion of its business to Chubb, Travelers, Hartford, CNA
and Fireman’s Fund, thereby eliminating hundreds of other insurers from competing equally with
the five conspiring insurers for virtually 100% of its small business customers and a substantial
portion of Wells Fargo/Acordia’s total commercial customers. Second, Wells Fargo/Acordia and
its conspiring insurers agreed that each of these five insurers would be allocated specific business
for which they would not have to compete among themselves.
(i) The Participants in the Wells Fargo/Acordia Broker-Centered Conspiracy Agreed that a Substantial Portion of their Customers would be Allocated to the Conspiring Insurers
203. Beginning in 1997, Wells Fargo/Acordia embarked on a plan to maximize its
contingent commission revenue by placing a substantial portion of its business with a small
number of “partner” insurance carriers with whom it had contingent commission agreements. As
early as October 1997, top Wells Fargo/Acordia executives met with counterparts at Chubb for a
“Chubb – Acordia Partnering Workshop” at which they indicated that Wells Fargo/Acordia was
in the process of “consolidating its business with carriers, preferring to place the majority of its
business with a small number of carriers.”
204. In early March 1998, Wells Fargo/Acordia hired Charles Ruoff “to drive their
initiative of consolidating their middle to [small] business markets” on a nationwide basis. By
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the following January, Wells Fargo/Acordia had ______to which it would
primarily seek to allocate business in 1999.
205. On March 15, 1999, Mr. Ruoff wrote an email titled “Millennium Agency System
Partnership” noting that because the five insurers had agreed to pay Wells Fargo/Acordia purely
volume-based overrides on gross written premium placed with them over the next three years,
“they need[ed] to be given priority in our marketing plans.”
206. By mid-1999, Wells Fargo/Acordia implemented a “Millennium Partnership
Program” in order to “leverage [its] major [insurer] relationships.” Wells Fargo/Acordia
expected this program to generate millions of dollars from “Preferred Market Partners” over the
next three years. The program was designed to consolidate business with a small number of
conspiring insurers by giving them “the inside track for future business development.”
207. From 1999 to the end of 2001, “Millennium Partner” insurers paid Wells
Fargo/Acordia a __ override on total gross written premium, plus “growth incentives” of __ to
_____ for “new business allocated to them and ___ to ___ for total “national growth” in overall
premium delivered. Chubb, Travelers and Hartford became Millennium Partners in 1999, and
CNA became one in 2000. Each of these insurer co-conspirators entered into additional
contingent commission deals with Wells Fargo/Acordia in 2003 through 2004. Fireman’s Fund
became a “Key Partner” of Wells Fargo/Acordia and paid Wells Fargo/Acordia substantial
contingent commissions during the Class Period.
208. Wells Fargo/Acordia allocated the very significant segment of its business
consisting of small commercial clients virtually entirely to two Insurer Defendants – Hartford
and Travelers. Both Hartford and Travelers knew of the allocation and acquiesced in the
arrangement. An August 1999 Hartford document indicates that only it and “Travelers will be a
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mkt [market]” and that “other carriers [will] not [be] in direct competition.”
209. Hartford reported that “Acordia has made a decision that ______
will be moved with ‘implied consent’ to partner carrier[s] with customer centers. We will work
with Tom Hite [of Acordia] to facilitate the movement of business to The Hartford.”
210. Materials exchanged between Wells Fargo/Acordia and Hartford noted that the
parties would work together to ______
______The parties agreed that
they would ______
______.
211. Wells Fargo/Acordia shared its consolidation plan with its other strategic partners.
A Travelers executive, for instance, wrote to Mr. Ruoff to confirm that that “[b]y the middle of
October [1999], each Acordia agency location will provide Acordia, Inc. a business plan
outlining their strategy to achieve growth with the Millennium Partners.”
212. The insurer co-conspirators agreed to pay significant contingent commissions to
Wells Fargo/Acordia in order to receive their premium allocations. Travelers, for example,
advanced Wells Fargo/Acordia ____ in early 2000, ______in 2001, and ______in 2002,
giving Wells Fargo/Acordia a strong incentive to steer business to Travelers so that it could
avoid repaying these advances, i.e., to “incent the proper national and local commitment to the
program.” Wells Fargo/Acordia responded by making certain that Travelers business with Wells
Fargo/Acordia increased.
213. The participants in the Wells Fargo/Acordia Broker-Centered Conspiracy explicitly
recognized the conspiracy’s anticompetitive effects, because Wells Fargo/Acordia was moving
its customers’ business to the Millennium Partners even if those insurers did not offer
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competitive products. An October 2001 Wells Fargo/Acordia report noted: “We’re probably
about 30-40% into our book roll [in the Columbus, Ohio office] since we’re finding it hard to
convert multi-year policies with other carriers to either Travelers or Hartford. They are just not
competitive. However, as these policies fully expire, they will be moved.”
214. Acordia’s Pittsburgh office noted that it “has been a big supporter of the Hartford
over the past several years . . . [and] supported their efforts to grow key accounts (and other
areas) when their pricing was greater than market, … and we supported their position on
increased pricing during late 1998 and early 1999 (way earlier that [sic] our other markets) when
the market was still extremely soft.”
215. In January 2000, Hartford and Wells Fargo/Acordia agreed at a partnership meeting
that Wells Fargo/Acordia would participate in “selling higher increases then [sic] needed.”
216. The Wells Fargo/Acordia conspiracy to consolidate and allocate business with and
to its Millennium Partner insurers, in exchange for sharing in the insurers supra-competitive
profits by way of increased contingent commissions, continued from 1999 through 2004.
(ii) The Conspiring Insurers Agreed not to Compete With Each Other for the Wells Fargo/Acordia Business
217. In addition to agreeing that Wells Fargo/Acordia would allocate new customers and
premium volume to Chubb, Hartford, CNA, Travelers and Fireman’s Fund, Wells Fargo/Acordia
and its co-conspirators agreed that the conspiring insurers would not compete for each others’
customers.
218. Wells Fargo/Acordia and the conspiring insurers’ efforts, made with the full
knowledge of all participants, included engaging in initiatives to “migrate business” and to
accomplish “book rolls” – mass transfers of business based on their contingent commission
deals. Documents detail Wells Fargo/Acordia’s agreement with Hartford and Travelers to
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prevent “extensive quoting between both of us” and to facilitate the “split of accounts or books”
between them.
219. Hartford noted that it “will vie for all business under $2000 per account in
commission revenue” with primarily only one other insurer, Travelers, and that those two
insurers would not competitively bid for the business but, instead, select which customer
accounts to take on “first look” basis: “Our primary competitor will be the Travelers for this
business. FIRST COME FIRST SERVE would be an appropriate description here.”
220. Further, Wells Fargo/Acordia agreed not to expose ___ or more of those protected
accounts to outside competition. For example, in 2001, Wells Fargo/Acordia and Travelers
expressly “agree[d] that no more than___ of Travelers renewals will be marketed unless at the
sole direction of the client.”
221. Wells Fargo/Acordia gave its Millennium Partners that were exposed to any outside
competition at all both a first and last opportunity to secure certain pieces of business. In
February 2001, Chubb noted that “[w]e are a preferred market at Wells Fargo/Acordia NY and
we get first shot (and last look) at their business.”
(iii) The Insurers Defendants Knew Each Other’s Role in the Conspiracy
222. Wells Fargo/Acordia’s Millennium Partners knew of each others’ involvement, and
each clearly understood and agreed horizontally that they had entered into these arrangements
with Wells Fargo/Acordia to purchase volumes of business for which they would not have to
compete with one another or with non-conspiring insurers.
223. On or about June 3, 1999, Wells Fargo/Acordia wrote to Hartford and stated that
they needed to “balance” their negotiations “to the understandings with other markets,” meaning
Wells Fargo/Acordia’s other Millennium Partners. “It is very important to us that we treat all of
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our Millennium market partners fairly” because “[b]usiness initiatives have begun with other
partners.”
224. In August 1999, Wells Fargo/Acordia sent a detailed memorandum titled
“Millennium Agency System Partnership” to Wells Fargo/Acordia’s “National P/C
[Property/Casualty] Marketing Committee,” with copies to each conspiring insurer – Chubb,
CNA, Hartford, Travelers and Fireman’s Fund – among other potential “Partners.” The purpose
of the memorandum was to make certain that each understood its role, Wells Fargo/Acordia’s
role, and the role of the other partner carriers in the conspiracy, and agreed to the same. The
memo stated, among other things, that “a number of our national insurance company markets”
had “readily agreed to what we called the Millennium Partnership” by which those insurers
“offered supplement incentives to the Millennium override” and that, Wells Fargo/Acordia was
“concentrating on the . . . initiatives put forward by [its] ‘priority’ markets to the exclusivity of
all other markets.”
225. Wells Fargo/Acordia and its conspiring insurers, moreover, agreed to meet and
communicate with each about their conspiracy under the guise of a purported project to launch a
technological “quoting system” platform for use by its Millennium Partners. CNA suggested
calling a “technical interface meeting with all participating carriers,” which a Wells
Fargo/Acordia memorandum exposed was a ruse. The memo’s author stated that as to CNA,
“[I] don’t think technology is the issue here but they volunteered to set up a ‘strawman’ scenario
for multiple market [i.e., Insurer-to-Insurer] discussions.”
226. Wells Fargo/Acordia and its conspiring insurers agreed and understood that they
would be subject to discipline in the form of losing business if they did not cooperate in the
conspiracy. When CNA and Fireman’s Fund initially hesitated to join the conspiracy, Wells
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Fargo/Acordia wrote to its sales staff that “that CNA and Fireman’s Fund have declined to
support our financial plan without profitability stipulations. We are therefore not inclined to
support any business growth with them at the determent [sic] to our Priority Millennium Partners
noted above. Please be guided accordingly in the future business plans within your region.”
After this message was communicated to CNA and Fireman’s Fund, CNA became a Millennium
Partner, and Fireman’s Fund became a “Key Partner.”
(iv) The Co-Conspirators Benefited from the Wells Fargo/Acordia Conspiracy
227. Wells Fargo/Acordia and its co-conspirators enjoyed substantial profits as a result
of their anticompetitive conspiracy. The Millennium Partners project generated nearly ____
______in added revenue for Wells Fargo/Acordia, nearly 10% of which was from Travelers, in
the first eighteen months “with little, if any, associated expense.”
228. In the small business segment, Acordia realized “roughly ___ in commission
income, including ‘kickers,’ from this line.”
229. In 1999, Wells Fargo/Acordia received ______in contingent commissions from
the Millennium Partnership, and a total of ______in contingent commissions.
230. In 2000, Wells Fargo/Acordia received ______in Millennium national overrides
from Chubb; ______from CNA; ______from Hartford; and ______from Travelers alone,
totaling ______in Millennium Partner overrides. Wells Fargo/Acordia also received an
additional ______in other contingent commissions from those insurers.
231. Those four Millennium Partners, together with Fireman’s Fund, paid Wells
Fargo/Acordia ______in contingent commissions in 2001 and ______in 2002.
232. Wells Fargo/Acordia’s contingent commissions from its five conspiring insurers
grew to ______in 2003, and to ______in 2004.
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233. Wells Fargo/Acordia’s Millennium Partner Markets also “grew exceptionally well”
from 1999 to 2001, and “outperformed [Wells Fargo/Acordia’s] other markets.”
234. In 2002, Wells Fargo/Acordia delivered the following premium to its “priority
markets”: Chubb - ______; Travelers - ______; Travelers - ______; CNA -
______; and Hartford - ______.
235. The conspiring insurers increased their profits by charging increased premiums to
the Wells Fargo/Acordia clients they were allocated. In mid-2001, Chubb reported that its
Millennium Partnership with Wells Fargo/Acordia had resulted in “two very good years in 1999
and 2000” in which Chubb enjoyed a premium “rate increase of ______on the entire book of
business.”
(4) The HRH Broker-Centered Conspiracy
(a) Participants in the Conspiracy
236. During the period from January 1, 1998 through December 31, 2004, the
participants in the HRH Broker-Centered Conspiracy included HRH and Insurer Defendants
CNA, Hartford and Travelers. (“The HRH Broker-Centered Defendants”)
(b) Operation of the Conspiracy
237. HRH allocated its customer base to and among its conspiring insurers in two steps.
First, HRH and each of its co-conspirators agreed, and the conspiring insurers agreed
horizontally among themselves, that HRH would “consolidate” its business by directing a
significant portion of its business to Hartford, CNA and Travelers, thereby eliminating hundreds
of other insurers from competing equally with the three conspiring insurers for virtually 100% of
its small business customers and at least 35% of HRH’s total commercial customers. Second,
HRH and each of its conspiring insurers agreed, and the conspiring insurers agreed horizontally,
that each of the three insurers would be allocated specific business for which they would not
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have to compete among themselves.
(i) The Participants in the HRH Broker-Centered Conspiracy Agreed that a Large Portion of HRH’s Customers would be Allocated to the Conspiring Insurers
238. In or about late December 1996, HRH decided to consolidate the number of carriers
with which it did business and to increase its profits by transferring, moving and otherwise
directing and allocating large portions of its clients’ business to a few “partner” carriers that
would pay HRH large contingent commissions. By August 5, 1997, HRH’s Board of Directors
decided to implement this plan, which it expected to double company-wide profit in three to five
years. HRH achieved and exceeded that profit target.
239. HRH initially consolidated the segment of its business consisting of small
commercial clients generating less than $1,000 in annual commission revenue, which HRH
called “Select Commercial” accounts. Instead of attempting to find its Select Commercial clients
the best policies at the best prices from among the dozens of insurers that had previously been
serving those clients, HRH decided to “de-market” those accounts from their current carriers and
to allocate them instead to Hartford, Travelers and CNA. Each of those insurers agreed with
HRH and among each other that in exchange for this business they would pay HRH contingent
commissions of up to ______above HRH’s customary standard commissions.
240. By mid-1998, HRH’s Select Commercial initiative was expanded to include its
“Middle-Market” clients, which were the larger accounts that comprised the rest of HRH’s
commercial business customer base. HRH formed a “Carrier Consolidation Task Force” to
negotiate with prospective insurer “partners” in connection with virtually all of HRH’s property
and casualty lines. HRH’s “Carrier Consolidation Initiative” was focused on HRH’s plan to
allocate a large percentage of its commercial business to a few insurers rather than the hundreds
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of insurers with which HRH’s field offices had historically conducted business.
241. HRH’s Carrier Consolidation Task Force met with several Insurer Defendants,
including Hartford, CNA, Travelers, Fireman’s Fund, Chubb and AIG, to discuss potential
“partnerships” and by national contingent commission agreements. Among other things, these
discussions centered on the concept of a consortium of carriers that would “quota share” the
majority of the existing HRH customers and receive the bulk of its new business.
242. By mid-1998, HRH reached arrangements to consolidate much of its business with
Hartford, Travelers and CNA, which became known as the “Big 3,” in exchange for enhanced
contingent compensation. The number of carriers to which HRH allocated its business was
discussed among and agreed to by the three chosen insurers. During its negotiations, HRH
expressed its preference for four partner carriers but only selected three, a number that Travelers
in particular preferred.
243. HRH’s CEO memorialized HRH’s national allocation scheme with Hartford,
Travelers and CNA in a July 1998 memorandum, which, inter alia, directed HRH employees to
move “business to these partners in an aggressive, orderly and disciplined manner, and in a fairly
short time frame.”
244. By moving existing books of business that had previously been placed with other
insurers, HRH planned to increase its total business volume with its three co-conspirators from
$150,000,000 to $300,000,000. Given the contingent commission payments that Hartford, CNA
and Travelers agreed to pay, HRH expected to realize $12,000,000 in additional profits over 18
months simply by rolling other carriers’ books of business to its “Big 3” conspirators.
(ii) The Three Conspiring Insurers Agreed not to Compete with Each Other for the HRH Business
245. In addition to agreeing that HRH would allocate new customers and premium
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volume to Hartford, CNA and Travelers, HRH and its co-conspirators agreed to ensure that each
of the allocated customers who sought to renew their policies remained customers of the
previously designated conspiring insurer. In November 1998, the head of HRH’s Carrier
Consolidation Task Force instructed HRH’s nationwide field offices “to avoid situations where
we move accounts from one of our three partners to another,” and that “[n]o select customer
business currently written by C.N.A. or the Travelers is to be moved to the Hartford.” This
communication was sent to, and circulated within Travelers and, on information and belief, to
Hartford and CNA as well.
246. Hartford and the other conspiring insurers knew which business was allocated to
each partner. Hartford understood it was positioned to be the “lead market on Select Customer
business” and that it had been allocated “all accounts generating ______of revenue and below,”
with “the only exceptions to this rule [being] accounts generating between ______
______.
247. HRH’s protection of its Big 3 Partners was embodied in its internal procedural
manuals, which made clear that there were preferred market partners for Select Commercial
business and that no customers placed with one of those insurers could later be moved without
the local Agency President’s consent.
248. HRH allocated premium volume to its conspiring insurers even if it caused an
increase of its customers’ insurance premiums. HRH’s 1998 Select Commercial Operations
Procedures Manual instructed HRH’s employees to allocate to Hartford all customers whose
prior year premiums were below _____ even if Hartford more than doubled the premium. To
illustrate, the Manual explained: “For example: a policy is currently written through another
carrier at _____ and Hartford’s minimum premium is ____. The increase here is much higher
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than _____ but Hartford will go ahead and issue the policy because it is subject to their minimum
premium and falls below _____.” HRH also allocated to Hartford any other select customer if
Hartford’s quote was “within ____ of the expiring premium for the total account.” HRH’s
employees were not permitted to “request a cancellation from [Hartford] if one part [i.e., one
policy][ of an account [wa]s more than ____ higher than expiring.”
249. HRH provided financial incentives to its employees, at all levels, to move business
to its Big 3 co-conspirators. In August 1998, HRH established an incentive bonus pool to be
generated for each year based on the volume of new net business placed with HRH’s Big 3
Partners. At least 50% of the 1998 bonus pool was to be paid to employees who had “a direct
impact on moving business to the preferred carriers.” Agency presidents were eligible for a
maximum of 50% of the bonus pool remaining. HRH implemented similar incentive plans every
year between 1999 and 2004.
(iii) The Insurer Defendants Knew Each Other’s Role in the Conspiracy
250. HRH’s conspiring insurers knew of each others’ involvement, and each clearly
understood and agreed that they had entered into these arrangements with HRH to purchase
volumes of business for which they would not have to compete with one another or with non-
conspiring carriers.
251. A Travelers representative stated in July 1998 that “HRH will limit participation
[for the commercial lines business] to a maximum of 3 national carriers with ‘similar’
programs.” The representative continued: “[t]hese terms and conditions assume a similarity of
intent with the strategic partners.”
252. Travelers also knew that “the main thrust of HRH’s small business strategy is to
reduce the number of partners to three – Hartford, CNA and Travelers” and that “[t]he financial
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program encourages HRH to consolidate a significant amount of this business with the Travelers
and the other partners.” Travelers also reported that “[t]o ensure a level playing field, each
carrier agreed to the same financial program.”
253. When the arrangement was changed to include additional commercial lines, the
conspiring insurers were aware of this as well. A September 1, 1998 Travelers memorandum
noted that the HRH “deal” had expanded from HRH’s Select Commercial customers to include
additional commercial lines, and it unambiguously set forth a conspiratorial plan for HRH to
allocate “______of [its] national commercial property casualty” customers – representing
______in premium – to Travelers, Hartford and CNA in exchange for contingent
commission overrides.
254. The Travelers memorandum also noted that HRH’s corporate office intended to
ensure compliance with the conspirators’ program, and that “[f]ail safe systems are being
designed to monitor individual [HRH employees’] performance to the plan complete with action
steps to correct any volume movement concerns.”
255. Hartford communicated to its Regional Vice Presidents in September 1998 a similar
understanding of the conspiracy with HRH and the other two insurer conspirators to its Regional
Vice Presidents in September 1998, announcing that Hartford had “been selected as one of three
National partner Carriers in conjunction with HRH Insurance’s new strategic direction for
Commercial . . . business,” and that the agreement provided for an “enhanced Incentive Bonus”
in “exchange for a significant premium commitment over the next several years.”
256. Hartford acknowledged that HRH would “[f]ocus on the movement of business to
their trading partners . . . immediately,” and that “[a]n Implementation Task Force consisting of
four senior managers … has been formed to corporately manage this process.”
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257. CNA was fully aware that it was one of three carriers selected by HRH pursuant to
its national “consolidation program.” CNA knew that HRH was allocating competition-free
premium volume to its conspiring insurers, CNA, Hartford and Travelers, in exchange for
contingent commissions. CNA knew that it would be penalized by HRH for non-compliance
with the conspiracy in that HRH would move CNA business to Hartford and Travelers if CNA
did not pay HRH the agreed upon contingent commissions. In April 2002, a CNA officer wrote:
“They [HRH] expressed that our changing anything, or requiring anything other than simply
paying the 3.5% on the volume (assuming growth) will expressly jeopardize our relationship . . .
, and that this would create a situation where their retail leaders would likely move some of the
CNA business.”
258. Other Insurer Defendants were also familiar with HRH’s arrangements with its
strategic partners. Defendant Chubb met with HRH to confirm its understanding from the
marketplace that HRH had, in fact, entered into strategic partnerships wherein they would
allocate premium volume to their partners in exchange for enhanced compensation.
(iv) The Co-Conspirators Benefited From the Operation of the Conspiracy
259. HRH profited from its diversion of clients to its carrier co-conspirators. An internal
HRH document indicates that between 1997 and 2004, HRH benefited from its participation in
the conspiracy and received approximately $188,738,000 in contingent commissions from its co-
conspirators. From 1998 through 2000, the Big 3 conspiracy produced approximately
$7,500,000 in annual contingent commission overrides for HRH; $27.7 million in 2001-2003
alone. As HRH’s President advised HRH’s field office presidents, HRH’s receipt of contingent
commission overrides was pure profit for the company: “These monies went straight to the
bottom line and are a primary driver in our financial success.”
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260. HRH’s conspiring insurers similarly profited from their participation in the
conspiracy. Not only did these insurers achieve the desired growth through increased premium
volumes, they were able to drive profit improvement through price increases. Hartford, for
example achieved ____ growth across all commercial lines with HRH during the first 11 months
of 2002. Growth in HRH’s Select Commercial accounts increased by ____ with Hartford over
the same period. While achieving this growth, and paying the accompanying increasing
contingent commissions to HRH, Hartford was simultaneously driving profit improvement by
executing on its own strategy to not renew unprofitable accounts and to increase prices charged
to consolidated accounts Hartford wished to maintain.
261. On information and belief, CNA and Travelers also reaped substantially increased
revenues and profits from their participation in the conspiracy.
(5) The Willis Broker-Centered Conspiracy
(a) Participants in the Conspiracy
262. During period from January 1, 1998 through December 31, 2004, participants in the
Willis Broker-Centered Conspiracy included Willis and Insurer Defendants Travelers, Chubb,
The Hartford, Zurich, AIG, CNA, Liberty Mutual, Ace, Axis, Crum & Forster, and Fireman’s
Fund. (The “Willis Broker-Centered Conspiracy”).
(b) Operation of the Conspiracy
263. During the relevant time period Willis was the third largest insurance broker in the
United States.
264. Willis allocated its customer base to and among its conspiring insurers in two steps.
First, Willis and each of its co-conspirators agreed, and the conspiring insurers agreed
horizontally among themselves, that Willis would “consolidate” its business by directing a
significant portion of its commercial business to Travelers, Chubb, The Hartford, Zurich, AIG,
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CNA, Liberty Mutual, Ace, Crum & Forster, Fireman’s Fund and Axis, thereby eliminating other
insurers from competing equally with the conspiring insurers for a substantial portion of Willis’
business. Second, Willis and each of its co-conspirators agreed, and the conspiring insurers
horizontally agreed among themselves, to reduce or eliminate competition among the conspiring
insurers through the allocation of specific business for which they would not have to compete
among themselves.
265. One aspect of the conspiracy was the agreement that each conspiring insurer would
keep its own incumbent business, and that Willis would protect that business from competition
by using a variety of incumbent protection devices.
(i) The Participants in the Willis Broker-Centered Conspiracy Agreed that a Substantial Portion of their Customers would be Allocated to the Conspiring Insurers
266. Starting in 1996, Willis began consolidating its insurer markets from 1700 carriers
to fewer than 20. By 2001, Willis had devised a plan to align itself with a select few “key”
carriers who would enter into agreements that would yield “improved commissions” and
“improved contingents and overrides.” These key carriers would benefit from the placement of
Willis’ business once they agreed to pay Willis contingent commissions or otherwise provide
increased revenue to Willis.
267. Beginning in early 2003, Willis furthered its efforts to consolidate the carriers it
used to maximize its contingent commission income by creating a department called the Global
Markets - Carrier Relationship/Marketing Department (“Willis Global Markets”). The stated
purpose of the Willis Global Markets was to “maximize group revenue” by maximizing
commissions and contingent commissions.
268. Willis Global Markets maximized revenue by steering customers to its co-
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conspirators regardless of the interests of clients. Willis Global Markets “require[d] premium
flows to be restructured to focus on Partner Markets and to de-emphasize non-Partner Markets.”
269. James Drinkwater, Managing Director of Willis Global Markets described how
Willis would partner with insurers who were willing to support it in return for steering business
to the partner insurer:
[Market] leverage can only be maximized by “Partnering” with a select number of carriers who share our vision, want to work with, and support the Group. Focusing on our ‘partner’ markets will require the management of our premium flows and the overall relationship.
270. As stated by Willis’ Marketing Manager for its Portland, Oregon office, “the whole
marketing concept was originally predicated on the fact that we would limit our markets to some
strategic markets where we would place 80% of our business.”
271. Willis Global Markets used Regional Marketing Officers (“RMOs”), responsible for
each of Willis’s regions, to communicate its corporate-wide mandate to concentrate business
with specified market partners. John Pearson, Chief Marketing Officer of Willis North America,
reminded RMOs not to “forget the advantages of placing as much business as possible with the
carriers we have negotiated special deals with, as you look for ways to maximize revenues the
last few months of this year and into 2004.”
272. Michael Mann, the RMO at Willis Global Markets for the Midwest, wrote in a
February 23, 2004 email: “Remember – It’s all about increasing commission percentages
(always ask for more), driving business to our Partner Markets and utilizing Group Resources.
The RMOs will set expectations on an office by office basis and follow-up for results.”
273. Willis directed the majority of its business to the co-conspirators. Willis Global
Markets exercised control over the “negotiation, collection and management of contingents in
North America” and prohibited any region or local office of Willis to enter into any contingent
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commission agreement without specific approval by Mr. Drinkwater.
274. The purpose of this control was to ensure “uniformity” and to “maximize premium
volume flow to key carriers with most attractive contingent income agreements.” Additionally,
Willis employees were instructed to “monitor key renewal accounts” of the co-conspirators “and
deliver Marketing resources where necessary to increase renewal retention percentages.”
275. CNA and Zurich assisted Fireman’s Fund in maintaining its insurance coverage to
ABM Industries’ airport parking facilities. In March 2001, Willis client, ABM Industries, was
required to obtain three bids for insurance to cover ABM’s new parking contract with Detroit
Metro Airport, but Willis had previously placed an omnibus Fireman’s Fund policy covering all
of the ABM’s other airport parking facility contracts. To enable Fireman’s Fund to maintain
coverage over this omnibus policy for the Detroit Metro parking facility, CNA and Zurich agreed
to the request of Russell Kiernan of Willis’ San Francisco office to submit bids with the
understanding that they would not result in a placement. Willis provided them with the premium
breakdown they needed to quote in order to be assured of losing the bid.
276. At a Greenbrier meeting with Zurich on October 13, 2003, it was reported that
Zurich experienced a 50-60% growth rate from Willis in 2003, principally driven by exposure,
rather than rate.
277. Willis agreed to shift blocks of premium to Hartford. This “share shift” plan
involved the ______The
objectives of the share shift plan included: ______
______
278. The share shift plan included a “prospecting process” with Willis offices in San
Francisco, Bethesda, Radnor, Hunt Valley and Charlotte. Hartford representatives were allowed
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to meet with Willis representatives of these offices to select the most profitable accounts for
placement with Hartford in order to double the written premium placed with Hartford.
279. Hartford described how Willis and Hartford would work together to allocate
customers:
______
______
______
______
______.
280. On December 11, 2003, Hartford sent out a memo to all Hartford field offices
stating, in part:
A second key piece of the plan which we are now working on with Willis is ______. We will score leads and distribute back to you and Willis for follow up. The joint commitment is for Willis to ______
______.
281. Willis also furnished Hartford with their entire account list for the ______
______companies with the understanding that “the joint commitment is for
Willis to give Hartford ______.”
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282. Willis provided Liberty Mutual with information on potential clients to give it an
“unfair advantage” in client placements. Willis provided Liberty Mutual with an account listing
of prospective accounts. Liberty Mutual managers could “directly contact Willis RMOs and
proactively ask for the specific accounts.” In response to a request from Fred Frey of Liberty
Mutual, a Willis RMO stated that he would check to determine if it was a “real opportunity” for
Liberty Mutual to acquire the placement and, if so, would “make sure you have solid
information, and an unfair advantage.”
283. Willis provided Chubb with a list of clients for Chubb to review so Chubb could
choose the accounts it wanted. As stated in a June 30, 1997 letter from Barbara Marshall, Chubb
Senior Underwriter, to Willis, “Per our discussion of June 12, we have reviewed the business
consolidation listing provided to us by Willis Corroon [Willis’ predecessor]….We would like to
pursue $7,950,545 of the list provided to us. This comprises approximately 78% of the
$10,000,000 book consolidation effort.”
284. ACE was provided with the opportunity to choose client business and developed a
“target list.” Kudret Oztap, head of Ace Global Energy, stated that Willis had placed with Ace
“almost all of the WILLIS accounts in our target list in USA.”
285. In return for Hartford Steam entering into a contingent commission agreement,
Willis personnel were “mandated to place all [boiler and machinery] with” HSB.
286. In 2003 Willis provided a list of Royal accounts to John Echemendia of Crum &
Forster and he informed James Drinkwater and John Pearson in which accounts Crum & Forster
was interested. Drinkwater then informed Willis employees to “ensure that C&F is shown the
accounts listed and they are given the best opportunity of writing the account.” As a result of
these actions, the contingent income received by Willis from C&F increased three-fold from
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$76,422 in 2002 to $228,553 in 2003.
287. Willis had a share shift plan with Travelers.
288. Willis gave Fireman’s Fund “last looks” on accounts. On or around June 14, 2001,
Willis provided Fireman's Fund three last looks on an account for ______. According to
an internal Fireman’s Fund report documenting the telephone conversation between Fireman’s
Fund and Willis: “Willis came back and provided competitive information on AIG, Hartford and
Royal (who quoted) at the direction of insured.”
289. In August 2002 Zurich requested that it be afforded a “last look on all renewal and
new business,” that Willis “pre-qualify accounts” representing new business, and proposed a
joint Willis/Zurich Business Plan that provided for 90 percent “renewal retention ratio.”
(ii) The Conspiring Insurers Agreed not to Compete With Each Other for the Willis Business
290. Within Willis Global Markets, Carrier Advocates were responsible for overseeing
and managing the relationship between Willis and their assigned “Partner Markets,” i.e.,
conspiring Insurers Carrier Advocates also worked to protect incumbent conspiring insurers
from competition so that Willis would have the greatest leverage with which to increase the
contingent commissions it was receiving from its co-conspirators.
291. The Carrier Advocate assigned to Hartford listed several Hartford accounts up for
renewal and asked the RMOs to “make sure that [those] renewals are put to be cleanly with
Hartford.”
292. The conspiracy protected an incumbent co-conspirator on a renewal even when the
client could have obtained a less expensive product. In order to meet its retention contingency
goals, Willis “went the extra mile to make sure that the incumbent, Chubb, retained [an]
account” even though Willis had “obtain[ed] more favorable pricing from other carriers.”
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293. Incumbent protection was important to the insurer co-conspirators. Travelers
provided for a contingent payment to Willis if it achieved _____ premium retention. ACE stated
that renewal retention with Willis was “critical for the PSA.” Willis agreed with Zurich to
protect Zurich’s incumbent business. Zurich’s August 2002 proposed Joint
Willis/Zurich/Business Plan provided for ______“renewal retention ratio.” A 2004 e-mail to
Zurich from Drinkwater confirmed that incumbent protection was a part of their arrangement.
294. With respect to Liberty Mutual, Mr. Drinkwater instructed Willis’ RMOs to “make
sure that we protect the position and revenue that we have generated” and to “make sure that you
know what you have renewing and manage the renewal process.”
(iii) Willis and its Co-Conspirators Agreed that in Return for Contingent Commissions, the Insurers Would be Guaranteed Access to Premium Volume
295. In addition to incumbency protection, Willis guaranteed its co-conspirators access
to new premium as well.
296. In the fall of 1999 Willis directed that “business for the remainder of this year [will]
be focused on 3 strategic partners: CNA, Hartford and St. Paul.”
297. When Willis Global Markets was created in 2003, one of its purposes was to make
sure that “premium flows” were managed so that premium was steered to conspiring insurers that
had agreed to pay contingent commissions.
298. As part of Willis’ 2003 $2.5 Million Revenue Strategy Willis instructed its people
to give “special attention” to Chubb, along with Travelers, Liberty Mutual, Hartford and Crum &
Forster “due to special agreements.”
299. Willis agreed to try and “[d]ouble Hartford’s P&C volume with Willis” by
______
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______.”
300. Axis knew that the payment of contingents was the quid-pro-quo for premium flow
from Willis. In late 2002, just prior to launching operations in the U.S. market, Axis planned its
strategy. The Retail Property Business Plan (revised 11/02) for Axis Specialty Insurance
Company stated, “[W]e will need to consider a profit sharing agreement with Marsh, and
potentially other national brokers, as a price of entry into the marketplace.” According to plan,
Axis entered into an agreement with Willis in 2003.
301. In June 2003, Mr. Drinkwater directed Willis to send business to Axis and provided
his internal directives to Jack Gressier, CEO and President of Axis Global Insurance.
302. In late 2003, Mr. Drinkwater stated that Willis Global Markets had to show that it
was profitable for an insurer to be a Partner Market. In particular, Mr. Drinkwater explained that
in return for Crum & Forster entering into a new contingent commission incentive agreement,
Willis had to “move business” to Crum & Forster. On August 29, 2003, Pearson sent an email to
Mr. Drinkwater and a Willis distribution list announcing the “NEW Crum & Forster / Willis
Incentive Agreement.” Pearson directed the recipients to “review [their] renewal book of
business and pipeline of new opportunities for clients and prospects meeting C&F’s guidelines.”
He further stated: “C&F is serious about growing with Willis. We must demonstrate our ability
to bring significant opportunities to C&F before year end.”
303. According to a September 2003 Willis email:
We all have some ability to direct premium to certain markets and there is a great deal of potential income to be made from the PSAs. Those of us who can direct premium need some “direction”. . . . This way we will funnel premium to carriers with PSAs and achieve greater numbers of thresholds than we would with an “unfocused” approach. Look forward [to] . . . some direction to help us achieve income goals without having to produce one cent of new biz.
304. In an October 21, 2003 letter from Pearson to Willis CMOs, Office CEOs and
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Marketing Heads regarding Willis’ “growing relationship” with Hartford, he stated: “As a
strategic partner, Hartford has shown a willingness to help Willis generate new-new business
towards meeting our objective of _____ in new business in 2004. Consistent with this, we are
working with them to provide access to our prospect pipeline.”
305. In December 2003, Willis asked ACE for a $500,000 advance on Willis’ expected
2004 contingent commissions and represented that if ACE paid the advance, Willis would
“guarantee” significant new premium for 2004.
306. Wausau, a division of Liberty Mutual (“Wausau”), entered into a “sweetener”
agreement to pay additional contingent commission in return for Willis delivering added
premium during the fourth quarter of 2003. The Willis Carrier Advocate for the Wausau account
instructed the RMOs that they “really need to make a push and reach the $4M goal.” Michael
Mann noted that they would “only need to generate an additional $1,250,000 in new business
premium to Wausau in order to hit the 1% contingency on the book of business” and that
meeting this goal would be a “slam dunk” “[c]onsidering that there are 7 offices in the Midwest
Region with business that Wausau can write.”
307. On April 4, 2004, Mr. Drinkwater explained that as a “reward” for entering into a
contingent commission agreement with Willis, an insurer would be provided with “access” to
Willis’ clients, among other benefits, that together added up to “an unfair competitive
advantage.”
308. In May 2004, Mark Butler, Liberty Mutual’s Executive Vice President, Sales and
Service Department, National Markets, wrote:
I don’t believe in PSA’s but they are a fact of life. With that said, we set the expectations with regards to new business, retention, growth that WE must have for our business, not theirs. Each represent [sic] the majority of our market. I simply want a bigger piece of what they already have. They deliver, we pay.
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They don’t deliver, we don’t.
(iv) Insurers Understood Their Role and were Disciplined by Willis if they Did Not Participate
309. The insurer co-conspirators knew that failure to participate in the conspiracy would
result in disfavor and would lead to the elimination or severe reduction of business from Willis.
310. In December 2003, William Curcio, President of the Ace Risk Management
reported that Mario Vitale, then CEO of Willis, told him that to meet a Willis income deficiency
in 2003, he needed $500,000, and that Vitale was going “to approach a couple of ‘partner
markets’ that he would then ‘guarantee’ significant new business growth into ’04. Those who
did not choose to help him as a partner now would not be designated as a ‘favored’ market.”
(v) Communications among the Participants in the Willis Broker-Centered Conspiracy were Facilitated by Willis
311. The insurer co-conspirators were aware of each other’s participation in the
conspiracy. In many instances Willis shared details of one conspiring insurer’s agreements with
other insurer co-conspirators.
312. Willis shared information with Chubb regarding its contingent commission plans
with Royal, Hartford and Travelers.
313. Willis advised Travelers in December 2003 that it would be on an “equal footing”
with Chubb and Hartford with respect to its contingent commission agreement.
314. Hartford knew that CNA was a “Top Carrier” and “key market” for Willis.
315. Willis gave Crum & Forster information concerning other insurer co-conspirators’
renewal retentions.
316. In December 2003, Michael Mann, informed Liberty Mutual that Willis would “be
able to deliver results for our key Partner Markets on an unprecedented basis.”
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(vi) The Co-Conspirators Benefited from the Willis Conspiracy
317. Both Willis and its co-conspirators benefited from participating in the conspiracy.
318. In April 4, 2004, Mr. Drinkwater explained how an insurer would benefit from
having a PSA agreement with Willis:
Underwriters [insurers] need to realise [sic] that our PSA’s are a reward for services that we provide to carriers such as carrier advocacy . . . Carrier Advocacy includes transparency into our organisation [sic] and our book, access to our leadership and our clients, an unfair competitive advantage as well as other benefits that partnerships bring. While the downside of not partnering with us is impossible to calculate I think that Hartford, Axis, Ace, St. Paul would all advocate the value and the positive effect that it has on our business. (emphasis added).
319. Chubb recognized that its participation would result in “the movement of approx.
$20 million of existing Willis business from current markets to Chubb over the next 12 to 18
months.” In order to receive these benefits Chubb agreed that “[s]tandard commissions will stay
in place though we will pay a consolidation fee, some form of profit sharing…and a new
incentive.” Chubb agreed to pay an additional 5-10% incentive override to Willis, depending on
the volume of premium written.
320. Chubb was consistently one of Willis’ top 5 carriers in terms of premium written
and contingent commissions for 2002 through 2004.
321. Willis planned to direct even more business to Axis in 2004 in exchange for
contingent commissions and reinsurance opportunities.
322. Willis did not meet the threshold for receiving contingent income from CNA in
2003. Patricia Corrigan Johnston, the Willis Carrier Advocate responsible for CNA informed
Mr. Drinkwater and others at Willis that “CNA is paying us $141,500 [as contingent commission
income for 2003] which we are technically not owed. I think these payments of good faith need
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to be remembered. We frequently discuss ‘partner markets’ and ‘markets stepping up’. [sic]
CNA is clearly putting their money where their mouth is in making a commitment to Willis.”
This information was subsequently communicated to CNA by Johnston: “I feel strongly (and
have conveyed my feeling to anyone who will listen!) that CNA is supporting Willis in a partner
market fashion. We, in turn, will support CNA and drive growth through our retail offices.”
323. Emails between Suzanne Douglas of Willis and CNA in January 2004 noted that for
the Large Property operation, CNA's writings with Willis grew 60% in 2003 over 2002. Willis
earned approximately $185,000 in contingent payout for 2003. In early 2004, Willis entered into
a new contingent agreement with CNA. The proposed deal for 2004 was a 5% contingent for all
business over the highest threshold which had been met in 2003. Michael Mann indicated that
Willis should consider pushing CNA aggressively in the field because Willis would receive 5%
on every dollar placed with CNA over the threshold.
324. Willis had a “significant global business relationship with Ace as a Partner Market
on a retail, wholesale and reinsurance basis.” “Willis North America retail grew at a 49% rate
with ACE USA in 2003.”
325. In addition to the contingent commission agreements Willis had with Hartford
Steam, AIG agreed to use Willis Re as its reinsurance broker, and listed Willis Re as an
approved direct reinsurer for AIG underwriters to use. In January 2002, AIG entered into a PSA
with Willis Re providing contingent payments to Willis Re on its placements of reinsurance for
AIG. For 2002, AIG placed a total of $255,489,580 in premium with Willis Re, and a
comparable amount for 2003.
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(6) The Gallagher Broker-Centered Conspiracy
(a) Participants in the Conspiracy
326. During the Class Period from January 1, 1998 to December 31, 2004, participants in
the Gallagher Broker-Centered Conspiracy included Gallagher and Insurer Defendants Chubb,
Hartford, Travelers, AIG, CNA, Fireman’s Fund and Crum & Forster. (the “Gallagher Broker-
Centered Defendants).
(b) Operation of the Conspiracy
327. Gallagher allocated its customer base to and among its conspiring insurers in two
steps. First, Gallagher and each of its co-conspirators agreed, and the conspiring insurers agreed
horizontally among themselves, that Gallagher would “consolidate” its business, allocating it to
“preferred carriers,” co-conspirators ______
______, thereby eliminating other insurers from competing equally with the conspiring
insurers for a substantial portion of Gallagher’s business. As a second step in the unlawful
scheme, the conspiring insurers agreed, both with Gallagher and horizontally among themselves,
to reduce or eliminate competition among the conspiring insurers as to that secured book of
business. An aspect of the agreement in this regard was that each insurer would be permitted to
keep its own incumbent business, and that Gallagher would protect that business from
competition using various incumbent protection devices, such as last look agreements. Gallagher
and its co-conspirators understood and agreed that incumbent protection was a necessary element
in its scheme to allocate its premium volume in the manner calculated to achieve the highest
profits, both for itself and itself co-conspirators.
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(i) The Participants in the Gallagher Broker- Centered Conspiracy Agreed that the Bulk of Gallagher’s Customers would be Allocated to the Conspiring Insurers
328. Gallagher’s effort to consolidate its business with its partners in the conspiracy
began at least as early as September of 1996, after Gallagher determined that by leveraging its
relationships with certain insurers, it could maximize its commission revenue. Gallagher
identified its preferred insurers, often referred to as “partner markets,” and created plans pursuant
to which Gallagher would steer business to these insurers and away from other insurers. Insurers
were selected to be a “partner market” when they agreed to pay Gallagher contingent
commissions based primarily on the volume of the business steered to the insurers.
329. Gallagher’s consolidation effort was to “maximize commission income, achieve
leverage in the market place and control the relationship with the underwriter.” To implement
this plan, Gallagher approached certain insurers and insisted on a commission/override and/or
incentive agreements. Likewise, Gallagher employees were told that “every effort must be made
to place business with our preferred carriers.” The details of the contingent commission
agreements were shared with Gallagher’s sales managers so that all understood the financial
benefits of placing business with these conspiring insurers.
330. Gallagher successfully moved placements of insurance to its conspiring insurers
and reduced the volume of business placed with non-conspiring insurers. This was achieved by
reinforcing the need to place business with the co-conspirators at, among other methods,
Gallagher monthly Market Strategy Meetings, during which all renewals were discussed and
business was targeted to be moved to Gallagher’s conspiring insurers.
331. Gallagher took steps to ensure that all branch offices focused on placing business
only with its conspiring insurers. Gallagher’s senior management directed its branch managers
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to create a “market consolidation plan” by which each office was directed to specify how it
intended to grow with specific conspiring insurers and to determine whether the business of any
particular carriers should be shifted to the conspiring insurers.
332. As part of Gallagher’s plan to increase and maximize contingent commission
profits pursuant to the conspiracy, in 2001, Gallagher’s corporate officers instructed Gallagher’s
employees to place business with Gallagher’s conspiring insurers. In 2001, the Gallagher sales
force was told that Gallagher had “special bonus agreements in place with markets like ______
______and “so that additional revenues can be earned…[p]lease do whatever
you can in your respective divisions to support our ‘partner’ markets and any bonus plans.”
333. In 2003, Gallagher continued to direct the regional and branch managers to steer
business to conspiring insurers. Gallagher’s sales force was advised to pump premium volume
into “strategic partner markets” for 2003 contingent income calculation. Gallagher identified __
______as having the most lucrative financial incentives
for placing business.
334. Because of these efforts, Gallagher was successful in allocating the bulk of its
premium volume to its conspiring insurers. The concentration of premium volume with its
conspiring insurers continued throughout the Class Period, as the Insurer Defendants paid ever
increasing contingent commissions for a guaranteed flow of premium.
(ii) The Participants in the Gallagher Broker- Centered Conspiracy Agreed not to Compete for each other’s Customers
335. A central element of the agreement among the participants in the Gallagher
Broker-Centered Conspiracy was that each insurer would be permitted to keep its incumbent
business, and that Gallagher would protect that business from competition, both from insurers
inside and outside of the arrangement. Gallagher facilitated this agreement with a variety of
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devices designed to protect its co-conspirators’ incumbent status, including the solicitation of
accommodation quotes.
336. Participants in the Gallagher Broker-Centered Conspiracy provided alternative
quotes at Gallagher’s request to protect the incumbent status of a conspiring insurer or to support
the placement of the business with a conspiring insurer. An example of this conduct occurred
when AIG assisted Gallagher in protecting the renewal business of a rival carrier. In June 2004,
a Gallagher employee summed up this effort as follows::
[W]e will submit to: ACE (Lou Caparelli) and AIG (Brad Smith) with the understanding that we are approaching AIG only to block Shepard Reilly here. ACE should come up with a real quote and per our conference call with Lou, they have been very competitive with Travelers lately. Definitely want to do what we can to retain with St. Paul Travelers.
337. Gallagher protected its co-conspirators’ incumbent status with a variety of other
devices such as “first look,” “rights of first refusal” and “last look” agreements. By virtue of
these agreements, conspiring insurers were able to review the other bids of other carriers and bid
to retain the business without having to provide their best, most competitive prices. Gallagher
recognized that the significant amount of contingent commissions it could earn from Chubb
warranted giving Chubb a “first opportunity” on business and a “last shot” before business went
to another insurer
338. Once an insurer qualified as a strategic partner, it was standard operating procedure
to direct insurance placements to those conspiring insurers and insulate them from competition.
A December 1998 “Partner Market” meeting with Chubb, Gallagher explained to Chubb that as a
partner market, “Team Gallagher becomes locked in and competitors become locked out.”
339. Gallagher, in implementing its market consolidation, pushed or steered business to
its conspiring insurers and insulated them from outside competition.
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340. In November 2003, to ensure the receipt of extra commissions from AIG, Gallagher
placed a client’s insurance with AIG for a premium of ______when the insurance could have
been placed with a competitor for ______.
341. In November 2002, a Gallagher executive urged that insurers be steered to Crum &
Forster in order to get an incentive payment. Gallagher was ______short of qualifying for a
full incentive commission. He directed Gallagher personnel to jointly address the renewal of all
existing Crum & Forster business and to provide Crum & Forster with new opportunities as well.
342. Similarly, Gallagher steered business to Hartford. In 1997, Gallagher received
______from Hartford for 1996 business, which Gallagher acknowledged was received as a
result of pushing new business to Hartford. Gallagher management stated: “We have got to try
and stabilize our book with Hartford, or better, grow it. …We cannot afford to lose that kind of
revenue.”
343. Similar efforts were made with regard to strategic partner Travelers. In July 1998,
Gallagher CEO J. Patrick Gallagher announced a new National Incentive Agreement with
Travelers for that year and advised all Gallagher employees to “do all we can to crank up the
production into St. Paul.”
344. Gallagher steered business to Chubb in April 1997 based upon new override
agreements with them. In June 1997, Gallagher recognized that the significant amount of
contingent commissions it could earn from Chubb warranted giving Chubb a “first opportunity”
on business and a “last shot” before business went to another insurer.
345. To assure that Gallagher would continue to steer placements to it, in 2003, CNA
paid an incentive payment to Gallagher pursuant to their National Incentive Agreements even
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though Gallagher failed to meet the thresholds for payment, because, as CNA recognized, failing
to pay would strain the parties’ relationships.
(iii) Communications Among the Participants in the Gallagher Broker-Centered Conspiracy Facilitated By Gallagher Furthered the Conspiracy.
346. Gallagher shared information with its conspiring insurers in order to ensure that the
conspiracy would operate successfully.
347. In June 1997, Hartford met with Gallagher to discuss “the potential identification of
markets for consolidation” in exchange for ______
______. A part of those discussions were the financial incentives that
would best motivate Gallagher to drive business to Hartford.
348. In December 1998, Gallagher held a “Partner Market” meeting with Chubb at
which Gallagher dictated its “Partner Market Requirements.” Those requirements included
having a “mutual commitment to grow,” “mutual commitment to change the rules,” “maximum
commission,” and “top overrides/incentives.”
349. Gallagher made the conspiring insurers aware of the quid pro quo for becoming and
remaining a “Partner Market”: to reap the benefits of more placements, insurers would have to
provide Gallagher with substantial contingent commission income.
350. Gallagher shared the identity of its partner carriers with other partner carriers,
which served to diminish competition as each partner carrier became aware that it would not
have to compete with said carriers.
351. Gallagher also exchanged the terms of its contingent commission agreements with
its conspiring insurers. Gallagher gave Hartford data on its agreements with fellow co-
conspirators: Chubb, Travelers and CNA.
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(iv) The Co-Conspirators benefited from the Operation of the Conspiracy
352. Both Gallagher and its conspiring insurers profited from their anticompetitive
arrangement. Gallagher’s anticompetitive agreements with its conspiring insurers resulted in
growth in contingent commissions at the expense of its clients’ best interests. From 1997 to
1998, Gallagher received ______more in incentive commissions due to placing more business
with its partner markets - Chubb, Hartford, Fireman’s Fund, and CNA. From 2002 to 2004,
Gallagher earned over ______in contingent commissions from its conspiring insurers.
f) The Global Conspiracy
353. In addition to the “hub and spoke” Broker-Centered conspiracies described above,
each of the Defendant Broker “hubs” participated (with the complicity of the Insurer Defendants)
in a broader, common horizontal anticompetitive scheme.
354. Specifically, while engaging in their separate “hub and spoke” schemes to create
supra-competitive premiums and contingent commissions, each of the Broker “hubs”
simultaneously agreed horizontally not to compete with each other by disclosing any competing
broker's contingent commission arrangements, or the consequent premium price impact of those
arrangements, in an effort to win those brokers’ customers' business.
355. Through a variety of industry-wide contingent commissions studies and from
communicating with each other, each Broker Defendant knew that the other Broker Defendants
had “consolidated” their markets and allocated business to insurers in exchange for contingent
commissions. From the same sources and from information received from their conspiring
insurers, each Broker Defendant also knew generally the percentages of the contingent
commissions each other Broker Defendants were receiving and the resulting supra-competitive
premiums the brokers’ customers were paying. The Broker Defendants all also knew that
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exposing another broker’s contingent commission arrangements to the other broker’s customers
would lead to retaliation, thereby threatening the first broker’s own contingent commission
scheme and supra-competitive profits.
356. Therefore, the Broker Defendants expressly or tacitly agreed among themselves not
to disclose the existence of the contingent commission agreements and resulting supra-
competitive premiums to rival brokers’ customers. The Broker Defendants reached this
horizontal anticompetitive agreement in order to further a common, mutual goal of maintaining
their independent anticompetitive schemes and not having their supra-competitive profits
undermined by truthful price disclosures or advertising.
357. It would be economically irrational absent a conspiracy for any Broker Defendant
not to disclose that a customer's existing broker is scheming with the customer's insurers in a
way that causes the customer to pay supra-competitive premiums. Because of customers' natural
“stickiness” and loyalty to their brokers, an economically rational broker in a truly competitive
environment would maximize its opportunity to increase market share by telling its rivals’
otherwise loyal customers that they are paying too much for their insurance. That the Defendant
Brokers uniformly did not do so can only be explained by the existence of a horizontal
conspiracy not to compete by making such truthful price related disclosures.
358. The Broker Defendants’ agreement not to disclose their excessive contingent
commission agreements and resulting profits was a naked horizontal restraint of informational
output that directly affected the price of insurance. As such, the Broker Defendants’ agreement
not to disclose or advertise truthful pricing information and to limit consumer information about
price, violated the antitrust laws.
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359. The Insurer Defendants also agreed, both with their respective Broker Defendant
“hubs” and horizontally with each other, not to disclose the Broker-Centered Conspiracies and
resulting supra-competitive premiums to the brokers’ customers. Hence the Insurer Defendants
likewise violated the antitrust laws by participating in the Global Conspiracy.
360. Defendants had ample motive to enter into the horizontal conspiracy. They were
obtaining supra-competitive profits from operating their independent Broker-Centered
Conspiracies that they wanted to protect. Prices for services in competitive markets are a
function of the marginal cost of providing those services. But the contingent commission-related
profits the Broker Defendants were receiving (and the supra-competitive premium prices the
Insurer Defendants were consequently charging), were well above the brokers’ marginal costs.
As a prominent insurance industry analyst confirmed in a 2004 report on contingent
commissions: “when we have pushed back in an attempt to determine the size and source of
offsetting expenses [for such commissions], no significant, valid offsets were presented.… We
are hard-pressed to describe any material cost associated with these revenues.” Hugh Warns et
al., Insurance-Non-Life: Contingents May Be Smaller, But More Prominent in 2004, US Equity
Research J.P. Morgan Sec., Inc. (Jan. 13, 2004) (emphases added).
361. Defendants, moreover, knew full well that disclosure of their supra-competitive
profits to the brokers’ customers would lead to decreased income. While it is commonsense that
a consumer that is advised it is paying above-market prices will demand a price reduction, the
Broker Defendants commissioned a survey to estimate the price impact such disclosure would
have. In the wake of the Regulatory Investigations the Defendants, through the Council of
Insurance Agents and Brokers (“CIAB”), engaged an industry consultant to gauge the expected
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effects of “compensation transparency” and related issues. Based upon extensive interviews of
broker and insurer executives, the study concluded that:
The consensus of opinion within the insurance brokerage business is that compensation will decline if a transition occurs from an undisclosed commission basis to a disclosed commission or fee basis. … compensation will decline if disclosed and believe reductions will generally fall 5% to 25%.
362. The Broker Defendants’ decision to consolidate their markets and drive business to
a few insurers that paid high contingent commissions was a departure from their past methods of
doing business. Each Broker Defendant engaged in this consolidation of business to their insurer
co-conspirators at the same time and for the same purpose, that is, to increase their leverage and
their contingent commission revenues. Not one Broker Defendant deviated from that course of
conduct. In each Broker-Centered Conspiracy, as described above, the Broker Defendants,
together with the Insurer Defendants, engaged in the same types of anticompetitive and
exclusionary practices, all designed to protect the conspiring Insurer Defendants from having to
compete with non-conspiring insurers and with each other for the Broker’s customers. The
Broker-Centered schemes were very successful and yielded enormous profits. The Broker and
Insurer Defendants were thus heavily invested in their Broker-Centered schemes during the Class
Period and did not want to risk losing their resulting profits by disclosing their schemes to each
others’ customers. Therefore they agreed horizontally not to do so.
363. The existence of the Defendants’ agreement not to disclose their anticompetitive
contingent commission arrangements and supra-competitive profits to their customers is well
documented. As described below, Broker Defendants agreed with their conspiring insurers that
the terms of the contingent commission arrangements they had entered into would not be
disclosed to their customers. Defendants, in fact, incorporated standardized confidentiality
clauses in their contingent commission agreements prohibiting such disclosure.
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364. Moreover, as detailed below, Defendants’ membership in the CIAB afforded them
many opportunities to exchange information and allowed Defendants to adopt collective policies
towards nondisclosure of rival brokers’ contingent commissions.
365. In sum, during the Class Period, significant information asymmetry existed in the
insurance market between the buyers of insurance, on the one hand, and the Defendant Brokers
and insurers, on the other, concerning the comparative price and quality of insurance products.
This asymmetry of information as to relative price and quality rendered the insurance market
susceptible to collusion, and it facilitated the Broker and Insurer Defendants’ ability to charge
supra-competitive prices, because their customers, the consumers of insurance, tended not to
know if the insurers recommended by their Brokers were offering a competitive price.
366. Once the insureds committed to a broker the cost of switching brokers was high,
leading to the “stickiness” of broker-client relationships and great reliance by insureds on
brokers that characterized the commercial insurance brokering industry.
367. The Defendants exploited both the asymmetry of information and their customers’
loyalty to erect an industry structured around Broker-Centered “hub and spoke” conspiracies that
enabled the Defendants to reap huge supra-competitive profits. Broker Defendants and their co-
conspiring Insurer Defendants agreed horizontally to not disclose their contingent commission-
driven schemes to their customers in order to protect those profits.
368. The Defendants’ customers, the Global Class (described below), were accordingly
damaged in their business or property by Defendants’ anticompetitive horizontal agreement not
to compete for each others’ customers by disclosing or advertising the supra-competitive nature
of their co-conspirators prices.
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g) The Conspiracies Raised Premium Levels To All Members Of The Class.
369. The anticompetitive schemes described above had the purpose and effect of
reducing competition and raising the insurance premiums paid by all members of the classes
370. Through a process known as “premium buildup” the contingent commissions paid
by insurers to the Broker Defendants (nearly 2 billion dollars since 1998), were built into the
rates used by insurers to derive premiums charged to Plaintiffs and the Classes. “Premium
buildup” refers to the process, well-known in actuarial science, of combining expenses, an
insurer’s expected losses (claims), and a reasonable profit, into a formula that results in the
creation of a “rate.” That rate is in turn used to derive premium.
371. Contingent commissions, which are a type of budgeted “acquisition expense” or
“variable expense” incurred by insurers, are included in each insurer’s ratemaking formulas and
are consequently “built” into every commercial premium for commercial insurance products.
insurers annually budget the amount of expected contingent commission payments and recoup a
pre-determined percentage of this total annual budget in the rates utilized to price every
commercial insurance premium. The expense factor used to load the cost of contingent
commissions into the rate-making formula is a standard factor across all lines of insurance
Defendants’ practices increased premium levels for all commercial insurance without regard to
whether a contingent commission was collected with respect to any specific policy.
372. Defendants recognized that the contingent commissions paid by insurers, were built
into the premiums charged to members of the classes. Marsh recognized as much when it said to
a complaining insurer that it understood that “the PSA was an expense load to premium, “and
that “ever[y] other [insurer] has to cope with the same expense load component as part of their
overall premium equation.”
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2) The RICO Claims
a) Overview of the RICO Claims
373. In addition to the antitrust violations alleged above, Defendants have also engaged
in a series of fraudulent schemes whereby they have made material misrepresentations and
omissions regarding: (i) the nature of the services provided by the Broker Defendants and the
conflicts of interest that exist between the Broker Defendants and their clients; (ii) the financial
relationships and agreements between the Broker Defendants and their strategic partner Insurer
Defendants that impact the basis upon which insurance placements and renewals are made; and
(iii) the kickbacks paid by the Insurer Defendants to the Broker Defendants in exchange for
having business allocated to them and having competition reduced, which result in increased
premiums.
374. In order to prevent Plaintiffs and members of the Class from discovering the
foregoing, and lulling them into believing that the Broker Defendants were acting in their best
interests, Defendants took the following steps: (i) the Broker Defendants agreed with their
strategic partner Insurer Defendants that the details of the terms of their contingent commission
agreements would be kept confidential and took steps to ensure that they were kept secret from
their clients; (ii) the Insurer Defendants built the cost of the kickbacks they paid to the Broker
Defendants into the premiums they charged their clients, without disclosing that the premiums
were inflated by these amounts; and (iii) the Broker Defendants issued vague and misleading
statements regarding the compensation they received from the Insurer Defendants which were
designed to create the illusion of transparency, while concealing their true relationships with the
Insurer Defendants and the amounts they were being paid by them.
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375. Defendants have carried out their schemes through six separate Broker-Centered
Enterprises, as described further below, each consisting of a Broker Defendant and those Insurer
Defendants with which it has entered into a strategic partnership. Defendants in each of these
enterprises have participated in the enterprise’s affairs through a pattern of racketeering activity
consisting of multiple acts of mail and wire fraud.3
376. The Broker Defendants have conspired with one another to implement substantially
similar disclosures regarding their contingent commission arrangements with the Insurer
Defendants and/or to take steps to prevent any of the Broker Defendants from having to make
meaningful disclosures of these arrangements to their clients. The Broker Defendants have been
able to carry out this conspiracy through their membership in the CIAB, which has allowed them
to speak with one voice to create the perception that “full disclosure” was the industry standard,
when, in fact, it was not.
377. As a result of the foregoing, Plaintiffs and members of the classes have been injured
by having paid more for the insurance they procured through the Broker Defendants than they
otherwise would have. Defendants’ conduct constitutes actionable violations of 18 U.S.C. §§
1962(c) and 1962(d).
b) The Broker Defendants’ Duties, Fiduciary Status and Representations to Their Clients
378. The Broker Defendants hold themselves out as providing, and do in fact provide,
insurance brokerage services for businesses, individuals, public entities, associations,
professional services organizations, private clients and many others. As alleged above, the
Broker Defendants are leaders in the commercial insurance brokerage industry and their business
comprises the overwhelming majority of the insurance brokerage market in the U.S.
3 Alternatively, Plaintiffs allege that Defendants carried out their scheme through the CIAB-Enterprise described below.
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379. As also alleged above, the Broker Defendants broker a wide range of commercial
insurance lines, including traditional property-liability insurance, business entity liability
insurance, casualty insurance in a multitude of forms, workers compensation, surplus, fidelity
and surety, which their customers purchase. The Broker Defendants counsel their clients
concerning the complex and specialized insurance they are purchasing.
380. The services that the Broker Defendants provide to their clients include, inter alia,
analysis of risk and insurance options, procurement and renewal of insurance, interpretation of
insurance policies, monitoring the insurance industry on the client’s behalf, keeping clients
informed as to developments in the insurance marketplace, and assisting clients with the filing
and processing of claims against the policies they place.
381. The Broker Defendants are retained by their clients, including Plaintiffs and
members of the classes, for the sole purpose of acting on behalf of and providing the clients with
unbiased advice concerning the type, amount and level of insurance needed, as well as to provide
sound and accurate advice regarding the insurance companies they recommend.
382. The Broker Defendants serve as common law fiduciaries to their clients, and
therefore owe their clients, including Plaintiffs and other members of the classes: (i) a duty of
loyalty to act in the best interests of their clients and to always put their clients’ interests ahead of
their own; (ii) a duty of full and fair disclosure and complete candor in connection with any
insurance-related products purchased by clients or services rendered by Broker Defendants,
including the duty to disclose the source and amounts of all income they receive in or as a result
of any transaction involving their clients; (iii) a duty of care in connection with any insurance-
related products purchased by their clients or services rendered by Broker Defendants; (iv) a duty
to provide impartial advice in connection with any insurance-related products purchased by their
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clients or services rendered by Broker Defendants; (v) a duty to use their best business judgment
in connection with any insurance-related products or services purchased by their clients – in
other words to find the best coverage at the lowest price; and, (vi) a duty of good faith and fair
dealing.
383. The Broker Defendants represent themselves to their clients as being committed to
acting in their clients’ best interests and encourage their clients to rely on their purported
knowledge, independence and unbiased expertise in procuring insurance coverage. Such
representations are made through broker service agreements and engagement letters, requests for
proposals, letters to customers, invoices, advertisements, brochures, and other marketing and
promotional materials, including information on internet websites, disseminated in interstate
commerce, including through the United States mails and interstate wires.
384. As set forth in further detail in the Second Amended RICO Case Statement (the
“RICO Case Statement”), in these materials, the Broker Defendants represent that they will:
(i) solely represent the interests of their clients in transactions with insurers; (ii) act on behalf of
their clients in the selection and placement of insurance and the negotiation of terms; (iii) act on
behalf of their clients in connection with the filing and processing of claims; and (iv) act as the
exclusive insurance broker for their clients. The Broker Defendants represent that they are
highly skilled and independent insurance brokerage experts and possess the special knowledge
and expertise necessary to interpret and understand the complex and sophisticated business and
personal risks faced by their clients and to determine which corresponding insurance products,
services and insurance companies best fit their clients’ needs.
385. As set forth in further detail in the RICO Case Statement, the Broker Defendants’
representations have been couched in phrases such as “serve our clients’ needs,” “negotiate on
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the Client’s behalf with insurers,” “best efforts to place insurance on behalf of the client,” “act as
your representative to the world insurance market,” and “we are you representative…and
although we are licensed agents of various insurance companies with whom we have contracts it
is our basic responsibility and obligation to be your advocate, your representative.”
386. Following the commencement of an action against Marsh by the New York State
Attorney General, Marsh, Aon, Willis, and Gallagher each acknowledged and reaffirmed their
duty to act on behalf of their clients.
387. On October 20, 2004, Aon sent a letter to its clients signed by Aon’s CEO, in which
he stated that Aon’s employees were expected to “strive for the best terms for the client using the
highest ethical standards” and are “expected to put our clients first, to focus on what is best for
you.”
388. Two days later, on October 22, 2004, Willis sent a letter to its clients signed by
Willis’s CEO in which he reaffirmed that Willis “represent[s] you and conduct[s] business in
your best interest utilizing global resources.”
389. On October 29, 2004, Marsh sent a letter to its clients signed by its CEO in which
he reaffirmed both Marsh’s commitment to “execute transactions in your best interest” and
Marsh’s “principle of transparency and disclosing our sources of income.”
390. On November 3, 2004, Gallagher sent a letter to its clients signed by its CEO in
which he stated that Gallagher served as its clients’ “advocates in the marketplace” and that
Gallagher’s “employees understand that clients come first at Gallagher.”
391. Acordia sent communications to its clients reaffirming its obligations and duties.
Acordia sent a document to its clients in which it emphasized its commitment to doing what “is
right for the customers,” which includes “[p]roviding [its] customers with full disclosure on the
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revenue, including contingent commissions we earn at the beginning of our relationship and at
the time of policy renewal” and “[m]aking insurance placements in the best interest of [its]
customers.”
392. HRH reaffirmed its obligations to its clients through materials it has sent to them in
which it has stated “[w]e advocate our clients [sic] needs and desires first and foremost” and that
“our recommendations are driven by your needs, not our own.”
393. As a result of the nature of the relationship between the Broker Defendants and their
clients, the Broker Defendants had a duty to disclose any conflicts of interest they had in
providing services to their clients as well as any material information that might impact their
ability to act in their clients’ best interests. This duty to disclose further arises out of both: (i)
the Broker Defendants’ fiduciary status; and (ii) the representations made by the Broker
Defendants.
c) Defendants’ Fraudulent Scheme
394. In direct contravention of the Broker Defendants’ representations, fiduciary duties
and disclosure obligations, Defendants have engaged in a scheme whereby the Broker
Defendants would allocate business to a limited number of partner Insurer Defendants in
exchange for kickbacks in the form of contingent commissions and/or other payments which
were factored into the premiums paid by Plaintiffs and Class Members.
395. Specifically, as set forth in further detail in the Revised Particularized Statement,
each of the Broker Defendants, in conjunction with certain of the Insurer Defendants with which
they had entered into strategic partnerships, engaged in steering and other practices in order to
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maximize the volume of insurance placed with the Insurer Defendants and maximize the volume
of renewal business placed with the Insurer Defendants.4
396. Specifically, as set forth in further detail above and in the Revised Particularized
Statement, Defendants engaged in the following conduct:
• Each Broker Defendant significantly consolidated the number of carriers to which it would market its clients’ business.
• Each Broker Defendant then entered into “strategic partnerships” with a limited number of Insurer Defendants to which the Broker Defendant agreed to steer the bulk of its business.
• Insurer Defendants would be given access to a guaranteed flow of premium volume from the Broker Defendants with which they had partnered, as well as protection from normal competition from both inside and outside of the strategic partnerships for renewal of each of the insurer’s own business.
• To accomplish this, Defendants engaged in a number of practices specifically set forth in the Revised Particularized Statements including “book rolls,” agreements not to bid renewals competitively, limiting the marketing of renewals, disclosing other carriers’ bids and other actions designed to maximize the volume of insurance placed with the Insurer Defendants and maximize the volume of renewal business placed with the Insurer Defendants.
397. In exchange for being given these unfair competitive advantages, the Insurer
Defendants agreed to pay kickbacks to the Broker Defendant with which they had partnered in
the form of contingent commissions.
398. None of the communications mailed or faxed to any Plaintiff from a Broker
Defendant disclosed any of the foregoing conduct. Rather, as set forth herein and in the RICO
Case Statement, Defendants have made material misrepresentations and omissions, designed to
knowingly misled and deceive their clients, including Plaintiffs and members of the Class, into
4 As alleged above, this conduct constituted a market allocation scheme in violation of the antitrust laws. However, even if the antitrust laws had not been violated, this conduct was contrary to the Broker Defendants’ representations and fiduciary obligations and gives rise to actionable claims of mail and wire fraud.
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believing that they provide independent, unbiased and expert brokerage services tailored to the
needs of their clients.
399. Defendants concealed the following material matters from insurance purchasers
who unknowingly paid for the kickbacks through higher premiums:
• that the Broker Defendants were not acting in the best interest of their clients but were instead acting on behalf of the Insurer Defendants and in furtherance of their own financial interests;
• the true nature of the association and agreements between the Broker Defendants and the Insurer Defendants;
• the conflict of interest inherent in the agreements between the Broker Defendants and Insurer Defendants;
• the Broker Defendants’ consolidation of their insurance markets to a few select strategic partners;
• the Broker Defendants’ steering of insurance placements to the Insurer Defendants;
• that the Broker Defendants were protecting their strategic partner Insurer Defendants from competition, and in the case of Marsh, that it engaged in rigging of bids with AIG, ACE, Chubb, XL, Munich/Am Re, Liberty Mutual, Travelers, Fireman’s Fund and Zurich;
• that the Insurer Defendants kicked back a substantial portion of their increased profits to the Broker Defendants in the form of contingent commissions and other forms of compensation; and
• that the Insurer Defendants factor the kickbacks paid to the Broker Defendants into the cost of Plaintiffs’ and Class Members’ insurance, resulting in injury to Plaintiffs’ and Class Members’ business and property.
400. Misrepresentation of the Brokers Defendants’ allegiance as well as concealment of
their relationships with, and allocation of business to, the Insurer Defendants was necessary to
encourage retention of the brokers, to conceal the scheme, to lull clients, including Plaintiffs and
Class Members, into a false sense of security and to assure payment of the excess premiums.
Likewise, inclusion of the excess amount of premium resulting from Defendants’ scheme in
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invoices forwarded to each Plaintiff without explanation or a separate accounting for the excess
premium was necessary to conceal the scheme and to assure payment of the entire invoice
amount.
401. As a result of the conduct alleged herein, Plaintiffs and members of the Class have
paid insurance premiums in excess of what they would have paid had Broker Defendants acted in
accordance with their fiduciary and other duties, and their representations to their clients.
(1) Defendants’ Active Concealment Practices
402. Defendants understood that full disclosure of the amount and significance of
contingent compensation arrangements between the Broker Defendants and the Insurer
Defendants would result in insurance buyers becoming aware of the existence of the conflicts of
interest created by the true relationships between the brokers and their strategic partner carriers,
which would result in their scheme unraveling. In order to prevent detection, Defendants
engaged in the following practices: (i) the Broker Defendants agreed with their strategic partner
carriers that the terms of contingent commission agreements would be kept secret from clients
and included confidentiality clauses in many of the contingent commission agreements
prohibiting such disclosure; (ii) the Insurer Defendants built the cost of contingent commission
payments into the premiums charged to insurance purchasers, and agreed that they would not
disclose that the premiums were inflated to include the kickbacks; and (iii) the Broker
Defendants mutually agreed to act in concert to thwart detection of the significance of the
contingent commissions and their resulting unlawful practices by, among other things, adopting
substantially similar vague and incomplete disclosure (or non-disclosure) policies regarding
contingent compensation matters and by publicly responding with one voice through the Council
of Insurance Agents and Brokers (the “CIAB” of the “Council”) regarding these issues.
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403. These practices furthered Defendants’ improper scheme by concealing material
information regarding the significance and impact of the contingent commission payments to the
placement process, while creating the appearance of transparency and allowing Defendants to
maintain their illicit and improper gains from their conspiracy.
(a) The Broker Defendants and Insurer Defendants Agreed to Keep Their Contingency Commission Arrangements Secret
404. As an initial matter, each Broker Defendant agreed with its strategic partner carriers
that the terms of the contingent commission arrangements that they had entered into would not
be disclosed to their customers. In this regard, the Broker Defendants made clear to their
strategic partners that they would not disclose the details of any of their contingent commission
agreements to their clients, while the Insurer Defendants uniformly took the position that they
were not obligated to make any disclosures to their policyholders regarding contingent
commission payments.
405. In furtherance of these understandings, Defendants incorporated standardized
confidentiality clauses in their contingent commission agreements that prevented the terms of the
agreements from being disclosed to third parties, including purchasers of insurance (even though
Defendants would share information with one another regarding these agreements).
406. The following are typical examples of confidentiality clauses included in the
contingent commission agreements between Broker Defendants and their strategic partner
Insurer Defendants:
• A 1997 contingent commission agreement between Aon and Chubb providing that, “[t]he terms of this agreement are confidential and shall not be disclosed by either party except as may be required by law.”
• A 1998 Commission Override Agreement between HRH and Travelers providing that: “All terms and conditions of this Agreement, including any
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communications between Travelers and HRH that led to the formation of this Agreement shall be kept confidential by HRH as against third parties, unless disclosure is required pursuant to process of law. Disclosing or using aforementioned information for any purpose beyond the scope of this Agreement is expressly forbidden without Travelers prior written consent.”
• A 1999 PSA agreement between Marsh and Hartford providing that: “The terms of this Agreement are confidential and shall not be disclosed by either party except as may be required by law.”
• A 2000 PSA between Gallagher and Chubb providing that: “The terms of this Agreement are confidential and shall not be disclosed by either party except as may be required by law.”
• A 2000 PSA agreement between Marsh and Liberty providing that, “[t]he terms of this Agreement are confidential and shall not be disclosed by either party except as may be required by law.”
• A 2001 PSA between Aon and Crum & Forster providing that the parties agree “to maintain the confidentiality of the existence and terms of this Agreement.”
• A 2001 PSA between Marsh and Crum & Forster providing that, “[e]ach of the parties shall . . . (ii) maintain the confidentiality of the existence and terms of this Agreement,” and a 2003 agreement providing that, “[t]he terms of this Agreement are confidential and shall not be disclosed by either party except as may be required by law and to a party’s respective legal and accounting advisers.”
• A 2001 Insurance Placement Compensation Agreement between Aon and CNA, and in a 2003 PSA between Marsh and CNA, both providing that: “[t]he terms of this Agreement are confidential and shall not be disclosed by either party except as may be required by law.”
• A 2001 and a 2003 PSA between Marsh and Fireman’s Fund providing that, “[t]he terms of this Agreement are confidential and shall not be disclosed by either party except as maybe required by law.”
• A 2002 PSA between Willis and Ace providing that, “[t]he terms of this agreement are confidential and shall not be disclosed by either party except as may be required by law” and a 2003 agreement between Willis and Ace providing that, “[th]e terms of this Agreement are confidential and may not be disclosed to any person or organization, except as required by law.”
• A 2002 PSA between Marsh and AIG providing that, “[t]he terms of this Agreement are confidential and shall not be disclosed by either party except as may be required by law.”
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• A 2002 Incentive Compensation Agreement between Acordia and Travelers providing that, “[t]he terms of this agreement are confidential and shall not be disclosed by either party except as may be required by law.”
• A 2003 agreement between Aon and Axis providing that, “[t]he terms of this Agreement are confidential and shall not be disclosed by either party except as may be required by law.”
407. As demonstrated by the foregoing examples, the use of standardized confidentiality
clauses in contingent commission agreements between the Broker Defendants and the Insurer
Defendants was widespread and grew throughout the Class Period. For example, in June 2003,
Marsh Global Broking Inc. disseminated instructions that the following language was mandatory
in all contingent commission agreements: “Confidentiality: The terms of this Agreement are
confidential and shall not be disclosed by either party except as may be required by law and to a
party’s respective legal and accounting advisers.”
408. The Broker Defendants relied on the confidentiality clauses as a reason why they
could not disclose any information regarding the contingent commission arrangements with their
strategic partner Insurer Defendants. Demonstrating that this is the case, following
investigations commenced by regulators in 2004 into broker compensation practices, Aon had to
send out requests to its partner carriers to get their permission just to disclose the existence of
contingent commission agreements to its customers. In responding to inquiries from several
carriers as to what information it would be disclosing, Aon made clear that it was only intending
to state that a contingent commission agreement existed with particular insurers, without
volunteering any details about the agreements.
409. The Insurer Defendants likewise instituted policies that prevented insurance
purchasers from being properly informed as to the details of their relationships with the Broker
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Defendants, taking the position that they would not disclose information regarding contingent
commission arrangements. For example, an internal Chubb memorandum states:
We do not advise producer’s regarding disclosure of Chubb’s contingent arrangements to insureds – we consider that to be an agency/customer issue that we are not party to [emphasis in original].
410. An internal Liberty Mutual email dated August 2004 written in the wake of the
regulatory investigations going on at that time illustrates the Insurer Defendants’ intent to
withhold this information from insurance purchasers:
I suggest you show as little knowledge of these agreements as possible. You sure don’t want to be subpoenaed.
The issue is really between brokers and their clients. The agreements are between us and brokers and are proprietary. We would not release the details to any customer. They are not party to the contract. [emphasis added].
411. In some instances, the carriers went so far as to include clauses requiring that the
brokers indemnify them in the event that they were sued as a result of the failure to disclose their
contingent commission arrangements. For example, following the August 25, 1998 enactment of
New York Insurance Department Circular Letter No. 22 concerning the disclosure of
compensation terms, in addition to a confidentiality clause, Travelers included a provision in its
PSAs that made it the broker’s responsibility to comply with the Letter’s disclosure requirement.
Other Insurer Defendants included similar clauses in addition to the confidentiality clauses in the
contingent commission agreements that they entered into with the Broker Defendants.
412. Regardless of whether a confidentiality clause was included in a particular
agreement, the Broker Defendants and Insurer Defendants took steps internally to assure that the
details of their contingent commission arrangements were not disclosed.
413. For example, Marsh’s policy of misleading clients about the payment and receipt of
contingent commissions came to light in the guilty plea of a former Marsh managing director,
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Joshua M. Bewlay, who pled guilty to a felony charge of scheming to defraud on February 14,
2005. Mr. Bewlay’s testimony revealed that Marsh established a procedure or a “protocol”
intended to “discourage the client from obtaining an answer” on how Marsh received
compensation from insurance companies. Mr. Bewlay’s testimony states the following, in
relevant part:
Finally, during my employment, I was made aware of a Marsh protocol designed to prevent Marsh’s clients from obtaining accurate information concerning the amount of placement service or PSA or MSA revenue Marsh earned from carriers with respect to a particular client in addition to any fee or commission paid. The protocol required multiple layers of inquiry to discourage the client from obtaining an answer. Also that all inquiries be channeled through a single Marsh employee who directed the answer to the inquiry. [Emphasis added.]
Finally, the percentage or ratio that Marsh used when it responded to a client’s inquiry concerning placement service or PSA or MSA revenue significantly understated the amount of PSA or MSA revenue earned with respect to a particular client. In my department, Global Brokerage and Excess Casualty significantly understated the amount of PSA or MSA revenue earned by Marsh with respect to a particular client.
When I was told that a client inquired as to the amount of PSA revenue Marsh earned from an insurance carrier, I responded that the Marsh employee follow Marsh’s protocol, including that the client only speak to the Marsh employee designated to respond to such inquiries. [People of the State of New York v. Joshua Bewlay, Plea Testimony (Feb. 15, 2005) at p. 11-12.]”
414. Mr. Bewlay similarly admitted in his plea agreement that he made misleading
statements about the amount of compensation Marsh received from insurers. Mr. Bewlay’s plea
agreement states, in relevant part: “From in and before 1999 through 2004, Mr. Bewlay engaged
in a scheme constituting a systematic ongoing course of conduct with intent to defraud ten or
more persons and to obtain property, namely insurance premiums, commissions and fees, from
ten or more persons, to wit, clients of Marsh, by false and fraudulent pretenses, representations
and promises, to wit, misleading statements about the amount of compensation Marsh derived
from insurance carriers, and so obtained property from one or more such person, in that Mr.
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Bewlay referred client inquiries for disclosure of such compensation to a designated Marsh
employee, knowing that said employee would provide misleading information concerning
Marsh’s compensation to the clients. [Emphasis added.] [Joshua Bewlay Plea Agreement
(filed Feb. 14, 2005) at ¶5.]”
415. An internal Marsh document entitled “PSA Primer” dated July 1999 further
describes Marsh’s misleading policies on disclosing the amounts received from contingent
commission agreements. Under the heading “PSA General Discussion” the document states:
“There is no necessity to divulge the particulars of any PSA either to clients or other
individuals within Marsh Inc. who are not involved in either their negotiation or ongoing
administration. In fact, doing so would constitute a breach of the confidentially clause contained
in the agreement between us and the carrier. Requests for disclosure by clients or other parties
will be referred to the appropriate U.S. Region Head for review and disposition.” (Emphasis
added).
416. Even when a client attempted to understand the compensation practices at issue,
Marsh intentionally failed to disclose the substance of its contingent commission arrangements
or that such agreements were the basis for Marsh’s scheme to allocate customers to Marsh’s
partners or preferred markets. The following internal Marsh email dated January 31, 2002,
exemplifies the response given when clients inquired as to compensation related to PSAs: “As a
matter of corporate policy, Marsh does not make available any specific information relating to
Placement Service Agreements. This includes information relating to any revenue earned or
other details on a contract or market specific basis. These two party agreements contain
confidentiality clauses which prohibit either party from disclosing any details as to the operation
of such PSA’s.”
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417. Consistent with its corporate policy on disclosure, Marsh sent the following
response to another client inquiry regarding Marsh’s PSA’s: “Chris has asked me to respond to
your questions regarding PSA disclosure to the client. As a matter of corporate policy, we don’t
provide any details on PSA formulas or confirm which product lines are covered. All of the
PSA’s contain confidentiality clauses which legally prohibit the disclosure of any details of these
contracts by either the carrier or Marsh. In accordance with our 1999 agreement with RIMS,
Marsh will advise which of the markets participating on a clients risk we have PSA’s in force
(but not by product line).”
418. The other Broker Defendants took similar steps to prevent information regarding its
contingent commission arrangements from being disclosed. For example, when an Aon client
asked for details of revenues derived from contingent commissions, overrides, bonuses or similar
types of third party arrangements, Eric Anderson of Aon stated: “we do not disclose the national
amounts we received. As I am sure you can understand, that is extremely confidential
information. Other major brokers will not disclose their figures (this had played out many
times). If his concern is that we are not steering business to insurers to maximize our income, we
can certainly address that this is absolutely not the case.”
419. In an email to AON, Axis employee Dennis Reding wrote, “There will be no
general communication of this agreement within our companies or outside.” Similarly, an email
from Axis employee Marshall Turner in February, 2004, stated, “Please delete all references to
the 2003 AON incentive. This is confidential information not to be share beyond Dennis, you
and me.”
420. HRH likewise adopted a national firm-wide policy prohibiting disclosure of its
agreements with its partner carriers and assured its partners that it would not to disclose their
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contingent commission arrangements. In connection with HRH’s carrier “Consolidation
Initiative” designed to “leverage” HRH’s ability to allocate business in exchange for contingent
commission payments, a Travelers senior vice president wrote to an HRH executive, stating:
Travelers & HRH agree terms and conditions will be handled with ABSOLUTE CONFIDENTIALITY . . . . These terms and conditions assume a similarity of intent with the strategic partners [emphasis in original].
421. The Assurance of Discontinuance that Travelers recently entered into with the
Attorneys General of New York, Connecticut and Illinois further states that once HRH’s
agreements with its strategic partners were in place, “HRH began systematically to identify
customers whose business could be switched to Travelers and the other selected insurers,” yet
kept telling its clients that it was in their “best interest” to move to one of the “Big 3” carriers
while “never disclos[ing] its own financial motives for the switch.” (emphasis added).
422. HRH’s non-disclosure policy is illustrated in an email exchange between Carolyn
Jones, SVP, CFO and Treasurer of HRH, and Ned Kirklin of HRH/Kirklin & Co., LLC,
regarding concerns raised by Ernst & Young about the necessity of disclosing a financial
relationship between HRH and an underwriter that was receiving placements from HRH. Mr.
Kirklin unequivocally states that “there is no obligation to divulge this information just like
HRH has no obligation to divulge its profit sharing arrangements with carriers.” (Emphasis
added).
423. Willis also ensured that the details of its contingent commission arrangements were
kept secret. Internally, Willis bolstered its ability to maintain the secrecy of this information by
limiting access to the details of these arrangements to a restricted group of employees within the
company. In this regard, according to a Willis Senior Vice President responsible for global
market carrier advocacy, only approximately 20 employees within the company’s entire global
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organization were permitted to access these details via the company’s intra-net system – and only
five employees within the company’s Global Markets North America Group had the ability to
access this information. Thus, Willis’s marketing teams were only provided with enough details
concerning the company’s contingent commission arrangements for them to understand where
placements should be allocated. As explained by an Executive Vice President who worked on
the development of the company’s “Marketing Desktop”:
[W]e would publish limited details about our contingents to our marketing teams (so that they understand the raison d’etre of preferred carriers) but the full details of deals would only be available to senior management. [emphasis added]
424. Indeed, even following the onset of regulatory investigations of broker
compensation practices, Willis continued to refuse to disclose specific information regarding its
contingent commissions, even in response to specific inquiries. For example, on April 7, 2004, a
Willis employee sent an email to James Drinkwater, managing director of Willis Global Markets
North America, requesting guidance on how to fulfill the company’s obligation under a fee
agreement to disclose contingencies attributable to a client’s placements. In response, Mr.
Drinkwater stated as follows:
All that I can tell you at this time is that we are negotiating contingent agreements with some of these carriers and there would be no [ ] way for us to estimate any contingent payment at this time, or at a later date that are attributable to this specific insured. Contingent agreements are not reflective of individual accounts they are reflective of services that we provide insurers for our overall work on a book of business. [emphasis added]
425. Gallagher similarly instituted polices that prevented its clients from obtaining
accurate or detailed information regarding its contingent commission arrangements. Gallagher
likewise continued to adhere to these policies even after the regulatory investigations into broker
compensation practices began in 2004.
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426. For example, in May 2004, Gallagher received an inquiry from a client requesting
confirmation that Gallagher was not accepting contingent payments on its business. In making
the inquiry, the client stated: “It is clear that by accepting such fees, brokers would be in a
conflict of interest situation when recommending insurance programs and structures.” In
response, Craig M. Van der Voort, Gallagher’s Vice President of Market Resources, instructed
that the client be assured that “there is no conflict of interest when serving our client” resulting
from Gallagher’s contingent commission arrangements. Mr. Van der Voort further instructed
that the following response be given:
Nothing in the calculation formula is account specific and since overall underwriting profitability is measured, the poor loss experience of clients can easily offset or reduce any potential bonus payment. With all of the various components that are measured, it would be extremely difficult [to] determine what, if any, a specific client’s placement might have yielded to the total calculation. [emphasis added]
427. Wells Fargo/Acordia issued internal instructions that the details of its partnership
arrangements be kept confidential, at the same time that it provided its managers with enough
information to ensure that they maximized revenue from steering. An October 8, 1999, email
from Charles Ruoff, Acordia’s Senior Vice President and Chief Marketing Officer, authorizes
that certain information regarding Acordia’s “Millennium Partnership Agreements” could be sent
to some of the company’s regional managing directors, with a copy to the company’s Corporate
Planning Committee, for the purpose of “maximiz[ing] the incentive payments.” The email
concludes with the reminder: “confidential issue important as it could void our agreement if
disclosed outside Acordia.” [emphasis added].
428. The confidential nature of the contingent commission agreements were to be
maintained at all costs and those who violated the confidentiality of the agreements were
confronted with threats and dealt with harshly. In early May of 2003, a Marsh Global Broking
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employee learned that a Global Broking PSA was leaked from a front-line Munich Am-Re
(“MARP”) employee to a Marsh local office employee. Marsh chastised the MARP
management. After finding out about this unauthorized discussion of the PSA, Mark Manzi of
MGB wrote to the head of MARP GRM, saying that “[t]his is appalling and unacceptable!” He
noted that the same thing happened last year, and asked what “Munich will do to rectify this very
embarrassing situation.” The head of MARP’s Global Risk Management unit, John Schumacher,
immediately responded to Marsh and acknowledged the violation of their agreement: “We
acknowledge that this was inappropriate behavior and will do the necessary to eliminate all
documentation, electronic or otherwise, that references or otherwise alludes to the PSA. I
apologize for the consternation that this has caused within the Marsh organization.”
429. Shortly thereafter, Schumacher sent out an email to his employees stating that the
PSAs “have confidentiality provisions which we must abide by. Although we have broadly
communicated certain information to ensure that we price appropriately, we cannot make any
reference to this to anyone.” The head of the Public and Non-Profit unit of MARP sent an email
to his employees, stating, “[q]uotes we provide to any production source should not reference
any applicable PSA percentage we included in our pricing. Furthermore, PSAs are never to be
discussed with retail producers or clients.”
430. The importance of maintaining the secrecy of the contingent commission payments
is further evidenced in an email from Acordia when one of its clients inadvertently learned from
AIG that Acordia was to receive an ______commission. In response to such inadvertent
disclosure, Mark Dougherty wrote to Scott Isaacson, Acordia, Inc.’s Chief Marketing Officer:
“HOWEVER, I would like to point out that AIG sent the raw feed to the client – IT STATES
THE COMMISSION! The client has already called and is complaining about the ______
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commission on our end. We are now negotiating that and it looks like we are going to net this
out and figure something in the fee range of ______. I am not a greedy-guts - but if AIG did this
to Marsh, Willis or AON I can only imagine what that conversation would be like.”
431. As a result of these established policies and practices, Defendants were able to
conceal the true nature and scope of their contingent commission arrangements and their
strategic partnerships that resulted in the customer allocation scheme and conspiracy alleged.
(b) Defendants Failed to Disclose That The Cost of Contingent Commissions Was Built Into the Price of Premiums
432. The Insurer Defendants built the cost of the contingent commission payments that
they made to the Broker Defendants into the premiums that they charged for the insurance they
provided. As a result, the premiums Plaintiffs and Class Members paid were inflated in order to
cover these costs. Nevertheless, in their binders and invoices, the Insurer Defendants failed to
disclose that the cost of contingent commission payments was imbedded into the premiums. The
Broker Defendants failed to disclose this to their clients as well. In fact, the Broker Defendants
would misleadingly take the position that contingent commissions were not attributable to any
particular client’s insurance placements.
433. Both the Broker Defendants and the Insurer Defendants knew that the cost of
contingent commissions was included in the premiums that Plaintiffs and members of the Class
were charged. For example, in a November 11, 1994, letter from a Willis executive to a Chubb
executive states: “Imbedded in your rating structure is an expense allowance for contingency
payments. Its [sic] probably some sort of average across Chubb’s book of business, based on
historical experience.”
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434. This letter is consistent with other internal documents and the testimony of
witnesses indicating that the cost of contingent commission payments is built into the premiums
charged to insurance purchasers.
435. Nevertheless, the Broker Defendants and Insurer Defendants took steps to make
sure that no information referencing the impact of contingent commissions on premiums was
provided to insurance purchasers, and any inadvertent reference to such information in materials
provided to insurance purchasers would be quickly eradicated.
436. For example, a May 15, 2003, email sent from Craig Smiddy, a Vice President of
Munich Reinsurance, to all AMRE – PNP Managers contained the following directive: “Please
discuss with your team; Quotes we provide to any production source should not reference any
applicable PSA percentage we included in our pricing. Furthermore, PSA’s are never to be
discussed with retail producers or clients.” (Emphasis added). As this email indicates, AMRE
senior management clearly understood that PSA’s increased the price of premiums, and that this
information could not be disclosed to consumers, including Plaintiffs and other Class Members.
437. Similarly, in 2004, a “high level representative” of Marsh complained to the Chief
Underwriting Officer of ACE WestChester’s Proper unit, about the disclosure in WestChester’s
quotes and binders of its PSA with Marsh. The chief underwriting officer promptly advised the
head of the Property unit, and other management that their underwriters should “immediately
refrain” from disclosing anything other than the percentage commission, and that referencing the
Marsh PSA “is highly unacceptable.”
438. ______
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______
______
______
______
439. Defendants understood that their failure to disclose the relationship between
contingent commissions and premiums was deceiving to insurance purchasers. A draft letter that
AIG prepared in 1998 to send to its insureds stated that: “[W]e agree with the New York
Insurance Department that failure to disclose how much we pay your broker is withholding
critical information from you who ultimately pays for this compensation through its higher
insurance premiums.” (Emphasis added). The draft letter went on to commit, among other
things, to: “[d]isclose to our New York insureds prior to their purchase of a new or renewal
policy, the total compensation we are paying their broker, including contingent compensation
arrangements or payments to the brokers’ ‘affiliate’ organizations” and “[i]nclude as a factor in
the establishment of our premium rates, all fees paid to your broker.”
440. This letter was never sent to AIG’s insureds and the “critical information” referred
to in the letter regarding how much the brokers are paid and how contingent commissions impact
premiums was never disclosed.
441. Although this draft letter was prepared by AIG, its reasoning applies equally to all
Defendants and illustrates how they understood the manner in which they were deceiving their
clients.
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(c) The Broker Defendants’ Concerted Actions to Prevent Meaningful Disclosure of Their Contingent Commission Arrangements is Built into the Price of Premiums
442. The Broker Defendants mutually agreed to issue substantially similar incomplete
and materially false and misleading disclosure statements regarding contingency compensation
arrangements as well as other public statements, made through “CIAB”, in order to create the
illusion that the Broker Defendants’ were acting in their clients’ best-interests and were
operating in an open and transparent manner.
443. In this regard, as described herein, during the mid-1990s, concerns were raised on
several occasions over whether the large brokers, including the Broker Defendants, might be able
to exploit their increasing market power at the expense of insurance purchasers. The Broker
Defendants understood that these types of concerns could result in efforts by the insurance
buying public and/or regulators to demand actual and complete disclosure of the manner in
which the Broker Defendants were compensated by the Insurer Defendants. The Broker
Defendants knew that it would be necessary to effectively fend off any such efforts, and CIAB
served as a ready conduit employed by the Broker Defendants to accomplish this task.
444. For example, following concerns being raised over broker compensation issues in
1998, the Broker Defendants, operating through CIAB, determined that they needed to adopt a
consistent position statement that would avoid insurance regulatory scrutiny and prevent any
action that would result in meaningful disclosure to the Broker Defendants’ customers.
445. Specifically, stating in an internal CIAB document that, “[u]nfortunately, this
debate [over broker compensation disclosure issues] is not likely to go away anytime soon,” the
CIAB determined that it needed to adopt a position statement that was intended to stave off any
meaningful regulatory disclosure requirements and reassure insurance purchasers that their
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brokers were acting in their best interests. This statement began by stating that: “Council
members [including all of the Broker Defendants] are committed to acting in their client’s best
interest by providing products and services that meet the clients’ needs and desires.” The
statement then went on to discuss the purported “value” that contingent commission agreements
have on a “broker’s ability to access markets in the clients’ interest.” The position statement also
recommended that brokers should disclose that they “may have compensation arrangements with
some insurance carriers and give clients the opportunity to discuss the matter further if they have
questions or concerns.” (emphasis added).
446. The CIAB position statement was made available for review and editing by its
members before being finally approved by CIAB’s Executive Committee, which included
executives from Marsh, Aon, and HRH. These Executive Committee members were also all
officers of CIAB. Additionally, an executive of Willis was a member of CIAB’s Industry
Affairs Committee, which initially made the recommendation to issue a position statement.
Further, one or more representatives of all of the Broker Defendants, or their predecessors, were
on CIAB’s Board of Directors at the time the CIAB position statement was issued.
447. The position statement was intended to create the impression with both regulators
and clients that CIAB was effectively addressing the issue of compensation disclosure so there
would be no need for any regulation on this issue.
448. Indeed, the CIAB position statement was issued following the New York State
Insurance Department’s issuance of Circular Letter 22, which imposed certain obligations on
brokers to disclose certain compensation information. CIAB’s true intent to prevent meaningful
disclosure of compensation arrangements is reflected in the following statements contained in its
internal meeting notes: “The Council is working with other interested trades to arrange a
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meeting with the New York Insurance Department. At the meeting, we will state opposition to
the Letter because it is too broad and without sufficient legal justification. We will seek to have
them rescind it and discuss a voluntary program of appropriate disclosure.” (Emphasis
added).
449. Although CIAB was unsuccessful in its efforts to get Circular Letter 22 rescinded, it
has consistently instructed its members that the letter “imposes additional obligations, which are
not enforceable,” that the letter “should be narrowly construed,” and that disclosure that a broker
“may” have contingent commission agreements with some carriers is all the brokers needed to
say to comply with Circular Letter 22 or any other regulatory obligation.
450. The Broker Defendants have worked with CIAB to create the public impression that
“full disclosure” is the industry standard. Illustrating this point, CIAB prepared an internal
document entitled, “Suggested Talking Point for CIAB Members if Questioned on Contingency
Fees,” which was intended to help its members, including the Broker Defendants, deal with
concern raised over broker compensation practices following the complaint filed by the New
York Attorney General against March in October 2004. This document stresses that CIAB has
operated under a disclosure policy “that has been on the books since 1998” and that, “[l]ong
before contingency fees became an issue in the media, The Council and its members were
reviewing disclosure policies to make sure that there was no question about where we stand.”
451. Similarly, in a 1998 presentation before the Risk Insurance Management Society
(“RIMS”), Roger Egan, a Managing Director at Marsh stated that Marsh “recognize[d] a duty to
disclose” and described Marsh’s policy to be one of “full disclosure.” Similarly, Aon has
described itself as “a full disclosure Insurance Broker.”
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452. Nevertheless, the Broker Defendants have either completely failed to provide any
disclosures regarding their contingent commission arrangements or issued substantially similar
purported “disclosure” statements modeled after the CIAB’s position statement that were in and
of themselves misleading and allowed Defendants to conceal their conspiratorial scheme. Over
the course of the Class Period, the Broker Defendants have included these statements in
numerous communications with clients such as invoices and agreements and other documents.
For example, Marsh began incorporating the following language in materials disseminated to its
clients:
Marsh USA and its affiliated companies (“Marsh”) may have agreements with insurers providing the coverage which is the object of this invoice pursuant to which Marsh may derive compensation contingent upon such factors as the size, growth, and/or overall profitability of an entire book of business placed by Marsh with such insurers. Such contingent compensation would be in addition to any other compensation Marsh may receive such as retail, excess and surplus lines and wholesale brokerage fees or commissions, administrative fees, etc. At your request, Marsh will provide additional information. [Emphasis added].
453. Similarly, Aon adopted the following official policy, which failed to disclose
sufficiently the impact of the contingent commission agreements, stating:
Aon is committed to acting in its clients’ best interests by providing products and services designed to meet clients’ risk financing and risk management objectives. It has been a long-standing practice in the insurance industry for carriers to have compensation arrangements with brokers, like Aon, who bring added value to the distribution system through their performance, expertise and efficiency. We believe that such arrangements serve to enhance the brokers’ ability to access insurance markets in their clients’ interests. . . . We believe that openness and honesty in our business relationships is a tenet to which Aon abides and, to that end, Aon notifies it clients in its service fee arrangements, its invoices, its website and other publications that it may have compensation arrangements with some insurance carriers, offers its clients the opportunity to discuss these matters further, and will, where applicable and available, provide its clients with information concerning compensation earned from such arrangements. [Emphasis added].
454. In accordance with this policy, Aon began including the following language in its
invoices and service agreements:
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In certain circumstances, one or more of these subsidiaries may also receive compensation in the following forms: commissions or fees paid as reinsurance brokerage or captive management companies for placement or management reinsurance of a client’s risk; commissions paid to excess and surplus lines brokerages; commission paid to managing general agent to whom a risk has been referred for placement; contingent commissions paid by an insurer based on aggregate loss experience; overrides paid by an insurer/reinsurer based on service performed and the volume of business placed with the insurer/reinsurer; fees paid for premium financing; and feed paid for performance of technical or other services. [Emphasis added].
455. Willis likewise began including the following similar language in communications
with it clients:
In addition to the commissions received by us from Insurers for placement of your insurance coverages, other parties, such as excess and surplus lines brokers, wholesale brokers, reinsurance intermediaries, underwriting managers and similar parties (some of which may be owned in whole or in part by our corporate parents or affiliates), may earn and retain usual and customary commissions for their role in providing insurance products or services to you under their separate contracts with insurers or reinsurers. Additionally, it is possible that we, or our corporate parents or affiliates, may receive contingent payments or allowances from Insurers based on factors which are not client-specific, such as the size or performance of an overall book of business produced with an insurer by us, our corporate parents or affiliates. Upon written request, we will provide information regarding the compensation received by us or by our corporate parents or affiliates. [Emphasis added]
456. Gallagher also began using the following similar language in its communications
with its clients:
Gallagher from time to time enters into arrangements with certain insurance carriers or those carriers’ reinsurers providing for compensation, in addition to commissions, to be paid by such carriers or reinsurers to Gallagher or its affiliates based on, among other things, the volume of premium and/or underwriting profitability of the insurance coverages written through Gallagher by such carriers or reinsurers. In addition, Gallagher and its affiliates provide management and other services to, and receives compensation for those services from, certain reinsurers that reinsure insurance coverages written through Gallagher by other insurance carriers. The insurance coverages you purchase through Gallagher might be issued by an insurance carrier or reinsured by a reinsurer that has such a relationship with Gallagher or its affiliates. [Emphasis added].
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457. Wells Fargo/Acordia likewise began to use the following similar language in its
communications with its clients:
[Acordia] may have agreements with insurers providing the insurance coverage which is placed by Acordia pursuant to contingent agreements which may result in compensation. These agreements are based upon such factors as the size, growth, and/or overall profitability of total business placed by Acordia with such insurers. Such contingent compensation is considered an industry standard and would be in addition to any other compensation Acordia may receive such as retail and wholesale brokerage fees or commissions, administrative fees, etc.”
458. The foregoing disclosures were modeled after the CIAB position statement in order
to create the impression of transparency, by stating that the brokers “may” have contingent
commission agreements that might result in some additional revenue, while failing to disclose
any information regarding the strategic partnerships that the Broker Defendants had entered into
with the Insurer Defendants or the significance of these partnerships and the contingent
payments arrangements had on the insurance placement process and the premiums charged.
Moreover, regardless of the extent to which the Broker Defendants incorporated these statements
in their own communications with their clients, the CIAB’s campaign, which included the
position statement and other similar statements, successfully prevented the Broker Defendants
from having to make any meaningful disclosure for years.
459. Indeed, CIAB has routinely provided the Broker Defendants the opportunity to
discuss and reach agreement on joint action in response to regulatory investigations and
regarding disclosure issues in order to conceal Defendants’ scheme and for furtherance of
Defendants’ fraud. For example, in 2003, CIAB reiterated in an internal email that its position
statement was “a generic disclosure that we think works and that should not cause too much
consternation.” Similarly, a 2003 email sent by CIAB’s General Counsel discusses revising a
policy paper to eliminate a provision because it “could be read to require more contractual
disclosure of the payment mechanism, which is exactly what we don’t really want to get into.”
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460. More recently, the Council adopted “crisis communication plans . . . to respond to
issues raised by the Spitzer Investigation.” CIAB members have held joint meetings with other
insurance trade associations to consider the “industry-wide responses” to the investigations.
CIAB has also issued statements to create the impression that is members were already making
full disclosure of all compensation related matters
461. For example, in response to a regulator inquiry regarding contingency commissions,
CIAB provided assurance that “they really have no impact on the amount insureds pay for
coverage.” In a news release, Defendants through CIAB, assured the public that “disclosure is
the industry standard” but also confirmed that they are acting in the client’s best interest in the
insurance marketplace:
A broker is charged with finding the best risk coverage solutions for his or her commercial customers. It is incumbent upon brokers to research the market fully and present a range of options, then work with their customers to find the coverage that meets their needs, both in terms of cost and scope….The best broker for a given customer or group of customers is the who one has a relationship with the carriers that have the products that serve those customers best.
462. For years the Broker Defendants, operating through CIAB, have consistently
discussed and opposed any efforts to require meaningful disclosure of contingent commission
arrangements and successfully fended off any regulatory action through the use of misleading
and vague statements.
463. These type of statements issued by CIAB, as well as its position statements, which
many of the Broker Defendants’ echoed in their direct communications to their clients, were in
and of themselves materially false and misleading in that they failed to disclose the scheme
described above, including the true nature of the arrangements between the Broker Defendants
and their strategic carrier partners, and attempted to lull insurance purchasers into believing that
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the brokers were acting in their best interests and that contingent commission agreements
furthered this purpose.
464. An internal February 2004 Marsh email illustrates how Defendants acted to create
the appearance of disclosure through the use of statements modeled after the CIAB position
statement, which withheld material information and mislead insurance purchasers. This email
states:
The monthly Statements and the Client Engagement agreement both refer to a document called “Our Business Practices and Principles” which is available on our Website and is normally sent with the Client Engagement Agreement, which refers to us receiving PSR’s but in a masterfully opaque way. [emphasis added.]
465. A series of emails among several Marsh employees underscores how the
standardized disclosure position put forth by CIAB and adopted by the Broker Defendants was
designed to mislead insurance purchasers. In this exchange, Allison Muller, a Marsh employee,
acknowledges that the substantial revenue brokers such as Marsh receive in the form of
contingent commissions is not disclosed: “It’s not a matter of client’s [sic] knowing about
PSAs, it’s about how much $$ we make on them & don’t disclose.” [emphasis added.]
Responding to a statement by Marsh executive Edward Keane, who was subsequently indicted,
that “pretty much every Broker has a PSA,” Ms. Muller further explained: “The issue is not that
we disclose the PSAs, but that we give clients such a shady answer when we do ‘Well, between
$-$$ we make $$, but there’s no way to know where you fall ….’ . . . If we actually disclose the
real amounts to our clients & factor that into our total fee, I wouldn’t be worried … but, we
don’t.” (Emphasis added). Ms. Muller concluded by stating that although Marsh benefited from
its receipt of contingent commissions, “no one should be shocked when they bight [sic] us in the
ass.” Although these conclusions were written by employees of Marsh, Ms. Muller’s
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explanation regarding Marsh’s “shady” disclosures apply equally to the misleading nature of the
disclosures involving the other Broker Defendants as well.
466. An internal AIG document which was attached to a 2002 PSA between AIG and
Marsh, further illustrates the misleading nature of Defendants’ limited disclosures regarding
contingent commission information. This document states, in relevant part, as follows:
However, the Client Service Agreement language does not adequately disclose to insureds the compensation paid by the insurer to the broker. The disclosure is inadequate because:
1. it “discloses” only referencing the agreements in the negative – i.e., what commissions are not for purposes of the commission offset;
2. it refers to the PSA monies as fees that the broker “may” receive, rather than as fees actually received; and
3. most importantly, it makes no attempt to describe or quantify the agreements or calculations themselves.
In order for the disclosure to be adequate:
1. The insurer should provide to the broker, with the insurer’s quote letter, a good faith estimate of the amount of total compensation to be paid to the broker by the insurer in connection with the quote.
2. The broker is obligated to disclose to the insured, at the time of delivery of the quote letter, (a) the broker’s estimate of such total compensation and (b) a detailed and complete description of the all compensation agreements (whether commission at inception or contingent compensation based on such factors as size, growth and/or profitability of an entire book of business, or otherwise), between the broker and the insurer, including any formulas and calculations involved.
3. The disclosure must be sufficiently detailed so that an insured is able to understand it fully. While it may not be possible to predict exactly the amount of compensation that will be payable, the broker must estimate the amount based on past history and reasonable assumptions.
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4. The disclosure should be prominent and free standing and not part of some other documentation. The broker should deliver the disclosure document with the insurer’s quote letter.
5. In addition to the disclosures set forth above, the broker must send a prominent disclosure notice to each insured at the time of actual calculation, stating the exact amount of compensation attributed to each insured. [Emphasis added throughout].
467. The foregoing letter demonstrates that Defendants understood the kind of
information that was necessary to be provided to insurance purchasers, such as Plaintiffs and
members of the Class, in order for their disclosures to be adequate. Nevertheless, Defendants
failed to make such disclosures and instead took steps to keep this information concealed as
described above.
468. It is only following the recent regulatory investigations involving the Broker
Defendants, which have lead to criminal indictments as well as a number of regulatory
settlements, that the misleading nature of the Broker Defendants’ purported “disclosures” have
come to light. For example, in explaining why it had agreed with Marsh in 1999 that a
disclosure protocol (which was substantially the same as CIAB’s position statement), was
adequate, RIMS recently stated:
The [1999 statement] was an appropriate response to this issue given the information we were provided at that time. We were told that contingency fees comprised only a fraction of the overall revenue earned by brokers, and in no way influenced its work on behalf of their clients. Years later, however, the reality of these arrangements came to light. [Emphasis added].
469. Marsh’s counsel, Davis Polk & Wardwell (“Davis Polk”), retained to represent it in
connection with regulatory investigations commenced by New York State in 2004, concluded
that the information that Marsh was disclosing pursuant to its 1999 agreement with RIMS was
misleading. In this regard, Davis Polk concludes that:
Marsh Inc. complied with the terms of the RIMS agreement; nonetheless, given the manner in which the calculations were performed pursuant to the protocol, the
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amounts conveyed to clients could be viewed by certain clients as inaccurate or misleading [emphasis added].
470. Defendants were able to conceal their scheme for years as a result of their
agreement to keep their contingent commission arrangements secret and engage in a public
relations campaign designed to create the appearance of transparency. In the absence of proper
disclosure of the contingent commissions, Plaintiffs and members of the classes were prevented
from discovering the true nature of the relationships between the Broker Defendants and the
Insurer Defendants and relied, to their detriment, on Broker Defendants’ representations that they
were providing independent expertise and representing their clients’ interests in accordance with
their contractual, fiduciary and other duties as alleged above. Plaintiffs and members of the
classes also justifiably relied upon Defendants’ representations in connection with the insurance
policies they purchased.
(d) Recent Regulatory Investigations Reveal The Misleading Nature of Defendants’ Representations and Disclosure Practices
471. Commencing in 2004, a large number of state attorneys general and state regulators
began conducting investigations concerning the Broker Defendants’ compensation practices and
relationships with the Insurer Defendants. As a result of these investigations, settlement
agreements or assurances of discontinuances have been entered into by various Attorneys
General, including New York, Connecticut, Illinois, Pennsylvania and Minnesota, with the
following Broker Defendants: Marsh, Aon, Willis, Gallagher, and HRH, and the following
Insurer Defendants: Travelers, Chubb, Ace, AIG, and Zurich. These settlement agreements or
assurances of discontinuance included various restrictions on receiving contingent compensation
from insurers under certain circumstances and mandated, among other things, that the settling
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defendants provide meaningful disclosures regarding forms of compensation paid by insurers to
the brokers which were not previously made.
472. Even after these governmental and regulatory investigations got underway,
however, a number of Defendants continued to issue materially false and misleading statements
regarding their compensation practices and/or continued to fail to disclose these practices.
473. Following the investigations of various state attorneys generals of the insurance
industry in 2004, Marsh continued to fail to adequately disclose contingent commission
Agreements. In 2004, Marsh posted a “Frequently Asked Questions” page regarding MSAs on
its website (which it has subsequently removed), stating that it had no conflicts with clients
because of the MSAs:
Our guiding principle is to consider our clients’ best interests in all placements. We are our clients’ advocate and represent clients in our negotiations. We don’t represent the markets. We work closely with clients on the design of their risk transfer program to address the complexity of decisions that have to be taken into account, such as market financial strength, a market’s expertise in the line of coverage needed, its claims-paying history, clients’ service requirements, breadth of coverage, pricing, and other terms and conditions. We also work with insurers, and part of what an insurer pays us for is an iterative planning and communications process that allows the insurer to create more competitive proposals for our clients, which of course benefits those clients. In all cases, clients retain the final decision on the market chosen to handle its business.
474. As Marsh’s subsequent settlement conceded, however, among other things, Marsh
did not act in its clients’ best interests, did not advocate fairly on their behalf, and failed to
provide clients with the information needed to make informed placement decisions.
475. When the New York Attorney General began investigating the insurance industry in
2004, Aon’s CEO, Patrick G. Ryan, was reported as being “not fazed” by the investigations and
as being “very comfortable” with the conduct of Aon’s employees. In an SEC Form 8-K filed on
December 6, 2004, Ryan backtracked, however, claiming he was misquoted on the first point and
that he had been wrong on the second. As part of Aon’s settlement with various State Attorneys
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General, Ryan was ultimately compelled to issue a public apology for the misdeeds of the
company.
476. Those misdeeds included false postings on Aon’s use of CSUs on its website in
2004. Aon misleadingly stated that CSUs are compensation for valuable services performed:
“Aon performs activities and provides services of value to insurers, including providing access to
its substantial distribution networks, pre- and post-placement technical services, sharing of Aon’s
knowledge and expertise as an industry leader, policy design and review, research and
development, risk analysis, claims management, administration and other underwriting-related
activities. Providing these services ultimately benefits our clients, the insurance markets and
Aon.”
477. Gallagher also continued to issue similar false statements after the regulatory
investigations had begun. For example, on October 19, 2004, J. Patrick Gallagher, Jr. issued a
memorandum to all employees distinguishing its conduct from Marsh’s. The memorandum
explained:
Gallagher’s business model is structured to enable our producers and account managers to put the interests of our clients first. This is reinforced in the following ways: - Our Mission Statement states that Gallagher succeeds by placing the needs of our clients first. - We have professional standards in place that govern how we interact with our clients and the insurance companies. These standards are reviewed and updated often and we audit our compliance with those standards frequently. - The Gallagher Code of Conduct requires that we conduct ourselves professionally and ethically. - And, the Gallagher Way spreads the word about our Shared Values – it is our culture to operate under the highest moral and ethical behavior. We spend considerable time and energy conveying to our employees that we must do the right thing for our clients, even if it means less profits for Gallagher.
478. This statement was belied by Gallagher’s Stipulation and Consent Order with the
Illinois State Attorney General and Illinois Department of Insurance on May 18, 2005, which
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disclosed that Gallagher systematically allocated clients to insurers who paid it the largest
kickbacks.
479. As a result of the governmental investigations into broker compensation practices,
several Defendants including, inter alia, Marsh, Aon, Gallagher, Willis, Liberty Mutual, AIG
and ACE have discontinued the use of contingent commission agreements and instituted other
reforms designed to avoid conflicts of interests in the brokerage industry. For example, as part
of its settlement with the New York State Attorney General, Marsh agreed to a prohibition of
receiving contingent compensation from insurance carriers. Marsh also agreed to provide clients
with a comprehensive disclosure of all forms of compensation received from insurers and to
adopt and implement company-wide, written standards of conduct for the placement of
insurance.
480. Similarly, in March 2005, Aon entered into a settlement agreement with the
Attorneys General of New York, Connecticut, and Illinois, which was modeled after the
agreement previously entered into with Marsh. In connection with the settlement, Aon agreed,
among other things to: (i) eliminate contingent commissions; (ii) implement company-wide
written standards of conduct regarding compensation from insurers; (iii) accept one payment
only for an insurance contract at the time of placement, and (v) fully disclose its payments to and
receive approval for these payments from its customers.
481. In the wake of the regulatory investigations, a number of Defendants have admitted
that they failed to disclose or failed to sufficiently disclose their contingent commission
arrangements and preferred partnership agreements to insureds and/or took actions to provide
disclosure.
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482. On April 19, 2004, after having received letters from the New York State Insurance
Department on March 3, 2004 and March 26, 2004, HRH finally agreed to disclose the existence
of incentive compensation agreements to its insureds prior to the purchase of insurance.
483. Additionally, the settlement agreement that HRH entered into with Connecticut
Attorney General Richard Blumenthal on August 31, 2005 required HRH to, among other things,
cease accepting or requesting contingent compensation in connection with its brokerage business
and make mandatory disclosure of any compensation attributable to a client when placing,
renewing, consulting on, or servicing that client’s insurance policy.
484. The settlement agreement that Gallagher entered into with the Illinois Attorney
General and Illinois Department of Financial and Professional Regulation (“IDFPR”), Division
of Insurance in 2005 required Gallagher to, among other things, no longer accept or request any
contingent compensation and implement company-wide written standards regarding
compensation from insurers.
485. Among other things, the Assurance of Voluntary Compliance that Gallagher entered
into states that “for many years Gallagher entered into contingent commission agreements with
several favored insurance companies” and therefore “allowed its revenue interest to potentially
conflict with those of its clients because it received these commission only if it placed sufficient
business with the favored insurers.” The document provides a specific example in which
Gallagher falsely assured its clients that no such conflict existed in connection with its receipt of
expense subsidies in connection with AIG (in lieu of actual contingent payments):
While Gallagher was instructing its managers that the AIG subsidiaries required the managers to “make sure” AIG received a share of Gallagher business, Gallagher told at least one of its clients that AIG created no incentives for Gallagher to commit business to AIG. On May 26, 2004, a Vice-President in the Brokerage Services Division advised a client that AIG has “no need to offer incentives to anyone. Historically they never have incentivized anyone to do
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business with their firm and it is a philosophy and model they continue to incorporate in todays [sic] marketplace.” Gallagher AoVC, ¶ 27.
486. As part of the settlement, Gallagher assured its clients that it would never allow its
own financial interests to conflict with its client’s interests through a written statement published
in a document entitled “Client Commitment.” Gallagher AVC, ¶ 3-5.
487. The settlement agreement that Willis entered into with New York Attorney General
and New York Department of Insurance, which was modeled after earlier agreements with
Marsh and Aon, required Willis to, among other things, (i) no longer accept contingent
commissions and only accept one payment for an insurance contract at the time of placement;
this payment will be fully disclosed to and approved by its customers; and (ii) implement written
standards of conduct, and train relevant employees in such subjects as business ethics,
professional obligations, conflicts of interest, anti-trust and trade practices compliance, and
record keeping.
488. The settlement agreement that ACE entered into with the Attorneys General of
Illinois, New York and Connecticut in April 2006 required ACE to, among other things, sharply
curtail its use of “contingent commissions,” and to stop paying contingent commissions on
excess casualty insurance placements through 2008 and provide new disclosures about ranges of
compensation paid to brokers and agents by insurance products on either a website or a toll-free
telephone number and to make insureds aware of this by sending them a notice with their
policies.
489. In January 2006, AIG entered into a settlement agreement with the New York State
Attorney General and New York State Department of Insurance pursuant to which AIG agreed,
among other things: (i) to sharply curtail its use of contingent commissions, and to stop paying
contingent commissions on excess casualty insurance placements through 2008; and (ii) to
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provide new disclosures about ranges of compensation paid to brokers and agents by insurance
products on either a website or a toll-free telephone number and to make insureds aware of this
by sending them a notice with their policies.
490. Similarly, the settlement agreement that Chubb entered into with the Attorneys
General of Illinois, New York, and Connecticut in December 2006 required Chubb to forgo all
contingent commissions and to undertake the same remedial measures related to disclosure as
was required by ACE. The Assurance of Discontinuance that Chubb entered into in connection
with this specifically stated that: “Since at least the mid-1990s, Chubb and other insurers have
paid hundreds of millions of dollars in undisclosed ‘contingent commissions’ to the world’s
largest insurance brokers and agents.” Chubb AoD, ¶ 1 (emphasis added).
491. The Assurance of Voluntary Compliance that Travelers entered into in connection
with its settlement with the Attorneys General of New York, Connecticut and Illinois in July
2006 acknowledged that:
St. Paul and Travelers entered into a number of undisclosed contingent commission agreements (also known as “override” agreements) with Producers, such as Marsh, Aon, Willis, HRH, Gallagher, and Acordia. As a result of these arrangements, the Producers steered insurance policies to St. Paul and Travelers to give them new business and to keep retention levels (that is the percentage of customers who elect to keep their insurer when a policy comes up for renewal) of existing St. Paul and Travelers policies above certain benchmarks. Producers purported to offer unbiased recommendations to their clients about the selection of insurers when, in many cases, the Producers’ recommendations were biased in favor of insurers who paid contingent commission. Travelers AoD, ¶ 3.
492. As part of the settlement, Travelers agreed to sharply curtail its use of “contingent
commissions,” and to pay no contingent commissions on excess casualty insurance placements
through 2008. Travelers also agreed to provide new disclosures concerning the ranges of
compensation paid to brokers and agents on a special web site.
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493. In 2005, following the investigations, Crum & Foster abandoned the use of
confidentially provisions in its contingent commission agreements and included language
requiring that the broker fully disclose to prospective and current insureds “the amount of
compensation Producer will or may receive for placing business with [Crum & Forster].”
494. Additionally, numerous Defendants have made statements acknowledging that the
contingent commission agreements between brokers and insurers created a conflict of interest.
495. For example, following the filing of the New York Attorney General Complaint
against Marsh, ACE posted a response to the following question by the National Association of
Insurance Commissioners’ “NAIC” inquiry into contingent commissions:
Q: What additional requirements or safeguards should be in place to prohibit a producer from placing its own financial or other interests ahead of its customer’s interests in an insurance transaction?
A: Ban on contingent commissions, brokers should be required to elect compensation from the insured or insurer; not both; all standard commission should be disclosed by broker and should be included on the copy of the policy delivered to the insured.
496. A letter from Paul Mattera, Senior Vice President of Liberty Mutual, to NAIC
Commissioner M. Diane Koken, dated March 9, 2005 regarding contingent commission
illustrates how inadequate and misleading disclosures regarding the use of contingent
commissions have created conflicts of interests in the insurance brokerage industry. The letter
states the following, in relevant part:
Liberty Mutual believes that the cornerstone of good regulation and sound business practice is transparency in insurance transactions. Our customers deserve to know whether the producer they are working with represents them or us. All parties must be clear as to “who represents whom.” Thus, we support the application of disclosure requirements to agents and brokers. The integrity of the entire transaction flows from a clear understanding of whose interests are represented by the producer.
…
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Prohibition of Broker Contingent Commissions
While appropriate broker disclosure is in the customer’s interest – and we strongly support it – disclosure alone is not enough. Brokers can be conflicted when they receive payment from both buyers and sellers. In fact, the concerns that give rise to the “best available insurer” requirements, discussed above, are ameliorated when contingent commissions are out of the buying and selling equation.
Liberty Mutual believes broker “contingent commissions” are inappropriate and should be prohibited. Brokers should be compensated only by a fee paid by the customer or by standard commission paid by the insurer as a percentage of the total cost of the policy purchased. While there is nothing inherently wrong with contingent commissions, PSAs and MSAs, when brokers are paid in a manner that can lead to a misalignment of broker interests, the value of contingent commissions is outweighed by the need to assure an open, unconflicted market. In these circumstances, disclosure alone is not an adequate remedy.
497. In fact, following the regulatory investigations some Defendants have gone so far as
to state that the receipt or payment of contingent commissions is inherently wrong. For example,
Joe Plumeri, the CEO of Willis, who previously had been an active proponent of his company’s
expanding use of contingent commissions, stated in an April 2005 speech to RIMS as follows:
For too long, this business has been about the placement only – what I’ve come to call manufacturing. Under this model, getting the placement at the right price and the right coverage is all that matters. But this approach leads to the commoditization of insurance, and I don’t think anyone in this room would equate insurance to soy beans.
This approach also invites the perception of conflict that comes with contingent commissions; that’s inconsistent with the principle of client advocacy and therefore is unacceptable.
It must be 100% clear who the broker is working for. That means a broker can only be paid by one party in any transaction.
It’s time we step up to a higher standard. Contingents should be abolished throughout the industry. Carriers shouldn’t pay them. Brokers shouldn’t accept them.
If anyone says, “But we’re an agent (rather than a broker): surely we can get contingents based on the profitability of the carrier’s book?” To them I say, “That’s fine, just make it 100% clear – up front - that you are acting for the carrier, and not the client.”
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Some times when you are up against it, you have to get creative.
Faced with the loss of contingent commissions, the sight of the gallows should focus our minds. Brokers should focus less on finding a way to simply replace the lost revenue and more on what is really important – having the integrity to work harder to deliver creative solutions and bring real value. Anybody think that’s a big idea?
And, if contingents create the appearance of a conflict for some brokers, they create that appearance for every broker. Why is my cholesterol bad but for the others it is good? It doesn’t matter whether the broker is global, regional or local – based in the U.S., London, or anywhere around the world. It’s time to say “enough.”
Contingent commissions. Over. Done. Finished.
d) Racketeering Allegations
498. Plaintiffs, Class Members and Defendants are “persons” within the meaning of 18
U.S.C. § 1961(3).
499. Each Defendant has participated in the conduct of one or more of the alleged
association-in-fact enterprise’s affairs through a pattern of racketeering activity involving a
scheme to defraud Plaintiffs and Class Members in violation of Section 1962(c), as described in
detail below.
500. Each Defendant has violated federal laws including mail and wire fraud, 18 U.S.C.
§§ 1341 and 1343 by utilizing or causing the use of the United States postal service, commercial
interstate carrier, wire or other interstate electronic media in furtherance of their fraudulent
scheme.
501. These predicate acts of mail and wire fraud were related, had a similar purpose,
involved the same or similar participants and method of commission, had similar results and
impacted similar victims, including Plaintiffs and members of the Class. The predicate acts of
racketeering activity were related to each other in furtherance of the scheme described above and
in the Revised Particularized Statements, amount to and pose a threat of continuing racketeering
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activity and therefore constitute a pattern of racketeering through which Defendants have
violated 18 U.S.C. § 1962(c).
(1) Enterprise
502. Six association-in-fact, broker-centered enterprises exist:
a. Marsh and ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford, Liberty Mutual, Munich, Travelers, XL, and Zurich, hereinafter referred to as the Marsh Enterprise. The Marsh Enterprise is an ongoing organization which has existed continuously since at least the mid to late 1990’s. The Defendants associated with the Marsh Enterprise are referred to herein collectively as the “Marsh Enterprise Defendants.”
b. Aon and ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford, Liberty Mutual, Travelers, XL, and Zurich, hereinafter referred to as the Aon Enterprise. The Aon Enterprise is an ongoing organization which has existed continuously since at least the mid to late 1990’s. The Defendants associated with the Aon Enterprise are referred to herein collectively as the “Aon Enterprise Defendants.”
c. Willis and ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford, Liberty Mutual, Travelers, and Zurich , hereinafter referred to as the Willis Enterprise. The Willis Enterprise is an ongoing organization which has existed continuously since at least the mid to late 1990’s. The Defendants associated with the Willis Enterprise are referred to herein collectively as the “Willis Enterprise Defendants.”
d. Gallagher and AIG, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford, and Travelers, hereinafter referred to as the Gallagher Enterprise. The Gallagher Enterprise is an ongoing organization which has existed continuously since at least the mid to late 1990’s. The Defendants associated with the Gallagher Enterprise are referred to herein collectively as the “Gallagher Enterprise Defendants.”
e. Wells Fargo/Acordia and Chubb, CNA, Fireman’s Fund, Hartford, and Travelers, hereinafter referred to as the Wells Fargo/Acordia Enterprise. The Wells Fargo/Acordia Enterprise is an ongoing organization which has existed continuously since at least the mid to late 1990’s. The Defendants associated with the Wells Fargo/Acordia Enterprise will be referred to herein collectively as the “Wells Fargo/Acordia Enterprise Defendants.”
f. HRH and CNA, Hartford, and Travelers, hereinafter referred to as the HRH Enterprise. The HRH Enterprise is an ongoing organization which has existed continuously since at least the mid to late 1990’s. The Defendants associated with the HRH Enterprise will be referred to herein collectively as the “HRH Enterprise Defendants.”
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503. The purpose of each Enterprise is: (1) to make money through the creation of a
defined and limited group of insurance carriers to which the broker defendant steers the
insurance business of Class Members with limited or no competition in exchange for sharing
increased profits and (2) to conceal this scheme from customers.
504. The structure for decision-making within each enterprise includes the following:
(1) one or more broker executives who have responsibility and authority for interfacing with the
insurers to determine compensation, to plan for the steering or retention of business, and to
monitor and direct that business be retained or steered to insurer members of the enterprise; (2)
broker account executives who implement direction regarding the retention or steering of
business; (3) one or more executives at each insurer who have the responsibility and authority to
plan with the broker, to monitor the placement of business and to determine compensation for the
steering or retention of business; (4) an employee or employees of the insurer who monitor(s)
and reports placement volume to insurer executives as well as the broker; (5) an employee or
employees of the broker who keeps track of reports received from the insurers regarding
placement volume; (6) an employee or employees who implement decisions regarding the
placement of business; and (7) an employee or employee who factor(s) the cost of the kickbacks
into the insurance premiums paid by Plaintiffs and Class Members. In addition, the broker
assumes primary responsibility for concealment of the scheme with support and assistance from
the insurer members of the enterprise.
505. Each Broker Defendant and the Insurer Defendants identified above are associated
with, participate in and control the affairs of the broker-centered enterprise identified above.
506. The Broker Defendants have participated in the operation or management of each
Enterprise in at least the following ways:
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a. consolidation of the broker’s insurance markets;
b. reaching agreement with the Insurer Defendants with whom the Broker Defendant is associated regarding amount of contingent commissions to be paid to the Broker and the level of business to be steered to each Insurer Defendant;
c. the monitoring of current and new business;
d. determining whether a partner carrier is to retain current business and the insurer partner to whom new business is to be steered;
e. steering of business to preferred partners;
f. collection of inflated premiums; and
g. coordinating concealment of the scheme.
507. The Insurer Defendants have participated in the operation or management of each
Enterprise in at least the following ways:
a. reaching agreement with the Broker Defendants with whom the Insurer Defendant is associated regarding amount of contingent commissions to be paid to the Broker and the level of business to be steered to each Insurer Defendant;
b. monitoring and reporting of business levels;
c. computation of premium levels to encompass contingent commissions;
d. payment of kickbacks; and
e. coordinating concealment of the scheme.
508. These Defendants have conducted or participated in the conduct of the affairs of the
enterprise through a pattern of racketeering activity. While these Defendants participate in and
are members of the Enterprises, they have an existence separate and distinct from the Enterprise.
509. Each Enterprise oversees, coordinates and facilitates the commission of numerous
predicate offenses.
510. The enterprises are separate and distinct from the pattern of racketeering activity.
The members of each Enterprise share a common purpose and each Enterprise is continuing and
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has a structure for decision-making and for oversight, coordination and facilitation of the
predicate offenses. The pattern of racketeering activity includes numerous acts of mail and wire
fraud in furtherance of a fraudulent scheme whereby the Broker steers business to the insurer
members in exchange for kickbacks in the form of contingent commissions and/or other
payments.
511. Each Enterprise operates on a nation-wide basis and utilizes interstate
communications including United States mail and wire across state lines. The activities of the
enterprises are national in scope, affecting most of the commercial insurance market in the
United States. The enterprises have a substantial impact upon the economy and upon interstate
commerce.
(2) Alternative Enterprise Allegations
(a) The CIAB Enterprise
512. Alternatively, Plaintiffs allege that CIAB is a legal entity which constitutes a RICO
enterprise referred to herein as the “CIAB Enterprise.”
513. Defendants were able to devise and implement their scheme through their
participation in the CIAB Enterprise. According to the Council, its members place 80 percent of
the country’s commercial insurance premiums. The Council “represents the largest, most
profitable of all commercial insurance agencies and brokerage firms.” “The Council’s primary
audience is CEOs and their management teams.” The Council “partner[s]” with its members and
provides “not only vital intelligence on current market conditions and trends, but also solutions
to the next challenge before the need arises.” CIAB provides Defendants with numerous
opportunities to communicate, meet, use vital intelligence on market conditions that is shared
with its partner members, and reach agreement on how they will address challenges in the
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marketplace, such as the competition that had created the soft market from the mid-1980s well
into the 1990s.
514. The CIAB Enterprise has a structure for decision-making that includes an Executive
Committee, Board of Directors and various other committees and decision-making structures as
well as the Council of Insurance Company Executives.
515. Defendants are associated with, participate in and control the affairs of the CIAB
Enterprise.
516. Since 1994, every Broker Defendant has been represented on the CIAB Board of
Directors and at least the following have served on the Executive Committee: Aon, Arthur J.
Gallagher, HRH, and Marsh.
517. The Insurance Leadership Forum at The Greenbrier is the joint annual conference of
CIAB and The Council of Insurance Company Executives (“CICE”), a standing committee of
CIAB. The Leadership Forum is an annual meeting that connects all the leaders of the
commercial insurance marketplace – the CEOs of the top insurance carriers and the leading
executives from the top one percent of agencies and brokerages. Every Insurer Defendant has
been represented at the Leadership Forum. Only insurers who are members of the CICE are
permitted to attend the Commercial Leadership Forum. CICE is comprised of “more than 65 of
the top commercial insurers. Collectively, CICE members are responsible for writing more than
three-quarters of the national’s commercial business insurance premiums.” CICE “members
include most of the large multi-line commercial insurance and employee benefits companies.”
“Membership is extended to an applicant’s entire corporate economic family – all primary,
reinsurance, subsidiary and/or other underwriting operations…belong as one member of CICE.”
The Council of Employee Benefits Executives is likewise a standing committee of CIAB and
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membership is necessary for attendance at the Benefits Insurance Leadership Forum. At least
the following Insurer Defendants have “sponsored” CIAB, the Insurance Leadership Forum at
the Greenbrier and other CIAB activities: ACE, AIG, Chubb, CNA Fireman’s Fund, Liberty
Mutual, Travelers and Zurich.
518. CIAB provides the Broker Defendants a forum to discuss and reach agreement with
each other and with the Insurer Defendants regarding, among other things, compensation
arrangements and other aspects of their relationships, what each wants and needs from the
relationship, the market and market conditions, consolidation and disclosure. An internal 1998
CIAB document notes that CIAB members want “dollars; access; recognition; alliances” and
insurance carriers want “premiums; access; creativity; innovation, marketing.”
519. CIAB hosts “Executive Forums” where members “can brainstorm and share ideas
about business opportunities and challenges.” The Executive Forums allow members the
opportunity to “discuss common problems and solutions.” In 2000, when “[m]embers discussed
the issue of possible conflicts in sharing information with competitors” they “agreed that anyone
who does not participate fully should be asked to leave the sessions.”
520. CIAB also conducts “Executive Liaison Roundtable” meetings – “private, off-the-
record conversations” between insurance company “brethren” and select members of CIAB to
discuss “critical issues.” At least the following Broker Defendants have served on the Executive
Liaison Committee: Aon, Acordia, Gallagher, HRH, Marsh, and Willis. At a minimum, the
following Insurer Defendants have participated in the Roundtable discussions: ACE, AIG,
American Re-Insurance Company, Chubb, CNA, Fireman’s Fund, Hartford, Kemper, Travelers,
XL, Zurich. Issues discussed at Executive Liaison Roundtable meetings at least during the
timeframe from 1996 to 2001 have included “industry consolidation,” “contingency contracts,”
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“agent/company relationships,” “how the relationships were changing due to downsizing and
consolidations throughout the industry,” “distribution and the impact of aggregations of business
on membership and suppliers of product.” CIAB also facilitates “teleconference access to carrier
CEOs as well as forums for in-depth discussion of critical issues.”
521. As alleged above, CIAB has also provided Defendants the opportunity to discuss
and reach agreement on joint action in response to the regulatory investigations and regarding
disclosure issues. The Defendants, through CIAB, have developed “a set of resource tools for
client service engagement letters and disclosures” for use by members.
522. CIAB has been a ready conduit for concealment of Defendants’ scheme and for
furtherance of Defendants’ fraud. CIAB provides Defendants with numerous opportunities to
communicate, meet, use vital intelligence on market conditions that is shared with its partner
members, and reach agreement on how they will address challenges in the marketplace, such as
the competition that had created the soft market from the mid-1980s well into the 1990s.
523. When faced with a soft market, these partners used vital intelligence gained through
communications and meetings facilitated by CIAB and otherwise, including information about
decreased profits and demand to devise a scheme using strategic partnerships – where each
Broker restricted the insurers who obtained the vast majority of the Broker’s book of business,
and each insurer then shared the increased profits that resulted from reduced competition with
the Broker through increased contingent commissions – to replace competition. The partners
operating through the CIAB Enterprise reached consensus on how they would change the market
and regarding non-disclosure.
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524. The purpose of the CIAB Enterprise is to further the interests of larger brokers
generally and to further the Defendants’ scheme specifically including implementation and
concealment of the scheme.
525. The Broker Defendants have participated in the operation or management of the
CIAB Enterprise in the at least the following ways:
a. through the positions held in CIAB by the Broker Defendants’ employees and officers including board memberships, committee memberships and other influential positions and as a result of the power the Broker Defendants enjoyed in CIAB as a consequence of their size and market share;
b. by developing methods for concealment of the fraudulent scheme;
c. by submitting false or misleading information to customers;
d. by consolidating markets and steering business to strategic insurance partners;
e. by bid rigging; and
f. by sharing information relating to such matters as market conditions, placements and payments.
526. The Insurer Defendants have participated in the operation or management of the
Enterprise in at least the following ways:
a. through their position in CICE, their sponsorship of CIAB, their attendance at the Insurance Leadership Forum at The Greenbrier and as a result of their importance to CIAB and CIAB’s members
b. by developing methods for concealment of the fraudulent scheme;
c. by kicking back profits to the Broker Defendants;
d. by submitting false or misleading information to customers or to brokers for submission to customers;
e. by providing or withholding quotes as directed by Broker Defendants;
f. by sharing information relating to such matters as market conditions, placements and payments.
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527. Defendants have conducted or participated in the conduct of the affairs of the CIAB
Enterprise through a pattern of racketeering activity.
528. While the Defendants participate in and are members of the CIAB Enterprise, they
have an existence separate and distinct from the Enterprise.
529. Defendants have been enabled to commit the predicate offenses solely by virtue of
their position in the CIAB enterprise or involvement in or control over the affairs of the CIAB
Enterprise. Defendants were able to devise, implement and conceal their scheme through CIAB.
Concealment as well as controlled and coordinated representations and disclosures, which were
crucial to the success of the scheme, could not have occurred absent the coordinating mechanism
of CIAB. Defendants not only used CIAB as the vehicle for developing, coordinating,
monitoring and concealing the scheme but also to disseminate misrepresentations in furtherance
of the scheme. Absent the Defendants’ participation in and control of CIAB, the Defendants
would have been unable to perpetrate the fraudulent scheme and the attendant predicate acts.
CIAB provided Defendants the necessary mechanism for decision-making regarding the
fraudulent scheme, regarding concealment of Defendants’ relationships and activities, and
regarding controlled and coordinated representations and disclosures.
530. The CIAB Enterprise is separate and distinct from the pattern of racketeering
activity. However, the predicate offenses are related to the activities of the CIAB Enterprise.
The purpose of the CIAB Enterprise is furtherance of the interest of large brokers generally and
furtherance of the Defendants’ scheme more specifically. Accordingly, the predicate acts taken
in furtherance of the Defendants’ interests and in furtherance of the scheme necessarily relate to
the CIAB Enterprise.
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531. The activities of the CIAB Enterprise are national in scope, affecting much of the
commercial insurance market in the United States. The CIAB Enterprise has a substantial
impact upon the economy and upon interstate commerce.
(3) Predicate Acts
532. Section 1961(1) of the Racketeer Influenced and Corrupt Organizations Act
(“RICO”) provides that “racketeering activity” includes any act indictable under 18 U.S.C.
§1341 or 18 U.S.C. §1343. As set forth herein, Defendants have engaged and continue to engage
in conduct violating each of these laws.
533. As set forth in detail in the RICO Case Statement, Defendants, in order to carry out
their scheme to defraud or to obtain money by false pretenses, placed in post offices and/or
official depositories of the United Sates Postal Service matters and things to be delivered by the
Postal Service, caused matters and things to be delivered by commercial interstate carriers or
knew that the mail would be used in furtherance of their scheme in violation of 18 U.S.C. §1341.
Matters sent by mail included but were not limited to correspondence, marketing materials,
contracts or agreements between the Broker Defendant and the client, requests for proposals,
policies and policy materials, insurance quotes, contingent commission agreements, insurance
binders, commission schedules, invoices to clients and payments from insurers to brokers.
534. As set forth in detail in the RICO Case Statements, Defendants, in order to carry out
their scheme to defraud or to obtain money by false pretenses, transmitted and received by wire,
matters and things or knew that wire would be used in furtherance of their scheme in violation of
18 U.S.C. §1343. Matters sent by wire included but were not limited to correspondence, emails,
faxes, marketing materials, contracts or agreements between the Broker Defendant and the client,
requests for proposals, policies and policy materials, insurance quotes, contingent commission
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agreements, insurance binders, commission schedules, invoices to clients and payments from
insurers to brokers.
535. Defendants knowingly and intentionally made misrepresentations and concealed
material facts in furtherance of their scheme and for the purpose of deceiving Plaintiffs and Class
Members. As set forth in detail in the RICO Case Statement, the Broker Defendants regularly
disseminated materials by mail and wire wherein they routinely represented that they would act
in the best interests of their clients in providing unbiased advice and assistance in the selection of
insurance products and services relating thereto and that they would act as fiduciaries of their
clients in placing insurance on the best terms possible and at the best price available. They also
represented that they would access the market in placing insurance business. To the extent
Defendants provided any information regarding contingent commission income or regarding the
Broker Defendants’ relationships with the Insurer Defendants the information was materially
false and misleading. In communications with clients, the Broker Defendants either concealed or
failed to disclose, among other things, the following:
• that the Broker Defendants were not acting in the best interest of their clients but were instead acting on behalf of themselves and the Insurer Defendants who were associated with the Broker’s enterprise to further their financial interests at the expense of their clients;
• the true nature of the association and agreements between the Broker Defendants and the Insurer Defendants associated with the Broker’s Enterprise;
• the Broker Defendants’ consolidation of their insurance markets to a few select strategic partners;
• the conflict of interest inherent in the agreements between the Broker Defendants and its partner insurers;
• the steering of insurance placements from the Broker Defendants to the Insurer Defendants;
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• that the Broker Defendants were protecting their strategic partner Insurer Defendants from competition, and in the case of Marsh, that it engaged in rigging of bids with AIG, ACE, Chubb, XL, Munich/Am Re, Liberty Mutual, Travelers, Fireman’s Fund and Zurich;
• that the Insurer Defendant kick back a substantial portion of their increased profits to the Broker Defendants with whom they are associated in the form of contingent commissions, loans, subsidies and payments for “services” as well as other agreements and tying arrangements that serve the same function; and
• that the kickbacks to the Broker Defendants are factored into the cost of Plaintiffs and Class Members’ insurance, resulting in injury to Plaintiffs’ and Class Members’ business and property.
536. Defendants either knew or recklessly disregarded the fact that the
misrepresentations and omissions described above were material.
537. Misrepresentation of the Brokers Defendants’ allegiance as well as concealment of
their relationships with, and steering of business to, the Insurer Defendants was necessary to
encourage retention of the brokers, to conceal the scheme, to lull clients, including Plaintiffs and
Class Members, into a false sense of security and to assure payment of the excess premiums.
Likewise, inclusion of the excess amount of premium resulting from Defendants’ scheme in
invoices forwarded to each Plaintiff without explanation or a separate accounting for the excess
premium was necessary to conceal the scheme and to assure payment of the entire invoice
amount.
538. The Defendants’ fraudulent schemes and the conspiracies in furtherance of the
schemes proximately caused the cost of insurance obtained by Plaintiffs and Class Members to
increase because the kickbacks paid to Broker Defendants were included in the price of
insurance paid by Plaintiffs and Class Members. In addition, Plaintiffs and Class Members
reasonably relied on the misrepresentations and omissions in paying higher premiums that
included the kickbacks to Broker Defendants. As a result, Plaintiffs and Class Members have
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been injured in their business or property by Defendants’ fraudulent scheme and overt acts of
mail and wire fraud.
e) Conspiracy Allegations
539. Since at least 1998, Marsh Aon, Willis, Gallagher, Acordia, and HRH, have
conspired to facilitate the scheme being operated through each of the Broker-Centered
Enterprises identified above and to further their common purpose of preventing detection of
these schemes through misrepresentations, concealment and coordinated and controlled
disclosures.
540. The Broker Defendants conspiracy has been conducted, implemented and facilitated
through the sharing of information among the Broker Defendants and their participation in
CIAB. As alleged above, during the Class Period, each of the Broker Defendants was a member
of CIAB and served on its Board of Directors and/or as officers of CIAB.
541. The purpose and effect of the conspiracy was to prevent Plaintiffs and members of
the Class from becoming aware of the terms and significance of the contingent commission
agreements between Defendants and the conflicts of interest arising out of the Broker
Defendants’ strategic partnerships with the Insurer Defendants, thereby allowing the Broker
Defendants to increase the compensation they received from the Insurer Defendants.
542. The Broker Defendants accomplished this by conspiring with one another to adopt
substantially similar vague and incomplete disclosure (or non-disclosure) policies regarding
contingent compensation matters modeled after CIAB’s 1998 position statement and by
employing CIAB to engage in a public relations campaign designed to create the impression that
“full disclosure” was the industry standard and to oppose any efforts to require meaningful
disclosure of contingent commission arrangements. As described above, through their
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coordinated efforts, the Broker Defendants successfully were able to prevent insurance
purchasers from becoming aware of the true nature of the relationships between the Broker
Defendants and the Insurer Defendants and from obtaining actual and complete disclosure of the
manner in which the Broker Defendants were compensated by the Insurer Defendants.
543. Each Broker Defendant was aware of the general nature of the conspiracy and its
role in facilitating the objectives of the conspiracy. Further, each Broker Defendant has agreed
to the overall objective of the conspiracy.
544. Each Broker Defendant has committed overt acts in furtherance of the alleged
conspiratorial objectives.
545. As a result of the Broker Defendants’ conspiracy, Plaintiffs and other members of
the Class have paid more than they otherwise would have for insurance that they procured
through the Broker Defendants.
The Broker-Centered Conspiracies
546. Additionally, the following broker-centered conspiracies have existed since at least
1998:
• A conspiracy involving Marsh and the Insurer Defendants in the Marsh Broker- Centered Enterprise.
• A conspiracy involving Aon and the Insurer Defendants in the Aon Broker- Centered Enterprise.
• A conspiracy involving Willis and the Insurer Defendants in the Willis Broker- Centered Enterprise.
• A conspiracy involving Gallagher and the Insurer Defendants in the Gallagher Broker-Centered Enterprise.
• A conspiracy involving Wells Fargo/Acordia and the Insurer Defendants in the Wells Fargo/Acordia Broker-Centered Enterprise.
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• A conspiracy involving HRH and the Insurer Defendants in the HRH Broker- Centered Enterprise.
547. The purpose and effect of each broker-centered conspiracy was to engage in a
scheme whereby each Broker Defendant would steer business to its strategic partner Insurer
Defendants and protect them from competition in exchange for increased compensation paid to
the Broker Defendant in the form of contingent commissions, and to conceal the existence of the
scheme from the Broker Defendant’s clients.
548. Each Defendant within each broker-centered conspiracy was aware of the general
nature of the conspiracy and its role in facilitating the objectives of the conspiracy. Further, each
Defendant within each broker-centered conspiracy has agreed to the overall objective of the
conspiracy.
549. Each Defendant within each broker-centered conspiracy has committed over acts in
furtherance of the alleged conspiratorial objectives.
550. As a result of the broker-centered conspiracies, Plaintiffs and other members of the
Class have paid more than they otherwise would have for insurance that they procured through
the Broker Defendants.
f) Injury
551. The fraudulent scheme and conspiracy involving each Broker Defendant and its
partner markers and the conspiracy between the Broker Defendants to prevent detection of each
broker’s fraudulent scheme proximately caused the cost of insurance obtained by Plaintiffs and
Class Members to increase because the kickbacks paid to the Broker Defendants were included
in the price of insurance paid by Plaintiffs and Class Members. In addition, Plaintiffs and Class
Members reasonably relied on the Broker Defendants’ representations and the Defendants’
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concealment of the fraudulent scheme in paying higher premiums that included the kickbacks to
the Broker Defendants.
3) FRAUDULENT CONCEALMENT
552. Defendants have affirmatively and fraudulently concealed their unlawful scheme,
course of conduct and conspiracy from Plaintiffs. In fact as part of the conspiracy, Defendants
went to great lengths to create the appearance of a competitive market for insurance coverage,
where no such competitive market existed.
553. Plaintiffs had no knowledge of Defendants’ fraudulent scheme and could not have
discovered that Defendants’ representations were false or that Defendants had concealed
information and materials until shortly before the filing of this Complaint.
554. Accordingly, the statute of limitations has been tolled with respect to any claims
which Plaintiffs have brought as a result of the unlawful and fraudulent conduct alleged herein.
4) CLASS ACTION ALLEGATIONS
555. Plaintiffs bring this action, pursuant to Rule 23 of the federal Rules of Civil
Procedure, on their own behalf and as representatives of the Classes as defined below.
a. Marsh Broker-Centered Class: Plaintiffs Opticare, Bayou, Sunburst, Cellect, the City of Stamford, Comcar, Singer and Golden Gate (the “Marsh Broker-Centered Plaintiffs”) bring this action on behalf of all persons or entities who between January 1, 1998 and December 31, 2004 engaged the services of any one of the Marsh Defendants, or any of their subsidiaries or affiliates, in connection with the purchase or renewal of insurance from an insurer (“Marsh Broker-Centered Class”);
b. Aon Broker-Centered Class: Plaintiffs Sunburst, Bayou and Michigan Multi-King (the “AON Broker-Centered Plaintiffs”) bring this action on behalf of all persons or entities who between January 1, 1998 and December 31, 2004 engaged the services of any one of the AON Defendants, or any of their subsidiaries or affiliates, in connection with the purchase or renewal of insurance from an insurer (“AON Broker-Centered Class”);
c. Wells Fargo/Acordia Broker-Centered Class: Plaintiff Omni (the “Wells Fargo/Acordia Broker-Centered Plaintiff”) brings this action on behalf of all
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persons or entities who between January 1, 1998 and December 31, 2004 engaged the services of any one of the Wells Fargo/Acordia Defendants, or any of their subsidiaries or affiliates, in connection with the purchase or renewal of insurance from an insurer (“Wells Fargo/Acordia Broker-Centered Class”);
d. HRH Broker-Centered Class: Plaintiff Tri-State (the “HRH Broker- Centered Plaintiff”) brings this action on behalf of all persons or entities who between January 1, 1998 and December 31, 2004 engaged the services of any one of the HRH Defendants, or any of their subsidiaries or affiliates, in connection with the purchase or renewal of insurance from an insurer (“HRH Broker-Centered Class”); and
e. Willis Broker-Centered Class: Plaintiffs Sunburst and Belmont (the “Willis Broker-Centered Plaintiffs”) brings this action on behalf of all persons or entities who between January 1, 1998 and December 31, 2004 engaged the services of any one of the Willis Defendants, or any of their subsidiaries or affiliates, in connection with the purchase or renewal of insurance from an insurer (“Willis Broker-Centered Class”); and
f. Gallagher Broker-Centered Class: Plaintiffs Mulcahy, Redwood and Clear Lam (the “Gallagher Broker-Centered Plaintiffs”) bring this action on behalf of all persons or entities who between January 1, 1998 and December 31, 2004 engaged the services of any one of the Gallagher Defendants, or any of their subsidiaries or affiliates, in connection with the purchase or renewal of insurance from an insurer (“Gallagher Broker-Centered Class”);
g. Global Conspiracy Class: All Plaintiffs bring this action on behalf of all persons or entities who between January 1, 1998 and December 31, 2004 engaged the services of any one of the Broker Defendants, or any of their subsidiaries or affiliates, in connection with the purchase or renewal of insurance or reinsurance from an insurer (“Global Conspiracy Class”).
556. The Marsh Broker-Centered Class, the AON Broker-Centered Class, the Wells
Fargo/Acordia Broker-Centered Class, the Gallagher Broker-Centered Class, the HRH Broker-
Centered Class, the Willis Broker-Centered Class, and the Global Conspiracy Class are referred
to collectively as the “Classes”.
557. The members of the Classes are so numerous that joinder of all Class Members of
the Classes would be impracticable. Due to the nature of the claims asserted herein, Plaintiffs
believe that members of the Classes are located throughout the United States. The exact number
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of Class Members is unknown by Plaintiffs at this time, but Plaintiffs believe that the number of
Class Members is in the millions and their identities can only be discovered through inspection
of Defendants’ records.
558. Plaintiffs’ claims are typical of the other Class Members because Plaintiffs and all
Class Members were damaged by the same wrongful conduct of the defendants alleged herein.
Plaintiffs and all members of the Classes purchased insurance policies at artificial and inflated
prices as a result of the wrongful conduct alleged herein.
559. Plaintiffs will fairly and adequately protect the interests of the Classes. The
interests of the Plaintiffs are coincident with, and not antagonistic to, those of the Classes. In
addition, Plaintiffs are represented by counsel who are experienced and competent in the
prosecution of complex class action antitrust litigation.
560. Questions of law and fact common to the members of the Classes predominate over
questions which may affect only individual members, if any, in that Defendants have acted on
grounds generally applicable to all Class Members. Among the questions of law and fact
common to the Classes are:
ANTITRUST CLAIMS:
• Whether Defendants violated Section 1 of the Sherman Act;
• Whether Defendants participated in a contract, combination or conspiracy in restraint of trade as alleged herein;
• Whether Defendants engaged in a scheme to allocate the market; and
• Whether Defendants’ conduct impacted the members of the class and whether the prices paid by members of the class were higher than they would have been in the absence of the conduct.
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RICO CLAIMS:
• Whether defendants engaged in a common and cumulative scheme that corrupted the marketplace for insurance;
• Whether defendants were associated with an enterprise; and
• Whether defendants used the mail or wire in executing their fraud.
COMMON LAW CLAIMS
• Whether the conduct of defendants is linked to an injury suffered by Class Members;
• Whether defendants breached their fiduciary duty to the Class Members; and
• Whether defendants were unjustly enriched by the conduct alleged herein.
561. Class action treatment is superior to the alternative, if any, for the fair and efficient
adjudication of the controversy alleged herein. Such treatment will permit a large number of
similarly situated persons to prosecute their common claims in a single forum simultaneously,
efficiently, and without the unnecessary duplication of effort and expense that numerous
individual actions would engender. Class treatment will also permit the adjudication of
relatively small claims by certain Class Members, who could not afford to individually litigate an
antitrust claim against large corporate defendants.
562. Plaintiffs are not aware of any difficulties that are likely to be encountered in the
management of this action that would preclude its maintenance as a class action.
COUNT I Violation of Section 1 of the Sherman Act By the Marsh Broker-Centered Class Against the Marsh Broker-Centered Defendants
563. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 372 above.
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564. The Marsh Broker-Centered Defendants have engaged in unlawful contracts,
combinations or conspiracies in restraint of interstate trade and commerce in violation of section
1 of the Sherman Act, 15 U.S.C. §1.
565. Specifically, the Marsh Broker-Centered Defendants agreed to reduce and/ or
eliminate competition among members of the Marsh Broker-Centered Conspiracy, by among
other things, allocating customers to and among members of the conspiracy and protecting those
conspirators from competition for those customers. The combinations contracts and conspiracies
described above were naked restraints of trade among horizontal competitors, the purpose and
effect of which were to raise prices and/or reduce output in order to increase profits for the co-
conspirators.
566. As a direct and proximate result of the contracts, combinations or conspiracies
alleged in this Complaint, Plaintiffs OptiCare, Comcar, Sunburst, Golden Gate, Singer, Bayou,
Cellect, and Stamford and other members of Marsh Broker-Centered Class were injured in their
business or property in that they paid higher prices than they would have paid in a truly
competitive market.
COUNT II Violation of Section 1 of the Sherman Act By the Marsh Broker-Centered Class Against the Marsh Broker-Centered Excess Casualty Defendants
567. The Marsh Excess Casualty Plaintiffs incorporate herein and make a part hereof,
their allegations contained in paragraphs 64 through 372 above.
568. This Count is brought by Opticare, Comcar, Sunburst, Golden Gate, Singer, Bayou,
Cellect and Stamford (the “Marsh Excess Casualty Plaintiffs”) on behalf of the Marsh Broker-
Centered Class against the Marsh Broker-Centered Defendants, exclusive of Hartford (the
“Marsh Broker-Centered Excess Casualty Defendants”).
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569. The Marsh Broker-Centered Excess Casualty Defendants have engaged in unlawful
contracts, combinations or conspiracies in restraint of interstate trade and commerce in violation
of Section 1 of the Sherman Act, 15 U.S.C. §1.
570. Specifically, the Marsh Broker-Centered Excess Casualty Defendants agreed to
reduce and/ or eliminate competition among members of the Marsh Broker-Centered Conspiracy,
by among other things, allocating customers to and among members of the conspiracy and
protecting those conspirators from competition for those customers with respect to excess
casualty insurance. The combinations contracts and conspiracies described above were naked
restraints of trade among horizontal competitors, the purpose and effect of which were to raise
prices and/or reduce output in order to increase profits for the co-conspirators.
571. As a direct and proximate result of the contracts, combinations or conspiracies
alleged in this Complaint, the Marsh Excess Casualty Plaintiffs and other members of Marsh
Broker-Centered Class were injured in their business or property in that they paid higher prices
than they would have paid for excess casualty insurance in a truly competitive market.
COUNT III Violation of Section 1 of the Sherman Act By the Aon Broker-Centered Class Against the Aon Broker-Centered Defendants
572. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 372 above.
573. The Aon Broker-Centered Defendants have engaged in unlawful contracts,
combinations or conspiracies in restraint of interstate trade and commerce in violation of section
1 of the Sherman Act, 15 U.S.C. §1.
574. Specifically, the Aon Broker-Centered Defendants agreed to reduce and/ or
eliminate competition among members of the Aon Broker-Centered Conspiracy, by among other
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things, allocating customers to and among members of the conspiracy and protecting those
conspirators from competition for those customers. The combinations contracts and conspiracies
described above were naked restraints of trade among horizontal competitors, the purpose and
effect of which were to raise prices and/or reduce output in order to increase profits for the co-
conspirators.
575. As a direct and proximate result of the contracts, combinations or conspiracies
alleged in this Complaint, Plaintiffs Sunburst, Bayou, and Michigan Multi-King and other
members of Aon Broker-Centered Class were injured in their business or property in that they
paid higher prices than they would have paid in a truly competitive market.
COUNT IV Violation of Section 1 of the Sherman Act By the Wells Fargo/Acordia Broker-Centered Class Against the Wells Fargo/Acordia Broker- Centered Defendants
576. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 372 above.
577. The Wells Fargo/Acordia Broker-Centered Defendants have engaged in unlawful
contracts, combinations or conspiracies in restraint of interstate trade and commerce in violation
of section 1 of the Sherman Act, 15 U.S.C. §1.
578. Specifically, the Wells Fargo/Acordia Broker-Centered Defendants agreed to
reduce and/ or eliminate competition among members of the Wells Fargo/Acordia Broker-
Centered Conspiracy, by among other things, allocating customers to and among members of the
conspiracy and protecting those conspirators from competition for those customers. The
combinations contracts and conspiracies described above were naked restraints of trade among
horizontal competitors, the purpose and effect of which were to raise prices and/or reduce output
in order to increase profits for the co-conspirators.
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579. As a direct and proximate result of the contracts, combinations or conspiracies
alleged in this Complaint, Plaintiffs Omni and other members of Wells Fargo/Acordia Broker-
Centered Class were injured in their business or property in that they paid higher prices than they
would have paid in a truly competitive market.
COUNT V Violation of Section 1 of the Sherman Act By the Gallagher Broker-Centered Class Against the Gallagher Broker-Centered Defendants
580. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 372 above.
581. The Gallagher Broker-Centered Defendants have engaged in unlawful contracts,
combinations or conspiracies in restraint of interstate trade and commerce in violation of section
1 of the Sherman Act, 15 U.S.C. §1.
582. Specifically, the Gallagher Broker-Centered Defendants agreed to reduce and/ or
eliminate competition among members of the Gallagher Broker-Centered Conspiracy, by among
other things, allocating customers to and among members of the conspiracy and protecting those
conspirators from competition for those customers. The combinations contracts and conspiracies
described above were naked restraints of trade among horizontal competitors, the purpose and
effect of which were to raise prices and/or reduce output in order to increase profits for the co-
conspirators.
583. As a direct and proximate result of the contracts, combinations or conspiracies
alleged in this Complaint, Plaintiffs Mulcahy, Redwood, and Clear Lam and other members of
Gallagher Broker-Centered Class were injured in their business or property in that they paid
higher prices than they would have paid in a truly competitive market.
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COUNT VI Violation of Section 1 of the Sherman Act By the HRH Broker-Centered Class Against the HRH Broker-Centered Defendants
584. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 372 above.
585. The HRH Broker-Centered Defendants have engaged in unlawful contracts,
combinations or conspiracies in restraint of interstate trade and commerce in violation of section
1 of the Sherman Act, 15 U.S.C. §1.
586. Specifically, the HRH Broker-Centered Defendants agreed to reduce and/ or
eliminate competition among members of the HRH Broker-Centered Conspiracy, by among
other things, allocating customers to and among members of the conspiracy and protecting those
conspirators from competition for those customers. The combinations contracts and conspiracies
described above were naked restraints of trade among horizontal competitors, the purpose and
effect of which were to raise prices and/or reduce output in order to increase profits for the co-
conspirators.
587. As a direct and proximate result of the contracts, combinations or conspiracies
alleged in this Complaint, Plaintiffs OptiCare and Tri-State and other members of HRH Broker-
Centered Class were injured in their business or property in that they paid higher prices than they
would have paid in a truly competitive market.
COUNT VII Violation of Section 1 of the Sherman Act By the Willis Broker-Centered Class Against the Willis Broker-Centered Defendants
588. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 372 above.
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589. The Willis Broker-Centered Defendants have engaged in unlawful contracts,
combinations or conspiracies in restraint of interstate trade and commerce in violation of section
1 of the Sherman Act, 15 U.S.C. §1.
590. Specifically, the Willis Broker-Centered Defendants agreed to reduce and/ or
eliminate competition among members of the Willis Broker-Centered Conspiracy, by among
other things, allocating customers to and among members of the conspiracy and protecting those
conspirators from competition for those customers. The combinations contracts and conspiracies
described above were naked restraints of trade among horizontal competitors, the purpose and
effect of which were to raise prices and/or reduce output in order to increase profits for the co-
conspirators.
591. As a direct and proximate result of the contracts, combinations or conspiracies
alleged in this Complaint, Plaintiffs Sunburst and Belmont and other members of Willis Broker-
Centered Class were injured in their business or property in that they paid higher prices than they
would have paid in a truly competitive market.
COUNT VIII Violation of Section 1 of the Sherman Act Against All Defendants
592. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 372 above.
593. The Defendants have engaged in unlawful contracts, combinations or conspiracies
in restraint of interstate trade and commerce in violation of section 1 of the Sherman Act, 15
U.S.C. §1.
594. Specifically, the Defendants agreed to reduce and/ or eliminate competition among
members of the Class, by among other things, allocating customers to and among members of
the global conspiracy and protecting those conspirators from competition for those customers.
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The combinations contracts and global conspiracies described above were naked restraints of
trade among horizontal competitors, the purpose and effect of which were to raise prices and/or
reduce output in order to increase profits for the co-conspirators.
595. As a direct and proximate result of the contracts, combinations or global
conspiracies alleged in this Complaint, Plaintiffs and other members of the Class were injured in
their business or property in that they paid higher prices than they would have paid in a truly
competitive market.
COUNT IX Violation of 18 U.S.C. § 1962(c) Against Defendants Associated with the Marsh Enterprise
596. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
597. This cause of action is brought by Plaintiffs Opticare, Bayou, Sunburst, Cellect,
Stamford, Singer, Comcar, Golden Gate and Members of the Marsh Broker-Centered Class
pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. § 1962(c) against Defendants associated
with the Marsh Enterprise (the “Marsh Enterprise Defendants”).
598. As set forth above and in the RICO Case Statement, the Marsh Enterprise
Defendants have conducted or participated in conducting the Marsh Enterprise through a pattern
of racketeering activity.
599. As a direct and proximate result, Plaintiffs Opticare, Bayou, Sunburst, Cellect,
Stamford, Singer, Comcar, Golden Gate and Members of the Marsh Broker-Centered Class have
been injured in their business or property by the predicate acts constituting the pattern of
racketeering activity. Specifically, Plaintiffs Opticare, Bayou, Sunburst, Cellect, Singer,
Comcar, Golden Gate and Members of the Marsh Broker-Centered Class have been injured in
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their business or property by paying more for insurance than they would have absent the Marsh
Enterprise Defendants’ illegal conduct.
600. Accordingly, the Marsh Enterprise Defendants are liable to Plaintiffs Opticare,
Bayou, Sunburst, Cellect, Stamford, Singer, Comcar, Golden Gate and Members of the Marsh
Broker-Centered Class for three times their actual damages as proven at trial, plus interest and
attorneys’ fees.
COUNT X Violation of 18 U.S.C. § 1962(c) Against Defendants Associated with the Aon Enterprise
601. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
602. This cause of action is brought by Plaintiffs Sunburst, Bayou, Michigan Multi-King
and the Members of the Aon Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for
violations of U.S.C. § 1962(c) against Defendants associated with the Aon Enterprise (the “Aon
Enterprise Defendants”).
603. As set forth above and in the RICO Case Statement, the Aon Enterprise Defendants
have conducted or participated in conducting the Aon Enterprise through a pattern of
racketeering activity.
604. As a direct and proximate result, Plaintiffs Sunburst, Bayou, Michigan Multi-King
and Members of the Aon Broker-Centered Class have been injured in their business or property
by the predicate acts constituting the pattern of racketeering activity. Specifically, Plaintiffs
Sunburst, Bayou, Michigan Multi-King and Members of the Aon Broker-Centered Class have
been injured in their business or property by paying more for insurance than they would have
absent the Aon Enterprise Defendants’ illegal conduct.
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605. Accordingly, the Aon Enterprise Defendants are liable to Plaintiffs Sunburst,
Bayou, Michigan Multi-King and Members of the Aon Broker-Centered Class for three times
their actual damages as proven at trial, plus interest and attorneys’ fees.
COUNT XI Violation of 18 U.S.C. § 1962(c) Against Defendants Associated with the Willis Enterprise
606. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
607. This cause of action is brought by Plaintiffs Belmont, Sunburst and the Members of
the Willis Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. §
1962(c) against Defendants associated with the Willis Enterprise (the “Willis Enterprise
Defendants”).
608. As set forth above and in the RICO Case Statement, the Willis Enterprise
Defendants have conducted or participated in conducting the Willis Enterprise through a pattern
of racketeering activity.
609. As a direct and proximate result, Plaintiffs Belmont, Sunburst and Members of the
Willis Broker-Centered Class have been injured in their business or property by the predicate
acts constituting the pattern of racketeering activity. Specifically, Plaintiffs Belmont, Sunburst
and Members of the Willis Broker-Centered Class have been injured in their business or property
by paying more for insurance than they would have absent the Willis Enterprise Defendants’
illegal conduct.
610. Accordingly, the Willis Enterprise Defendants are liable to Plaintiffs Belmont,
Sunburst and Members of the Willis Broker-Centered Class for three times their actual damages
as proven at trial, plus interest and attorneys’ fees.
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COUNT XII Violation of 18 U.S.C. § 1962(c) Against Defendants Associated with the Gallagher Enterprise
611. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
612. This cause of action is brought by Plaintiffs Mulcahy, Redwood, Clear Lam and the
Members of the Gallagher Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations
of U.S.C. § 1962(c) against Defendants associated with the Gallagher Enterprise (the “Gallagher
Enterprise Defendants”).
613. As set forth above and in the RICO Case Statement, the Gallagher Enterprise
Defendants have conducted or participated in conducting the Gallagher Enterprise through a
pattern of racketeering activity.
614. As a direct and proximate result, Plaintiffs Mulcahy, Redwood, Clear Lam and
Members of the Gallagher Broker-Centered Class have been injured in their business or property
by the predicate acts constituting the pattern of racketeering activity. Specifically, Plaintiffs
Mulcahy, Redwood, Clear Lam and Members of the Gallagher Broker-Centered Class have been
injured in their business or property by paying more for insurance than they would have absent
the Gallagher Enterprise Defendants’ illegal conduct.
615. Accordingly, the Gallagher Enterprise Defendants are liable to Plaintiffs Mulcahy,
Redwood, Clear Lam and Members of the Gallagher Broker-Centered Class for three times their
actual damages as proven at trial, plus interest and attorneys’ fees.
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COUNT XIII Violation of 18 U.S.C. § 1962(c) Against Defendants Associated with the Wells Fargo/Acordia Enterprise
616. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
617. This cause of action is brought by Plaintiff Omni and the Members of the Wells
Fargo/Acordia Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. §
1962(c) against Defendants associated with the Gallagher Enterprise (the “Wells Fargo/Acordia
Enterprise Defendants”).
618. As set forth above and in the RICO Case Statement, the Wells Fargo/Acordia
Enterprise Defendants have conducted or participated in conducting the Wells Fargo/Acordia
Enterprise through a pattern of racketeering activity.
619. As a direct and proximate result, Plaintiff Omni and Members of the Wells
Fargo/Acordia Broker-Centered Class have been injured in their business or property by the
predicate acts constituting the pattern of racketeering activity. Specifically, Plaintiff Omni and
Members of the Wells Fargo/Acordia Broker-Centered Class have been injured in their business
or property by paying more for insurance than they would have absent the Wells Fargo/Acordia
Enterprise Defendants’ illegal conduct.
620. Accordingly, the Wells Fargo/Acordia Enterprise Defendants are liable to Plaintiff
Omni and Members of the Wells Fargo/Acordia Broker-Centered Class for three times their
actual damages as proven at trial, plus interest and attorneys’ fees.
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COUNT XIV Violation of 18 U.S.C. § 1962(c) Against Defendants Associated with the HRH Enterprise
621. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
622. This cause of action is brought by Plaintiffs Tri-State, Opticare and the Members of
the HRH Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. §
1962(c) and against Defendants associated with the HRH Enterprise (the “HRH Enterprise
Defendants”).
623. As set forth above and in the RICO Case Statement, the HRH Enterprise
Defendants have conducted or participated in conducting the HRH Enterprise through a pattern
of racketeering activity.
624. As a direct and proximate result, Plaintiffs Tri-State, Opticare and Members of the
HRH Broker-Centered Class have been injured in their business or property by the predicate acts
constituting the pattern of racketeering activity. Specifically, Plaintiffs Tri-State, Opticare and
Members of the HRH Broker-Centered Class have been injured in their business or property by
paying more for insurance than they would have absent the HRH Enterprise Defendants’ illegal
conduct.
625. Accordingly, the HRH Enterprise Defendants are liable to Plaintiffs Tri-State,
Opticare and Members of the HRH Broker-Centered Class for three times their actual damages
as proven at trial, plus interest and attorneys’ fees.
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COUNT XV Violation of 18 U.S.C. § 1962(d) Against Defendants Associated with the Marsh Enterprise
626. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
627. This cause of action is brought by Plaintiffs Opticare, Bayou, Sunburst, Cellect,
Stamford, Singer, Comcar, Golden Gate and Members of the Marsh Broker-Centered Class
pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. § 1962(d) against Defendants associated
with the Marsh Enterprise (the “Marsh Enterprise Defendants”).
628. As set forth above and in the RICO Case Statement, the Marsh Enterprise
Defendants have conspired to violate 18 U.S.C. § 1962(c).
629. As a direct and proximate result, Plaintiffs Opticare, Bayou, Sunburst, Cellect,
Stamford, Singer, Comcare, Golden Gate and Members of the Marsh Broker-Centered Class
have been injured in their business or property by the predicate acts constituting the pattern of
racketeering activity. Specifically, Plaintiffs Opticare, Bayou, Sunburst, Cellect, Stamford,
Singer, Comcar, Golden Gate and Members of the Marsh Broker-Centered Class have been
injured in their business or property by paying more for insurance than they would have absent
the Marsh Enterprise Defendants’ illegal conduct.
630. Accordingly, the Marsh Enterprise Defendants are liable to Plaintiffs Opticare,
Bayou, Sunburst, Cellect, Stamford, Singer, Comcar, Golden Gate and Members of the Marsh
Broker-Centered Class for three times their actual damages as proven at trial, plus interest and
attorneys’ fees.
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COUNT XVI Violation of 18 U.S.C. § 1962(d) Against Defendants Associated with the Aon Enterprise
631. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
632. This cause of action is brought by Plaintiffs Sunburst, Bayou, Michigan Multi-King
and the Members of the Aon Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for
violations of U.S.C. § 1962(d) against Defendants associated with the Aon Enterprise (the “Aon
Enterprise Defendants”).
633. As set forth above and in the RICO Case Statement, the Aon Enterprise Defendants
have conspired to violate 18 U.S.C. § 1962(c).
634. As a direct and proximate result, Plaintiffs Sunburst, Bayou, Michigan Multi-King
and Members of the Aon Broker-Centered Class have been injured in their business or property
by the predicate acts constituting the pattern of racketeering activity. Specifically, Plaintiffs
Sunburst, Bayou, Michigan Multi-King and Members of the Aon Broker-Centered Class have
been injured in their business or property by paying more for insurance than they would have
absent the Aon Enterprise Defendants’ illegal conduct.
635. Accordingly, the Aon Enterprise Defendants are liable to Plaintiffs Sunburst,
Bayou, Michigan Multi-King and Members of the Aon Broker-Centered Class for three times
their actual damages as proven at trial, plus interest and attorneys’ fees.
COUNT XVII Violation of 18 U.S.C. § 1962(d) Against Defendants Associated with the Willis Enterprise
636. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
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637. This cause of action is brought by Plaintiffs Belmont, Sunburst and the Members of
the Willis Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. §
1962(d) against Defendants associated with the Willis Enterprise (the “Willis Enterprise
Defendants”).
638. As set forth above and in the RICO Case Statement, the Willis Enterprise
Defendants have conspired to violate 18 U.S.C. § 1962(c).
639. As a direct and proximate result, Plaintiffs Belmont, Sunburst and Members of the
Willis Broker-Centered Class have been injured in their business or property by the predicate
acts constituting the pattern of racketeering activity. Specifically, Plaintiffs Belmont, Sunburst
and Members of the Willis Broker-Centered Class have been injured in their business or property
by paying more for insurance than they would have absent the Willis Enterprise Defendants’
illegal conduct.
640. Accordingly, the Willis Enterprise Defendants are liable to Plaintiffs Belmont,
Sunburst and Members of the Willis Broker-Centered Class for three times their actual damages
as proven at trial, plus interest and attorneys’ fees.
COUNT XVIII Violation of 18 U.S.C. § 1962(d) Against Defendants Associated with the Gallagher Enterprise
641. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
642. This cause of action is brought by Plaintiffs Mulcahy, Redwood, Clear Lam and the
Members of the Gallagher Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations
of U.S.C. § 1962(d) against Defendants associated with the Gallagher Enterprise (the “Gallagher
Enterprise Defendants”).
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643. As set forth above and in the RICO Case Statement, the Gallagher Enterprise
Defendants have conspired to violate 18 U.S.C. § 1962(c).
644. As a direct and proximate result, Plaintiffs Mulcahy, Redwood, Clear Lam and
Members of the Gallagher Broker-Centered Class have been injured in their business or property
by the predicate acts constituting the pattern of racketeering activity. Specifically, Plaintiffs
Mulcahy, Redwood, Clear Lam and Members of the Gallagher Broker-Centered Class have been
injured in their business or property by paying more for insurance than they would have absent
the Gallagher Enterprise Defendants’ illegal conduct.
645. Accordingly, the Gallagher Enterprise Defendants are liable to Plaintiffs Mulcahy,
Redwood, Clear Lam and Members of the Gallagher Broker-Centered Class for three times their
actual damages as proven at trial, plus interest and attorneys’ fees.
COUNT XIX Violation of 18 U.S.C. § 1962(d) Against Defendants Associated with the Wells Fargo/Acordia Enterprise
646. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
647. This cause of action is brought by Plaintiff Omni and the Members of the Wells
Fargo/Acordia Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. §
1962(d) against Defendants associated with the Gallagher Enterprise (the “Wells Fargo/Acordia
Enterprise Defendants”).
648. As set forth above and in the RICO Case Statement, the Wells Fargo/Acordia
Enterprise Defendants have conspired to violate 18 U.S.C. § 1962(c).
649. As a direct and proximate result, Plaintiff Omni and Members of the Wells
Fargo/Acordia Broker-Centered Class have been injured in their business or property by the
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predicate acts constituting the pattern of racketeering activity. Specifically, Plaintiff Omni and
Members of the Wells Fargo/Acordia Broker-Centered Class have been injured in their business
or property by paying more for insurance than they would have absent the Wells Fargo/Acordia
Enterprise Defendants’ illegal conduct.
650. Accordingly, the Wells Fargo/Acordia Enterprise Defendants are liable to Plaintiff
Omni and Members of the Wells Fargo/Acordia Broker-Centered Class for three times their
actual damages as proven at trial, plus interest and attorneys’ fees.
COUNT XX Violation of 18 U.S.C. § 1962(d) Against Defendants Associated with the HRH Enterprise
651. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
652. This cause of action is brought by Plaintiffs Tri-State, Opticare and the Members of
the HRH Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. §
1962(d) against Defendants associated with the HRH Enterprise (the “HRH Enterprise
Defendants”).
653. As set forth above and in the RICO Case Statement, the HRH Enterprise
Defendants have conspired to violate 18 U.S.C. § 1962(c).
654. As a direct and proximate result, Plaintiffs Tri-State, Opticare and Members of the
HRH Broker-Centered Class have been injured in their business or property by the predicate acts
constituting the pattern of racketeering activity. Specifically, Plaintiffs Tri-State, Opticare and
Members of the HRH Broker-Centered Class have been injured in their business or property by
paying more for insurance than they would have absent the HRH Enterprise Defendants’ illegal
conduct.
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655. Accordingly, the HRH Enterprise Defendants are liable to Plaintiffs Tri-State,
Opticare and Members of the HRH Broker-Centered Class for three times their actual damages
as proven at trial, plus interest and attorneys’ fees.
COUNT XXI Violation of 18 U.S.C. § 1962(d) Against All Broker Defendants
656. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
657. This cause of action is brought by Plaintiffs and Members of the Global Class
pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. § 1962(d) against all Broker Defendants.
658. As set forth above and in the RICO Case Statement, the Broker Defendants have
conspired to violate 18 U.S.C. § 1962(c).
659. As a direct and proximate result, Plaintiffs and Members of the Global Class have
been injured in their business or property by the predicate acts constituting the pattern of
racketeering activity. Specifically, Plaintiffs and Members of the Global Class have been injured
in their business or property by paying more for insurance than they would have absent the
Defendants’ illegal conduct.
660. Accordingly, the Broker Defendants are liable to Plaintiffs and Members of the
Global Class for three times their actual damages as proven at trial, plus interest and attorneys’
fees.
COUNT XXII Violation of 18 U.S.C. § 1962(c) Against All Defendants
661. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
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662. This cause of action is brought by Plaintiffs and Members of the Global Class
pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. § 1962(c) against all Defendants.
663. As set forth above and in the RICO Case Statement, the Defendants have conducted
or participated in conducting the CIAB Enterprise through a pattern of racketeering activity.
664. As a direct and proximate result, Plaintiffs and Members of the Global Class have
been injured in their business or property by the predicate acts constituting the pattern of
racketeering activity. Specifically, Plaintiffs and Members of the Global Class have been injured
in their business or property by paying more for insurance than they would have absent the
Defendants’ illegal conduct.
665. Accordingly, the Defendants are liable to Plaintiffs and Members of the Global
Class for three times their actual damages as proven at trial, plus interest and attorneys’ fees.
COUNT XXIII Violation of 18 U.S.C. § 1962(d) Against All Defendants
666. Plaintiffs incorporate herein and make a part hereof, their allegations contained in
paragraphs 64 through 562 above.
667. This cause of action is brought by Plaintiffs and Members of the Global Class
pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. § 1962(d) against all Defendants.
668. As set forth above and in the RICO Case Statement, the Defendants have conspired
to violate 18 U.S.C. § 1962(c).
669. The conspiracy has been conducted, implemented and facilitated through CIAB.
The purpose and effect of the conspiracy was to prevent Plaintiffs and Members of the Class
from becoming aware of the terms and the significance of the contingent commission agreements
between the Defendants and the conflicts of interest arising out of the Broker Defendants’
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strategic partnerships with the Insurer Defendants, thereby allowing the Broker Defendants to
increase the compensation they received from the Insurer Defendants and the Insurer Defendants
to increase the business they received from the Broker Defendants without competition.
670. Each Defendant was aware of the general nature of the conspiracy and its role in
facilitating the objectives of the conspiracy.
671. Further, each Defendant has agreed to the overall objective of the conspiracy.
672. Each Defendant has committed overt acts in furtherance of the alleged
conspiratorial objectives.
673. As a result of the Defendants’ conspiracy, Plaintiffs and other Members of the Class
have paid more than they otherwise would have paid for insurance they procured through the
Broker Defendants.
674. As a direct and proximate result, Plaintiffs and Members of the Global Class have
been injured in their business or property by the predicate acts constituting the pattern of
racketeering activity. Specifically, Plaintiffs and Members of the Global Class have been injured
in their business or property by paying more for insurance than they would have absent the
Defendants’ illegal conduct.
675. Accordingly, the Defendants are liable to Plaintiffs and Members of the Global
Class for three times their actual damages as proven at trial, plus interest and attorneys’ fees.
COUNT XXIV State Law Antitrust Against All Defendants
676. Plaintiffs incorporate herein and make a part hereof, the allegations contained in
paragraphs 64 through 562 above.
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677. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Alaska Stat. §§45.50.562 et seq.
678. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Arizona Revised Stat. §§44-1401 et seq.
679. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Arkansas Stat. Ann. §§4-75-309 et seq. and Arkansas Stat. Ann. §§4-75-201
et seq.
680. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Cal. Bus. & Prof. Code §§16700 et seq., §§16720 et seq., and Cal. Bus. &
Prof. Code §§17000 et seq.
681. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Colorado Rev. Stat. §§6-4-101 et seq.
682. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Connecticut Gen. Stat. §§35-26 et seq.
683. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of D.C. Code Ann. §§28-4503 et seq.
684. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Delaware Code Ann. tit. 6, §§2103 et seq.
685. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Florida Stat. §§501.201 et seq.
686. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Georgia Code Ann. §§16-10-22 et seq. and Georgia Code Ann. §§13-8-2 et
seq.
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687. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Hawaii Rev. Stat. §§480-1 et seq.
688. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Idaho Code §§48-101 et seq.
689. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of 740 Illinois Comp. Stat. §§10/1 et seq.
690. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Indiana Code Ann. §§24-1-2-1 et seq.
691. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Iowa Code §§553.1 et seq.
692. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Kansas Stat. Ann. §§50-101 et seq.
693. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Kentucky Rev. Stat. §§367.175 et seq., and relief can be granted in
accordance with Kentucky Rev. Stat. §446.070.
694. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Louisiana Rev. Stat. §§51:137 et seq.
695. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Maine Rev. Stat. Ann. 10, §§1101 et seq.
696. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Maryland Code Ann. Title 11, §§11-201 et seq.
697. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Massachusetts Ann. Laws ch. 92 §§1 et seq.
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698. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Michigan Comp. Laws. Ann. §§445.773 et seq.
699. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Minnesota Stat. §§325D.52 et seq.
700. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Mississippi Code Ann. §§75-21-1 et seq.
701. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Missouri Stat. Ann. §§416.011 et seq.
702. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Montana Code Ann. §§30-14-101 et seq.
703. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Nebraska Rev. Stat. §§59-801 et seq.
704. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Nev. Rev. Stat. Ann. §§598A et seq.
705. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of New Hampshire Rev. Stat. Ann. §§356:1 et seq.
706. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of New Jersey Stat. Ann. §§56:9-1 et seq.
707. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of New Mexico Stat. Ann. §§57-1-1 et seq.
708. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of N.Y. Gen. Bus. Law §340 et seq., and N.Y. Ins. Law § 2316(a).
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709. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of North Carolina Gen. Stat.. §§75-1 et seq.
710. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of North Dakota Cent. Code §§51-08.1-01 et seq.
711. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Ohio Rev. Code §§1331.01 et seq.
712. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Oklahoma Stat. tit. 79 §§203(A) et seq.
713. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Oregon Rev. Stat. §§646.705 et seq.
714. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Rhode Island Gen. Laws §§6-36-1 et seq.
715. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of South Carolina. Code §§39-3-10 et seq.
716. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of South Dakota Codified Laws Ann. §§37-1 et seq.
717. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Texas Bus. & Com. Code §§15.01 et seq.
718. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Utah Code Ann. §§76-10-911 et seq.
719. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Vermont Stat. Ann. 9 §§2453 et seq.
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720. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Virginia Code §§59-1-9.2 et seq.
721. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Washington Rev. Code §§19.86.010 et seq.
722. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of West Virginia §§47-18-1 et seq.
723. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Wisconsin Stat. §§133.01 et seq.
724. By reason of the foregoing, Defendants have entered into agreements in restraint of
trade in violation of Wyoming Stat. §§40-4-101 et seq.
COUNT XXV Breach of Fiduciary Duty Against the Broker Defendants
725. Plaintiffs incorporate herein and make a part hereof, the allegations contained in
paragraphs 64 through 562 above.
726. Each Broker defendant was a fiduciary to its own client Plaintiffs. Because of this,
the Plaintiffs placed confidence and trust in their Brokers, authorized them to exercise
discretionary functions for their benefit, and relied on their superior expertise in risk
management and the procurement of insurance.
727. The Broker Defendants accepted and solicited that confidence and trust as described
above.
728. As fiduciaries of Plaintiffs and members of the Class, the Broker Defendants were
obligated to discharge their duties solely in the interests of their Plaintiff clients, and specifically
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to find the best available coverage at the best price, exercising good faith and fair dealing, full
and fair disclosure, care and loyalty to the interests of their client Plaintiffs.
729. Defendants have breached those duties by acting in their own pecuniary interests in
disregard of the interests of their client Plaintiffs as set forth above.
730. Accordingly, Defendants are liable for breach of fiduciary duty to their client
Plaintiffs, and are liable for the damages suffered by Plaintiffs in an amount to be proved at trial.
Plaintiffs and members of the Class are further entitled to an accounting by Defendants with
respect to all Contingent Commissions, Wholesale Payments and other improper payments
received by Defendants.
COUNT XXVI Aiding and Abetting Breach of Fiduciary Duty Against the Insurer Defendants
731. Plaintiffs incorporate herein and make a part hereof, the allegations contained in
paragraphs 64 through 562 above.
732. As alleged above, a fiduciary relationship existed between each Broker and its
Plaintiff clients.
733. The Broker Defendants breached this fiduciary duty by acting in their own
pecuniary interests and in disregard of the interests of their client Plaintiffs as set forth above.
The Insurer Defendants knowingly participated in that breach by, among other things, engaging
in the fraudulent and conspiratorial conduct described above.
734. Plaintiffs have suffered damages proximately caused by the Insurer Defendants’
participation in the Broker Defendants’ breach.
735. Accordingly, the Insurer Defendants are liable to Plaintiffs for damages in an
amount to be proven at trial.
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COUNT XXVII Unjust Enrichment Against the Broker and Insurer Defendants
736. Plaintiffs incorporate herein and make a part hereof, the allegations contained in
paragraphs 64 through 562 above.
737. Defendants have benefited from their unlawful acts by receiving excessive premium
revenue and enormous Contingent Commissions and Wholesale Payments. These payments
have been received by Defendants at Plaintiffs’ expense, under circumstances where it would be
inequitable for Defendants to be permitted to retain the benefit.
738. Plaintiffs and members of the Class are entitled to the establishment of a
constructive trust consisting of the benefit conferred upon Defendants in the form of their
excessive premium revenue and contingent commission and wholesale payments from which
Plaintiffs and the other Class Members may make claims on a pro rata basis for restitution.
WHEREFORE, Plaintiffs demand judgment against Defendants as follows:
(a) Certification of the Classes pursuant to Rule 23 of the Federal Rules of Civil
Procedure, certifying Plaintiffs as the representatives of the Classes, and designating their
counsel as counsel for the Class;
(b) A declaration that Defendants have committed the violations alleged herein;
(c) On Count I, for violation of Section 1 of the Sherman Act by the Marsh Broker-
Centered Class against the Marsh Broker-Centered Defendants, jointly and severally in an
amount equal to treble the amount of damages suffered by Plaintiffs and members of the Marsh
Broker-Centered Class as proven at trial plus interest and attorneys’ fees and expenses;
(d) On Count II, Violation of Section 1 of the Sherman Act by the Marsh Broker-
Centered Class against the Marsh Broker-Centered Excess Casualty Defendants, jointly and
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severally in an amount equal to treble the amount of damages suffered by Plaintiffs and members
of the Marsh Broker-Centered Class as proven at trial plus interest and attorneys’ fees and
expenses;
(e) On Count III, for violation of Section 1 of the Sherman Act by the Aon Broker-
Centered Class against the Aon Broker-Centered Defendants, jointly and severally in an amount
equal to treble the amount of damages suffered by Plaintiffs and members of the Aon Broker-
Centered Class Class as proven at trial plus interest and attorneys’ fees and expenses;
(f) On Count IV, for violation of Section 1 of the Sherman Act by the Wells
Fargo/Acordia Broker-Centered Class against the Wells Fargo/Acordia Broker-Centered
Defendants, jointly and severally in an amount equal to treble the amount of damages suffered by
Plaintiffs and members of the Wells Fargo/Acordia Broker-Centered Class as proven at trial plus
interest and attorneys’ fees and expenses;
(g) On Count V, for violation of Section 1 of the Sherman Act by the Gallagher
Broker-Centered Class against the Gallagher Broker-Centered Defendants, jointly and severally
in an amount equal to treble the amount of damages suffered by Plaintiffs and members of the
Gallagher Broker-Centered Class as proven at trial plus interest and attorneys’ fees and
expenses;
(h) On Count VI, for violation of Section 1 of the Sherman Act by the HRH Broker-
Centered Class against the HRH Broker-Centered Defendants, jointly and severally in an amount
equal to treble the amount of damages suffered by Plaintiffs and members of the HRH Broker-
Centered Class as proven at trial plus interest and attorneys’ fees and expenses;
(i) On Count VII, for violation of Section 1 of the Sherman Act by the Willis Broker-
Centered Class against the Willis Broker-Centered Defendants, jointly and severally in an
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amount equal to treble the amount of damages suffered by Plaintiffs and members of the Willis
Broker-Centered Class as proven at trial plus interest and attorneys’ fees and expenses;
(j) On Count VIII, for violation of Section 1 of the Sherman Act by all Plaintiffs
against all Defendants, jointly and severally in an amount equal to treble the amount of damages
suffered by Plaintiffs and members of the Classes as proven at trial plus interest and attorneys’
fees and expenses;
(k) On Count IX, for violation of 18 U.S.C. § 1962(c) by Plaintiffs Opticare, Bayou,
Sunburst, Cellect, City of Stamford, Singer and Golden Gate and members of the Marsh Broker-
Centered Class against Defendants associated with the Marsh Enterprise, jointly and severally in
an amount equal to treble the amount of damages suffered by Plaintiffs and members of the
Marsh Broker-Centered Class as proven at trial plus interest and attorneys’ fees and expenses;
(l) On Count X, for violation of 18 U.S.C. § 1962(c) by Plaintiffs Sunburst, Bayou,
and Michigan Multi-King and members of the Aon Broker-Centered Class against Defendants
associated with the Aon Enterprise, jointly and severally in an amount equal to treble the amount
of damages suffered by Plaintiffs and members of the Aon Broker-Centered Class as proven at
trial plus interest and attorneys’ fees and expenses;
(m) On Count XI, for violation of 18 U.S.C. § 1962(c) by Plaintiff Belmont and
members of the Willis Broker-Centered Class against Defendants associated with the Willis
Enterprise, jointly and severally in an amount equal to treble the amount of damages suffered by
Plaintiffs and members of the Willis Broker-Centered Class as proven at trial plus interest and
attorneys’ fees and expenses;
(n) On Count XII, for violation of 18 U.S.C. § 1962(c) by Plaintiffs Mulcahy,
Redwood and Clear Lam and members of the Gallagher Broker-Centered Class against
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Defendants associated with the Gallagher Enterprise, jointly and severally in an amount equal to
treble the amount of damages suffered by Plaintiffs and members of the Gallagher Broker-
Centered Class as proven at trial plus interest and attorneys’ fees and expenses;
(o) On Count XIII, for violation of 18 U.S.C. § 1962(c) by Plaintiff Omni and
members of the Wells Fargo/Acordia Broker-Centered Class against Defendants associated with
the Wells Fargo/Acordia Enterprise, jointly and severally in an amount equal to treble the
amount of damages suffered by Plaintiffs and members of the Wells Fargo/Acordia Broker-
Centered Class as proven at trial plus interest and attorneys’ fees and expenses;
(p) On Count XIV, for violation of 18 U.S.C. § 1962(c) by Plaintiff Tri-State and
members of the HRH Broker-Centered Class against Defendants associated with the HRH
Enterprise, jointly and severally in an amount equal to treble the amount of damages suffered by
Plaintiffs and members of the HRH Broker-Centered Class as proven at trial plus interest and
attorneys’ fees and expenses;
(q) On Count XV, for violation of 18 U.S.C. § 1962(d) by Plaintiffs Opticare, Bayou,
Sunburst, Cellect, City of Stamford, Singer and Golden Gate and members of the Marsh Broker-
Centered Class against Defendants associated with the Marsh Enterprise, jointly and severally in
an amount equal to treble the amount of damages suffered by Plaintiffs and members of the HRH
Broker-Centered Class as proven at trial plus interest and attorneys’ fees and expenses;
(r) On Count XVI, for violation of 18 U.S.C. § 1962(d) by Plaintiffs Sunburst,
Bayou, and Michigan Multi-King and members of the Aon Broker-Centered Class against
Defendants associated with the Aon Enterprise, jointly and severally in an amount equal to treble
the amount of damages suffered by Plaintiffs and members of the Aon Broker-Centered Class as
proven at trial plus interest and attorneys’ fees and expenses;
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(s) On Count XVII, for violation of 18 U.S.C. § 1962(d) by Plaintiff Belmont and
members of the Willis Broker-Centered Class against Defendants associated with the Willis
Enterprise, jointly and severally in an amount equal to treble the amount of damages suffered by
Plaintiffs and members of the Willis Broker-Centered Class as proven at trial plus interest and
attorneys’ fees and expenses;
(t) On Count XVIII, for violation of 18 U.S.C. § 1962(d) by Plaintiffs Mulcahy,
Redwood and Clear Lam and members of the Gallagher Broker-Centered Class against
Defendants associated with the Gallagher Enterprise, jointly and severally in an amount equal to
treble the amount of damages suffered by Plaintiffs and members of the Gallagher Broker-
Centered Class as proven at trial plus interest and attorneys’ fees and expenses;
(u) On Count XIX, for violation of 18 U.S.C. § 1962(d) by Plaintiff Omni and
members of the Wells Fargo/Acordia Broker-Centered Class against Defendants associated with
the Wells Fargo/Acordia Enterprise, jointly and severally in an amount equal to treble the
amount of damages suffered by Plaintiffs and members of the Wells Fargo/Acordia Broker-
Centered Class as proven at trial plus interest and attorneys’ fees and expenses;
(v) On Count XX, for violation of 18 U.S.C. § 1962(d) by Plaintiff Tri-State and
members of the HRH Broker-Centered Class against Defendants associated with the HRH
Enterprise, jointly and severally in an amount equal to treble the amount of damages suffered by
Plaintiffs and members of the HRH Broker-Centered Class as proven at trial plus interest and
attorneys’ fees and expenses;
(w) On Count XXI, for violation of 18 U.S.C. § 1962(d) by all Plaintiffs and members
of the Global Class against all Broker Defendants, jointly and severally in an amount equal to
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treble the amount of damages suffered by Plaintiffs and members of the Global Class as proven
at trial plus interest and attorneys’ fees and expenses;
(x) On Count XXII, for violation of 18 U.S.C. § § 1962(c) by all Plaintiffs and
members of the Global Class against all Defendants, jointly and severally in an amount equal to
treble the amount of damages suffered by Plaintiffs and members of the Global Class as proven
at trial plus interest and attorneys’ fees and expenses;
(y) On Count XXIII, for violation of 18 U.S.C. § 1962(d) by all Plaintiffs and
members of the Global Class against all Defendants, jointly and severally in an amount equal to
treble the amount of damages suffered by Plaintiffs and members of the Global Class as proven
at trial plus interest and attorneys’ fees and expenses;
(z) On Count XXIV, for violation of state antitrust laws, jointly and severally in an
amount equal to damages sustained as proven at trial, and for any additional damages, penalties
and other monetary relief provided by applicable law, including treble damages plus interest and
attorneys’ fees and expenses;
(aa) On Count XXV, for Breach of Fiduciary Duty against the Broker Defendants,
jointly and severally in an amount equal to damages sustained by Plaintiffs and members of the
Class as proven at trial, and for an accounting by Defendants with respect to all Contingent
Commissions, Wholesale Payments and other improper payments received by Defendants;
(bb) On Count XXVI, for Aiding and Abetting a Breach of Fiduciary Duty against the
Insurer Defendants, jointly and severally in an amount equal to damages sustained by Plaintiffs
and members of the Class as proven at trial; and
(cc) On their Count XXVII, Unjust Enrichment against the Broker and Insurer
Defendants, jointly and severally for establishment of a constructive trust consisting of the
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benefit conferred upon Defendants in the form of their excessive premium revenue and
contingent commission and wholesale payments from which Plaintiffs and the other Class
members may make claims on a pro rata basis for restitution;
(dd) An injunction preventing Defendants from engaging in future anticompetitive and
fraudulent practices;
(ee) Costs of this action, including reasonable attorneys fees and expenses; and
(ff) Any such other and further relief as this Court deems just and proper.
JURY DEMAND
Plaintiffs demand a trial by jury on all claims so triable as a matter of right.
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Date: May 22, 2007 Respectfully submitted,
CAFFERTY FAUCHER LLP
/s/ Bryan L. Clobes Bryan L. Clobes Ellen Meriwether Melody Forrester Timothy Fraser 1717 Arch Street, Ste. 3610 Philadelphia, PA 19103 Tel.: 215-864-2800 Fax: 215-864-2810
WHATLEY, DRAKE & KALLAS, LLC
/s/ Edith M. Kallas Edith M. Kallas Joseph P. Guglielmo Elizabeth Rosenberg Lili R. Sabo 1540 Broadway, 37th Floor New York, NY 10036 Tel.: 212-447-7070 Fax: 212-447-7077
Plaintiffs’ Co-Lead Counsel
FOOTE, MEYERS, MIELKE & FLOWERS Robert M. Foote 28 North First Street, Suite 2 Geneva, IL 60134 Tel.: 630-232-6333 Fax: 845-8982
LEVIN, FISHBEIN, SEDRAN & BERMAN Howard J. Sedran 510 Walnut Street - Suite 500 Philadelphia, PA 19106 Tel.: 215-592-1500 Fax: 215-592-4663
Plaintiffs’ Executive Committee
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LITE DEPALMA GREENBERG & RIVAS, LLC Allyn Z. Lite Bruce D. Greenberg Michael E. Patunas Two Gateway Center, 12th Floor Newark, NJ 07102 Tel.: 973-623-3000 Fax: 973-623-0858
Liaison Counsel for Commercial Insurance Litigation
BONNETT, FAIRBOURN, FRIEDMAN & BALINT, P.C. Andrew S. Friedman Elaine A. Ryan Patricia N. Hurd 2901 N. Central Avenue, Suite 1000 Phoenix, AZ 85012 Tel.: 602-274-1100 Fax: 602-274-1199
Liaison Counsel for Employee-Benefit Litigation
AUDET & PARTNERS, LLP William M. Audet 221 Main Street Suite 1460 San Francisco, CA 94105 Tel.: 415-568-2555 Fax: 415-568-2556
BEELER, SCHAD & DIAMOND, P.C. Lawrence W. Schad James Shedden Michael S. Hilicki Tony H. Kim 332 South Michigan Avenue, Suite 1000 Chicago, IL 60604 Tel.: 312-939-6280
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Fax: 312-939-4661
BOLOGNESE & ASSOCIATES Anthony J. Bolognese One Penn Center 1617 John F. Kennedy Boulevard Suite 650 Philadelphia, PA 19103 Tel.: 215-814-6750 Fax.: 215-814-6764
BONSIGNORE & BREWER Robert J. Bonsignore Robin Brewer Daniel D’Angelo 23 Forest Street Medford, MA 02155 Tel.: 781-391-9400 Fax: 781-391-9496
CAFFERTY FAUCHER LLP Jennifer W. Sprengel Nyran Rose Pearson 30 N. LaSalle Street, Suite 3200 Chicago, IL 60602 Tel: 312-782-4880 Fax: 312-782-4485
CAREY & DANIS L.L.C. Michael J. Flannery James Rosemergy 8235 Forsyth Blvd. Suite 1100 St. Louis, MO 63105 Tel.: 314-725-7700 Fax: 314-721-0905
CHAVEZ LAW FIRM, P.C. Kathleen C. Chavez P.O. Box 772 Geneva, IL 60134 Tel.: 630-232-4480 Fax: 630-232-8265
CHIMICLES & TIKELLIS LLP Nicholas E. Chimicles
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Michael D. Gottsch 361 West Lancaster Avenue Haverford, PA 19041 Tel.: 610-642-8500 Fax: 610-649-3633
COHN, LIFLAND, PEARLMAN, HERRMANN & KNOPF Peter S. Pearlman Park 80 Plaza West One Saddle Brook, NJ 07663 Tel.: 201-845-9600 Fax: 201-845-9423
COOPER & KIRKHAM, P.C. Josef D. Cooper 655 Montgomery Street, 17th Floor San Francisco, CA 94111 Tel.: 415-788-3030 Fax: 415-882-7040
DOFFERMYRE SHIELDS CANFIELD KNOWLES & DEVINE Kenneth S. Canfield Ralph I. Knowles, Jr. Martha J. Fessenden Samuel W. Wethern 1355 Peachtree Street, Suite 1600 Atlanta, GA 30309 Tel.: 404-881-8900 Fax: 404-881-3007
DRUBNER HARTLEY & O’CONNOR James E. Hartley, Jr. Gary O’Connor Charles S. Hellman 500 Chase Parkway, 4th Floor Waterbury, CT 06708 Tel.: 203-753-9291 Fax: 203-753-6373
EYSTER KEY TUBB WEAVER & ROTH, LLP Nicholas B. Roth Heather Necklaus Hudson
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P.O. Box 1607 Decatur, AL 35602 Tel: 256- 353-6761 Fax: 256- 353-6767
FINE KAPLAN & BLACK Roberta D. Liebenberg 1835 Market Street, 28th Floor Philadelphia, PA 19103 Tel.: 215-567-6565 Fax: 215-568-5872
FINKELSTEIN, THOMPSON & LOUGHRAN Burton H. Finkelstein L. Kendall Satterfield Halley F. Ascher 1050 30th Street, N.W. Washington, D.C. 20007 Tel.: 202-337-8000 Fax: 202-337-8090
FURTH LEHMANN & GRANT, LLP Michael P. Lehmann Thomas P. Dove Julio J. Ramos Jon T. King 225 Bush Street, Suite 1500 San Francisco, CA 94104 Tel.: 415-433-2070 Fax: 415-982-2076
GRAY AND WHITE Mark K. Gray 1200 PNC Plaza Louisville, KY 40202 Tel.: 502-585-2060
HANSON BRIDGES MARCUS VLAHOS RUDY LLP David J. Miller 333 Market Street, 23rd Floor San Francisco, CA 94105 Tel.: 415-777-3200 Fax: 415-541-9366
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HANZMAN CRIDEN & LOVE, P.A. Michael E. Criden Kevin B. Love Plaza 57 7301 SW 57th Court Suite 515 South Miami, Florida 33143 Tel.: 305-357-9010 Fax: 305-357-9050
JANSSEN, MALLOY, NEEDHAM, MORRISON, REINHOLTSEN & CROWLEY, LLP W. Timothy Needham 730 Fifth Street, Post Office Drawer 1288 Eureka, CA 95502 Tel.: 707-445-2071 Fax: 707-445-8305
JEFFREY BRODKIN 1845 Walnut Street, 22nd Floor Philadelphia, PA 19103 Tel.: 215-567-1234 Fax.: 609-569-0809
JEFFREY LOWE, P.C. Jeff Lowe 8235 Forsyth Blvd., Ste. 1100 St. Louis, MO 63105 Tel.: 314-721-3668 Fax: 314-678-3401
JOHN P. MCCARTHY 217 Bay Avenue Somers Point, NJ 08224 Tel.: 609-653-1094 Fax.: 609-653-3029
KLAFTER & OLSEN LLP Jeffrey A. Klafter 1311 Mamaroneck Avenue, Suite 220 White Plains, NY 10602 Tel.: 914-997-5656 Fax: 914-997-2444
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LARRY D. DRURY, LTD. Larry D. Drury 205 West Randolph, Suite 1430 Chicago, IL 60606 Tel.: 312-346-7950 Fax: 312-346-5777
LAW OFFICES OF GARY H. SAPOSNIK Gary H. Saposnik 105 West Madison Street, Ste. 700 Chicago, IL 60602 Tel: 312-357-1777 Fax: 312-606-0413
LAW OFFICES OF RANDY R. RENICK Randy R. Renick 128 North Fair Oaks Avenue, Ste. 204 Pasadena, CA 91103 Tel.: 626-585-9608 Fax: 626-585-9610
LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS, LLP John J. Stoia, Jr. Theodore J. Pintar Bonny E. Sweeney James D. McNamara Mary Lynne Calkins Rachel L. Jensen 655 West Broadway Suite 1900 San Diego, CA 92101 Tel.: 619-231-1058 Fax: 619-231-7423
LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS, LLP Samuel H. Rudman 200 Broadhollow Road, Suite 406 Melville, NY 11747 Tel.: 631-367-7100 Fax: 631-367-1173
LEVINE DESANTIS, LLC Mitchell B. Jacobs
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150 Essex St., Ste. 303 Millburn, New Jersey 07041 Tel: 973-376-9050 Fax: 973-379-6898
LOOPER, REED & MCGRAW James L. Reed, Jr. Travis Crabtree 1300 Post Oak Blvd. Ste. 2000 Houston, TX 77056 Tel.: 713- 986-7000 Fax: 713- 986-7100
MAGER & GOLDSTEIN, LLP Jayne Arnold Goldstein 1640 Town Center Circle, Suite 216 Weston, FL 33326 Tel: 954-515-0123 Fax: 954-515-0124
MEREDITH COHEN GREENFOGEL & SKIRNICK, P.C. Steven J. Greenfogel Daniel B. Allanoff Architects Building, 22nd Floor 117 South 17th Street Philadelphia, PA 19103 Tel.: 215-564-5182 Fax: 215-569-0958
PHILIP STEINBERG 124 Rockland Avenue Bala Cynwood, PA 19004 Tel.: 610-664 3101 Fax.: 610-664-0972
SAVERI & SAVERI, INC. Guido Saveri R. Alexander Saveri Geoffrey C. Rushing Cadio Zirpoli One Eleven Pine, Suite 1700 San Francisco, CA 94111-5619 Tel.: 415-217-6810 Fax: 415-217-6813
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SHAHEEN & GORDON William Shaheen D. Michael Noonan 140 Washington St., 2nd Fl. P.O. Box 977 Dover, NH 03821-0977 Tel.: 603-749-5000 Fax: 603-749-1838
SHERMAN, SILVERSTEIN, KOHL, ROSE & PODOLSKY Alan C. Milstein Jeffrey P. Resnick Fairway Corporate Center 4300 Haddonfield Road, Ste. 311 Pennsauken, NJ 08109 Tel: 856-662-0700 Fax: 856-488-4744
SPECTOR, ROSEMAN & KODROFF, P.C. Theodore M. Lieverman Eugene A. Spector Jay S. Cohen 1818 Market Street, Suite 2500 Philadelphia, PA 19102 Tel.: 215-496-0300 Fax: 215-496-6611
TRUJILLO RODRIGUEZ & RICHARDS, LLP Lisa J. Rodriguez 8 Kings Highway West Haddonfield, NJ 08033 Tel: 856-795-9002
WHATLEY, DRAKE & KALLAS, LLC Joe R. Whatley, Jr. Charlene Ford Richard Rouco Richard Frankowski 2001 Park Place North Suite 1000 Birmingham, AL 35203 Tel.: 205-328-9576
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Fax: 205-328-9669
WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLC Mary Jane Edelstein Fait Adam J. Levitt 656 West Randolph Street Suite 500 West Chicago, IL 60661 Tel.: 312-466-9200 Fax: 312-466-9292
WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLC Fred Taylor Isquith Alexander Schmidt 270 Madison Avenue, 10th Floor New York, NY 10016 Tel.: 212-545-4600 Fax: 212-545-4653
ZWERLING, SCHACHTER & ZWERLING, LLP Robert S. Schachter Susan Salvetti Stephen L. Brodsky Daniel Drachler Justin M. Tarshis 41 Madison Avenue New York, NY 10010 Tel.: 212-223-3900 Fax: 212-371-5969
Attorneys for Plaintiffs
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Case No. 14-56140 UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
CALIFORNIA COALITION FOR FAMILIES AND CHILDREN
v.
SAN DIEGO COUNTY BAR ASSOCIATION, et al.,
Appeal From The United States District Court For The Southern District of California Case No. 03-cv-1944 CAB (JLB) The Honorable Cathy Ann Bencivengo
Exhibits to Motion to Take Judicial Notice
Exhibit 3
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UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY —————————————————— x IN RE: INSURANCE BROKERAGE : MDL No. 1663 ANTITRUST LITIGATION : : Civil No. 04-5184 (GEB) APPLIES TO ALL COMMERCIAL : INSURANCE BROKERAGE ACTIONS : Hon. Garrett E. Brown, Jr. : : —————————————————— x
REVISED PARTICULARIZED STATEMENT DESCRIBING THE HORIZONTAL CONSPIRACIES ALLEGED IN THE SECOND CONSOLIDATED AMENDED COMMERCIAL CLASS ACTION COMPLAINT
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TABLE OF CONTENTS
THE BROKER-CENTERED CONSPIRACIES...... 1
1) The Marsh Broker-Centered Conspiracy...... 1
a) Participants in the Conspiracy...... 1
b) Operation of the Conspiracy...... 1
(1) Overview...... 1
(2) The Participants in the Marsh Broker-Centered Conspiracy Agreed that the Bulk of Marsh’s Customers Would be Allocated to the Conspiring Insurers...... 2
(3) The Participants in the Marsh Broker-Centered Conspiracy Agreed Not to Compete for Each Other’s Customers...... 5
(4) Marsh and its Conspiring Insurers Agreed to Protect Each Others’ Incumbent Business through Bid-Rigging and other Overt Acts...... 8
(5) Marsh and its Conspiring Insurers Agreed that in Return for Contingent Commission Payments, the Insurer Participants Would be Guaranteed Access to a Minimum Amount of Premium Volume...... 19
(6) The Insurer Defendants Understood Their Role in the Conspiracy and Were Disciplined if They Did Not Go Along...... 22
(7) Communications Among the Participants in the Marsh Broker-Centered Conspiracy Facilitated by Marsh Furthered the Conspiracy...... 26
(8) The Co-Conspirators Benefited from the Operation of the Conspiracy...... 32
2) The Aon Broker-Centered Conspiracy...... 33
a) Participants in the Conspiracy...... 33
b) Operation of the Conspiracy...... 34
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(1) Overview...... 34
(2) The Participants in the Aon Broker-Centered Conspiracy Agreed that the Bulk of Aon’s Book of Business Would be Allocated to Conspiring Insurers...... 34
(3) The Participants in the Aon Broker-Centered Conspiracy Agreed Not to Compete for Each Others’ Customers...... 39
(4) Aon and the Conspiring Insurers Agreed that in Return for Contingent Commission Payments, the Conspiring Insurers Would Be Guaranteed Access to a Minimum Amount of Premium Volume...... 41
(a) Aon Steered, Shifted or Rolled Business to the Conspiring Insurers with Minimal or No Competition...... 42
(b) Conspiring Insurers Expected and Received Competitive Advantages and Protection from Competition from Aon...... 46
(c) Aon Monitored and Enforced the Terms of the Conspiracy...... 49
(d) Communications Among the Participants in the Aon Broker-Centered Conspiracy, Facilitated by Aon, Made the Conspiracy Plausible...... 49
(5) The Co-Conspirators Benefited From the Operation of the Conspiracy...... 52
3) The Wells Fargo/Acordia Broker-Centered Conspiracy...... 54
a) Participants in the Conspiracy...... 54
b) Operation of the Conspiracy...... 54
(1) Overview...... 54
(2) Wells Fargo/Acordia and the Conspiring Insurers Agreed that a Substantial Part of Wells Fargo/ Acordia Business Would Be Allocated to the Conspiring Insurers...... 54
(3) The Conspiring Insurers Agreed that, in Return for their Contingent Commission Payments, Wells Fargo/
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Acordia Would Guarantee Access to Competition-Free Premium Volume, and They Agreed to Refrain From Competing or Each Other’s Customers...... 61
c) Communications among the Participants in the Wells Fargo/Acordia Broker-Centered Conspiracy, Facilitated by Wells Fargo/Acordia, Furthered the Conspiracy...... 67
d) The Conspiring Insurers Understood their Role in the Conspiracy and Were Disciplined by Wells Fargo/ Acordia if They Refused To Go Along...... 70
e) The Co-Conspirators Benefited From the Operation of the Conspiracy...... 71
4) The Gallagher Broker-Centered Conspiracy...... 74
a) Participants in the Conspiracy...... 74
b) Operation of the Conspiracy...... 74
(1) Overview...... 74
(2) The Participants in the Gallagher Broker-Centered Conspiracy Agreed that the Bulk of Gallagher’s Business would be Allocated to Gallagher’s Conspiring Insurers in Exchange for Contingent Commission Payments...... 74
(3) The Conspiring Insurers Agreed to Refrain from Competing for Each Other’s Customers and Expected Gallagher to Protect Their Renewal Business from Competition...... 76
(4) The Participants Agreed that in Return for their Contingent Commission Payments, They Would be Guaranteed Access to a Minimum Amount of Premium Volume, and That There Would be Minimal or No Competition for That Business...... 78
(5) The Conspiring Insurers Understood their Role in the Conspiracy and were Disciplined by Gallagher if they Refused To Go Along...... 79
(6) Communications Among the Participants in the Gallagher Broker-Centered Conspiracy, Facilitated
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By Gallagher, Furthered the Conspiracy...... 81
(7) The Co-Conspirators Benefited From the Operation of the Conspiracy...... 82
5) The HRH Broker-Centered Conspiracy...... 82
a) Participants in the Conspiracy...... 82
b) Operation of the Conspiracy...... 83
(1) Overview...... 83
(2) The Participants Agreed that a Substantial Part of HRH’s Business Would be Allocated Among HRH’s Conspiring Insurers in Exchange for Contingent Commissions...... 83
(3) The Conspiring Insurers Agreed to Refrain from Competing for Each Other’s Customers and Expected HRH to Protect Their Renewal Business from Competition...... 87
(4) The Conspiring Insurers Agreed that in Return for Their Contingent Commission Payments, They Would be Granted Access to a Minimum Amount of Premium Volume...... 88
c) The Conspiring Insurers Understood their Role in the Conspiracy and Knew They Would be Disciplined by HRH if They Refused To Go Along...... 92
d) HRH and its Co-Conspirators Benefited from the HRH Conspiracy...... 95
e) Defendants’ Agreement had an Impact on the Prices Paid by Members of the Class for Insurance Products...... 98
6) The Willis Broker-Centered Conspiracy...... 99
a) Participants in the Operation...... 99
b) Operation of the Conspiracy...... 100
(1) Participants in the Willis Broker-Centered Conspiracy Agreed that Willis’ Business would be Allocated among the Conspiring Insurers...... 105
(2) The Conspiring Insurers Agreed Not to Compete
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With Each Other for the Willis Business...... 112
(3) Willis and its Co-Conspirators Agreed that in Return for Contingent Commissions, the Conspiring Insurers Would be Guaranteed Access to Premium Volume...... 114
(4) Insurer Co-Conspirators Understood Their Role and were Disciplined by Willis if They Did Not Participate...... 119
(5) Communications Among Participants in the Conspiracy, Facilitated by Willis, Furthered the Conspiracy...... 119
(6) The Co-Conspirators Benefited From the Conspiracy’s Operation...... 119
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Pursuant to the Court’s April 5, 2007 Order, Plaintiffs, by and through their undersigned attorneys, submit this Revised Particularized Statement, describing the horizontal conspiracies alleged in the Second Consolidated Amended Commercial Class Action Complaint (the
“Complaint”).1
THE BROKER CENTERED CONSPIRACIES
1) The Marsh Broker-Centered Conspiracy
a) Participants in the Conspiracy
1. Throughout the relevant time period, and as described more fully below, participants in the Marsh Broker-Centered Conspiracy have included Insurer Defendants AIG,
ACE, CNA, Chubb, Crum & Forster, Hartford, Liberty Mutual, St. Paul Travelers, Zurich,
Fireman’s Fund, Munich, XL and Axis.
b) Operation of the Conspiracy
(1) Overview
2. Marsh allocated its customer base to and among its conspiring Insurers in two steps. First, Marsh and each of its co-conspirators agreed, and the co-conspirators agreed horizontally among themselves, that Marsh would “consolidate” its business by directing as much as 80-95% of its commercial business to its “preferred carriers,” co-conspirators AIG,
ACE, CNA, Chubb, Crum & Forster, Hartford, Liberty Mutual, St. Paul Travelers, Zurich,
Fireman’s Fund, Munich, XL and Axis, thereby eliminating hundreds of other insurers from competing equally with the conspiring insurers for a substantial portion of Marsh’s business. As a second step in Defendants’ unlawful scheme, the Marsh and each of its conspirators agreed, and the conspiring Insurers horizontally agreed, to reduce or eliminate competition among the conspiring Insurers themselves as to that secured book of business. The key aspect of
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Defendants’ agreement in this regard was that each insurer would be permitted to keep its own
incumbent business, and that Marsh would protect that business from competition, using a
variety of incumbent protection devices, including the solicitation of false bids. As described
below, Marsh and its co-conspirators understood and agreed that incumbent protection was a
necessary element in its scheme to allocate its premium volume in the manner calculated to
achieve the highest profits, both for itself and itself co-conspirators. Because more than ___ of
Marsh’s premium volume was renewal business, the co-conspirators “incumbent protection
racket” effectively reduced or eliminated competition for the bulk of Marsh’s business.
(2) The Participants in the Marsh Broker-Centered Conspiracy Agreed that the Bulk of Marsh’s Customers Would be Allocated to the Conspiring Insurers
3. In the early to mid 1990s, in an effort to maximize its contingent commission revenue and increase its profits, Marsh agreed with certain carriers that it was going to place the bulk of its business with a limited number of “preferred” or “partner” carriers. Carriers were selected to be a “preferred market” or a “market partner” as it was sometimes called, when they agreed to pay Marsh contingent commissions based primarily on the volume of the business allocated to the carriers. Marsh referred to the contingent commission agreements as placement service agreements or “PSA’s.”
4. As part of this consolidation effort, in the early to mid 1990’s, Marsh created and developed a special division designed to bring the marketing of its insurance brokerage services under one centralized department -- the Global Broking Division (“Global Broking”). Global
Broking concentrated the marketing and negotiating power of all Marsh regional and local brokers into a single set of offices headquartered in New York City. ______
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______With the establishment of
Global Broking, the responsibility for negotiating PSA’s was put into the hands of a small group
of people who were able to ______
______.
5. Marsh Global Broking’s system of concentrating the marketing of its insurance
brokerage services under one centralized department was also referred to as “focused
marketing.” The purpose of focused marketing was to control insurance placement so as to
maximize Marsh’s contingent revenue. As Bill Gilman, former Executive Marketing Director at
Global Broking Excess Casualty, explained:
If we had control over the business then we could make the insurance companies give us lucrative placement service agreements we would have the ability to reward them or take the business way. We had control over whether or not they got the business.
6. Global Broking handled more than half of the insurance placements for Marsh, including excess casualty, healthcare, FINPRO, environmental, property and middle market.
Each of these lines of business was headed by a managing director. Global Broking Excess
Casualty, for example, was run by a Global Excess Casualty Placement Leader and was organized by Global Broking Coordinators (“GBC’s”) and by placement teams (also referred to as Local Broking Coordinators) (“LBC’s”). The GBC’s held senior level, leadership roles within Global Broking and were responsible for groups of regional offices. The GBC’s coordinated the insurance program for the client including the development of the “broking plan” which set forth the name of the incumbent carrier as well as the insurance companies to approach for protective quotes.
7. The Local Broking Coordinators or LBC’s were dedicated to Marsh’s “preferred markets,” that is, those conspiring Insurers with which Marsh had its most lucrative commission
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contingent agreements. LBC’s dealt directly with the underwriters of the conspiring Insurers and
would not allow Marsh’s Client Advisors (CA’s) to communicate directly with the Insurer. In fact, an underwriter quoting “directly” to a Marsh client advisor interfered with the operation of the conspiracy because it prevented Global Broking from ensuring “that the incumbent who hits a target and provides the coverages requested is protected.”
8. Marsh Global Broking closely monitored and controlled the placement of premium with its conspiring Insurers. Its Middle Market division, for example, grouped its conspiring Insurers into three tiers, classified as A, B and C Tiers, based on how much they were paying in contingent commissions. Tiers A and B were the conspiring Insurers to which the bulk of premium was allocated. In fact, a Marsh internal document entitled “Rules of Engagement” states: ______
______
______. All of the participants in the Marsh Broker-Centered conspiracy enjoyed either Tier A or Tier B status at various times during the class period.
9. To further its effort to allocate premium to its Tier A and B insurers, Marsh
Global Broking Middle Market created “Tiering Reports” as a tool to monitor premium placements with its conspiring Insurers. According to a 2003 Marsh Tiering Report “the purpose of this exercise was two fold: ______
______.
10. Success at Marsh Global Broking was defined as placing as much premium as
possible with conspiring Insurers. Global Broking employees were required to evaluate
themselves in documents entitled “Balanced Scorecard.” Many of these self-evaluations
included the employees’ success in moving business to Marsh’s conspiring Insurers. For
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example, the self-evaluation for ______(former GBC in Global Broking Excess
Casualty) described that he “direct[ed] business to partner markets that respond to our marketing philosophy.” Similarly, the self evaluation for ______(former LBC in Global Broking
Excess Casualty) in 2002 described how she “[s]upported key partner markets AIG & Zurich,
[and] actively directed business to ‘new’ partner markets, e.g., ACE (Holman), St. Paul (Turner
& Lend Lease).”
11. Success at “focused marketing” was also rewarded. The “Balanced Scorecard”
for a Global Broking employee includes under “financial success”: “[i]mplement focused
marketing to direct business to specific markets based upon broadest coverages as well as
premium placement goals with partner markets.”
12. Because of these efforts, Marsh was successful in allocating the bulk of its
premium volume to its conspiring Insurers. By 1999, Marsh had consolidated 80%-85% of the
premium paid within its top 12 markets. The concentration of premium volume with its
conspiring Insurers continued throughout the Class Period. Marsh’s reports on its annual
contingent commissions from 1999 to 2003 show that its contingent commission income from
national commercial PSA’s grew from ______in 1996 to ______in 1999 to _____
______in 2003.
(3) The Participants in the Marsh Broker-Centered Conspiracy Agreed Not to Compete for Each Other’s Customers
13. A central element of the agreement among the participants in the Marsh Broker-
Centered Conspiracy was that each conspiring Insurer would be permitted to keep its incumbent business, and that Marsh would protect that business from competition, both from insurers inside and outside of the arrangement. Marsh facilitated this agreement with a variety of devices designed to protect its co-conspirators’ incumbent status, including the solicitation of protective
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quotes. As described below, Marsh and its conspiring Insurers understood and agreed that incumbent protection was a necessary element in its scheme to allocate its premium volume in the manner calculated to achieve the highest profits, both for itself and its co-conspirators. As an employee of Munich ruefully observed "the incumbent protection racket works great when you're the one being protected. Conversely, when you're on the outside looking in, it creates a barrier to entry on new accounts."
14. Numerous employees of Marsh acknowledged its objective to protect its co- conspirators incumbent business. For example, Kathryn Winter, a former GBC and LBC at
Global Broking Excess Casualty, acknowledged that Marsh protected the incumbent Insurer’s renewal business if they hit a target price set by Marsh. As Ms. Winter stated: “if the incumbent markets meet their target price and does the coverage we want, [Marsh Global Broking] will protect them and make sure they get the business.”
15. The conspiring Insurers were aware of and complicit in the incumbent protection scheme. An email between employees at Zurich, bearing the subject “Protection” demonstrates this complicity: “We need and expect to be protected on our renewals just like AIG is protected on theirs.” The email further states:
The only solution I see if we can not get protection against the AWAC’s and ACE’s of the world who have not been there for MMGB in the past when you needed favors, is to go after AIG leads which we are very prepared to do. If we can not get proper protection, we will go hard after AIG leads that we feel you are protecting. We will no longer provide you with protective quotes for AIG but will put out quotes that you will be forced to release, just like you tell me you are forced to release AWAC and ACE quotes.
I do not think we are asking for the moon. We just want the same protection given to AIG and MMGB is definitely not doing that for Zurich now.
16. A former ACE employee acknowledged that Marsh’s system of protecting the incumbent allowed co-conspirators, like ACE, to obtain last looks on placements and avoid real
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competition. According to this former ACE employee, “Marsh [Global Broking] preferred
incumbents to remain on placements, so . . . if you were the incumbent on the game plan, you
would get last shot,” meaning that you would be “protect[ed] from competition.”
17. According to this former employee, ACE USA understood that Marsh would
protect the incumbent of an excess casualty risk by not sending submissions on that risk “out to
competition,” or by getting “quotes from other carriers that would support the incumbent as
being the best price.” ACE indicated its willingness to accept these terms from Marsh and
provided losing quotes, as described below, so long as “the Ace renewals with Marsh will
equally be ‘protected.’”
18. CNA acknowledged the benefits of incumbent protection, including the receipt of
“last looks.” In describing CNA’s relationship with Marsh, a CNA employee stated that even
though the CNA PSA ranked lower than other conspiring Insurers with a payout of 3%, “we
have a preferred relationship with Marsh. Our results with a $90 million GWP increase attest to
this. This frequently results in ‘last look’ pre-notification of terms and conditions and selected new business submissions.”
19. Indeed, Axis was well aware of how Marsh’s incumbent protection system worked after being informed by Bill Gilman that “he [Gilman] could keep business with incumbents by allocating the business among underwriters if he could get renewals without an outside competitive presence.”
20. In fact, a former AIG underwriter, Karen Radke, who pled guilty to a scheme to
defraud in connection with the regulatory action against AIG and Marsh, stated that Bill Gilman
told her about the “Marsh system” and that it was very important that she “not compete for other
business” in order to retain her business when her accounts were up for renewal.
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21. Chubb similarly agreed to eliminate competition by conspiring with Marsh and
the other conspiring Insurers. In an April 1998 “Joint To Do List” from a meeting between
Chubb and Marsh, Chubb notes that Marsh and Chubb branches “will meet on the top 5-7
renewals for each branch (beginning with May renewals) to discuss pricing and strategy to retain
the accounts without marketing them.”
(4) Marsh and its Conspiring Insurers Agreed to Protect Each Others’ Incumbent Business through Bid-Rigging and other Overt Acts
22. As detailed below, on numerous occasions, participants in the Marsh Broker-
Centered Conspiracy provided alternative quotes at Marsh’s request to protect the incumbent
status of a conspiring Insurer or to support the placement of business with another conspiring
Insurer. Insurers engaged in this conduct in furtherance of a common scheme to allocate
Marsh’s customers to the incumbent Insurer, and to protect those Insurers from having to compete for this business. Because more than _____ of Marsh’s premium volume was renewal business, the co-conspirators “incumbent protection racket” effectively reduced or eliminated competition for the bulk of Marsh’s business.
23. Former Marsh employee Kathryn Winter admitted that “the primary goal of th[e] scheme was to maximize Marsh’s profits by controlling the market, and protecting incumbent insurance carriers when their business was up for renewal.” In fact, Winter stated that the agreement among Marsh and its conspiring Insurers to protect the incumbent required the participating carriers to “artificially” get “quotes from other markets that were non-competitive.”
24. Marsh’s conspiring Insurers colluded with Marsh to supply these losing quotes so
that they would be protected from competition when their business was up for renewal. These
non-competitive fictitious quotes were also known as, “alternative quotes,” ”B Quotes,” “B’s,”
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“phony quotes,” “false quotes,” “fake quotes” “protective quotes,” "throwaway quotes,” “bullshit quotes” and “backup quotes.”
25. These quotes were often part of the “broking plans” that the GBC’s prepared when an account was up for renewal. The broking plans assigned the business to a specific insurer at a target price and outlined the coverage. The broking plans also included instructions as to which conspiring Insurers would be asked to provide alternative quotes. If the incumbent
Insurer hit the “target”, it would get the business and then the LBC’s would solicit “alternative”,
“B” or non-competitive quotes from other members of the conspiracy.
26. It was rare for a broking plan to request a competitive quote from the non- incumbent Insurer. Rather, the “alternative” markets were directed as to what quote to provide, invariably a non-competitive quote designed to make the incumbent’s quote look attractive. If the carrier did not comply with the broking plan and provided a competitive quote, Marsh harshly retaliated. As Bill Gilman stated:
Important to give alternative market the expiring and target. Thus, if an alternative quotes below then they have made a conscious decision to quote below the market and pull the market down. If that happens, then (according to Bill) we will put this guy in open competition on every acct. and CRUCIFY him. Further, we must make sure incumbent keeps this (or another market) and NOT give it to the alternative and reward them.
27. AIG provided protective quotes when requested, knowing it would be shielded from normal competition when its business was up for renewal. For example, in October 2003, an underwriter for AIG stated that with regard to a B Quote he had provided to Marsh: “This was not a real opportunity. Incumbent Zurich did what they needed to do at renewal. We were just there in case they defaulted. Broker… said Zurich came in around $750K & wanted us to quote around $900K.”
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28. Indeed, Karen Radke stated that she provided protective quotes when the broking plan called for it “[t]o show, to pretend to show competition where there is none.” Radke was told by Bill Gilman that AIG should provide protective quotes so that AIG’s business would not face protection on its renewals.
29. For example, in an email dated March 5, 2004 from Edward Keane, former GBC at Global Broking Excess Casualty, to Jason Monteforte, former LBC at Global Broking Excess
Casualty, Keane stated that Zurich “has released a quote of $173,720….Please have AIG provide an email indication for $50mm xP.” Subsequently, Monteforte informed an AIG underwriter that “the incumbent hit the target …” and instructed the AIG underwriter, “…need an indication for $50mm at $200,000.” The AIG underwriter replied that he would send such an indication under a separate email, and a minute later he sent an email containing the quote requested by
Marsh and Zurich got the account.
30. In exchange for providing losing quotes, AIG, as part of the agreement, was protected by various conspiring Insurers when its business was up for renewal. For instance, on
December 18, 2002, Patricia Byrne emailed James Williams (both ACE) indicating that ACE was asked by Marsh to submit a fictitious quote so that AIG would not lose the Fortune Brands account. “We were more competitive than AIG in price and terms. MMGB requested we increase premium to $1.1M to be less competitive, so AIG does not lose the business.” ACE in fact increased its premium to $1.1 million on this account, as requested by Marsh.
31. In addition, on August 26, 2003, Todd Murphy, former GBC at Global Broking
Excess Casualty, emailed Mark Kaufman and Sue Rothberg, former LBC’s for ACE and Zurich at the time, that “[w]e need a hard copy lead alternative from Zurich & ACE.” Kaufman sent an email to the ACE underwriter later that morning with the details surrounding AIG’s quote (25M
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X $545,000) and asked him to provide an alternative quote. The ACE underwriter emailed
Kaufman with quotes higher than AIG’s quote.
32. In addition, ACE provided a losing quote in the Cisco Systems account which was
up for renewal in April 2003. The broking plan, prepared by Josh Bewlay, former Head of
Global Broking Excess Casualty, stated: “If AIG hits the target, we are done.” Greg Doherty,
LBC for ACE, emailed James Williams, underwriter at ACE, for a B quote. ACE provided an
alternative quote and the account was bound with AIG. St. Paul also provided a protective quote
in connection with this account.
33. Munich (sometimes referred to herein as MARP) also provided losing quotes to
protect AIG, as well as other conspiring Insurers. In connection with The Adams Companies
account that was up for renewal in October of 2001, Munich provided a protective quote in order
to allow AIG to keep the business. On September 4, 2001, Josh Bewlay sent an email to William
McBurnie and Mark Conklin, both former LBC’s at Global Broking Excess Casualty, informing
them that “AIG came in with a lead $25 million for $175,000. I need a B quote from St. Paul
and MARP. Email will suffice.” McBurnie sent an email to Brian Shea at MARP with AIG’s
quote and asked Shea for an indication. Shea agreed and provided a quote that was $50,000
higher.
34. Additionally, Munich provided a protective quote in order to protect AIG in connection with the December 31, 2001 renewal on the Hughes Electronics account. In a broking plan dated November 16, 2001, Todd Murphy, a GBC at Global Broking Excess
Casualty, designated AIG as the primary with a target on the $50 million limit of a $230,000 premium, followed by Chubb and Zurich for the excess coverage. Murphy also listed Kemper,
Liberty and Munich as Type B alternatives. Both Liberty Mutual and Munich were asked by the
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LBC’s dedicated to the Liberty Mutual and Munich teams, Nicole Michaels and William
McBurnie, to provide losing quotes, and they complied.
35. Additionally, in October 2001, Munich provided a false quote to protect AIG, the incumbent carrier on the Thomas Development account. On October 3, 2001, Joshua Bewlay emailed Peter Andersen, the former LBC Team Leader for AIG, advising of the need for the AIG
“quote by Friday” and that if he receives the quote by then “we can do a Type B on it and protect you.” Bewlay also stated in his email that he “need[s] to hit the target on this.”
36. By October 10, 2001, Bewlay was becoming panicked about the lack of back-up documentation for his renewal and sent an email to the LBC’s for Munich and St. Paul, William
McBurnie and Mark Conklin, stating “I need those emails from MARP and St. Paul. This dates
[sic] on Friday!” On October 11, 2001, the LBC for MARP came through with a $135,000
MARP quote, noting with satisfaction that “[t]hey are not competitive with either AIG or
Zurich.”
37. Liberty Mutual also provided protective quotes when the broking plan called for it. According to the plea agreement of Kevin M. Bott, the Assistant Vice President of
Underwriting in the excess casualty division at Liberty Mutual, Marsh brokers asked Mr. Bott
“to submit protective quotes on certain pieces of business where Marsh had predetermined which insurance carrier would win the bid.” Mr. Bott “understood that such quotes were intended to allow Marsh to maintain its control of the market and to protect the incumbent.” Additionally,
Mr. Bott “understood that Liberty benefited from this scheme; when Liberty submitted a ‘B quote’ on the lead layer of insurance, Marsh often allowed Liberty either to renew its place on the excess layer or to gain new business.”
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38. For instance, when the Merle Norman account was up for renewal in April of
2003, Edward Keane, former GBC at Global Broking Excess Casualty, emailed Greg Doherty, former LBC for Liberty Mutual, to obtain a B quote to protect AIG’s renewal and specified the amount that Liberty should bid. Keane informed Doherty that AIG hit the target at $140,000 and that Liberty should come in around $175,000. Kevin Bott at Liberty Mutual emailed Doherty with a losing quote.
39. Liberty Mutual also provided a losing quote in order to protect Zurich win the
USS Posco account. On April 10, 2003, Edward Keane emailed Heidi Haber, former LBC for
Liberty Mutual, regarding the need for a B quote from Liberty and informed Haber of Zurich’s quote ($25 mm x$25 mm for $163,000). Haber advised Kevin Bott of Zurich’s quote and asked for an indication for the same layer of coverage. Bott responded with a losing quote of
$195,000.
40. St. Paul also agreed not to compete with Marsh’s other conspiring Insurers for business by engaging in bid-rigging conduct with Marsh. On or about January 2003, Marsh brokered an insurance policy for its client, Schmidt Baking. In the email, the LBC for St. Paul,
Nilda Janacek, asked Francesca D’Angelo, an underwriter at St. Paul, to provide a “B quote” in order to protect XL. The email states: “The Lead and excess have already been quoted. The
Lead was quoted by XL Winterthur 25x25 at $140,000.” The next day, D’Angelo forwarded
Marsh’s request to another St. Paul underwriter, Richard Rollins, and asked him to handle it.
Rollins complied with Marsh’s request by submitting a false quote of $200,000.
41. Additionally, St. Paul was asked to provide a protective quote in the Allianz of
America account in order to protect Zurich on its renewal. On February 28, 2002, Todd Murphy sent an email to the LBC’s on the account, including Mark Conklin and attached the broking
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plan which stated: “Please sent [sic] to St. Paul for a B.” Following Conklin’s request to Richard
Rollins at St. Paul for a B quote, Rollins emailed Conklin with a non-competitive quote.
42. In exchange for providing protective quotes, St. Paul was in fact protected from
competition. On or about June 2003, Marsh sought competitive bids for the excess casualty
coverage of HP Hood Inc., on which St. Paul was the incumbent. An internal Marsh email from
Carrie Raspantini to Annemarie Tobin states: “Risk Manager has said that she wants to see
options other than [the] incumbent.” Despite the wishes of the client, Marsh had no intention of
opening up St. Paul to competition. St. Paul, with Marsh’s blessing, proposed raising the
premiums of the policy over 40% from the year before. In order to convince its client that the increase was justified, Marsh reached out to Zurich and ACE to provide higher non-competitive bids. As a Marsh executive wrote to Zurich:
I need a protective quote.
Please email me indicating you would need a 2mm per occurrence, and make your premium for [the layer] unattractive, St. Paul is the incumbent and they offered [the layer for] $351,000 . . .
43. Additionally, in or about July 2003, the broking plan for the Neiman Marcus account dictated that St. Paul was to receive the coverage for the lead layer at a premium of
$200,000. Once St. Paul hit that target in its bid, Marsh sought protective quotes. An internal
Marsh e-mail from Edward Keane to one of the LBC’s, Heidi Haber, stated: “I am going to need a B quote from ACE . . . so I can get CA off my back. In fact, please have ACE Excess release a quote for [the lead layer].” This was followed by an e-mail from Haber to Curt Pontz, the ACE underwriter, which stated:
St. Paul quoted a lead . . . (same attachments as expiring) and hit target of $200,000. I rated up the program and came to approx. $460,000 for a lead . . . . [giving ACE an indication of what to bid].
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Can you please provide us with a back-up indication at your soonest. Should you need any additional information, please advise. I await your indication.
Later that same day, ACE responded by stating that its price would be about $450,000 or more than double St. Paul’s quote. St. Paul received the coverage.
44. XL also submitted accommodation quotes to protect the business of a rival. The head of XL’s U.S. Excess Casualty Unit, Diane Amodeo, described her unit’s working relationship with Marsh as follows: “We [XL Excess Casualty] are generally cooperative in providing ‘backup’ quotes to protect incumbents when required to do so.”
45. Indeed, XL was repeatedly asked by Marsh to provide “B quotes” to support the proposed Insurer in the broking plan and often did. For example, in connection with the State
Farm account which was up for renewal in April 2003, Marsh had already solicited and received the bid from AIG that Marsh wanted the client to accept. When the client advisor asked for additional quotes, Edward Keane, GBC, sent Leslie Lafrano, LBC for XL, an email directing her to get a quote from XL higher than AIG’s quote. In the email, Keane wrote: “Just to be clear,
CA has requested an option from XL Wint. AIG has hit the target premium of $200,000 so please get a B Quote from XLW for $230,000 or higher.” XL provided a losing quote of
$275,000 in a March 11, 2003 email.
46. XL received protection from Marsh in return for its cooperation. As described above, St. Paul provided a “B quote” of $200,000 to protect XL’s lower quote.
47. Chubb also participated in the scheme by providing protective quotes when requested to do so knowing, that in return, it would be protected. In June of 2000, Marsh sought to place the CDI account with AIG for a premium of $195,000. In a June 8, 2000 email, Bewlay wrote to Amy Dubuque, LBC for Chubb, “I would like a bullshit quote from [Chubb and
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Kemper] to support the AIG lead. Please have them quote 210,000 and 217,000.” Chubb provided a quote for $225,000 and the policy was placed with AIG.
48. In addition to providing Marsh with non-competitive quotes, Chubb sometimes did not bid at all. In those instances, Marsh would then use Chubb’s declination to protect the incumbent and present the client with the false appearance that the contract was placed in competition. For example, when the Hexcel account was up for renewal on March 1, 2001 with
AIG as the incumbent, Joshua Bewlay emailed Kathy Drake, former LBC team leader for Chubb on February 27, 2001: “Need Chubb to say no thank you on a lead basis and excess basis at the
Marsh decided numbers immediately.” Chubb responded just a few hours later with a declination and the client ended up purchasing its primary layer of insurance with AIG.
49. Chubb also received unfair competitive advantages from Marsh in that it too, like all the other conspiring Insurers, was protected from competition either when its business was up for renewal or when Chubb was otherwise chosen to win the business. When the Basic
American account was up for renewal and Chubb was the incumbent for the $25m x $25m layer,
Marsh asked Liberty Mutual and Zurich to provide “B quotes” for that layer. Both Liberty
Mutual and Chubb provided protective quotes and Chubb ended up getting the renewal.
Similarly, Marsh asked St. Paul Travelers and Zurich to provide “alternate” quotes to allow
Chubb retain the Timberland account.
50. Fireman’s Fund also agreed with Marsh and conspiring Insurers to cooperate in protecting renewals. For example, when the Grosvenor account was up for renewal in December
2001, Todd Murphy requested B quotes from St. Paul, Zurich, Fireman’s Fund and Liberty.
Fireman’s Fund provided a “declination” to the LBC allowing the incumbent to retain the business. When the Golden Gate Bridge account was up for renewal in July 2002, Fireman’s
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Fund was asked to provide a B quote, along with ACE, Munich, XL, Chubb and Zurich.
Fireman’s Fund again declined from writing the account.
51. Similarly, when the Union Bank of California account was up for renewal in
January 2002, Todd Murphy asked Leslie Lafrano, former LBC, to get a “type B alternative” from Fireman’s Fund and Chubb. Lafrano asked Millie Valentine at Fireman’s Fund to provide a declination to give the appearance that the account was placed in competition. Lafrano wrote:
“Can you send me an email that you are not interested in the $20m x$5m layer.” All incumbents renewed their respective layers.
52. Like all the other participants in the conspiracy, Fireman’s Fund was protected from competition as part of its agreement with Marsh and the other conspiring Insurers. As detailed in the Broking Plan for the See’s Candies, Inc. account which was up for renewal in
June 2001, Fireman’s’ Fund was the incumbent and was designated to remain the Insurer on the account. The Broking Plan detailed Fireman’s Fund’s target price and requested that AIG provide an “alternate quote.” Similarly, when Fireman’s Fund was the incumbent on the
Catellus Development account, the Broking Plan requested B quotes from ACE, Liberty Mutual and Zurich, among others.
53. Axis also provided protective quotes. In a letter to the Connecticut Insurance
Department dated January 14, 2005, Axis admitted that it provided protective quotes to Marsh.
Specifically, the letter stated that Axis employees submitted quotes that were “higher than one or more quotes that may have been, or were anticipated to be submitted on the same account by another insurance company” and that the underwriters who submitted the quotes knew they
“would not be chose for the primary layer of coverage on that account.”
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54. Marsh also invited other members of the conspiracy to collude. For example, on at least two occasions, in 2001 and 2002, Marsh requested false quotes from CNA. In an email dated October 17, 2001 from Todd Murphy to Katie Jamison, LBC at Global Broking Excess
Casualty, regarding the broking plan for Water Pik Technologies, Murphy requested that
Jamison “send a submission to CNA for a type B quote.” Additionally, in an email dated
December 16, 2002, Glenn Bosshardt asked John Hall of CNA for a quote which is “reasonably competitive, but will not be a winner” and listed the quotes provided by ACE and Zurich.
55. In addition to receiving protection as the incumbent carrier when their existing business was up for renewal, the conspiring Insurers were also promised layers in the excess coverage in exchange for participating in the conspiracy. For example, ACE’s President of
Casualty Risk stated that he “support[ed] [Marsh’s] business model,” explaining that “Marsh is consistently asking us to provide what they refer to as ‘B’ quotes for a risk. They openly acknowledge we will not bind these ‘B’ quotes in the layers we are be [sic]asked to quote but that they ‘will work us into the program’ at another attachment point.”
56. Marsh and its conspiring Insurers were aware at all times that the above described conduct was anticompetitive. For instance, in an exchange dated November 3, 2002 between
Geoffrey Gregory, the President of ACE’s casualty unit in Philadelphia and Susan Rivera,
President and CEO of ACE, describing the arrangement of bids with Marsh, Gregory warned
Rivera that the way the bids were being arranged “could potentially be construed as simply creating the appearance of competition.” Despite this email discussion, ACE continued to provide Marsh with protective quotes.
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(5) Marsh and its Conspiring Insurers Agreed that in Return for Contingent Commission Payments, the Insurer Participants Would be Guaranteed Access to a Minimum Amount of Premium Volume
57. The customer allocation scheme included horizontal agreements among the conspiring insurers that the conspiring Insurers would be guaranteed access to minimum amounts of Marsh’s business. Indeed, Marsh made explicit premium commitments to its conspiring
Insurers, promising, for example, to give ACE $100M in excess casualty business for 2003 and
$175M in excess casualty business in 2004.
58. The amount of premium promised to each conspiring Insurer was determined by the premium threshold levels negotiated in the PSA’s between Marsh and its partners. For example, when Marsh and Zurich negotiated its PSA for excess casualty in 2003, Zurich expected to be delivered premium volume sufficient to meet the negotiated threshold.
59. To meet the premium threshold levels promised in the agreements, Marsh steered business, with little or no competition, to its insurer co-conspirators. As Mark Manzi, a Global
Broking managing director who pleaded guilty on June 22, 2005 in connection with this scheme put it: “Some PSAs are better than others. Shortly we will tier our market and I will give you
clear direction on who we are steering business to and who we are steering business from.”
60. For example:
• Marsh steered business to Chubb as one of its conspiring Insurers. In connection with the negotiation of the 1998 PSA with Chubb, Marsh promised Chubb that Marsh would move Zurich’s business to Chubb: “[Marsh] wants our PSA done soon so there’s no excuse in the J&H/M&M offices to push new business to the other carriers in the meantime….As they have stated before, they are anxious to undertake ‘Operation Switzerland’…their term for moving Z.A. business to us.”
• Marsh steered business to Crum & Forster. In a March 21, 2003 email exchange between John Schloman of Crum & Forster and Daniel O’Donovan at Global Broking, O’Donovan observed that Marsh’s booked premium was
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short of the amount needed to qualify for their PSA and stated that Marsh “contacted our placement center managers and advised them how important it would be to make a final push and break through the $50 m threshold.” O’Donovan noted that while they place their Comcast business via Guy Carpenter, they may have “an opportunity to influence where this $900,000 deal gets placed.”
• Marsh steered business to Liberty Mutual. On September 4, 2003, Liberty Mutual’s Bob Herlihy wrote an email to Jeffery Kister, also of Liberty Mutual noting that Marsh would be steering business to Liberty Mutual: “See what coaching and/or pricing info we can get from Marsh before releasing our quote. They are supposedly going to try and steer the business our way.”
• Marsh steered business to St. Paul Travelers. In an email dated May 12, 2003 regarding Kathryn Winter’s notes from a Monday morning meeting2 held with certain GBCs and LBCs, Winter reported that new business should be funneled to St. Paul Travelers since St. Paul recently did big favors for Marsh. Winter’s email further stated that St. Paul should be put in future broking plans for any new business so that they could be awarded the business if they meet the target.”
• Additionally, in a November 11, 2003 internal Marsh email from William Roeder, former Managing Director at Global Broking Middle Market, Roeder encouraged his group to do everything possible to place the Royal CL business with St. Paul Travelers given that St. Paul Travelers wrote 2 million of Royal business in September and October.
• Marsh steered business to XL. Winter was advised to direct new business to XL by the end of 2002 in return for favors that XL had provided to Marsh. Winter’s notes from a Monday morning meeting held on November 25, 2002 state that XL should be given four new leads on new business and put in the broking plans so that they can get the accounts if they meet the target prices.
• Marsh steered business to Axis. In July of 2003, Axis reported that Bob Howe of Global Broking Property informed his employees that they “need to do more business with Axis” and “get [Axis] in on accounts” in light of Axis’ ‘A’ rated PSA. Indeed, in October of 2003, when Marsh and Axis finalized their 2003 PSA, Howe reported to other Global Broking employees: “Psa is done. We need to get over 40mm bar so we need a bigger push from offices. Payout is 5 or 6.”
2 Beginning in January 2002, the GBC and LBC team leaders met every Monday morning to discuss and update each other on what was going on in the market including which carriers were nearing PSA thresholds. The meetings were led by Joseph Peiser, Head of Global Broking Excess Casualty. When Joshua Bewlay took over as Head of Global Broking Excess Casualty in 2003, he continued the Monday morning meetings.
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• Marsh steered business to Hartford. In an October 2002 email from Karen Mildenhall, a former senior vice president at Global Broking Middle Market, to William Roeder, former Managing Director at Global Broking Middle Market, Mildenhall wrote: “Question about preferred markets and growth incentives….What markets do we need a little push on to get us to the “promised land” growth targets?” Roeder responded: “We need to protect our renewals with the key Partners . . . We are at ___ growth with Hartford and at ______Additionally, in a December 2002 email which attached a list of accounts, Alexandra Littlejohn, former Head of Global Broking Middle Market emailed others within Global Broking Middle Market, including Roeder that “[w]e need to support NY Broking anything you can do to steer this business to Hartford would be greatly appreciated.”
61. To meet the promised volume thresholds, the conspiring Insurers expected and received competitive advantages and protection from competition. Insurers’ expectations in this regard are illustrated in an email written by Liberty Mutual’s Mark Bernacki, Manager of Broker
Operations at LMG Property: “chances are we will trigger the marsh 2001 psa pay-out and we must continue to ‘SELL’ and leverage the psa to our best advantage.” Mr. Bernacki stressed that
“the marsh psa must work to our advantage on all marsh quotes” and that Liberty Mutual must receive “proper attention and treatment.” Following up on Bernacki’s email, Patrick O’Connor, vice president of underwriting for Liberty Mutual, sent an internal email on November 29, 2001:
“again DEMAND, that marsh gives [Liberty Mutual] property the consideration and preference we mutually and formally agreed to via the psa agreement.”
62. Similarly, after Liberty Mutual Property finalized the terms of a PSA with Marsh in January 2003, Liberty Mutual made it clear that Liberty Mutual Property expected Marsh to reward it in return for the attractive arrangement that was executed: “[W]e agreed to a very, very attractive and lucrative plan and expect preferential treatment in return …[T]he price of poker has just gone up and we will demand the appropriate consideration from marsh.”
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63. On October 15, 2003, when Liberty Mutual was getting close to meeting its threshold, Patrick O’Conner wrote an email in which he urged others within Liberty Mutual to
“bang this drum loud as you DEMAND the attention and respect of marsh in Q4 and 1-1-04.”
64. Fireman’s Fund also expected greater business in return for its PSA with Marsh.
Following an internal Fireman’s Funds’ conference call with Joan Williamson and Fireman’s
Fund’s Global Broking liaisons, Cheryl Jennings and Pam Gaddy, Williamson reported that the
“Bottom Line” is that “Marsh Brokers should only be sending us business (Primary and Excess) that are within our appetite – and that we should also be awarded our fair share of that business.
If we mutually agree on our objectives, I get the feeling that Cheryl will be steering the ship so that Marsh does it’s [sic] part to meet those objectives.”
65. AIG expected, and did receive, more business from Marsh through its PSA with
Marsh: “Because we incent Marsh to write more business through us through a PSA, we expect to get more business as compensation levels are based on growth thresholds.”
(6) The Insurer Defendants Understood Their Role in the Conspiracy and Were Disciplined if They Did Not Go Along
66. As in all effective conspiracies, participants who did not play ball were disciplined. Marsh’s message was loud and clear that if you did not have a PSA with Marsh, you would not receive any business and would not be protected from competition.
67. Chubb learned as much in 1999, when it refused to pay Marsh the contingent commission it sought. As a result, Chubb was informed by Bill Gilman that Chubb “is no longer a preferred market for Risk Management umbrella business.” In a memo from John Angerami to
Charles Luchs (both of Chubb) on this subject, Luchs writes: “Confirming our earlier discussion,
Casualty Practice Midtown Managers have been advised verbally by Marsh Management that effective immediately Chubb no longer enjoys ‘Partner’ Company status for the EUD lines of
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business. My understanding is this means we will no longer receive any new business and all
Chubb renewals will be marketed with the implication that the book will be depopulated.”
68. Indeed, approximately three days after Gilman declared that Chubb was no longer
a preferred carrier, Marsh Global Broking moved a significant amount of Chubb business to
other Insurers. When Kathryn Winter was asked why the Chubb business was moved, she stated
that she was “advised that because Chubb had not signed a placement service agreement, we,
Global Broking Excess Casualty were punishing them by moving all their business to other
markets.”
69. After approximately 40 accounts were moved from Chubb to other Insurers,
including AIG3 and Zurich, Chubb agreed to renew its PSA and was reinstated as a partner market, meaning, “we [Marsh Global Broking] protected the business and they [Chubb] kept it.”
70. Marsh used the situation with Chubb as a threat to other insurers. For example,
Bill Gilman told ACE what happened to Chubb when it refused to renew its PSA and said that
Marsh intended to punish those who did not go along with Global Broking’s structure.
71. Chubb’s situation with Marsh was well known by other insurers as well. In deciding whether to sign a PSA with Marsh in October of 2000, Gil Benjamin at Fireman’s Fund informed others at Fireman’s Fund that they have been warned that Marsh “will move the business if we don’t pay (they did to Chubb).”
72. CNA recognized the same thing in an internal email dated March 4, 2002 regarding 2002 Marsh compensation: “Marsh is saying that they are not happy with this
3 In fact, following the decision to move Chubb business to Marsh’s other conspiring Insurers, AIG received a list of Chubb accounts which included the insured’s limit for insurance, the premium for that limit, the inception date and the expiring date. A former AIG underwriter, Karen Radke, stated that receipt of such information was unusual since it was private.
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agreement for open brokerage and is already threatening to not place business with us. If we
cannot work out an agreement with Marsh, they likely would reduce their writing.”
73. Indeed, in an email dated April 10, 2003, discussing PSA negotiations with
Marsh, a CNA executive states: “Alex [Littlejohn] is very candid about the fact that she ‘cut us
off’ last year due to the conflict over the incentive.”
74. Liberty Mutual Property also learned that it was “not on marsh’s ‘preferred
partner list’ because of [its] refusal to do a psa in 2002,” and that “marsh is favoring others over
lmg property.” Liberty Mutual had a PSA with Marsh in 2001 and, as described below, made the
wrong decision in not renewing in 2002.
75. On May 2, 2002, Patrick O’Connor, Vice President of Underwriting for Liberty
Mutual sent an email to other Liberty Mutual Property executives writing that he had “heard that
bob howe sent a memo to the global broking managers with lmg as the subject matter . . . [S]teer
new business away from [Liberty Mutual Group] property.” Furthermore, in a September 2,
2002 memo to other Liberty Mutual employees, O’Connor wrote: “Marsh GBS forwarded a memo to all GBS brokers indicating LM Property is no longer a preferred market and therefore, should be treated as such.”
76. Liberty Mutual was unhappy with the results of not having a PSA with Marsh and started to reconsider its decision not to renew. A September 30, 2002 memorandum from Doug
Nelson, then President of Liberty Mutual Property noted, among other things: “I think 2003 is a new year and we should discuss PSA options (DWP based, LR driven) under the banner of
‘2002’ was driven by profit/budget constraints; 2003 is a new year where we want to increase our production overall and partner with you, etc. – need to start in Q$ to hit 1/1.”
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77. Also in November 2002, after Liberty Mutual Property “lost a renewal account
after matching terms/conditions requested by the broker,” it questioned Marsh as to why, to
which Marsh responded, “no PSA.”
78. By the end of 2002, Liberty Mutual had lost a substantial amount of business
which Marsh was providing to other preferred markets. A November 2002 email describing
Liberty Mutual’s discontent over the loss of business stated:
dismal results with marsh are the number 1 contributor to our poor retention and new business in 2002.
back in april we said; results are strong with marsh, we want/need to diversify away from marsh, marsh needs us more than we need marsh, no need for a psa.
now in November; our results with marsh are bad and getting worse, they are the biggest broker in the world, they have and control the largest book of “main thing” business, they control most of the shared and layered business, we want /need to diversify but marsh will always be our biggest producer, placing brokers are steering business away from us, we are the market of last resort and only seeing the low priced junk, we need a psa.
79. Liberty Mutual therefore agreed to a PSA with Marsh for 2003. As soon as
Liberty Mutual Property confirmed its intention to proceed with a 2003 PSA, Marsh made clear that Liberty Mutual was again a market Marsh would use. Marsh informed Liberty Mutual that
“a memo was sent out to the ‘leaders’ yesterday indicating our expected agreement and to consider Liberty Mutual Property as a market for new and renewal business.”
80. Likewise, XL knew that a PSA was a “prerequisite” for doing business with
Marsh and that PSA payments determined the level of business that XL could expect from
Marsh. One XL executive stated: “We know they [Marsh] will move even more business away from XL unless we provide them some incentive to continue.”
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(7) Communications Among the Participants in the Marsh Broker-Centered Conspiracy Facilitated by Marsh Furthered the Conspiracy
81. Marsh shared information with its conspiring Insurers in order to ensure that the conspiracy would operate successfully. In particular, Marsh told its conspiring Insurers who the other partners were; details of the contingent commission arrangements that the other conspiring
Insurers had with Marsh; the amount of contingent commissions paid by other conspiring
Insurers; and the amount of premium volume delivered or expected to be delivered to other partner markets. Dissemination of this type of detailed information permitted each conspirator to monitor not only what its co-conspirators were paying for their premium volume, but also, what they were receiving in return.
82. The conspiring Insurers were aware for instance, not only what tier or level they were on, but which other Insurers shared their status. For example, an Ace employee reported on
ACE’s status as compared to Marsh’s other conspiring Insurers: “We are only a “B” market based on our PSA (we pay 2%, “A” markets pay 4-5%). I am working on this with Ed Zaccaria.
This is critical as the market starts to soften and they are overlined, Marsh will go to higher PSA carriers.”
83. An early September 1997 internal Chubb email reveals that the following subjects were discussed with Marsh: “An update of who the top ten carriers are, the nature of the placement agreement they have with them, the names of the carriers they expect to close out in
98…and a review of how their other major carriers are handling the roll in.”
84. Details of competitor’s PSA’s were freely shared among the co-conspirators.
Marsh told ACE that Marsh would be “candid and absolutely honest about where [ACE’s] PSA stands relative to similar partners in terms of both %'s and growth thresholds.” Conspiring
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Insurers also had access to the proprietary information of rivals, including “key components” of
PSAs, and a comparison of payouts based on a uniform set of premium and expense factors.
85. Documents produced by Crum & Forster also show that it had access to its supposed competitors’ proprietary information. A 1999 email entitled “PSAs – The
Competition” includes comparative information on the key components of PSAs offered by seven of C&F’s competitors, and a comparison of payouts of twelve competitors based on a uniform set of premium and expense factors. Moreover, following a meeting held between Crum
& Forster and Global Broking Middle Market, on April 19, 2001, Marsh informed Crum &
Forster that Global Broking placed 1.5 billion in written premium in 1999 and that 81% of this premium was placed with nine carriers.
86. Global Broking also told Munich the details of how much the other conspiring
Insurers paid in contingent commissions, advising Munich of the terms of AIG’s and other
Insurer’s PSA’s. In April of 2001, when Global Broking and Munich were negotiating a PSA for the Healthspectrum business, Global Broking told MARP that AIG’s PSA pays Global Broking
4.5% in gross premium and that most of its PSAs are in the “6% to 6.5% range.” Additionally, in March of 2002, a Munich GRM manager noted that Global Broking’s excess liability PSAs
“tend to run in a fairly tight band between 15% and 18%.” Furthermore, Munich and other insurer conspirators communicated with one another about the terms of their PSA’s with Marsh.
A Munich employee wrote: “AIG does it this way and I spoke with ACE and they do something similar.” Indeed this type of detailed information was routinely provided in the context of PSA negotiations and permitted each conspirator to monitor not only what its co-conspirators were paying for their premium volume, but also, what they were receiving in return.
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87. When ACE was negotiating growth targets and commitments for its 2004 PSA
with Marsh in October 2003, it realized it had to pay on par with its “key competitor,” AIG in
order to grow its premiums. ACE accepted a PSA that paid Global Broking 15% in total
commissions, provided that AIG renewed their PSA at the same level.
88. Marsh shared information with Liberty Mutual as to its own standing with Marsh
as well as the standing of Marsh’s other conspiring Insurers. In 2003, Liberty Mutual requested from Marsh information regarding the business of other Insurers. Marsh confirmed for Liberty
Mutual that it had a PSA with CNA and also identified its other “go to” markets. In a June 2003 email, Greg Lamb, Marsh’s Director of Broker Administration for National Markets, acknowledged that ______
______. In that email,
Lamb asked Marsh “how do our hit ratios compare to other carriers’ 1st Quarter hit ratios. . . .”
89. Marsh also provided Liberty Mutual with Marsh’s 2004 internal carrier evaluation
survey results. In the email attaching the survey, Marsh informed Liberty Mutual that Liberty
Mutual “is one of [Marsh’s] top 9 preferred markets; that it is “ranked about 5th; but “other than
AIG, there’s a very small % difference … that separates the 2nd - 6th ranked carriers.”
90. Additionally, in 2002, as part of a business development program for Liberty
Mutual, Liberty Mutual conducted interviews of executives of certain brokers. According to
typed interview notes from a meeting with Bill Gilman, Mr. Gilman informed Liberty Mutual
that AIG and Chubb are the carriers with which Marsh does most of its business and that the
“competitors” of Liberty Mutual include AIG, Chubb and Zurich each of whom have a signed
PSA agreement with Marsh.
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91. Similarly, Marsh Global Broking provided Fireman’s Fund with information as to
Fireman’s Fund’s competitors when Fireman’s Fund met with Marsh in November of 2000 to
develop its 2001 PSA. According to an internal Fireman’s Fund email on November 30, 2000
which reported on the meeting, Global Broking informed Fireman’s Fund of the details of its
arrangements with other conspiring Insurers:
Hartford will write ______with GB in 2000 and has offered a “guaranteed” override of ___on the book for 2001, plus specific product incentives . . . St. Paul writes ____ bolstered by their high tech product segment push … Chubb is back in GB’s good graces and is guaranteeing ___ on next year’s book. They do ______down from ______in ’99 and are making money with GB.
92. At meetings held in December 2002 between Axis and senior people at Marsh, including Mack Rice, former Global Broking North America Market Relationship Officer and
Chris Treanor, former Head of Marsh Global Broking North America, Marsh not only advised
Axis where they ranked in premium as compared to the other conspiring Insurers but also where the other insurers ranked as well.
93. The same is true for CNA when it was informed by Marsh in December 2002 exactly where CNA ranked in premium compared to other preferred carriers including AIG,
Zurich and Chubb.
94. Marsh also shared detailed information with its partner markets regarding upcoming renewals. This information was detailed in charts, entitled “Account Logs” or
“Account Assignments” and contained information regarding proposed game plans on accounts, whether the market would be needed to provide non-competitive quotes and other information regarding the other conspiring Insurers.
95. For example, on June 16, 2003, Greg Doherty, the LBC for ACE, sent an email to underwriters at Liberty Mutual and ACE, among others, attaching a chart entitled “Doherty
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Account Assignments.” The chart included information concerning the accounts where ACE or
Liberty Mutual will provide alternative quotes. The chart also included the terms of the
incumbent carrier’s lead quote.
96. Doherty sent similar account logs to ACE and/or Liberty Mutual on June 19,
2003, August 20, 2003, September 19, 2003, September 23, 2003, October 13, 2003, December
22, 2003 and March 19, 2004. For example, on March 19, 2004, Greg Doherty sent an email to
Marsh employees as well as ACE employees attaching an “Updated Doherty Account Log.” Just
like the chart described in the above paragraph, this log outlined proposed game plans for a
number of accounts and detailed whether ACE would be providing “B” quotes on certain
renewals.
97. Marsh also disclosed information about premium delivered to rival carriers. An
internal Chubb email dated February 2, 2002 shows that Chubb received information on business
regarding premium volume and amounts of contingent commission paid by AIG, Munich,
Liberty Mutual and St. Paul, among others. In addition, ACE was aware that AIG was “Marsh’s
clear number one market” for excess casualty (with about $800M in premiums) and that Zurich’s premium was “about $200M.”
98. Marsh also facilitated the exchange of information about co-conspirator status by sponsoring meetings that its conspiring Insurers were invited to attend and attended. For example, Marsh hosted a series of meetings with its “partner markets” during the week of
February 24, 2003 inviting, among others, Chubb, Hartford, AIG, St. Paul and CNA. Similarly, on September 9, 2003, Marsh hosted a cocktail reception inviting senior executives from
Marsh’s “partner markets.” An email regarding the reception lists some of the “partner markets”
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invited to the reception, including defendants Liberty Mutual, St. Paul Travelers, Hartford and
CNA.
99. Additionally, Marsh hosted a “Marsh Global Broking 2000 Planning Meeting” in
October of 1999. At the meeting, “competitor activities” were discussed where each of Marsh’s
conspiring Insurers gave updates on what was going on at their particular company including
strategies going forward and renewal activities. St. Paul Travelers, Chubb, CNA and Hartford attended the meeting.
100. Similarly, Marsh exchanged information about its conspiring Insurers during the
“Marsh Casualty Congress” in February 2004. At this event, Karen Radke, former AIG underwriter, met with Greg Doherty, the Global Broking LBC responsible for ACE who informed Radke that ACE wrote “just under $200M in excess casualty business” and that “Marsh represents 47% of the excess book” which equates to “53M” which “is up from almost nothing 2 years ago.”
101. Frequent meetings at the annual CIAB conference at The Greenbrier also afforded
Marsh the opportunity to share information about its arrangements with its conspiring Insurers and to compare notes on the terms and profitability of the various contingent commission
arrangements. Marsh often sent is executive leadership who met with the top executives from its
partner markets, allowing Marsh to share details of its arrangements with those carriers and to
compare notes on the terms and profitability of its PSAs. For example, at the October 2002
Greenbriar, Marsh held a variety of meetings (private meetings with carriers as well as meetings
with groups of carriers), cocktail receptions and dinners with ACE, AIG, Axis, Chubb, CNA,
Fireman’s Fund, Hartford, Liberty Mutual, Munich, St. Paul Travelers and Zurich.
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102. Indeed, Marsh used The Greenbriar as an opportunity to speak with its conspiring
Insurers regarding the details of the PSAs. In anticipation of The Greenbriar held in October
2003, Robert Howe noted that he “and Joe Peiser would be finalizing the Axis PSA by mid-
October at Greenbriar.”
103. In addition to facilitating the exchange of information at The Greenbriar, Marsh
also exchanged information with its conspiring Insurers about the status of the other conspiring
Insurers, at meetings which were referred to as “Executive Partnership Meetings.” These
meetings provided a forum for review and discussion concerning the status of the relationship
and to comment on the quality of the PSA agreements. In preparation for these meetings, Marsh
would compile briefing materials for its attendees which included, inter alia, a list of PSAs with
the carrier, the quality of the PSA as compared to other Marsh conspiring Insurers, and
information regarding how to meet thresholds in the PSAs.
(8) The Co-Conspirators Benefited from the Operation of the Conspiracy
104. Both Marsh and its conspiring Insurers profited handsomely from their
anticompetitive arrangement. Marsh saw its contingent commission revenue for Global Broking
skyrocket from ______in 1992 to ______in 1999. In 2001, Global Broking’s contingent commission revenue reached ______and by 2003, Global Broking’s contingent commission revenue reached ______.
105. Marsh’s co-conspirators saw their gross written premium skyrocket as well. As
Liberty Mutual acknowledged, “I do believe [that] our PSA played a role in seeing our book of business nearly double with Marsh from 1999 to 2002.” In fact, Liberty Mutual’s book of
business with Marsh grew by 73% from 2000 to 2002, while paying $1.45 million in contingent
commissions which was a “small price for $80M in additional revenue!”
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106. St. Paul Travelers characterized its success with Marsh in 2002 and 2003 as
“dramatic” as its book of business with Marsh increased almost ______, growing from _____
______in 2001 to ______in 2002 to ______in 2003.
107. Likewise, ACE’s gross written premium with Marsh grew from $3.95 million in the first half of 2002 to over $34 million in the same period in 2003, an 860% increase; Crum &
Forster saw its gross written premium with Marsh more than quadruple from 2000 to 2004, from
$35 million to over $170 million; and Fireman’s Fund gross written premium grew from
$142,000 in 1997 to $2.6 million in 2001.
108. Everyone understood that it was the clients who paid the price for this huge increase in the profitability of the conspirators. In responding to questions about the MGB PSA from his Chief Underwriting Officer, one Munich manager stated: “In answer to your question
‘does Marsh understand that the PSA is an expense load to the premium’, their answer is absolutely. And ever [sic] other market has to cope with the same expense load components as part of their overall premium ‘equation.’”
2) The Aon Broker-Centered Conspiracy
a) Participants in the Conspiracy
109. The participants in the Aon broker-centered conspiracy are Aon (as defined in the
Complaint) and the insurance carriers with which it had “strategic partnership” relationships. At various times during the Class Period, Aon’s conspiring Insurers including the following Insurer
Defendants: ACE, AIG, AXIS, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford,
Liberty Mutual, St. Paul Travelers, XL and Zurich.
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b) Operation of the Conspiracy
(1) Overview
110. Aon allocated its customer base to and among its conspiring insurers in two steps.
First, Aon and its co-conspirators agreed that Aon would “consolidate” its business by directing
as much as 80-90% of its business to its “preferred carriers,” co-conspirators AIG, ACE, AXIS,
CNA, Chubb, Crum & Forster, Fireman’s Fund, Hartford, Liberty Mutual, St. Paul Travelers,
XL and Zurich, thereby eliminating hundreds of other insurers from competing equally with the
conspiring insurers for a substantial portion of Aon’s business. As a second step in Defendants’
unlawful scheme, the parties agreed to reduce or eliminate competition among the conspiring
insurers themselves as to that secured book of business. The key aspect of Defendants’
agreement in this regard was that each insurer would be permitted to keep its own incumbent
business, and that Aon would protect that business from competition, using a variety of
incumbent protection devices. As described below, Aon and its co-conspirators understood and
agreed that incumbent protection was a necessary element in its scheme to allocate its premium
volume in the manner calculated to achieve the highest profits, both for itself and itself co-
conspirators.
(2) The Participants in the Aon Broker-Centered Conspiracy Agreed that the Bulk of Aon’s Book of Business Would Be Allocated to Conspiring Insurers
111. Beginning at a time unknown, but certainly by the late 1990s, Aon saw an opportunity to maximize its contingent commission revenue by placing the majority of its business with a small number of “strategic” or “premiere” partners with whom it had its most lucrative contingent commission arrangements. In return for their contingent commission payments, these “strategic partners” were allocated a guaranteed flow of premium dollars and protection from competition from those outside of the arrangement. The Insurer co-conspirators
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who participated in this conspiracy were kept abreast of the terms of the agreements that other
co-conspirators had with Aon, and shared competitive information that would have been
economically irrational to share in the absence of a conspiracy.
112. Aon’s consolidation efforts were carried out and overseen at the highest levels of
the company. Aon’s two top executives, Patrick Ryan (the founder of the company and
chairman of the board) and Michael O’Halleran (the CEO), were both focused on the
consolidation of markets and movement of business to Aon’s conspiring Insurers. For example,
as late as March 13, 2004, these two top executives discussed a list of “Strategic Issues” for a
board presentation. Their agenda included the following item: “Move business to ‘key’ partners
(CSU’s).”
113. Aon’s efforts to “consolidate its markets” – that is, to limit the insurers with which it did business - were extensive and well-coordinated, and it communicated those efforts to the chosen insurers. For example, a Chubb document from 1997 notes:
Aon Group, has formed a new subsidiary, Aon Enterprise Insurance Services, Inc. into which it will consolidate more than $300 million in gross premiums to Aon Group’s smaller accounts. This business will be served by four carriers: Chubb, Kemper Insurance, Wausau Insurance Company (a division of Liberty) and Virginia Surety (an Aon subsidiary)…. [W]e were selected as one of the four partners in the new venture.
Aon not only identified the four conspiring Insurers to Chubb, but also allocated a substantial premium volume to Chubb. The Chubb document continues:
Our participation in Aon Enterprise will result in more than $70 million of new premiums to Chubb in the short term as Aon Group consolidates its book.”
Prior to this consolidation the business was written by over 1000 carriers.
114. In connection with its efforts to centralize and standardize its contingent commission arrangements and corresponding allocation efforts, Aon hired Bruce O’Neil.
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O’Neil’s mandate was to focus Aon’s executives to make sure that those executives were fully
engaged in the process of identifying and cultivating the “strategic partnership” arrangements.
115. By 2000, Aon’s consolidation efforts were well under way. The “key action
items” in the ARS year 2000 business plan included the following: “We have already begun to
implement an aggressive program of increasing average commissions, market consolidation and
contingent commission increase[.]”
116. On January 11, 2000, O’Neil held a meeting with senior executives to explain the
company’s strategy. Notes of the meeting indicate that Aon senior executives were directed to
“urge marketing departments to use the ‘Big 10’ carriers” so that Aon could “have more leverage
and receive the largest commission possible.” These Aon senior executives were also instructed
“to consolidate business with Strategic Partners and move away from some of the smaller lines
we use.” One of O’Neil’s specific tasks was “developing information on potential business that
can be moved over to the Strategic Partners.”
117. On March 31, 2000, Joseph Lombardo, a senior executive with Aon Risk Services
(“ARS”), wrote to the head of ARS, Ken LeStrange, to discuss the company’s strategy going forward. Under the heading “Compression of Markets,” Lombardo wrote that “[w]e absolutely, undoubtedly, without question, should not be doing business with the number of markets that we currently do.” Lombardo estimated that Aon would be able to “knock off about 20 carriers” in the course of its consolidation effort.
118. In a memorandum from O'Neil to Patrick Ryan and Michael O'Halleran dated
August 17, 2000, O'Neil referred to planned meetings at the Greenbrier with "our other Strategic
Carrier Partners." During this period, Aon named its strategic partners as AIG, Royal,
Travelers/St. Paul, Hartford, Zurich, Chubb, Kemper and CNA. A “Terms of
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Trade_Contract_Contingents Status Report” chart from June of 2001 shows that Aon was
tracking its national agreements with ten “Strategic Partners”: CNA, Chubb, Fireman’s Fund,
Hartford, Kemper, Liberty Mutual (through Wausau), Royal, St. Paul, Travelers, and Zurich.
119. Nearly two years later, on June 3, 2002, Aon’s core cast of conspiring Insurers
looked quite similar. On that date Aon executive Gerald Brown noted that Aon’s Financial
Services Group (“FSG”) had identified certain core providers of specialty insurance, and stated
that “[m]ost of these key players are also corporate Aon strategic partners in various other product endeavors.” FSG core carriers which were also listed as corporate Aon strategic partners included ACE Bermuda, CNA, Chubb, Hartford, Liberty Mutual, St. Paul, Traveler’s,
XL/ELU and Zurich.
120. The process of allocating the bulk of Aon’s premium volume to its conspiring
Insurers in exchange for contingent commission payments continued throughout the class period.
As senior ARS executive Tom Rodell noted: “Our vision is that for each product/industry, we would have a relatively small number of selected strategic partners where we would place the majority of our business, and we would have appropriate PEF [a form of “contingent commission”] Agreements."
121. To carry out its agreement with its conspiring Insurers to consolidate its business with them and allocate business between them, Aon concentrated control over national contingent commission agreements in the hands of a small group of executives, known as the
Syndication Group, which oversaw multiple product lines within ARS. The leading Aon executives who oversaw this aspect of the scheme were Robert Needle, Managing Principal of
Retail Syndication (the largest division of the Syndication Group), Carol Spurlock, Managing
Director of Commercial Risk, and Ronald Moyer, Managing Director of Financial Services.
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Aon’s brokers were encouraged by the Syndication Group to “drive further market consolidation
to achieve . . . improved revenue management . . . [and] greater market leverage.”
122. The Syndication Group organized each product line into national units that
oversaw placements and the negotiations of new contingent commission agreements intended to
replace smaller local and region agreements with large national ones. These national
agreements, originally called Placement Service Agreements (“PSAs”), Professional
Enhancement Fund agreements (“PEFs”) or override agreements, were misleadingly renamed
“Compensation for Services to Underwriters” or “CSUs” in March 2004.
123. Chubb, one of the Insurer co-conspirators, recognized that the allocation scheme
was successful: “By consolidating this business and having a dedicated team to work with Aon,
we have become their number one market and now have over 40% of their book. We expect this
number to grow as they consolidate their business from the non-focused markets to the focused
markets (Chubb, AIG, Travelers, Hartford and Royal).”
124. Bob Needle acknowledged in a November 25, 2003 memorandum that Aon’s
“strategy over the last couple of years has been to reduce volatility and increase revenues by
shifting from local office based contingency agreements to volume driven override
arrangements.” In a December 1, 2003 internal Aon e-mail to other ARS executives, Renae
Flanders noted that the following question was key to Aon’s “overall business planning for
2004”: “Are you placing business with our strategic partners? If not, do you have a plan in
place to better align your business with our partners?”
125. The market consolidation efforts continued into 2004, as described in an ARS business plan for that year: “Our Leading Carriers have been condensed into seven carriers, down from nine, where we enjoy National Professional Enhancement Fund Agreements with a
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defined placement strategy. These carriers are Chubb, Hartford, Travelers, St. Paul, CNA,
Wausau and Zurich. Our strategy in middle market is to create a condensed group of markets
that can handle 80-90 percent of our business obtaining cost efficiencies in dealing in this market
segment.”
(3) The Participants in the Aon Broker-Centered Conspiracy Agreed Not to Compete for Each Others’ Customers
126. The Insurer Defendant co-conspirators -- ACE, AIG, AXIS, Chubb, CNA, Crum
& Forster, Fireman’s Fund, Hartford, Liberty Mutual, St. Paul Travelers, XL and Zurich -- knew of and understood their role in the conspiracy, and they each agreed horizontally to participate in it. Each was a “strategic partner” of Aon during the relevant time period and each enjoyed the guaranteed premium allocation and the protection from competition that the status afforded.
127. One of the key mechanisms for allotting premium that was agreed upon by Aon and its partners was very simple: protection of incumbent business. In other words, the members of the Aon broker-centered conspiracy understood and agreed that when one of their accounts was due for renewal, Aon would take steps to keep that account with the incumbent conspiring Insurer. Aon accomplished this by failing to seek competitive bids, giving the incumbent a “last look” on the account, and/or providing other anticompetitive information and advantages.
128. AIG, for example, expected to have its incumbent position protected by Aon. In an exchange in late 2004 with an AIG casualty manager regarding a particular environmental account, Mitch Cohen of Aon noted that because AIG was late with its proposal, Aon “chose not to offer you [AIG] last look.” Trying to explain the late bid to Aon, the AIG manager indicated that “we were unaware of competition until the last day and therefore unaware that you would need to provide program comparisons to your client.” In other words, AIG made the assumption
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that Aon would honor the agreement to protect its incumbent position without seeking
competitive quotes.
129. Aon’s treatment of another Insurer co-conspirator, CNA, offers further evidence
of Aon’s incumbency protection. After a meeting with CNA’s senior leadership in early
December 2003, Carol Spurlock sent a note to several ARS managers exhorting them to push as
much business as possible to CNA so that Aon could maximize its profits under the Aon /CNA
contingent commission agreement. Spurlock’s pointed direction was heeded, as one of these
Aon employees told her that, on a particular account, “we’ve put CNA in the incumbent’s seat, although Travelers is ready to quote,” and noting that “[i]t’s up to them to do the deal.” Spurlock went straight to CNA with this news, telling the CNA representative that “[w]e have put you in an incumbent position, I don’t think you can ask for more.” Spurlock went on to note that “[t]his could very well be the deal that brings us to the finish line,” meaning that Aon was close to meeting its contingent commission threshold with CNA and was in a position to cash in on its incumbency protection.
130. In a November 18, 2003 e-mail to St. Paul, Aon’s Ron Moyer discussed the
______account, and assured St. Paul that “I want to treat you right as an incumbent. . .
.” Mr. Moyer went on to share with St. Paul detailed information about the structure of the placement in order to protect St. Paul’s incumbent position.
131. Aon employees were careful to police the incumbent protection aspect of the conspiracy. For example, in April of 2003, Rhonda Rayha wrote to Carol Spurlock and others about an “incident” where Travelers “brought to my attention that we are not protecting our incumbent, premiere markets.” The e-mail went on to note that “[i]n addition to our Syndication colleagues I have communicated to the Region our commitment to our “premier-market”
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relationships.” The Travelers employee who initially brought the incident to the attention of
ARS noted that “we are doing our best to live up to our promise to treat Aon like a preferred
partner, but incidents such as this make us feel as if it’s not reciprocated.”
132. In fact, when Aon sought an enhancement of its 2002 payout from Chubb, Chubb
developed a “shopping list” of accounts in exchange for the requested enhancement. An internal
Chubb e-mail noted that “in an effort to maximize their Chubb incentive plan [Bob Needle of
Aon] asked for a list of all significant (6-7 figure) renewals and new lines for November and
December in CCI and CSI. His intent is to alert his people of the importance of renewing or
placing these accounts with Chubb.” In an email in November 2003, Bob Needle of Aon
forwards an email containing “another list,” stating, “as you know we need to do our utmost to
keep this and drive other new business to Chubb.”
(4) Aon and the Conspiring Insurers Agreed that in Return for Contingent Commission Payments, the Conspiring Insurers Would Be Guaranteed Access to a Minimum Amount of Premium Volume.
133. Beyond incumbency protection, the Insurer co-conspirators also agreed with Aon, and horizontally among themselves, that access to new business would be protected from competition, and that they would be allocated a guaranteed level of both types of business. As an employee of Chubb noted, “Chubb is Aon’s preferred market for all new business. We will get first look and be guided as to how we stack up against the competition…he has steered several new lines our way.”
134. A February 2004 internal ARS e-mail regarding the 2003 estimated payout
calculation under the Crum & Forster incentive agreements demonstrates that Crum & Forster
(and other members of the conspiracy) expected both production and protection from Aon in
return for its contingent commission payments: “They [C&F] are satisfied, but want more
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production, better alignment, and payback for the unbinding of the piece of January business
given back to AIG.”
135. Another example of Aon’s allocation of business to its Insurer co-conspirators was its relationship with ACE, where PSA payments to Aon were tied to the steady flow of business to ACE. As ACE saw it, “high front end commissions” were necessary to “focus”
Aon’s brokers on providing “value” to ACE in the form of placements. According to a June 4,
2004 memo from Lupica to John Alfieri setting forth the ACE USA NY Region Monthly Report,
Gary Marchitello (Aon’s National Property Practice leader) met with Lupica and “re-committed
to increase submissions to ACE.”
136. Indeed, Aon regularly tracked the premium levels directed to its insurer co- conspirators in order to allocate business in accordance with the thresholds embodied in the contingent commission agreements. For example, in an e-mail dated December 23, 2002, executives in ARS exchanged correspondence about “Aon/Zurich Incentive Results”, i.e., the progress of steering premium toward Zurich: “Attached is a spreadsheet showing our production results as of Dec. 17th. Aon’s net premium now stands at slightly more than $82.5 million.
Getting very close to the next threshold now. Only $7.5 million to go.”
(a) Aon Steered, Shifted or Rolled Business to the Conspiring Insurers with Minimal or No Competition
137. Steering business to conspiring Insurers was a well-accepted and important element of the agreements between and among Aon and its conspiring Insurers. In August of
2000, Bruce O’Neil wrote to Patrick Ryan and Michael O’Halleran about a series of Greenbrier meetings with Aon’s conspiring Insurers. Mr. O’Neil made clear that the status of strategic partners carried with it certain important benefits. In particular, with respect to Chubb, Mr.
O’Neil listed the following agenda item:
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Suggest we use Atlantic Mutual and CGU to “payoff” Chubb to secure $4,300,000 agreement or 1% override (see May 18, 2000 agreement) for our entire Chubb ARS book.
In other words, Aon would transfer business from carriers who were not conspiring Insurers to
the members of the conspiracy, without regard to the best interests of the client involved, in order
allocate premium in the agreed-upon amounts.
138. As ARS put agreements to allocate business in place with various conspiring
Insurers, it put out the word internally to deliver on promises that were made to steer business to
those Insurers. Robert Needle, the Managing Principal of ARS’s Retail Syndication, told his
subordinates at a Syndication Operations meeting that “[w]e should continue to grow our book
with Chubb and also Hartford and Wausau based on our favorable contingency agreements.”
139. In a February 2003 e-mail exchange with Gail Soja of Chubb, Carol Spurlock
made clear that accounts then held by Kemper would be allocated to conspiring Insurers, saying:
“[W]e are committed to giving Chubb first choice among strategic partners in our business
consolidation efforts.”
140. On May 6, 2003, Ms. Rayha wrote to another ARS colleague, making sure he was
aware that business should be steered to conspiring Insurers whenever possible. Writing about
the placement of one client’s business, Ms. Rayha remarked that “Senior Mgt wants to make sure
that we give every opportunity to one of our partner-markets to participate in this placement (St.
Paul, Chubb, etc…).”
141. In late June of 2003, Ms. Rayha discussed another incident where two conspiring
Insurers were competing for the business of a particular client, making clear that placating these conspiring Insurers was critical to Aon’s conspiratorial conduct. Having discovered that the account in question had been placed with St. Paul rather than Chubb, Ms. Rayha noted that “St.
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Paul deserves the order on this, but Chubb is screaming loudly and based on my last
conversation, they don’t necessarily feel that we gave them an equal opportunity on this
placement. Let’s prove otherwise. We would be requesting the same information if it were the
other-way-around. St. Paul is also a partner market and would deserve the same justification.”
142. In March 2003, Carol Spurlock, who at the time was the head of Middle Markets, wrote to a colleague who had inquired whether business should be directed to Zurich even though it had not paid contingent commissions to the Middle Markets department during the prior year: “Going forward, we are going to push Zurich. I just today negotiated our incentive so that we will get paid next year.” A month later, Spurlock described the Zurich relationship to another colleague:
We have always had an extremely nice contingency with the excess folks at Zurich. We received a huge check from them on umbrella business last year. We did not have a middle market contingency last year, we do this year. So yes place lotz [sic] of business with [Zurich]. . . .
143. Another Spurlock e-mail to senior ARS executives from June 20, 2003 shows that the efforts to push business toward the Insurer co-conspirators continued. Reviewing a mid-year conference call about the status of production to various conspiring Insurers, including Travelers,
Crum & Forster, Hartford, St. Paul, Chubb, CNA, Wausau, and Zurich, Spurlock noted, among
other things, that: “St. Paul does not have a last look on Kemper business. We own the
business, preference is to place with Chubb when we can. . . . Need to continue to replace Royal
business with partner carrier. Working on a National deal with C&F. Mainly to receive payment
on what we have with them. Not necessarily to push business there. Need to push Hartford and
Wausau on that business.”
144. Aon tracked its progress towards the goal of allocating its premium to and among its Insurer co-conspirators. For example, a report entitled “Aon Syndication Central Region
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January-June 2002 Strategic Partner Report” shows that Aon was working very hard to make
sure that its Insurer co-conspirators were enjoying ever increasing volumes of business as a result
of the group’s agreements. This report, like many other similar reports, charts the progress of
Aon’s efforts to steer premium to those insurer co-conspirators.
145. ARS also provided financial incentives to employees who steered placements to
the Insurer co-conspirators. Needle told one insurer that “[i]nsurer incentives are a key factor in the property bonus pool.”
146. This message was reiterated by Needle’s subordinates and the executives from the other ARS product groups. As Carol Spurlock, Aon’s Managing Director of Commercial Risk, explained on April 14, 2003 to an insurance company executive whom she was attempting to persuade to enter into a contingent commission agreement:
Let me further confirm our ability to effect [sic] placement behaviors. Our syndicators are evaluated on the percentage of their books that are with our “premiere” markets. Each Regional Syndication Director is held accountable as well. This is a measurable, compensated item that each syndicator is financially motivated to drive.
147. Similarly, Eric Andersen, co-head of Aon’s Financial Services Group, stated:
The revenue that arrives from the [contingent commissions] are [sic] integral to our budget and profit derived from FSG [Financial Services Group]. When we are being evaluated, they look at the full picture of earnings. Our bonus pool is set as a percentage of revenue. . . . If our [contingent commissions] fall, our ability to use the percents that we use to pay individual brokers would need to be changed. In short, it is a critical factor in our business and has a direct impact on how much we can pay people in FSG.
148. In a later e-mail, the Managing Director of the Financial Services Group, Ronald
Moyer, chastised an employee for questioning how contingent commissions are helpful to the group:
[I]t is safe to say that, over the past couple of years, [contingent commission] money has funded our entire bonus pool as well as our investment hires and still contributed significantly to the bottom line of the company. Anyone who does not
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see that as advantageous for them personally is looking through the wrong end of their telescope.
149. ARS e-mails between Carol Spurlock and Valerie Daniel from November 19,
2003 show that steering business to the Insurer co-conspirators continued unabated. In these e- mails, the two senior Aon employees were discussing the placement of insurance for two accounts, ______and ______. With respect to ______, Ms.
Daniel noted that “[c]andidates are Zurich, Chubb, Travelers & FF – FF wrote this for 13 years
before account moved to Royal 3 years ago. Will do my best to steer it to one of the other mkts
[sic] referenced.” In response, Ms. Spurlock suggested that Ms. Daniel should “[p]ush Chubb
and Travelers to the extent that you can on ______. Definitely Zurich before FF.”
150. On one occasion, Aon chose to book roll certain business (Aon Enterprise) from
one strategic partner, CNA, to another, Hartford. CNA was unhappy about the decision, noting
that “I guess it isn’t really about “strategic partners” just $$$ -- duh!”
151. Aon often steered premium to conspiring Insurers in return for another form of
compensation: reinsurance brokerage fees. Aon’s reinsurance brokerage affiliates, known
generally as Aon Re and Aon Specialty Re, charged hefty fees to retail insurers when those retail
insurers used Aon to place their own reinsurance programs.
(b) Conspiring Insurers Expected and Received Competitive Advantages and Protection from Competition from Aon.
152. Aon used its power to allocate premiums to its conspiring Insurers in a number of other ways.
153. In at least two instances, Aon’s willingness to place its own interests and that of its co-conspirators ahead of its clients led it to manipulate the bidding process and cause Insurers to submit higher bids than the insurer otherwise would have tendered.
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154. In the first instance, which occurred in September 2003, ARS instructed Zurich that its bid of $246,922 for the workers compensation business of Fieldstone Investment Corp. was too low and suggested that Zurich raise its bid before the bids were shown to the client. In this way, ARS sought to help Zurich recoup funds Zurich had expended on an unrelated client’s account, Pearlstine Distributors, Inc.
155. Three months earlier, Aon had sought insurance coverage for Pearlstine, and
Zurich had obliged, though Zurich had eventually spent $18,000 on excess liability policy, deeming Pearlstine a poor risk. Seeking to placate their strategic partner, Aon promised Zurich that ARS would “re-imburse [sic] you folks for the Additional Reinsurance costs associated with umbrella coverage on Pearlstine through 9-1. . . .” Aon’s opportunity to reimburse Zurich came at the expense of Fieldstone Investment Corp., which had retained ARS to obtain a variety of coverages, including workers’ compensation insurance. Shortly after Zurich’s initial bid was submitted, ARS told Zurich it could raise its quote without losing the bid. Zurich won the account after raising its quote by nearly $45,000.
156. On November 13, 2003, after the account was bound with Zurich, the ARS employee assigned to the Fieldstone account wrote to Spurlock to explain what had occurred:
We wanted to let you know that when we first started negotiating this deal with [the Zurich underwriter], his initial WC premium came in at $246,922. The expiring premium with the same payroll was $283,532. He quoted $36,610 less than expiring. We came back to him and allowed him to increase his initial WC quote to approx. same as expiring, $283,532. We allowed Zurich to get more money on this. . . . This is an example of AON letting Zurich have more rate and premium when we could have held them at a cheaper price.
157. The next day Spurlock wrote to the Zurich executive who had negotiated the agreement on the Pearlstine account. She attached the November 13th e-mail and stated:
[t]his one deal gave you twice the amount compromised on the Pearlstine account. Are we in agreement that we have now met that obligation[?]:
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158. On January 5, 2004, Spurlock again wrote to Zurich and attached both the
November 13 and 14 emails:
I never heard from you or [the Zurich executive] on this subject and we assumed that you are in agreement with the statements made below [the November 13 and 14 e-mails]. To refresh the circumstances surrounding this topic, remember that we agreed at a senior management level to forgive the additional premium generated by building the primary limit to $2M to Pearlstine with the promise that we would make it up to you in other business. This was done twice over on [Fieldstone].
159. A later Aon internal e-mail noted that the inflated bid not only settled the
Pearlstine debt to Zurich but helped Aon get closer to achieving payout on its contingent commission goal:
Congrats again on Fieldstone. Not only was that a nice new hit, it certainly helped us on two fronts. It obviously helps to get us closer to our premium goal with Zurich and also to make up the $18K in premium that they helped us out on [Pearlstine], go away. As I recall you were able to get them $36K more in premium than they originally quoted to more than make up for what we owed them. That is the way a National operation should work.
160. In the second instance of bid manipulation, Aon encouraged Zurich to raise its bid on certain environmental coverage for Pitcairn Properties, Inc. from the mid-60s to just over
$90,000. Aon’s syndicator told the Zurich underwriter that the initial quote was too low and that he wanted Zurich to quote in the upper ninety thousand dollar range. The Zurich underwriter agreed to provide the higher quote. The conversation was followed by an e-mail from the Aon syndicator to the Zurich underwriter: “[i]t was good talking with you just now, and it was refreshing to hear some willingness to take this opportunity on. . . . [t]he target is in the upper
90s.”
161. Four days after the conversation, Zurich provided a formal quote to ARS of
$92,497. Although Zurich had the lowest quote, ARS advised Pitcairn to reject Zurich and take
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a higher AIG quote of $99,519. ARS justified the recommendation by telling Pitcairn that
Zurich had refused to cover the disposal sites, even though Zurich had agreed orally to cover the
sites.
(c) Aon Monitored and Enforced the Terms of the Conspiracy
162. During the class period, Aon monitored and policed the conspiracy by cutting off
premium volume supply to companies that did not live up to their end of the bargain. As one
ARS executive informed an insurer that had promised but not yet signed a contingent
commission agreement:
We have been operating on the good faith that this [contingent commission agreement] would be mutually agreed quickly after our meeting here in NY. Based on the fact that we are almost halfway through the year, I will be advising our people in the field that we in fact don’t have a [contingent commission agreement] with [Industrial Risk].
163. Aon essentially denied premium flow to carriers who would not cooperate with
the aims of the conspiracy. At a meeting with Aon representatives in June of 2001, James
Snedeker of Munich American Risk Partners was told that contingent commission agreements
were critical to receiving any business from Aon. Mr. Snedeker noted that “As they have previously, Aon re-emphasized that all business will be placed through the newly formed
Syndication unit. For a market to see any new or renewal business we must have PSA in place.”
(d) Communications Among the Participants in the Aon Broker-Centered Conspiracy, Facilitated by Aon, Made the Conspiracy Plausible
164. The Insurer co-conspirators were aware of their preferred status with Aon, were advised of the preferred status of other carriers, and all agreed to the corresponding allocation of business to and among them. For example, Fireman’s Fund was specifically aware of the terms that the other conspiring Insurers had agreed to with Aon:
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Each company is offering slightly different incentive plans for this consolidation. Our plan offers a 3% override for new business in excess of $500,000 for the entire office, as well as a 4% override at $1,000,000, up to $50,000. Chubb has a similar arrangement, with an overall agreement tied to profitability and retention like our ICA (this is big bucks as their book exceeds $10M). Travelers has a 1.5% override on all new business in this unit, and Wausau offers 3% on specified accounts in the unit. The specifics on the Royal plan are not yet known.
165. Information about the terms that other co-conspirators had with Aon was
routinely distributed among Aon’s Insurer co-conspirators. For example, Aon provided Chubb
their carrier Contract Checklist, noting that “most of our strategic partner carriers were interested” in the list. Aon also provided Chubb with copies of its agreements with its other preferred partners. Moreover, competitive information also flowed to Aon. Aon knew the terms of Chubb’s deal with Marsh and suggested to Chubb: “Alternatively, you could give us the
Marsh deal.”
166. Often it was Aon’s top executives that passed information about compensation agreements between the conspiring Insurers. This is reflected, for example, in a June 21, 2004 email from XL’s top executive, Clive Tobin. Mr. Tobin wrote to Mike O’Halleran and referenced their discussions about compensation agreements with other Insurers, saying: “Mike this is in line with our discussions and agreements with other carriers.”
167. Aon freely distributed specific competitive information to other insurers who sought to break into the Aon conspiracy’s inner circle. For example, in a meeting on April 20,
2001, Bob Needle of Aon met with James Snedeker to discuss the possible terms of a contingent commission agreement between Aon and Munich American Risk Partners. In the course of the discussion about the terms of a potential agreement, Mr. Needle shared the terms of contingent commission agreements that Aon had entered into with Zurich, Chubb, XL and AIG, including the specific percentages that these companies were paying Aon on specific areas of business.
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168. A series of April 2003 e-mail exchanges between Carol Spurlock and Keith
Braxton of Liberty Mutual affiliate Wausau shows that Aon facilitated the exchange of
competitive information among the members of the conspiracy, informing each conspirator of
Aon’s agreements with its competitors, and making clear that terms of individual contingent
commission agreements were paramount in Aon’s distribution of new business. The exchanges
between Spurlock and Braxton concerned the possibility of Liberty Mutual obtaining some of the
Kemper middle market business. In the course of this exchange, Ms. Spurlock makes it clear
that Liberty Mutual is viewed as a strategic partner, and that Aon was prepared to shift the
business toward Liberty Mutual if an appropriate contingent commission agreement was put in
place. Mr. Braxton asked, in the course of the discussions, “Is this an exclusive offer to Wausau
or is this out with every carrier?” Ms. Spurlock responds that “[w]e have had discussion with
Chubb and Hartford. Chubb has picked up some of the business, not allot [sic] of movement . . .
We went to them because our agreement is more favorable. . . . . We are having preliminary
conversations with CNA and St. Paul.”
169. An e-mail dated May 23, 2003 further demonstrates Aon’s information-sharing
role. In the e-mail, executives within ARS discussed the terms of a contingent commission
agreement with AIG and indicated that information on the terms with other carriers was routinely
shared with Insurer co-conspirators: “PEF is in draft form and Ken has agreed in principle to our terms. . . .They should be falling all over you guys to reward your placement and encourage you to continue to place business with them. You can also mention that all their competitors pay us
12 to 13 points on placement.” (emphasis supplied).
170. The sharing of detailed competitive information is also revealed in a Crum &
Forster document entitled “Agency Call Report” which describes a visit between Crum & Forster
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employees Jerry Czekalski and Dutch Egbers, and Ralph Hodges of Aon. The report explains that Aon informed Crum & Forster that its contingency agreement was “average within the industry and available from anyone.” Hodges specifically recounted that Hartford, Royal and
Chubb had better plans. The Report goes on to note that “Ralph [Hodges] will share competitor
R&G plan information with us (we met off-site)”, and that Ralph asked if Crum & Forster “could enhance its R&G to pay on new business from dollar one to attain a better share of available premium from Aon.” After noting Aon’s long term profitability, the report recommends that
Crum & Forster “enhance” its R&G offer. In his comments forwarding the report internally, another Crum & Forster employee asks that others in the company make sure to secure the promised competitor information for Chubb, Royal and Hartford.
(5) The Co-Conspirators Benefited From the Operation of the Conspiracy.
171. Liberty Mutual, in a message to ARS in March of 2004, continued to recognize the impact of the contingent commission agreements on its bottom line, forwarding the latest
Liberty/Aon contingent commission agreement to ARS with the note “we would like to execute, announce and get it into play quickly so as to start impacting results.”
172. Payments from the Insurer co-conspirators, on an annual basis, were substantial.
For example, in 2003 Crum & Forster paid Aon $1,236,655 in national account incentive commissions.
173. An e-mail from John Sullivan to Elliott Jones from July 26, 2001 shows that AON knew that the concentration of premium in the preferred partners would be a lucrative proposition, and that steering of business to these preferred partners had to be pressed aggressively: "[O]ur arrangement with CNA will be quite lucrative to ARS, therefore we need to
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carefully yet aggressively be certain all casualty syndicators understand this is a preferred market."
174. In the discussion of the 2004 business plan for the ARS Environmental, Aon made clear that the contingent commission income was substantial and growing: “PSA renewals
– It is our expectation to take what are now decent Market Agreements and mature them into more lucrative deals for Aon. A major objective in the effort is to raise the overall commission levels on the book from an average of around 10% to upwards of 12-13% on the entire book.
We expect some of the newer carriers might be willing to offer Aon 15% on new business.”
175. In early 2000, Paul Markey of Aon emailed Michael O’Halleran about the fact that XL was not getting a lot of business from Aon, explaining “I think our producers also get better commissions etc. elsewhere.” Markey noticed that XL’s management was “not confident that PSA’s or incentives will bring our business back to XL.” Yet Markey was confident that if
XL understood that Aon could, in fact, allocate premium in exchange for higher contingent commissions,” that XL would want to join the conspiracy:
Clearly I believe that the reinsurance equation and the PSA have enormous impact on this type of situation . . . *** I remain convinced that XL is a partner of choice for Aon and that given the strong endorsement and a modicum of proof of our ability to deliver, we stand to gain a great deal.
XL did, in fact, become a strategic partner, and by 2002 the profitability to both companies was evident. Bob Needle reported that “with XL America, we grew 82% from $121 million in 2001 to $220 million for 2002.” As a result, Aon’s “XL override for 2002 was $7 million[.]”
176. The losers in this have been Aon’s clients and the marketplace for insurance. The clients have been harmed because insurers pass the cost of contingent commissions on to the clients in the form of higher premiums. As one insurer noted about the contingent commissions it
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would have to pay Aon: “It appears that [contingent commissions] could hit 2.5% this year. Let’s
load an additional 2.5% in their premiums.”
3) The Wells Fargo/Acordia Broker-Centered Conspiracy
a) Participants in the Conspiracy
177. The participants in the Wells Fargo/Acordia broker-centered conspiracy are Wells
Fargo/Acordia (as defined in the Complaint) and the Insurer Defendants with which Wells
Fargo/Acordia had “strategic partnership” relationships. At various times during the class
period, Wells Fargo/Acordia’s conspiring Insurers included Chubb, St. Paul/Travelers, The
Hartford, CNA and Fireman’s Fund.
b) Operation of the Conspiracy
(1) Overview
178. Wells Fargo/Acordia allocated its customer base to and among its conspiring
Insurers in two steps. First, Wells Fargo/Acordia and each of its co-conspirators agreed, and the
conspiring Insurers agreed among themselves, that Wells Fargo/Acordia would “consolidate” its
business by directing a significant portion of its business to Chubb, Travelers, Hartford, CNA
and Fireman’s Fund, thereby eliminating hundreds of other insurers from competing equally with
the five conspiring Insurers for virtually 100% of its small business customers and a substantial
portion of Wells Fargo/Acordia’s total commercial customers. Second, Wells Fargo/Acordia and
its conspiring Insurers agreed that each of these five Insurers would be allocated specific
business for which they would not have to compete among themselves.
(2) Wells Fargo/Acordia and the Conspiring Insurers Agreed that a Substantial Part of Wells Fargo/Acordia’s Business Would Be Allocated to the Conspiring Insurers
179. Beginning as early as 1997, Wells Fargo/Acordia embarked on a plan to maximize its contingent commission revenue by placing a substantial portion of its business with a small
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number of insurance carriers with whom it had lucrative contingent commission agreements.
Specifically, Wells Fargo/Acordia conspired with a handful of its major Insurers to consolidate its business with those chosen Insurers, allocate customers, and unlawfully limit competition.
Wells Fargo/Acordia entered into the conspiracy with these Insurers with the understanding that it would receive substantial contingent commission payments; in return, the Insurers participating in the Wells Fargo/Acordia conspiracy expected and understood that they would be guaranteed significant amounts of premium dollars free from outside competition, and that they would be protected from having to compete even among themselves for some or most of the business they were allocated. Wells Fargo/Acordia and its conspiring Insurers kept one another abreast of the terms of the agreements within the conspiracy and shared competitive information in a manner that would have been economically irrational in the absence of a conspiracy.
180. Wells Fargo/Acordia’s consolidation efforts began at least as early as October 21,
1997, when Chubb & Son, Inc. President Bob Crawford, Jr. wrote to Wells Fargo/Acordia, Inc.
President Frank Witthun regarding a prior meeting in Florida. Materials from this “Chubb –
Acordia Partnering Workshop” indicate that Wells Fargo/Acordia was in the process of
“consolidating its business with carriers, preferring to place the majority of its business with a small number of carriers.”
181. In early March 1998, Chubb noted internally that Wells Fargo/Acordia had hired
Charlie Ruoff “to drive their initiative of consolidating their middle to [small] business markets.”
Ruoff’s prior work experience included serving as the President of AIG’s Commercial Accounts
Division.
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182. On January 6, 1999, David Cover, a Fireman’s Fund Executive Production
Underwriter wrote to Acordia’s ______stating “you had indicated that your agency has basically ______that you will be doing business with in 1999.”
183. As the Attorneys General of New York, Connecticut and Illinois noted in the
“Assurance of Discontinuance” entered in the Matter of St. Paul Travelers Companies, Wells
Fargo/Acordia’s implementation of the conspiracy continued in mid-1999, when Wells
Fargo/Acordia implemented a “Millennium Partnership Program” in order to “leverage our major market [insurer] relationships in conjunction with our strategic initiative to electronically link ourselves to markets [insurers].” Wells Fargo/Acordia expected this program to generate millions of dollars from “Preferred Market Partners” – i.e., its Insurer co-conspirators – over a three year period. The program was designed to consolidate insurance business with a very small number of conspiring Insurers by giving them “the inside track for future business development.”
184. On March 15, 1999, Acordia’s Chief Marketing Officer, Ruoff, wrote an email titled “Millennium Agency System Partnership” to Acordia’s Chief Executive Officer Robert
Nevins and stated that “[s]ince these markets ______have agreed to a _____ override on GWP over the next three (3) years, they need to be given priority in our marketing plans . . . you need to tell the Regional CEO’s about what happens to
AMS costs in their region of they don’t cooperate with the plan . . . they all need to help and can’t let ‘the other regions do it’! This note has been sent to the 4 regional CEO’s.”
185. On or about May 21, 1999, David Hovey, Jr., Hartford’s Director of Broker
Strategy & Management, wrote to Ruoff to discuss Wells Fargo/Acordia’s “Millennium Agency
System Partnership” and Hartford becoming a “key strategic partner” of Wells Fargo/Acordia.
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Hovey further indicated that Hartford was “anxious to aggressively move forward with this
Small Business Consolidation Initiative.”
186. On or about June 3, 1999, Ruoff wrote back to Hartford’s Hovey and stated that
they needed to “balance” their negotiations “to the understandings with other markets,” meaning
their Millennium carrier partners. Ruoff further stated that “[i]t is very important to us that we
treat all of our Millennium market partners fairly” and that “[b]usiness initiatives have begun with other partners.”
187. Insurer members of the conspiracy understood that they were required to pay significant amounts of contingent commissions to Wells Fargo/Acordia in order to continue to receive their premium allocations. Travelers, for example, advanced Wells Fargo/Acordia
______in early 2000, ______in 2001, and ______in 2002, giving Wells Fargo/Acordia a strong incentive to steer business to Travelers so that it could avoid repaying these advances, i.e., to “‘incent the proper national and local commitment to the program.” Wells Fargo/Acordia responded by making certain that Travelers business with Wells Fargo/Acordia increased.
Travelers was pleased with the results of the Millennium agreement and renewed it in 2003 under terms similar to the original deal.
188. On or about August 10, 1999, Ruoff and other Acordia executives met with
Hartford executives in Hartford, Connecticut for an “Acordia/Hartford Sales Partnership
Meeting.” Handwritten notes from Hartford indicate that Acordia had “Bus[iness] placed in mkts [markets] that aren’t our future,” a plan to “consol[idate] (3) mkts [markets]?,” and that
Acordia was pursuing a “long term partnership” with “a few carriers.” Most notably, the notes indicate that “Travelers will be a mkt [market]” and that “other carriers not in direct competition.” As explained below, Wells Fargo/Acordia, Hartford and Travelers had an express,
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detailed anticompetitive agreement to limit and regulate competition 1) between the two carriers, and 2) between the two carriers as a group and non- conspiring Insurers, with respect to the bulk of Wells Fargo/Acordia’s small commercial customers.
189. On September 30, 1999, Wells Fargo/Acordia’s Ruoff wrote to Dave Hovey of
Hartford, and stated: “Last week Acordia had its Annual General Management Meeting in
Denver, which included senior management and regional/office management of the company. I had the opportunity to present a detailed description of the markets, which responded to our partnership plan. The strong support of senior management to the priority position of our
Millennium markets was endorsed by the regional and office colleagues in attendance . . . Our regional marketing directors will serve as the field leadership for growth initiatives that we have discussed.”
190. Wells Fargo/Acordia shared its consolidation plan with its other conspiring Insurers as well, including Travelers. On October 8, 1999, Patrick Kinney, Travelers’ V.P. of Sales and
Marketing, wrote to Wells Fargo/Acordia’s Ruoff to confirm that he understood that “[b]y the middle of October, each Acordia agency location will provide Acordia, Inc. a business plan outlining their strategy to achieve growth with the Millennium Partners.”
191. As various Wells Fargo/Acordia personnel reported in October 2001, Wells
Fargo/Acordia continued its major consolidation of business with a select few carriers. These reports evidence not only this massive consolidation scheme in process, but also an explicit recognition of its anticompetitive effects, because Wells Fargo/Acordia was moving its customers’ business to the Millennium Partners even if those conspiring Insurers did not offer competitive products:
• We’re probably about 30-40% into our book roll [in the Columbus, Ohio office] since we’re finding it hard to convert multi-year policies with other
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carriers to either Travelers or Hartford. They are just not competitive. However, as these policies fully expire, they will be moved.
• The other factor that will effect both Travelers and Hartford is that we’ve consolidated the Community Accounts [small business accounts] into 5 markets over the past 2 years . . . Here are my questions . . . How far along are you in the consolidation (book roll) process? . . .
• Michigan is almost done with consolidation of carriers in small business.
• [T]he [Minnesota] business is scattered between several carriers and they need to consolidate it . . . sounds like this is an opportunity for Travelers, Hartford and Acordia.
192. With respect to St. Paul, Dan Monson of Wells Fargo Insurance, Inc. wrote to
Acordia Inc.’s Property/Casualty Marketing Committee on or about October 10, 2001 about his meeting the prior day with Jim Abraham, VP of Large Accounts Property for St. Paul. Monson stated that St. Paul was “open for business and would like to be a go-to market for Acordia.”
Monson further noted to Ruoff on or about October 22, 2001 that “[t]he St. Paul folks would like to meet and present their ideas for incentives and our results to date. They think they would like to become a Millennium Partner.”
193. On December 19, 2001 Ruoff wrote to Tom Motamend, the Chief Operating
Officer of the Chubb Group of Insurance Companies, as follows:
[I]n the three years of our Millennium Partnership we have seen excellent growth and business mix that has been mutually beneficial. Our field relationships are at the best level in years and local business planning appears very productive. There is no doubt that the high profile given to our Millennium Partners is now an integral part of our local, regional and national marketing strategies.
194. On or about March 19, 2002, Ruoff wrote to Doug Stewart, a CNA Vice President that “I am anxious to put something in place to replace the National Preferred Market agreement we had for 2000 and 2001 business” and that “[w]e have an effort underway with interested
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markets in small commercial (i.e., Community Accounts) and have prepared a separate
agreement (copy attached) for this business.”
195. In July 2003, Hartford also contacted Wells Fargo/Acordia with respect to
consolidation efforts occurring in Wells Fargo/Acordia’s Seattle, Portland, and Salt Lake City
offices. Specifically, Hartford executive Bruce Anderson sought reassurances from Wells
Fargo/Acordia executives that Wells Fargo/Acordia had not intended to include “any specific
target non-strategic companies for consolidation in those offices.”
196. In August 2003, Wells Fargo/Acordia and Hartford’s executives exchanged a
document titled “‘Share Shift’ Opportunity,” which noted that Wells Fargo/Acordia “desires to
execute a ______
______.”
197. At the October 2003 Greenbrier conference, Wells Fargo/Acordia stated that it
separately met with seven companies, including Hartford, St. Paul, Travelers, Chubb, AIG, and
CNA. Wells Fargo/Acordia noted that in each meeting, the insurers made clear that “[t]hey view us as a growth engine for them as we continue to acquire and as we consolidate markets.”
198. Hartford reported that “Acordia has made a decision that ______will be moved with ‘implied consent’ to partner carrier[s] with customer centers. We will work
with Tom Hite [of Acordia] to facilitate the movement of business to The Hartford.”
199. By the fall of 2003, Wells Fargo/Acordia’s clout with its conspiring carriers had
grown to such an extent that “several of the Carriers provided financial resources and incentives
for the [establishment of] RFG,” Acordia’s Risk Finance Group. For example, as Hartford noted
in an internal communication at that time, “Acordia solicited ______
______.”
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200. The Wells Fargo/Acordia Broker-Centered Conspiracy continued later into 2003
and beyond.4 On November 5, 2003, Thomas Hite wrote to Marilyn Norman of St. Paul concerning “Consolidation of Markets” and stated that “one of our 04 objectives is to consolidate business especially with those markets with whom we have a national or enterprise incentives.”
In early 2004, Hite gave the same message to several of Acordia’s other “Partner Markets,” such as Hartford and Travelers.
201. Moreover, in 2004, Hite wrote to Wells Fargo/Acordia’s top national and regional executives as follows:
As you are aware, we have been able to execute several National agreements with five carrier partners. These, for the most part, are also carriers for which you have local agreements. We believe, as a firm, that it is important to grow faster with ______in general, thus having our partner markets build larger shares of our business.
To that end, we are introducing specific performance goals for each Region that we can track throughout the year and measure ourselves against. We would expect that we should ______. Moreover, we are looking at this measure in the aggregate rather than partner by partner . . .
Your goal for 04 in the aggregate is [redacted]. That represents ____ growth which is twice the ____ we are forecasting as a company.
(3) The Conspiring Insurers Agreed that, in Return for their Contingent Commission Payments, Wells Fargo/Acordia Would Guarantee Access to Competition-Free Premium Volume, and They Agreed to Refrain from Competing for Each Other’s Customers
202. Wells Fargo/Acordia and the conspiring Insurers’ efforts, made with the full knowledge and agreement of all participants, included engaging in initiatives to ______
4 On May 19, 2005, the State of West Virginia filed suit against Acordia, Inc. alleging a conspiracy among Acordia and various favored insurers to, among other things, protect the favored insurers from competition, allocate customers and markets and restrain competition among insurers. On December 19, 2006, subsequent to the filing of the Supplemental Statement of Particularity in this case, the States of New York, Illinois, and Connecticut filed suit against Acordia, Inc., and New York also sued Wells Fargo Bank N.A.
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______and to accomplish “book rolls” – mass transfers of business based on their contingent commission deals. As shown above, these massive transfers occurred even in situations where
Wells Fargo/Acordia acknowledged that the recipient carriers “are just not competitive.” Further documents detail Wells Fargo/Acordia’s arrangements with Hartford and Travelers whereby those two conspiring Insurers agreed horizontally to work with Wells Fargo/Acordia to prevent
“extensive quoting between both of us” and to facilitate the “split of accounts or books” between them.
203. Wells Fargo/Acordia’s scheme insulated Hartford and Travelers from virtually all outside competition for its new small business customers and for all small business customers currently with other non-conspiring carriers. A September 29, 1999 internal Hartford email noted that “Acordia [wa]s anxious to proceed” with the Millennium Partnership arrangement, pursuant to which Hartford noted that it “will vie for all business under $2000 per account in commission revenue” with primarily only one other Insurer – Travelers: “Our primary competitor will be the Travelers for this business. FIRST COME FIRST SERVE would be an appropriate description here.” The Hartford further noted that “[e]ach Acordia office will be allowed one wild card company [in addition to Hartford and Travelers], primarily for business over $2000 in income.” Hartford further noted that “[t]his initiative is being ‘mandated’ by senior management of Acordia” and that “[a]ll Acordia heads of office should be very much aware of this direction.”
204. On or about October 1, 1999, Hartford’s David Hovey co-wrote a telling memorandum titled “Wells Fargo/Acordia Small Commercial Consolidation” sent to Hartford’s
Regional Vice Presidents. The memorandum stated the following:
We are pleased to announce that The Hartford has been selected as one of the carriers to handle Small Commercial Accounts throughout the countrywide Wells
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Fargo/Acordia network. ...Wells Fargo/Acordia management is focused on increased revenues at the top end and lowering expenses on the bottom line in support of their ultimate objective of substantially improve [sic] margins per employee. Highlights of our Consolidation Initiative are as follows:
•The Hartford and Travelers will be the primary carriers for all accounts with commission revenues up to $1 - $2,000 (This approximately equates to premiums of up to $15K). ...
. . .
•Wells Fargo/Acordia senior management is mandating this strategy and it was rolled-out to their organization during a Countrywide Managers Meeting in Denver last week. Their agency presidents are responsible for executing the initiatives in each local jurisdiction. Their National Marketing Committee will also be utilized to surface opportunities and issues as we proceed with implementation. (italics added; underlining in original).
205. The memorandum from Hartford’s Hovey explicitly detailed Hartford’s role,
Travelers’ role, and Wells Fargo/Acordia’s role in this small business customer allocation scheme as follows:
•“Important” to get there first! Given that we will be competing with Travelers for this business, our ability to quickly meet and initiate consolidation activities at a local level will be critical. Acordia has indicated that they do not anticipate extensive quoting between both of us.
Parameters [c]oncerning the split of accounts or books should be determined during your initial meetings.
206. Further, Wells Fargo/Acordia and its Insurer co-conspirators agreed not to expose the vast majority – at least ____ – of those protected accounts to outside competition. For example, in 2001, Wells Fargo/Acordia Northeast entered into a blatantly anticompetitive “Elite
Agreement” with Travelers in which, among other things, the parties “agree[d] that no more than ____ of Travelers renewals will be marketed unless at the sole direction of the client.”
207. Numerous additional documents make clear that Wells Fargo/Acordia steered, shifted, rolled or otherwise moved business to its co-conspirator Insurers with no or minimal
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competition. On or about April 25, 2001 Ruoff wrote to Wells Fargo/Acordia’s Property and
Casualty Executive Marketing Group about a meeting with Travelers regarding the Travelers
Select Agreement for 2001 and a review of their 2000 results together. Ruoff noted that
“we…look forward to implementing plans to sweep more business into Travelers and particularly their Service Center operations.”
208. In 2003, Scott Isaacson, Wells Fargo/Acordia’s Chief Marketing Officer, wrote a memo titled “Consolidation of Kemper Accounts” to the heads of all of Wells Fargo/Acordia’s local and regional offices, on which he copied Kevin Conboy, Wells Fargo/Acordia’s CEO. The memo stated in pertinent part the following:
Travelers Select Accounts is willing to help us consolidate the business we have with Kemper as quickly as possible.
. . .
In order to help facilitate the transfer, the Travelers Select Team has offered to take a “SWAT team” approach. Travelers will come to your office and help you review your entire Kemper book of business. . . .
You may also want to take this as an opportunity to review business you have with other carriers. If you have any business with other carriers you would like Travelers to consider, now is the time to do it! Your local Travelers Select contact is eager to help you consolidate your small business.
This deal is in addition to the National Compensation Agreement we have with Travelers and on local agreements you may have in place.
No other agencies are being offered these incentives at the premium levels we are being offered. I recommend you start this process as soon as possible given the current circumstances surrounding Kemper.
209. In mid-2003, Wells Fargo/Acordia negotiated a national incentive deal with St.
Paul. As Wells Fargo/Acordia’s executives noted, “St. Paul will agree to a National incentive and will pay us the greater of the aggregation of the individual deals we now have or a National incentive. The quid pro quo is that we roll the Kemper book. The down side is that we would
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loose [sic] the Travelers deal.” On or about December 1, 2003, St. Paul and Travelers announced a merger, rendering moot any internal Wells Fargo/Acordia concerns about how to carve up a share of the Kemper book between two of Wells Fargo/Acordia’s co-conspirators.
Wells Fargo/Acordia later confirmed internally that “the national deal is contingent on our moving Kemper business to St. Paul” and that “[t]he actual wording is ‘Wells Fargo/Acordia agrees to influence its Agents to assist the Company in moving Kemper policies to the
Company.’”
210. Wells Fargo/Acordia also worked with Hartford in an effort to give Hartford its piece of the Kemper book roll. The “Share Shift” materials exchanged between Wells
Fargo/Acordia and Hartford further noted that the parties would work together to ______
______. The parties further noted that they would ______
______.
211. Wells Fargo/Acordia’s coconspirator Insurers expected and received numerous competitive advantages from Wells Fargo/Acordia that served to protect them from competition.
First, Wells Fargo/Acordia ensured its conspiring Insurers that they would obtain business even when those Insurers’ pricing was not competitive. For example, with respect to The Hartford,
Acordia’s Pittsburg office noted the following to Acordia’s top executives: “The [Pittsburg] office has been a big supporter of the Hartford over the past several years including being the only legitimate VIP in western Pa since 1993. We supported their efforts to grow key accounts
(and other areas) when their pricing was greater than market, … and we supported their position on increased pricing during late 1998 and early 1999 (way earlier that [sic] our other markets) when the market was still extremely soft.”
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212. In January of 2000, Hartford Senior Vice President David Becker noted feedback from Wells Fargo/Acordia at an Acordia Partnership meeting that the Wells Fargo/Acordia would participate in “selling higher increases then [sic] needed” as follows: there is a clear recognition and acknowledgement that they can get more money on renewals, significantly more on some accounts, which could create flexibility for some renewals. ______
______.
213. Second, Wells Fargo/Acordia gave those of its Millennium Partners that were exposed to outside competition at all both a first and last opportunity to secure certain pieces of business. On February 22, 2001, for example, Chubb noted that “[w]e are a preferred market at
Wells Fargo/Acordia NY and we get first shot (and last look) at their business.”
214. Third, Wells Fargo/Acordia and its conspiring Insurers worked together to “sweep” business into Insurer-operated “service centers,” which Wells Fargo/Acordia and its carrier partners knew featured high persistency/renewal rates. Hartford wrote to various Wells
Fargo/Acordia personnel regarding Hartford’s Select Customer Insurance Center (“SCIC”) that
“The SCIC handles policyholder renewals (with a renewal retention rate of ___).” Hartford also noted that ______of customer policies in the SCIC, meaning that Wells
Fargo/Acordia would be guarantied to receive commissions on all those near-automatic renewals.
215. With respect to Travelers, Donna Maddox, Acordia of West Virginia’s VP of
Marketing, wrote to her staff telling them to expect an e-mail from Charles Ruoff “regarding
Travelers service centers and the next sweep to get business into the centers…. I am working with all our profit centers to get more of the eligible business into the centers.” On April 25,
2001, Ruoff wrote to Wells Fargo/Acordia’s Property and Casualty Executive Marketing Group
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concerning the Travelers Selection Agreement for 2001 and state that Acordia “look[s] forward to implementing plans to sweep more business into Travelers and particularly their Service
Center Operations.”
c) Communications among the Participants in the Wells Fargo/Acordia Broker-Centered Conspiracy, Facilitated by Wells Fargo/Acordia, Furthered the Conspiracy
216. The Insurer participants in the Wells Fargo/Acordia Broker-Centered conspiracy exchanged numerous communications, either directly among themselves or through Wells
Fargo/Acordia personnel, by which they monitored each others’ participation in, benefits of, and compliance with the conspiracy. On or about August 9, 1999, Wells Fargo/Acordia’s Ruoff wrote to Sylvester Green, Chubb’s Executive Vice President and Managing Director for U.S.
Field Operations, with the subject heading “Millennium Partnership” and stated that “Frank
Witthun [Acordia, Inc’s President] has asked me for status report on financial support. I have checks from Hartford and Atlantic Mutual (see attached) so would like to tell him we have receipt of check from Chubb as soon as possible.” Ruoff included a letter from Atlantic Mutual discussing Atlantic Mutual’s “formula for this payment” and “[t]he actual figures that this payment was based upon.”
217. On August 11, 1999, Ruoff sent a detailed memorandum titled “Millennium
Agency System Partnership” to Wells Fargo/Acordia’s “National P/C [Property/Casualty]
Marketing Committee,” and blind copied Chubb’s Sylvester Green. This memorandum specifically identified Wells Fargo/Acordia’s Insurer co-conspirators, and Wells Fargo/Acordia circulated this memorandum to the Insurers to make certain that each understood its role, Wells
Fargo/Acordia’s role, the role of the other conspiring Insurers, and agreed to the same. The memo stated, among other things, the following:
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Since March 1999, we have been in conversation with a number of our national insurance company markets for financial assistance with our new AMS Sagitta system project. . . . The markets we initially approached all readily agreed to what we called the Millennium Partnership.
. . .
These markets have offered supplement incentives to the Millennium override focused on specific program initiatives we have released to you or are continuing to develop . . .
. . . the preference must at this time be given to our ‘priority’ group. This means that we expect to see our overall business grow with these ‘priority’ companies especially through specific initiatives.
. . .
At this time we are concentrating on the plans and initiatives put forward by our ‘priority’ markets to the exclusivity of all other markets.”
218. Ruoff sent this same internal Wells Fargo/Acordia memorandum to Hartford, with the exception that it bore a blind copy notation for Hartford executives Dave Hovey, the Director of Broker Strategy and Management, and Rich Quagliaroli. The copy that Wells Fargo/Acordia sent to Hartford thus apprised Hartford of the identity of its co-conspirators – including Chubb and Travelers.
219. Ruoff sent additional copies of this memorandum to Travelers, St. Paul, CNA, and
Fireman’s Fund.
220. Wells Fargo/Acordia arranged to meet and otherwise communicate with its conspiring Insurers under the guise of a purported project to launch a technological “quoting system” platform for use by its Millennium Partners. Though the “project” – called the “AMS” or “AMS Sagitta system” project – never came to fruition, the conspiratorial communications that began under its cover continued. The AMS Project’s purported aim was discussed in an
Chubb October 26, 1999 email titled “Acordia Millennium Partnership:
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As you may already know, Chubb is one of 5 preferred carriers providing financial support to the Acordia organization for the installation of their new AMS Sagitta system project . . . . This support, known within Acordia as the Millennium Partnership, is above and beyond local point programs and/or regional Acordia deals, and should provide Chubb profitable growth opportunities on a preferential basis in the field. . . . Indications from several Chubb branches confirm that this, i[n] fact, is happening.
221. The real purpose of the AMS Project, however, was to serve as a cover for conspiratorial communications, as revealed in two memos from Wells Fargo/Acordia’s Charles
Ruoff. In a memo dated May 11, 1999, Ruoff stated that CNA “suggest[s] one technical interface meeting with all participating carriers.” A follow-up memo, dated May 21, 1999 from
Ruoff and titled “Millennium Agency System Project” stated that, with respect to CNA, “don’t think technology is the issues here but they volunteered to set up a ‘strawman’ scenario for multiple market [i.e., Insurer-to-Insurer] discussions.”
222. A Wells Fargo/Acordia chart dated July 28, 1999 reiterated that Chubb “[w]ant[s] to create a working group with other markets and AMS/Acordia,” and that CNA wanted to
“[c]reate ‘strawman’ group tech meeting?”
223. The Insurer co-conspirators also used a Wells Fargo/Acordia intranet site to exchange competitive information. A Chubb memorandum detailed a December 18, 2001 meeting with Wells Fargo/Acordia executives Ruoff and Frank Witthun, and with respect to
Acordia’s intranet, noted that “[Acordia’s] Millennium partners have access to this site
[Acordia’s intranet] to download information on appetite, capabilities, etc.”
224. The co-conspirators exchanged competitive information in other ways as well. On or about March 8, 2002, Chubb executive James Hyatt noted internally regarding Millennium
Partnership overrides that “other partner markets are stepping in with overrides.” In 2002, Wells
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Fargo/Acordia also discussed a conference call with Chubb “to go over some of the profit
sharing addendums we’re seeing” from other Insurers.
225. In the 2003 “Share Shift” materials, Wells Fargo/Acordia and Hartford further
explicitly exchanged financial information with respect to numerous other Defendants. Wells
Fargo/Acordia indicated 2002 written premium placed with various Insurer Defendants by
ranking and written premium including as follows: 1) AIG - ______; 2) CNA- ____
______; 3) Travelers - ______; 4) Zurich -- ______; 5) Hartford - ______; and 6)
Fireman’s Fund - ______. For its part, Hartford advised Wells Fargo/Acordia of its ranking
of numerous broker defendants according to business placed as follows: ______
______. A subsequent draft noted that Chubb was in fact Wells Fargo/Acordia’s number
2 carrier.
d) The Conspiring Insurers Understood their Role in the Conspiracy and Were Disciplined by Wells Fargo/Acordia if They Refused To Go Along
226. There is no doubt that Wells Fargo/Acordia and its conspiring Insurers agreed and understood that they would be subject to discipline in the form of losing business if they did not cooperate in the conspiracy. On September 7, 1999, Charles Ruoff wrote a memorandum to each of Wells Fargo/Acordia’s four Regional Managing Directors stating that “We are therefore not inclined to support any business growth with [insurers that did not sign national Millennium agreements] at the determent [sic] to our Priority Millennium Partners noted above. Please be guided accordingly in the future business plans within your region . . . Please caution your colleagues . . they need to know that significant revenues and strategic partnerships are at stake.”
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227. In addition, Ruoff wrote in 1998 that “it should be noted that CNA and Fireman’s
Fund have declined to support our financial plan without profitability stipulations. We are therefore not inclined to support any business growth with them at the determent [sic] to our
Priority Millennium Partners noted above. Please be guided accordingly in the future business plans within your region.” After this message was communicated to CNA and Fireman’s Fund,
CNA became a Millennium Partner, and Fireman’s Fund became a “Key Partner” of Wells
Fargo/Acordia.
228. On September 30, 1999, Ruoff wrote to Dave Mathis, Chairman of the Kemper
Insurance Group, attempting to entice Kemper into a Millennium Partnership. Ruoff wrote that
“[w]e would still like to find an appropriate position for your company but need to keep it within the context of those markets that have stepped forward to our initial invitation. Please let me know if we can find a solution before our marketing plans for the next 18 months exclude you from growth potential.”
229. In an email dated March 18, 2002, Ruoff noted the following conversation with
Crum & Forster: “I declined the National Incentive….I told C&F they would be better off creating improved incentive terms and service locally, otherwise I saw business declining.”
e) The Co-Conspirators Benefited From the Operation of the Conspiracy
230. Wells Fargo/Acordia and its co-conspirators enjoyed substantial profits and other compensation as a result of their anticompetitive conspiracy. The Millennium project generated nearly ______in added revenue for Wells Fargo/Acordia, nearly ______of which was from
Travelers, in the first year and a half “with little, if any, associated expense.”
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231. A September 5, 2000 Chubb memorandum stated that Charles Ruoff, then Wells
Fargo/Acordia’s Chief Marketing Officer, “explained that in the small business arena … Acordia realizes roughly ______in commission income, including ‘kickers,’ from this line.”
232. On or about January 2, 2002, Chubb executives Jim Hyatt and Tom Motamed met with Ruoff and Wells Fargo/Acordia’s CEO Frank Witthun, who “stated that all of the
Millennium Partner Markets grew exceptionally well over the last three years and outperformed their other markets.”
233. For a March 15, 2000 Chubb-Wells Fargo/Acordia meeting, Chubb prepared materials detailing commissions that it paid to Wells Fargo/Acordia in 1998 and 1999 as follows:
1998 -- ______in “regular” commissions; and ______in contingent commissions for
“branch contracts and deals”; 1999 -- ______in regular commissions; ______in contingent commission for branch contracts; and ______for contingent commissions from the Millennium Partnership, for a total that year of ______in contingent commissions. For its part, Wells Fargo/Acordia delivered to Chubb ______in written premium in 1998 and
______in written premium for 1999.
234. The substantial and mutually beneficial nature of the conspiracy continued as the
2000 year-end numbers for Wells Fargo/Acordia reflect:
● Wells Fargo/Acordia placed ______in commercial premium with Chubb, and received ______in direct commissions, ______in local contingent commissions, ______in “special” commissions, and ______in Millennium national overrides.
● Wells Fargo/Acordia delivered ______in premium to CNA, and received ______in direct commissions, ______in local contingent commissions, and ______in Millennium national overrides.
● Wells Fargo/Acordia placed ______in commercial premium with Hartford and received ______in direct commissions, ______in local contingent commissions, ______in “special” commissions, and ______in Millennium national overrides.
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● Wells Fargo/Acordia delivered ______in premium to St. Paul in exchange for ______in direct commissions, and ______in local contingent commissions.
● Wells Fargo/Acordia placed ______in written commercial premium with Travelers and received ______in local contingent commissions, ______in “special” commissions, ______in Millennium national overrides, and ______in national growth overrides.
235. On or about June 5, 2001, Chubb executive Terry Cavanaugh wrote to all Chubb’s
U.S. Zone Officers, U.S. Marketing “Zonals,” SBU Heads, and SBU Marketing Managers with an “Wells Fargo/Acordia Update.” Cavanaugh described a recent meeting with Wells
Fargo/Acordia’s Ruoff in New York City and explained that “[o]ur results through March indicated a ___ growth rate.....This is on the heels of two very good years in 1999 and 2000,” in
which Chubb enjoyed a premium “rate increase of _____ on the entire book of business.”
Cavanaugh further wrote that “[a]ll Millennium partners are doing well with the exception of
[non-Defendant] Royal Sun Alliance.”
236. In 2002, Wells Fargo/Acordia’s efforts in limiting competition for the benefit of its
co-conspirator Insurers continued to pay off handsomely for Wells Fargo/Acordia at all levels.
That year Wells Fargo/Acordia reported that it “earned almost ______in Contingency
Compensation from Travelers Commercial Lines (Select, Commercial Accounts, and
Construction)” and that “[t]his was in addition to more than ______we received in
commission payments from the same business groups.” By way of further example, Wells
Fargo/Acordia received a profit sharing allocation check from St. Paul for ______based on the
2002 production of just one Wells Fargo/Acordia region.
237. Wells Fargo/Acordia made certain that its Insurer co-conspirators continued to
benefit as well. For example, Wells Fargo/Acordia delivered the following premium in 2002 to
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its “priority markets: Chubb - ______; St. Paul - ______; Travelers - ______;
CNA - ______; and Hartford - ______.
238. Other documents indicate that Wells Fargo/Acordia’s delivery of commercial
premium to Hartford in 2002 alone reflected a ______increase over the prior year.
239. Wells Fargo/Acordia’s CEO Kevin Conboy wrote that 2003 was also a “banner
year” for Wells Fargo/Acordia, as it “added almost ______additional brokerage profit.”
Conboy further noted that “contingent income was ______over budget and ______higher than 02.” Wells Fargo/Acordia noted to its parent Wells Fargo & Co. the following about Wells
Fargo/Acordia’s robust financial performance in 2003: “Last year ended with another year of record-breaking revenues for Wells Fargo/Acordia, the fifth largest broker in the U.S. . . .
Brokerage revenues increased to ______in 2003, up ______from its 2002 performance.”
4) The Gallagher Broker-Centered Conspiracy
a) Participants in the Conspiracy
240. Throughout the relevant time period, and as described more fully below,
participants in the Gallagher Broker-Centered Conspiracy have included Insurer Defendants
Chubb, The Hartford, St. Paul/Travelers, AIG, CNA, Fireman’s Fund, and Crum & Forester.
b) Operation of the Conspiracy
(1) Overview.
(2) The Participants in the Gallagher Broker-Centered Conspiracy Agreed that the Bulk of Gallagher’s Business would be Allocated to Gallagher’s Conspiring Insurers in Exchange for Contingent Commission Payments.
241. Gallagher’s effort to consolidate its business with its partners in the conspiracy began at least as early as September of 1996, when Gallagher Area President, Denis Duran summed up the process with the following statement:
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[W]e began the process of market consolidation earlier this year and you will see a significant reduction in the number of markets used . . . . We undertook this process because we were not leveraging our relationships with carriers to maximize our commission and contingent income. . . . We have already begun the process of moving business to these preferred markets and intermediaries. Our preferred markets will be:
TIER 1 TIER 2 1- AIG 1- CNA/Continental 2- Chubb 2- Atlantic Mutual 3- Fireman’s Fund 3- Zurich 4- Kemper 4- Royal 5- Hartford
242. In August 1997, Gallagher was continuing its consolidation plan and recognized its goal to increase its commission revenue. Denis Duran summarized the status of Gallagher’s consolidation efforts as follows:
We began our Market Consolidation Project approximately eighteen months ago. Our goal was to maximize commission income, achieve leverage in the market place and control the relationship with the underwriter.
Once we had determined our preferred and second line carriers [which included Chubb Fireman’s Fund, AIG and Hartford], we approached each of these markets and asked for a commission over-ride and/or incentive agreement. We told all people controlling placement business . . . that every effort must be made to place business with our preferred carriers. This is reinforced monthly at our Market Strategy Meetings and at the monthly Unit Managers Meetings. The details of all incentive over-rides were shared with the Unit Managers and marketing reps to show them what placement with this business could mean to the Branch.
243. During 1996 and 1997, Gallagher successfully moved placements of insurance to its conspiring Insurers and reduced the volume of business placed with other insurers. The shift of business away from non- conspiring Insurers to conspiring Insurers was achieved by reinforcing the need to place business with these conspiring Insurers at, among other things,
Gallagher monthly Market Strategy Meetings, during which all renewals were discussed and business was targeted to be moved to Gallagher’s conspiring Insurers.
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244. In December 1998, Gallagher took steps to ensure that all branch offices focused
on placing business only with its conspiring Insurers. At that time, Gallagher’s senior
management directed its branch managers to create a “market consolidation plan” by which each
office was directed to specify how it intended to grow its business with specific partner markets
and to determine whether the business of any other carriers should be shifted to the conspiring
Insurers.
245. In another email, the same Vice-President again expressed his desire “to see as
much small business consolidated into the service centers of ______and
maybe a third company . . . . ____ stands to earn more from this book if we do it in the manner in
which I described.”
(3) The Conspiring Insurers Agreed to Refrain from Competing for Each Other’s Customers and Expected Gallagher to Protect Their Renewal Business from Competition
246. Gallagher also agreed with its conspiring Insurers, and those Insurers agreed
horizontally among themselves, to restrict competition by giving the partners preferential
treatment in insurance placements through “first look”, “rights of first refusal” and “last look”
agreements. By virtue of these agreements, the Insurer co-conspirators market partners were
able to review the other bids of other carriers and bid to retain and/or capture the business. This reinforced and further rewarded the conspiring Insurers by reducing competition and thereby preventing clients from obtaining prices that would have prevailed if insurers bidding for a clients’ placement had no knowledge as to competitors’ bids.
247. For instance, in June 1997, Gallagher advised all branch managers and management that the significant amount of contingent commissions it could earn from Chubb warranted giving Chubb a “first opportunity” for business. Specifically, he stated:
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If each of our 40 branches found $1,000,000 of existing premium from non- productive carriers and moved that to Chubb, that would generate $6,800,000 additional incentive on top of the 2% of the existing volume of $72,000,000, or $1,440,000 for a total incentive of $8,240,000 versus last year’s $2,000,000. Is anyone confused as to why Chubb deserves a first opportunity for business…? The Gallagher/Chubb agreement demands your immediate support and attention.
248. Similarly, President of Gallagher’s Risk Placement Services, observed in
December 1997 that Chubb deserved a “last shot” before business could be shifted away from it.
249. When a Gallagher employee complained that the quote he obtained from non- partner ACE was disclosed to CNA, an executive responded that Gallagher has an “allegiance to all markets that support us (and pay 12.5% or more commission.”
250. Once an insurer qualified as a “Partner Market”, it was standard operating procedure to direct insurance placements to those Insurers and insulate them from competition.
For instance, at a December 1998 “Partner Market” meeting with Chubb, Gallagher explained to
Chubb that as a partner market: “Team Gallagher becomes locked in and competitors become locked out.”
251. In November 2003, in order to ensure the receipt of extra consideration from AIG,
Gallagher placed a client’s insurance with AIG at a premium of ______when a competitor of
AIG would have only charged that client a premium of ______on the coverage. Gallagher informed AIG that it protected AIG from competition in placing this insurance, and had also increased the volume of insurance place with AIG by over ______from the prior year.
252. Gallagher provided a “preferred position” to its conspiring Insurers in the quoting of business. Gallagher told the Hartford “that unless there is a clear cut advantage to placing a piece of business with a non-preferred carrier, the client recommendation should be a preferred carrier.”
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(4) The Participants Agreed that in Return for their Contingent Commission Payments, They Would be Guaranteed Access to a Minimum Amount of Premium Volume, and That There Would be Minimal or No Competition for That Business.
253. As part of Gallagher’s plan to increase and maximize contingent commission profits under the conspiracy, Gallagher’s corporate officers instructed Gallagher’s employees to place business with Gallagher’s conspiring Insurers. In 2001, Gallagher senior management emphasized to each of Gallagher’s divisions that Gallagher had “special bonus agreements in place with markets like ______and “so that additional revenues can be earned…[p]lease do whatever you can in your respective divisions to support our
‘partner’ markets and any bonus plans.”
254. Near the end of 2003, Gallagher management directed regional and branch
managers to steer business to partner markets. They were also advised that, because year-end
was approaching, it was their last chance to pump premium volume into partner markets for 2003
contingent income calculation in order to take advantage of the agreements with the most
lucrative financial incentives, including the commission agreements with conspiring Insurers
______.
255. In November 2002, Gallagher urged allocating additional business to Crum &
Forster because Gallagher was ______in premiums short of qualifying for a full incentive
commission for that Insurer. Accordingly, he directed Gallagher personnel to jointly address the renewal of all existing Crum & Forster business and to provide Crum & Forster with new opportunities as well.
256. Similarly, Gallagher also steered business to Hartford. In 1997, Gallagher received a ______check from Hartford for 1996 business, which Gallagher acknowledged was received as a result of pushing new business to Hartford. Gallagher management stated: “We
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have got to try and stabilize our book with Hartford, or better, grow it…We cannot afford to lose
that kind of revenue.”
257. Gallagher’s allocation of business to partner Hartford continued unabated. In
September 2003, Gallagher was still urging branch managers to move business to Hartford to
gain additional compensation. At this time, he emphasized that “[o]ur AJG Branches have
earned more than ______in bonus commission through only the second quarter as a result of
moving small commercial business to Hartford’s service center. Take advantage of this bonus
opportunity.” James Agnew, Vice President of the South Central Region, also exhorted the
branches under his direction, “If your branch represents Hartford, you should make every effort
to qualify for this additional compensation.”
(5) The Conspiring Insurers Understood their Role in the Conspiracy and were Disciplined by Gallagher if they Refused To Go Along.
258. When the Hartford believed it was not seeing enough business from a Gallagher office it complained to Gallagher’s Vice-President for Market Relations. The Hartford asked for help with an “office [that was] not interested in moving business.” The Vice-President then sent an internal email saying that they should talk about supporting the “moving of more of our small commercial accounts to Hartford’s Select Service Centers. This falls right with our increased
productivity strategy [because Gallagher would continue] to earn lucrative commissions.”
259. Similar efforts were made with regard to preferred market St. Paul. In July 1998,
Gallagher CEO J. Patrick Gallagher announced a new National Incentive Agreement with St.
Paul for that year and advised all Gallagher employees to “do all we can to crank up the
production into St. Paul.”
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260. Gallagher steered business to Chubb in April 1997 based upon new override
agreements with that partner. As stated by Denis Duran at the time, “[e]very effort should be
made to place business with these markets in order to maximize our commission income.”
261. In late 1997 Chubb complained to Gallagher after accounts more moved to
Allianz, a competitor. An internal Gallagher email addressing the incident said that its
employees must understand the importance of contingency income that came from its partner
markets, including Chubb but not Allianz, and reprimanded them to “make good business
decisions.”
262. Further, to assure that Gallagher would continue to steer placements to it, in 2003,
CNA paid an incentive payment to Gallagher pursuant to their national incentive agreements even though Gallagher failed to meet the thresholds for payment. As stated at the time by Gregg
Effner (AVP of Distribution for CNA), failing to pay would strain the parties’ relationships.
263. Fireman’s Fund understood the purposes of entering into agreements with
Gallagher. An internal Fireman’s Fund email states, “in return for Gallagher offices directing more business toward Fireman’s Fund, we propose to pay an incentive.” The email continued,
“It is essential that in return for the moneys paid out under this agreement we take aggressive steps to drive the type of business we want from Gallagher.”
264. Fireman’s Fund considered changes to its agreement with Gallagher in order to
“sweeten the pot.” Gallagher told Fireman’s Fund that their offices should place business with its two primary carriers- Chubb and Fireman’s Fund. The change that the Fireman’s Fund was considering would cause Gallagher to direct better business to it.
265. Fireman’s Fund agreed to advance ______to Gallagher the anticipated payment under the 1998 National Incentive Agreement. The advance was not required but was
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made as a “show of good faith.” Internal emails show that the purpose of this payment was to
guarantee growth that is more profitable. The email continued, “Fireman’s Fund is now high on
Gallagher’s Christmas card list!”
266. The following year, Gallagher asked for another advance payment from
Fireman’s Fund. The Fund declined because it was not receiving enough production from
Gallagher in the year-to-date results but asked for Gallagher’s help on growing profitability through the remainder of the year.
(6) Communications Among the Participants in the Gallagher Broker-Centered Conspiracy, Facilitated by Gallagher, Furthered the Conspiracy
267. In June 1997, Hartford had a meeting with Gallagher to discuss “the potential identification of markets for consolidation” in exchange for financial incentives, price and product guarantees, and additional service commitments. A key part of those discussions was the financial incentives that would best motivate Gallagher to drive business to Hartford.
268. Similarly, in December 1998, Gallagher held a “Partner Market” meeting with
Chubb at which Gallagher dictated its “Partner Market Requirements.” Those requirements included having a “mutual commitment to grow,” “mutual commitment to change the rules,”
“maximum commission,” and “top overrides/incentives.”
269. Gallagher made sure that the conspiring Insurers were aware of the quid-pro-quo for becoming and remaining a “Partner Market” and that in order to reap the benefits of more placements, they would have to provide Gallagher with substantial contingent commission income.
270. Gallagher shared the identity of its conspiring Insurers with other conspiring
Insurers, which served to diminish competition as each conspiring Insurers became aware that it would not have to compete with said carriers. For instance, Gallagher disclosed to Hartford the
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identity of three of its other conspiring Insurers in 2002 – Chubb, St. Paul, and CNA. Fireman’s
Fund was likewise aware of Gallagher’s agreements with Chubb and Hartford and was thus able to compare its agreements compared to the others.
(7) The Co-Conspirators Benefited From the Operation of the Conspiracy.
271. Gallagher’s anticompetitive agreements with its conspiring Insurers resulted in a huge growth in contingent commissions at the expense of its clients’ best interests. From 1997 to 1998, Gallagher received $3.7 million more in incentive commissions due to placing more business with its conspiring Insurers: Chubb, Hartford, Fireman’s Fund and CNA.
272. Gallagher’s participation in these contingent commission programs provided it with millions of dollars of income at the clients’ expense. From 2002 to 2004, Gallagher earned over ______in contingents from its conspiring Insurers. Of particular note, Gallagher earned over _____ from Hartford in 2002, ___ from Chubb in 2003, _____ from Hartford in
2003, over ______from Fireman’s Fund in 2003, and ______from Hartford in 2004.
273. Fireman’s Fund saw drastic increases in the amount of business it received from
Gallagher as a result of entering into the contingent commission agreements. It admitted, “The
National Incentive, and your hard work, evidently had the desired effect and enabled us to grow eligible business by ______In the two years prior to partnering with Gallagher, Fireman’s
Fund’s business received declined by ___ and ___.
5) The HRH Broker-Centered Conspiracy
a) Participants in the Conspiracy
274. Throughout the relevant time period, and as described more fully below, participants in the HRH Broker-Centered Conspiracy have included Insurer Defendants CNA,
Hartford and St. Paul Travelers.
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b) Operation of the Conspiracy
(1) Overview
275. HRH allocated its customer base to and among its conspiring Insurers in two steps.
First, HRH and each of its co-conspirators agreed, and the conspiring Insurers agreed
horizontally among themselves, that HRH would “consolidate” its business by directing a
significant portion of its business to Hartford, CNA and Travelers, thereby eliminating hundreds
of other insurers from competing equally with the three conspiring Insurers for virtually 100% of
its small business customers and at least 35% of HRH’s total commercial customers. Second,
HRH and each of its conspiring Insurers agreed, and the conspiring Insurers agreed horizontally,
that each of the three Insurers would be allocated specific business for which they would not
have to compete among themselves.
(2) The Participants Agreed that a Substantial Part of HRH’s Business Would be Allocated Among HRH’s Conspiring Insurers in Exchange for Contingent Commissions
276. In or about late December 1996, HRH determined that it needed a new strategic plan “as the industry [wa]s changing and the Company’s stock performance ha[d] been below par.” HRH’s “first priority” was to hire a strategic consultant with “strategic planning and . . . industry experience” that would provide a “broad, sophisticated view to the industry.” HRH selected the Mitchell Madison Group (“MMG”) to develop and deliver a strategic plan to HRH’s
Board of Directors by May 1997.
277. Based in part on MMG’s recommendations, HRH developed its concept of consolidating the number of carriers with whom it conducted business. At an August 5, 1997 meeting of the Board of Directors, HRH’s then-President and CEO Andrew Rogal (“Rogal”) advised that the Company was “focused on implementing its strategic plan,” through which it was anticipated the Company would “double its earnings in three to five years.”
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278. The first initiative to be implemented involved a very significant portion of HRH’s business: the small commercial accounts that HRH called “Select Commercial” accounts. An
“arrangement” was made to “de-market” those accounts from their current carriers and to allocate them instead to Hartford. In exchange for this business, Hartford agreed to pay HRH
“an upfront override, [and] guaranteed commissions and overrides.”
279. HRH’s Select Commercial initiative was eventually expanded to explore opportunities with additional Insurer Defendants seeking to trade volume for enhanced contingency commissions, bonuses and other incentives. By mid-1998, HRH formed a “Carrier
Consolidation Task Force” to undertake partnership negotiations with prospective carrier
“partners” in connection with virtually all of HRH’s various lines of property and casualty business. In particular, the “Carrier Consolidation Initiative,” covering all P&C initiatives, was to focus HRH’s “attempt to have a deeper relationship with a few carriers” rather than the hundreds of insurers with which HRH’s field offices had historically conducted business.
280. Members of HRH’s Carrier Consolidation Task force met with numerous
Defendant Insurers to discuss potential “partnerships” anchored by national override commission agreements, including Hartford, CNA, Travelers, St. Paul, Firemen’s Fund and AIG. Among the things deliberated with these prospective partner conspiring Insurers was:
[T]he concept of a consortium of carriers, selected by HRH, who might quota share the majority of the consolidated HRH book and receive the bulk of its new business. (Emphasis added.)
281. Notably, the ultimate number of carriers with whom HRH established a “deeper relationship” was shaped by Travelers. During its negotiations with HRH, Travelers was aware of the existence of other proposed carrier partners and expressed concern that HRH was considering consolidating its business with four Insurers rather than only three, which Travelers preferred.
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282. By mid-1998, HRH reached arrangements to consolidate volumes of many lines of its business with Hartford, Travelers and CNA in exchange for enhanced contingent commissions. Those arrangements were announced by Rogal in a July 1998 memorandum. The memorandum made, inter alia, the following points:
a. The arrangements represent “our best opportunity to … leverage our premium for enhanced revenue”;
b. “Any existing profit sharing, contingency, bonus or override agreements will be superceded by the new national contract[s]”;
c. “[A]t this stage, this information should be treated as confidential and proprietary in nature”; and
d. “In order to maximize our benefits under these arrangements, it is crucial that we approach the movement of business to these partners in an aggressive, orderly and disciplined manner, and in a fairly short time frame.”
283. At an August 4, 1998 Board meeting, Rogal advised the directors about the
“incentive arrangements” HRH had negotiated with Travelers, Hartford and CNA (which HRH came to call the “Big 3”). In terms of volume, by “moving existing books of business” placed with other non-conspiring insurers, “the Company hoped to grow its total business with these
Companies from $150,000,000 to $300,000,000, and could realize as much as $12,000,000 [in profit] from these arrangements in the coming 18 months.” To further these goals, HRH also began to explore opportunities “to ‘buy’ proven producers with books of business which could be rolled into CNA, Travelers and Hartford as new business.”
284. In September 1998, Hartford communicated a similar understanding of the conspiracy with HRH and the other two insurer co-conspirators to its Regional Vice Presidents:
We are pleased to announce that The Hartford has been selected as one of three National partner Carriers in conjunction with HRH Insurance’s new strategic direction for Commercial and Personal Lines business. The agreement culminates a series of negotiations and allows us to build on the
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Small Commercial Consolidation Program that has been executed over the past ten months.
In exchange for a significant premium commitment over the next several years, an enhanced Incentive Bonus Agreement has been developed to reward and capitalize on production opportunities throughout our segments. …
Focus on the movement of business to their trading partners will commence immediately. This business model was rolled out to their Agency Presidents at a countrywide meeting late last week. An Implementation Task Force consisting of four senior managers … has been formed to corporately manage this process.
…
Overall, this is an excellent opportunity to significantly enhance our relationships with a larger regional Broker that is dedicated to working with us to mutually grow the revenues for our respective firms. (Emphasis added.)
285. A September 1, 1998 Travelers memorandum noted that the HRH “deal” had expanded to include additional business lines, and it was equally unambiguous in setting forth the conspiratorial plan for HRH to allocate customers to Travelers, Hartford and CNA:
In a general sense, the deal calls for HRH to place approximately 35 percent of the national commercial property casualty business with Travelers, Hartford and CNA. Presently, the three carriers write a combined 17 percent of total HRH written premium countrywide. Doubling the penetration rate represents a planned movement of approximately $150 million of business to the three carriers. Each carrier partner was selected due to breadth of commercial product, current agency penetration, past partnership performance and a willingness to work with HRH to meet their business objectives.
HRH currently plans to work with each of their 38 area presidents to design a business migration plan that meets and exceeds the above stated objectives.
286. HRH’s movement of business to its three “strategic partners” was very successful.
In November 1998, a senior HRH executive wrote that the “first month of this initiative has been mostly very positive. We have moved a significant volume of business in a very short time…
[P]lease understand that we are going to make this happen in all HRH locations.”
287. In addition, such communication was sent to, and circulated within Travelers and, on information and belief, communicated to Hartford and CNA.
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288. HRH’s commitment to allocating competition-free customers to its Big 3 Insurer co-conspirators existed for a substantial period even without a formal written contingent commission agreement in place. For example, by letter dated November 16, 1998, HRH received a mid-term bonus payment from Hartford in the amount of ______. The payment was for bonuses earned by HRH through June 1998. By letter dated November 24, HRH responded, thanking Hartford for the “deposit” on its bonus for 1998 even though a written agreement was not yet drafted.
(3) The Conspiring Insurers Agreed to Refrain from Competing for Each Other’s Customers and Expected HRH to Protect Their Renewal Business from Competition
289. HRH continued to allocate customers to its Big 3 Insurer co-conspirators and took steps to ensure that the allocated customers would remain with the designated Insurer. In a
November 1998 memo addressed to all of HRH’s Agency Presidents, Jack McGrath (the head of
HRH’s Carrier Consolidation Task Force) instructed HRH’s nationwide field offices as follows:
We need to avoid situations where we move accounts from one of our three partners to another.
No select customer business currently written by C.N.A. or the Travelers is to be moved to the Hartford …
When offering up blocks of business, those blocks should not be sent to more than one of the three partners for review at a time. If after the chosen company declines a significant enough share of the accounts, then we can offer the same block to another of the partners.
290. A September 1, 1998 Travelers memorandum noted that:
HRH . . . [a]rea presidents will [be] held responsible by corporate to hit the business plan over an 18 month period. Those area presidents meeting or exceeding their approved business plan will receive an additional significant bonus payment. HRH corporate plans to work closely with each area president to ensure compliance with the program. Fail safe systems are being designed to monitor individual performance to the plan complete with action steps to correct any volume movement concerns.
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291. A September 1998 Hartford memorandum likewise made clear that HRH would
protect its “Big 3” Insurer co-conspirators from having to compete for business allocated to
them:
[W]e are positioned to be the lead market on Select Customer business. The agencies have been instructed to begin moving all accounts generating $1,000 of revenue and below to [us]. In various locations, this threshold may be increased to the $2,000 revenue level.…It has been communicated that the only exceptions to this rule are accounts generating between $500 - $1,000 of revenue that are currently placed with Travelers or CNA.
292. HRH’s disciplined approach to protecting its Insurer co-conspirators was even embodied in its internal procedural manuals. For example, the 1999 Select Commercial
Procedural Manual for HRH’s Northern California office made clear that the Big 3 were to be allocated select commercial business and that no customers placed with one of those Insurers could later be moved without the Agency President’s consent. It provided, in relevant part:
The Select Commercial unit will abide by corporate initiatives for placing business. Nationwide, HRH has contracted with “The Big Three,” Hartford, CNA and Travelers, for preferred rates and products. In addition, HRH of Northern California has special in-house underwriting with General Accident. These four companies represent our prime markets. No business is to be moved from these carriers without the express consent of the agency president.
293. As of year end 1999, Hartford reported ______premium retention rate with
HRH across all commercial lines of business placed.
(4) The Conspiring Insurers Agreed that in Return for Their Contingent Commission Payments, They Would be Granted Access to a Minimum Amount of Premium Volume
294. HRH executed contingent commission agreements with each of its Big 3 Insurer co- conspirators. In the first three years of the conspiracy, from 1998 through 2000, the contingent commission agreements were purely volume-driven in that override commissions were paid based on the overall book of business placed with the Big 3 Insurers. From 2001 through 2004, after HRH’s business had largely been consolidated, the contingent commission agreements
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began to include growth thresholds and paid increasingly large overrides depending on the level of business growth achieved over the prior year.
295. The first written contingent commission agreement was reached in December 1998, when HRH executed an override agreement with Travelers that terminated all pre-existing override and profit sharing agreements between Travelers and HRH’s local offices and replaced them with a new national override agreement that was made effective as of January 1, 1998.
296. The new national override agreement entitled HRH to earn, in addition to standard commissions, overrides of _____ on all direct written premiums produced during the 1998 calendar year on Select Commercial Lines, Commercial Accounts, Construction, Bond, Gulf
Insurance Companies and certain Personal Lines. For the fourth quarter 1998, Travelers also agreed to pay HRH an additional override of ____ on new business for most of those lines. This agreement, which effectively paid HRH an additional ____ for virtually all renewal customer policies and ____ for all new customer policies that were moved to Travelers from non- conspiring insurers, was purely volume-driven and rewarded HRH for business regardless of its profitability.
297. The same HRH and Travelers program – providing for _____ contingent commissions on renewal business and a total of ____ contingent commissions on new business – was re-executed in 1999 and 2000. Similar agreements were executed from 2001 through 2004, though the override percentages were stratified based on the percentage of new premium growth over the prior year and profitability.
298. In or about February 1999, HRH executed a commercial lines “Excess
Compensation” agreement with CNA that, just like the Travelers agreement, (a) superseded all pre-existing local contingent commission agreements between the two companies; (b) entitled
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HRH to earn 3.5% overrides on all renewals and 8.5% on all newly written business during 1998 on most commercial insurance lines; and (c) remained in place through 2000.
299. In March 1999, HRH executed a strategic partnership agreement with Hartford that likewise terminated all pre-existing contingent commission agreements between them. For the calendar year 1998, the agreement entitled HRH to earn a “select customer new business bonus” of ___ for new select commercial business directed to Hartford’s Service Center; an “all other lines bonus” of ____ for other new or renewed Select Customer accounts, Marine accounts and
“Key Accounts”; and a “commercial programs bonus” of ____ for all other new or renewal commercial business.
300. The Hartford Agreement also provided for “all lines bonuses” of up to ____ for renewals and _____ for new business from 1999 through 2001, if HRH met specified dollar volume “net growth thresholds”; for “commercial programs bonuses” of _____ on all new business and renewals during those years; and for “special casualty” and “risk management” bonuses of ____ for renewal business and ____ for new business if growth thresholds were met.
301. In a December 2000 memorandum, HRH’s President Martin Vaughan announced that future contingent commission agreements with the Big 3 Insurer co-conspirators would hinge on HRH meeting guaranteed growth thresholds:
After going through the process of renewing several of these deals, it is important to note that most of these are contingent upon us reaching certain performance levels in year 2001 for them to continue in the immediate future. If we do not have movement of business and be serious about market consolidation, we run the risk of these deals disappearing. There are very few opportunities that pay these types of overrides and the importance of continuing these is paramount.
…
We are asking you to do this at a time when market conditions are very unpredictable and at times frustrating From an economics standpoint I think it is easy to realize how important these deals are to us and that we do everything in
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our power to make certain that they have a chance to not only succeed, but to continue in future years.
…
Over the course of the next few weeks, I would appreciate your assistance with reviewing your markets to identify those carriers that are eligible to be consolidated within one of our partner companies. (Emphasis added.)
302. Vaughan stated the following in a subsequent December 2000 memorandum:
Note we have signed Confidentiality Agreements with these carriers. The sharing of this information could jeopardize our overrides.)
HRH is committed to carrier consolidation as an important part of our strategic plan. Doing more business with fewer carriers will leverage our strength with underwriters and add efficiency to our operations.
These four deals exemplify our ability to leverage our strength for superior commission and growth overrides. The time is here for each agency to review your carrier representation with an eye toward consolidating markets and meeting volume commitments to our partner companies.
303. HRH continued direct business to its Big 3 conspiring Insurers through 2004.
Throughout the existence of the HRH conspiracy, HRH and its Big 3 co-conspirators engaged in meetings to reinforce the existing agreements, and subsequently disseminated and reiterated the message to their local offices to continue further implementation of their partnership objectives.
304. For example, after the October 2000 meeting at the Greenbrier, David K. Zweiner, the President and Chief Operating Officer of Hartford’s Worldwide Property and Casualty
Operations, wrote to thank HRH’s then-CEO Andy Rogal for their frank conversation regarding the two companies’ “partnership” and reiterated Hartford’s “commitment to discovering and exploiting new opportunities with [its] partners.”
305. Thereafter, Hartford continued to pay HRH net growth bonuses ranging between
____ and ____ because “[e]mphasis on the generation of new/new revenue continues to be a top priority.”
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c) The Conspiring Insurers Understood their Role in the Conspiracy and Knew They Would be Disciplined by HRH if They Refused To Go Along
306. HRH’s Big 3 Insurer co-conspirators knew of each others’ involvement, and each clearly understood that they had entered into these arrangements with HRH to purchase volumes of business as to which they would not have to engage in price competition with each other or with non-conspiring insurers. For example, in summarizing its negotiations with HRH, a
Travelers representative stated that “HRH will limit participation [for the commercial lines business] to a maximum of 3 national carriers with ‘similar’ programs.” The representative continued: “[t]hese terms and conditions assume a similarity of intent with the strategic partners.”
307. Travelers was even more explicit in the description of its illicit arrangements with
HRH in a memorandum to its Regional Vice Presidents, in which Travelers made clear that each of the Big 3 Insurer co-conspirators had agreed horizontally among themselves to participate in
HRH’s Broker-Centered scheme:
The recent announcement of a global retention and new business partnership with HRH presents significant opportunities for Select to increase our net position with the HRH profit centers. Remember, the main thrust of HRH’s small business strategy is to reduce the number of partners to three – Hartford, CNA and Travelers.
The financial program encourages HRH to consolidate a significant amount of this business with the Travelers and the other partners. To ensure a level playing field, each carrier agreed to the same financial program.
308. A September 1, 1998 Travelers memorandum expressly stated: “Please note, while the financial terms of the deal are confidential at our request, each carrier agreed to the exact same elite, growth override financial program.”
309. Hartford communicated a similar understanding of the conspiracy with HRH and the other two carrier conspirators to its Regional Vice Presidents:
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We are pleased to announce that The Hartford has been selected as one of three National partner Carriers in conjunction with HRH Insurance’s new strategic direction for Commercial and Personal Lines business. The agreement culminates a series of negotiations and allows us to build on the Small Commercial Consolidation Program that has been executed over the past ten months.
In exchange for a significant premium commitment over the next several years, an enhanced Incentive Bonus Agreement has been developed to reward and capitalize on production opportunities throughout our segments. As articulated in the attached exhibit, there will be a modified Commercial Lines Agreement retroactive back to January 1, 1998, and second agreement put in place for 1999- 2001. (Emphasis added.)
310. CNA was likewise fully aware that it was one of three national carriers selected by
HRH pursuant to its “consolidation program.” CNA knew that HRH was allocating competition-
free premium volume to its “strategic partners,” CNA, Hartford and Travelers, in exchange for
contingent commissions and overrides, and knew that it would be penalized by HRH for non- compliance with the conspiracy. CNA expressly recognized that HRH would move CNA business to Hartford and Travelers if CNA did not pay HRH the contingent commissions it wanted. “They [HRH] expressed that our changing anything, or requiring anything other than simply paying the 3.5% on the volume (assuming growth) will expressly jeopardize our relationship . . . , and that this would create a situation where their retail leaders would likely move some of the CNA business.”
311. HRH kept its conspiring Insurers aware of how much in premiums and what percentage of HRH’s business each of the Big 3 were allocated. An October 2000 letter by
Steven Wachtel of Hartford, enclosing “action” items discussed at a Greenbrier meeting, summarized such information that HRH had conveyed:
Just less than _____. with the 3 strategic partners. Travelers ≈ ___, CNA ≈ ___, Hartford ≈ ______available.
HRH needs to get down to 5-10 carriers. Consolidation is the game plan. Jointly determine how we can assist.
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312. Other Insurer Defendants were also familiar with HRH’s arrangements with its
conspiring Insurers. Defendant Chubb, for example, met with HRH to confirm its understanding from the marketplace that HRH had, in fact, entered into arrangements wherein it would allocate premium volume to only three Insurers in exchange for enhanced compensation. The sum of
Chubb’s findings, in relevant part, were memorialized as follows:
Sy and I met with Steve Deal, National Director, Select Company Relations and Andy Rogal, CEO to review Chubb’s concern over marketplace rumor about their combining all middle market business to three companies. Andy opened the meeting emphasizing HRH’s critical need to retain Chubb as a market …. He indicated HRH has been having uncomfortable conversations with some markets that will not be future players but they did not expect Chubb to fall in that category with any of their regions.
As we anticipated, they are entering Phase II of a strategic direction to make their “roll-up” of agencies more focused and efficient. This includes plans to consolidate markets, regionalize practices and create company partnerships to maximize their revenues.
While they would not tell us the specifics of their consolidation deals with Travelers, CNA and Hartford … they shared some of the following:
…
HRH is interested in withdrawal of incentive compensation for overrides. They want these coordinated by corporate. Likely these would flow to the bottom-line of their branches. …
They do not anticipate a movement of Chubb business but did indicate that the very rich … overrides may limit new business. There are minimums they must meet with these markets and these will be managed monthly. They instructed their presidents to prepare lists of their top 25 accounts that may get to this initiative quickly, and deliver to the task force ASAP.
…
They have about $ l.2 billion in P&C premium as of y/e 1997. (Emphasis added.)
313. The conclusions from this meeting are equally notable in that Chubb in September
1998 contemplated joining the HRH conspiracy in response to the threat that premium volume
would be allocated away from Chubb:
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I recommend that National Marketing prepare the interim profit sharing information to help facilitate the discussion of replacement overrides in 1999. We should also be certain to make the right connections with them at the Greenbrier.
As an editorial note: [HRH] knows this position is going to be unpopular with varying constituents and are not going to be as forthcoming as we would like. … An estimated $10 million+ today is in middle market package/umbrella business, in which our competitors will be in [sic] very interested. Our clients will be in the top 25 lists being prepared. I believe we need to re-emphasize our expectation that this business stays with Chubb and convince them to partner with us in areas we excel.…With $1.2 billion, there is plenty opportunity for everyone. (Emphasis added.)
314. Chubb, however, did not join the conspiracy at that time, which Travelers had at that time insisted include only three Insurers, and HRH and its Big 3 Insurer co-conspirators pressed forward with their conspiracy. In a November 1998 memorandum to all HRH field office Agency Presidents, HRH’s then-CEO wrote:
The Carrier Consolidation Initiative continues to be one of the highest priorities of our Company throughout the remainder of 1998 and during 1999. In order to maximize our benefits under these arrangements, it is critical that we approach the movement of this business to our partners in a very aggressive manner.
d) HRH and its Co-Conspirators Benefited From the HRH conspiracy
315. Two years later, in December 2000, HRH’s President Martin Vaughan provided the
Company with a report on its progress in connection with implementation of the Carrier
Consolidation Initiative:
Last month at our Presidents’ Meeting we spoke of the arrangements that we currently have in place with the Big Three and in addition the new partnership with Allmerica.
Over the past three years, these arrangements have produced annually approximately 7.5 million dollars of overrides to our company and have significantly proven to be beneficial additions to our bottom line. It is difficult to imagine where we would be without the inclusion of these dollars in our consolidated numbers. We were able to count on these overrides in the face of a market adjustment that made it difficult to grow with these carriers but, nonetheless, we were rewarded with the base bonus overrides.
316. Vaughan stated the following in a subsequent December 2000 memorandum:
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Last month at our Presidents’ Meeting we talked about the arrangements we currently have in place with the Big 3 and in addition the new partnership with Allmerica. During 2000, the deals produced approximately $7,500,000.00 in overrides to our company. These monies went straight to the bottom line and are a primary driver in our financial success.
317. HRH indeed reaped significant profit from its diversion of clients to its carrier co-
conspirators. An internal HRH document indicates that between 1997 and 2004, from its
participation in the conspiracy, HRH and received approximately $133,428,000 in contingent
commissions and $55,310,000 in additional override commissions, or total of $188,738,000 in
non-standard commissions.
318. HRH’s sales staff and Agency Presidents also benefited from the conspiracy. To
further the conspiracy, HRH provided financial incentives to its employees to move business to
its Big 3 Insurers in an aggressive manner. The “1998 & 1999 Carrier Consolidation Incentive
Plan” established an incentive bonus pool to be generated for each year based on the volume of
new net business placed with HRH’s Big 3 co-conspirators. At least 50% of the 1998 bonus pool
was to be paid to employees, as determined by each agency President, “that ha[d] a direct impact
on moving business to the preferred carriers.” Agency Presidents were eligible for a maximum
of 50% of the bonus pool remaining. Agency Presidents and employees shared equally in the
1999 bonus pool, but for Presidents to obtain payment their agencies were required to meet or
exceed an established target for movement of business to HRH’s co-conspirators.
319. Similar financial were in place for the conspiring Insurers’ employees. An HRH
regional executive wrote in October 1998:
Please take a look at your renewals and new business thru January to see which accounts should be submitted to one of our BIG 3 markets. . . .
We are charged with moving a great deal of our renewal and new business to one of the BIG 3 over the next few months. The extra bonuses on business placed with Travelers or CNA can really add to the “Christmas” account. …
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The current bonus commission plan is good for any renewal moved from a non- BIG 3 company to Travelers or CNA. …
Our BIG 3 contacts are eager to help us place business with their companies. (Some of them are receiving incentives too.) Here is the schedule for the next visits for each company. Please try to have as many submissions as possible ready to give them when they come in.
320. The financial incentives positively reinforced Company discipline in favor of
protecting HRH’s Big 3 Insurer co-conspirators, and recognized HRH employees responsible for
driving the Carrier Consolidation Initiative toward success. They maintained similar influence in
HRH’s 2000 and 2001 Presidents Incentive Plans. Notably, the 2000 Presidents Incentive Plan
included a strategic objective stating: “It is in the best interests of HRH for agencies to move
property, casualty and employee benefit business to the preferred carriers as designated by the
Company.” In order to meet the objective, each President’s HRH’s agency’s placements with the
three conspiring Insurers had to grow by 15% or more. For a President to “exceed the
objective,” HRH’s conspiring Insurers had to be the top markets in the President’s agency.
321. The 2001 Presidents Incentive Plan was similar. It included a strategic objective
stating: “It is in the best interests of HRH for agencies to move property, casualty, select and
benefit business to the preferred carriers as designated by the Company, to take advantage of the large overrides and increased revenues generated by these relationships.” Whether a president met or exceeded the objective was to be determined by his or her Regional Director.
322. HRH’s conspiring Insurers similarly profited from the conspiracy. The conspiring
Insurers were able to drive profit improvement through price increases, and they achieved large growth in premium volumes. Hartford, for example achieved ___ growth across all commercial lines with HRH during the first 11 months of 2002. Growth in HRH’s Select Commercial
accounts increased by ___ with Hartford over the same period. Indeed, Hartford “experienced
significant growth over a 5 year period [from 1997-2001] with [HRH’s] Select Customer book in
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excess of ______.”
323. CNA and Travelers also reaped substantially increased premium volume and profits
from their participation in the conspiracy.
e) Defendants’ Agreement had an Impact on the Prices Paid by Members of the Class for Insurance Products
324. While achieving enormous growth in its premium volume from HRH, and paying
the accompanying increasing overrides to HRH, Hartford was simultaneously driving profit
improvement by executing a strategy to increase prices.
325. Hartford stated in its 2001 engagement plan for HRH’s Select Customer Business
that profit improvement would be driven by, among other things: (i) pricing increases in
profitable account segments; (ii) “capitalizing on ongoing rate strengthening across the line;” and
(iii) improving profitability by enforcing and executing “non-renewals and price increases as
communicated by segment.”
326. HRH, moreover, allocated premium volume to Hartford and its other Insurer co-
conspirators even if it caused an increase of its customers’ insurance premiums. The section on
premiums in HRH’s 1998 Select Commercial Operations Procedures Manual for all offices
provided the following instructions:
The SCIC (Hartford Select Customer Insurance Center) will make every effort to match the expiring premium; however, this will not always be possible. The SCIS will automatically issue policies if they are within _____ of the expiring premium for the total account. Do not request a cancellation from the SCIC if one part of an account is more than ___ higher than expiring. The SCICs will take into consideration the total premium for an account and automatically issue all policies if the total premium is within _____ of the total expiring premium.
With respect to minimum premiums, the SCIC will automatically issue policies with premiums less than _____ that are subject to minimum premiums even if the increase is more than ____. For example: a policy is currently written through another carrier at ____ and Hartford’s minimum premium is ____. The increase here is much higher than _____ but Hartford will go ahead and issue the policy
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because it is subject to their minimum premium and falls below _____. Do not request cancellation in these situations.
327. It was also agreed and understood between and among HRH and its three
conspiring Insurers that HRH would allocate premium volume to those Insurers and protect the
from competition even if the Big 3’s prices or policies were not competitive. For example, one
HRH employee wrote: “Obviously everybody wants Automobile coverage. As a matter of fact,
those three big [sic] companies are really not competitive, but yet we must give them
Automobile coverage.”
328. Indeed, the Big 3 Insurers’ conspiracy with HRH contemplated from the outset that
the relationship would provide the Insurers with greater control over their profitability by being
assured they were going to be allocated the most profitable HRH customers. For example, the
head of HRH’s Select Business segment wrote to a Travelers affiliate in January 1999 as
follows: “With this agreement, you [First Floridian, a Travelers company] have presented us
with a wonderful opportunity and now the ball is in our court to perform. I can assure you that
we will be looking for every opportunity to move books of business to you and also favor you on
our new business production with profitable business.”
6) The Willis Broker-Centered Conspiracy
a) Participants in the Operation
329. During the Class Period, from January 1, 1998 through December 31, 2004,
participants in the Willis Broker-Centered Conspiracy were Broker Defendant Willis and Insurer
Defendants St. Paul Travelers, Chubb, The Hartford, Zurich, AIG, CNA, Liberty Mutual
(including Wausau), Ace, Axis, Crum & Forster, and Fireman’s Fund. This select group of
carriers was known as “strategic,” “preferred” or “market” partners, or partner markets.
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b) Operation of the Conspiracy
330. Willis allocated its customer base to and among its conspiring Insurers in two
steps. First, Willis and each of its Insurer co-conspirators agreed, and the conspiring Insurers
agreed horizontally among themselves, that Willis would “consolidate” its business by directing
a significant portion of its commercial business to St. Paul Travelers, Chubb, The Hartford,
Zurich, AIG, CNA, Liberty Mutual, Ace, Crum & Forster, Fireman’s Fund and Axis, thereby
eliminating hundreds of other insurers from competing equally with the conspiring Insurers for a
substantial portion of Willis’ business. Second, Willis and each of its co-conspirators agreed,
and the conspiring Insurers agreed horizontally, to reduce or eliminate competition among the
conspiring Insurers through the allocation of specific business for which they would not have to
compete among themselves.
331. One aspect of the conspiracy was the agreement that each conspiring Insurer
would keep its own incumbent business, and that Willis would protect that business from
competition by using a variety of incumbent protection devices.
332. Starting in early 1996, Willis began consolidating its insurer markets from 1700
to less than 20. In January 2001, Willis’ Marketing Practice leaders held a “Strategic Marketing
Practice Conference” where a plan was devised to align Willis with a select few “key” carriers
who would enter into agreements that would yield “improved commissions” and “improved
contingents and overrides.” These key carriers would benefit from the placement of Willis’
business once they agreed to pay Willis contingent commissions or enter into special deals
providing increased revenue to Willis.
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333. Willis’ co-conspirators also attended these meetings. Travelers and Zurich
attended the January, 2001 meeting. Chubb and CNA were included in the follow-up Marketing
Practice Leaders Conference held in April 2001.
334. As a follow-up to the action steps developed at these meetings, Willis continued
to hold meetings with its partner markets. A summary of the key points from meetings with AIG
and Hartford was forwarded to Mario Vitale, CEO of Willis, in a May 28, 2001 e-mail, entitled
“Carrier Update – Maximizing Revenue.” In addition to providing summaries of these meetings,
Vitale was advised that the next meeting was scheduled with St. Paul. The email further states:
The plan is to keep moving forward with key carrier meetings for North America. … All the meetings being held with carriers are based around specific objectives important to Willis and the carrier. Our goal is to leave each meeting with a clear action plan to obtain the results we have mutually agreed upon. This includes steps to drive more business to local and national contingent arrangements for maximum impact in 2002 and to explore any possible impact we can still have on 2001.
335. The meeting scheduled with St. Paul took place at the next Marketing Practice
Leaders Conference held in August 2001. This meeting provided an “Update and Planning for
2002.” The other part of the agenda again included updates on contingent agreements and
“Premium Volume by carrier and ahead-behind-on track impact on contingents.”
336. Beginning in early 2003, Willis furthered its efforts to consolidate the carriers it
used in order to maximize its contingent commission income by creating a specific group called
the Global Markets - Carrier Relationship/Marketing department (“Global Markets”). The stated
purpose of the Global Markets was to “maximize group revenue” by maximizing commissions
and contingent commissions.
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337. Global Markets developed market leverage through the use of partner markets.
Global Markets’ head James Drinkwater described how Willis would partner with Insurers who
were willing to support it in return for steering business to the partner insurer:
[market] leverage can only be maximized by ‘Partnering’ with a select number of carriers who share our vision, want to work with, and support the Group. Focusing on our ‘partner’ markets will require the management of our premium flows and the overall relationship. 338. As stated by Willis’ Marketing Manager for its Portland, Oregon office in an
August 26, 2003 e-mail, “the whole marketing concept was originally predicated on the fact that
we would limit our markets to some strategic markets where we would place 80% of our
business.”
339. Although there were approximately 860 insurers who were qualified to place
insurance on behalf of Willis customers, the number of “preferred strategic markets” was
significantly smaller, numbering a mere 15 retail insurers, all of whom had entered into pay-to-
play agreements with Willis, either in the form of PSA’s or special deals providing increased
revenue to Willis. Among the identified conspiring Insurers at the time were Hartford, St. Paul,
Chubb, Liberty Mutual, AIG, Zurich, Travelers and CNA.
340. Global Markets used Regional Marketing Officers (“RMOs”), responsible for each of Willis’s regions, to communicate its corporate-wide mandate to concentrate business with specified conspiring Insurers. In August, 2003, John Pearson, Chief Marketing Officer of
Willis North America, admonished the local offices “to bring significant opportunities to C&F
[Crum & Forster] before year end,” which he indicated was “critical to maximize the incentive opportunity.” At or about the same time, Pearson reminded Willis’s RMOs not to “forget the advantages of placing as much business as possible with the carriers we have negotiated special
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deals with, as you look for ways to maximize revenues the last few months of this year and into
2004.”
341. Global Markets exercised control over the “negotiation, collection and
management of contingents in North America” and prohibited any region or local office of Willis
to enter into any contingent commission agreement without specific approval by James
Drinkwater, the Managing Director of Global Markets (“Drinkwater”).
342. The purpose of this control was to ensure “uniformity” and to “maximize the
terms . . . across the [Willis] Group.” Additionally, this control was intended to help Global
Markets “budget, monitor and manage the potential revenue from any of these agreements as a
Group.” Global markets collected information from the local offices such as production goals for the year with each carrier, the year-to-date number, and how far off they were from hitting their bonuses. This information was necessary to realize Willis’s “plan of action to obtain the maximum contingency from each carrier ... onboard.”
343. To maximize Willis’ revenue, customers were steered to its conspiring Insurers regardless of the interests of clients. Global Markets “require[d] premium flows to be restructured to focus on Partner Markets and to de-emphasize non-Partner Markets.”
344. In September 2003, Michael Mann, North American Marketing Director for
Global Markets, advised Willis’ RMOs to review their contingent and override agreements to set the stage for fourth quarter business placement. The RMOs were to contact the Insurers to find out where they were in terms of meeting thresholds, and then to "determine where you make the
biggest bang for your bucks." On October 8, 2003, John Pearson wrote that “Marketing centers
are reviewing contingent, bonus and override plans to maximize all agreements during the fourth
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quarter. Special attention is being given to St. Paul, Chubb, Liberty Mutual, Hartford and Crum
& Forster due to special agreements.”
345. Global Markets organized a National Planning Meeting in October, 2003 at which
Willis devised a “marketing plan to develop an additional $2.5mm in Group revenue in
November and December.” Global Markets disseminated a company-wide plan to achieve this
goal. That plan was titled “$2.5 MILLION REVENUE STRATEGY WNA MARKETING
PRACTICE OCTOBER 31, 2003.”
346. The “key objectives” of the 2003 $2.5 Million Revenue Strategy were to
“maximize the premium volume flow to key carriers with most attractive contingent income
agreements” and to “monitor key renewal accounts which are ‘in jeopardy’ and deliver
Marketing resources where necessary to increase renewal retention percentages.”
347. In exhorting Willis offices to “Maximiz[e] Year End Revenues,” in November,
2003, John Pearson stated:
Don’t forget the advantages of placing as much business as possible with the carriers we have negotiated special deals with, as you look for ways to maximize revenues the last few months of this year and into 2004.
While in some cases there are numerous variables in calculating these deals we have plenty of opportunity to add needed revenue to the North America results, by taking time to direct our business when possible to the carriers listed below.
The conspiring Insurers listed are: Liberty Mutual, Crum and Forster, CNA, The Hartford, AXIS
and St. Paul.
348. Referring to the Willis partner markets St. Paul, Chubb, Hartford and Crum &
Forster, in an October 17, 2003 e-mail, Drinkwater stated to the RMOs “I want to see you
directing the flow of business to these companies.”
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349. On November 3, 2003, RMO David Michels sent an e-mail to his region with the
subject line “We need your help!” He advised RMOs, CMOs and others to:
Look for opportunities to feed our biggest contingency players, Hartford, St. Paul, Chubb, Liberty Mutual (national accounts)
Look for opportunities to get Willis Re involved in any accounts possible.
Ask for bonuses from carriers for new business placements.
Ask for 2% additional commission on all accounts (I [k]now I already said it, but it is so important that I am repeating it again).
350. Another Willis RMO sent an “urgent” e-mail to all office marketers within his
region, urging them to “where possible drive ALL of our new and renewal business to our
partners who are paying Willis added incentives for year end growth results.”
351. Willis exceeded its goal of $2.5 million in revenue in the fourth quarter of 2003,
“generating over $3 million of additional income from increased commission rates, contingent
income growth, supporting Group Revenue and placing new business opportunities.”
352. Suzanne Douglass, an officer within Global Markets, expressed her concern that as a result of this Global Markets mandate, Willis was going to be “just like Marsh” as Willis moved to “place all our business on the basis of the direct commissions the group can derive from a market on a given placement.”
(1) Participants in the Willis Broker-Centered Conspiracy Agreed that Willis’ Business would be Allocated among the Conspiring Insurers.
353. Willis’ Insurer co-conspirators agreed that Willis’ business would be allocated among them without regard for competition.
354. CNA and Zurich assisted Fireman’s Fund in maintaining its insurance coverage of
ABM Industries’ airport parking facilities. In March 2001, Willis client, ABM Industries, was required to obtain three bids for insurance to cover ABM’s new parking contract with Detroit
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Metro Airport, but Willis had previously placed an omnibus Fireman’s Fund policy covering all
of the ABM’s other airport parking facility contracts. To enable Fireman’s Fund to maintain
coverage over this omnibus policy for the Detroit Metro parking facility, CNA and Zurich agreed
to the request of Russell Kiernan of Willis’ San Francisco office to submit bids with the
understanding that they would not result in a placement. Willis provided them with the premium
breakdown they needed to quote in order to be assured of losing the bid.
355. At a Greenbrier meeting with Zurich on October 13, 2003, it was reported that
Zurich experienced a 50-60% growth rate from Willis in 2003, principally driven by exposure,
rather than rate.
356. Willis directed insurance placements to Hartford without regard for competition.
This direction of insurance placements was in furtherance of an agreement reached between
Willis and Hartford by which Willis ______
______. The arrangement was known as ______At the 2003 Greenbrier
convention, held October 11-14, 2003, Drinkwater, Pearson and other high level Willis
executives met with Hartford’s Chairman and CEO Ramani Ayer and other high level Hartford
executives to discuss final details of the ______plan. Willis and Hartford finalized their
______plan and sent out memos regarding their agreement to their respective offices by the
end of October, 2003. ______
______
______
______
______.
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357. The share shift plan included a “prospecting process” with Willis offices in San
Francisco, Bethesda, Radnor, Hunt Valley and Charlotte. Hartford representatives were allowed
to meet with Willis representatives of these offices to select the most profitable accounts for
placement with Hartford in order to double the written premium placed with Hartford.
358. Willis and Hartford agreed to work together to allocate customers:
______
______
______
______
______.
359. In return for agreeing to provide Willis with significant contingent payments,
Willis further agreed to provide Hartford with both a ______
______. On December 11, 2003, about the same time Willis and The Hartford entered into
their new PSA, Hartford sent out a memo to all Hartford field offices stating, in part:
A second key piece of the plan which we are now working on with Willis is ______We will score leads and distribute back to you and Willis for follow up. The joint commitment is for Willis to give______
______.
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Hartford closed its communication by emphasizing that Hartford’s local offices were to invest
their “time and resources” toward Willis placements since they would have an “excellent return.”
360. Willis furnished Hartford with their entire account list for ______
______companies with the understanding that “the joint commitment is for Willis to
give Hartford ______.
361. Willis provided Liberty Mutual with information on potential clients to give it an
“unfair advantage” in client placements. Willis provided Liberty with an account listing of
prospective accounts so that Liberty managers could cherry pick by “directly contact[ing] Willis
RMOs and proactively ask[ing] for the specific accounts.” In one instance, Fred Frey of Liberty
asked Willis Global Markets RMO Michels about a potential placement. Michels responded to
Frey that he would check to determine if it was a “real opportunity” for Liberty to acquire the
placement and, if so, Michels “will make sure you have solid information, and an unfair
advantage.”
362. Chubb expected that Willis would allocate $20M of existing Willis business to
Chubb. In order to “encourage” Willis, Chubb “agreed to pay an additional incentive override to
the Willis organization, based on year-end 1997 results.” This national override, a form of
contingent commission, was in addition to any local or branch incentive agreements and
provided a double incentive to protect existing business with Chubb and steer new opportunities
to it. Willis provided Chubb with a list of clients for Chubb to review so Chubb could cherry
pick the accounts it wanted. As stated in a June 30, 1997 letter to Willis from Barbara Marshall,
Chubb Senior Underwriter, “Per our discussion of June 12, we have reviewed the business
consolidation listing provided to us by Willis Corroon [Willis’ predecessor]….We would like to
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pursue $7,950,545 of the list provided to us. This comprises approximately 78% of the
$10,000,000 book consolidation effort.”
363. Like other Willis partner markets, ACE was provided with the opportunity to
cherry pick client business and developed a “target list.” In June 2004, Susan Rivera requested
that the Ace USA business unit heads inform her of the performance of Marsh and Willis, in
preparation for a meeting with senior management of each broker. In response, Kudret Oztap,
head of Ace Global Energy, indicated that Willis had placed with Ace “almost all of the WILLIS accounts in our target list in USA.”
364. AIG had entered into a PSA with Willis’ predecessor, Willis Coroon, as early as
1998 and AIG also entered into PSAs with various Willis regional offices.
365. AIG, and its wholly owned subsidiary Hartford Steam & Boiler (“HSB”), had two
principal means of compensating Willis for steering it insurance placements: contingent
commission agreements and AIG’s agreement to use Willis’ wholly owned reinsurance broker,
Willis Re, as its broker in meeting AIG’s reinsurance needs.
366. As a result of the PSA entered into by Willis and HSB in 2003, HSB was fully
insulated from competition for this class of business, as evidenced by an August 26, 2003 e-mail
from Joani Pepper, Marketing Manager of Willis’ Portland, Oregon office in which she stated
she was “mandated to place all B&M with HSB unless there is a very compelling reason not to.”
367. This practice continued in 2004 when Willis negotiated a new contingent commission with HSB. Going into those negotiations, the HSB carrier advocate for Willis,
Damian Chapman, reported on a planned meeting with the HSB representative and stated that he was going to discuss “the possibility of [HSB] taking over the [Boiler & Machinery] of one of their competitors that may not be one of [Willis’] ‘partner’ markets.”
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368. In the first quarter of 2004, after the PSA with HSB had been executed, the carrier
advocate for HSB e-mailed Willis’ RMO’s to remind them to “keep the pressure on and advise
where the business is going if not to HSB - The Willis preferred B&M market!!”
369. Willis provided a list of Royal accounts John Echemendia of C&F and he
informed James Drinkwater and John Pearson on September 17, 2003 the subset of accounts in
which C&F was interested. Upon receipt of this list, on September 19, 2003, James Drinkwater
informed John Pearson and Michael Mann that he wanted to “guide as many of these accounts
into C&F as possible. C&F have agreed to put our submissions to the top of the piles and give
our clients preferred [sic] service.” He forecasted the result of such partnering as “a huge
windfall for all parties.” He further opined on the importance of the initiative as “it will
demonstrate to the Group and Crum & Forster that [Willis] can control the placement of business
and that Willis is committed to partnering with carriers where we have mutual objectives.”
Drinkwater further instructed Willis’ marketers on October 17 to “ensure that C&F is shown the
accounts listed and they are given the best opportunity of writing the account.” As a result of
these actions, the contingent income received by Willis from C&F increased three-fold from
$76,422 in 2002 to $228,553 in 2003.
370. 2003 was not the first time Willis steered placements to C&F. In 1998, C&F
increased the contingent commission payable to Willis Carroon because it recognized that Willis
“is a self professed revenue incentive driven agency”, and that “Incentives play a key role in
generating opportunities at this agency.” C&F further determined to increase the incentive paid
to Willis because it would provide an incentive to rollover existing business Willis had with
Zurich to C&F. As observed by C&F at the time, “without the new business incentive, rollover
opportunities on the Zurich book are no longer a consideration”.
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371. Moving blocks of business to St. Paul Travelers was “the type of growth and
share shift of our business [Willis] expect[ed] from a strategic partner.”
372. In May 2004, James Drinkwater met with John Albano, President & CEO at
National Accounts at St. Paul/Travelers and John Stites, VP National Accounts at St. Paul
Travelers. At the time, Willis was responsible for $161MM of premium and premium
equivalents of St Paul Travelers’ $4.1Billiion. As a result of the meeting, Drinkwater
determined to create a new National plan with St. Paul/Travelers under which Willis could grow
to $250 million in premium, and in furtherance of that plan, Willis determined to identify
specific accounts to steer to St. Paul Travelers. These plans, however, were not fully
implemented because of the NYAG’s investigation.
373. Business was allocated to Fireman’s Fund even when Fireman’s Fund was not
competitive. As a result Willis became eligible for and executed a platinum level Profit Sharing
Agreement: the most mutually profitable level of profit sharing agreement that Fireman’s Fund
offered.
374. In addition, Willis gave Fireman’s Fund “last looks” on accounts. For example,
on or around June 14, 2001, Willis provided Fireman's Fund three last looks on an account for
______. According to an internal Fireman’s Fund report documenting the telephone
conversation between Fireman’s Fund and Willis: “Willis came back and provided competitive
information on AIG, Hartford and Royal (who quoted) at the direction of insured.”
375. In August 2002, Zurich requested that it be afforded a “last look on all renewal
and new business,” that Willis “pre-qualify accounts” representing new business, and proposed a
joint Willis/Zurich Business Plan that provided for a 90 percent “renewal retention ratio.”
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(2) The Conspiring Insurers Agreed Not to Compete With Each Other for the Willis Business
376. Within Global Markets, Carrier Advocates were responsible for overseeing and
managing the relationship between Willis and their assigned partner markets. Carrier Advocates
also worked to protect incumbent partner market insurers from competition so that Willis would
have the greatest leverage with which to increase the contingent commissions it was receiving
from its partner markets.
377. The Carrier Advocate assigned to Hartford listed several Hartford accounts up for
renewal and asked the RMOs to “make sure that [those] renewals are put to be cleanly with
Hartford.” The Carrier Advocate concluded by noting the importance of assuring that these
accounts stayed with the incumbent (i.e., Hartford), asking that “if [the RMOs] perceive any
issues with these renewals then please let me know as a matter of urgency.”
378. To meet its contingent commission threshold, Willis asked Liberty to give it an
indication of where Willis stood with regard to meeting contingency goals. Liberty responded
with an e-mail detailing where Willis stood with regard to writing Liberty business for 2003 and
concluding with a reference to the fact that the two had “agreed to an aggressive new business
plan together for next year.” Drinkwater then forwarded the Liberty PSA indication e-mail to his
RMOs asking them to “make sure that we protect the position and revenue that we have
generated.” To protect its position, Drinkwater instructed the RMO’s to “make sure that you
know what you have renewing and manage the renewal process.”
379. The conspiracy protected an incumbent conspiring Insurer on a renewal even
when the client could have obtained a less expensive product. In order to meet its retention
contingency goals, Willis “went the extra mile to make sure that the incumbent, Chubb, retained
[an] account” “even though Willis had “obtain[ed] more favorable pricing from other carriers.”
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380. Fireman’s Fund agreed with Willis to limit competition so that it could increase
the cost of insurance on renewal while at the same time preventing any competition from
endangering a Fireman’s Fund renewal. In a Producer Call Report regarding Willis, Fireman’s
Fund’s Cheryl DeBro wrote on July 17, 2001:
Gaye and I met with Doug Brown on ______, a 9/1/01 renewal to come up with an early game plan to avoid outside/inside competition. Wausau is wanting to quote on the account through their wood program. Per Doug if we could give a minimum of 10% increase, they would not market. The account has a 0% loss ratio…. Suggested increase is 20%. Quoted a 10% to 12% increase in order to keep the account.
381. Willis agreed with Zurich to protect Zurich’s incumbent business. Zurich’s
August 2002 proposed Joint Willis/Zurich Business Plan provided for 90 percent “renewal
retention ratio.”
382. In a 2004 email to Zurich from Drinkwater, sent “in the spirit of partnership,”
Drinkwater addresses his concerns about a softening market and expresses his desire to jointly
develop a national strategy “to protect both what currently [we] have as well as create new
business opportunitoes [sic].” Among Drinkwater’s suggestions were ongoing efforts to (1)
protect Zurich as the incumbent, stating “In order to maintain our renewals we need to identify
any issues and ensure that we elevate any problems to the appropriate level.” and requests a list
of Willis renewals; (2) working together so that Willis RMOs understand Zurich contact points so they can develop new opportunities, and (3) maximizing Willis revenue and negotiating
“Contingencies on a National or an Enterprise basis so that we can drive the appropriate behavior throughout our Group.”
383. Co-conspirator ACE believed that renewal retention with Willis was “critical for the PSA.”
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384. Travelers provided for a contingent payment to Willis if it achieved _____
premium retention.
385. Renewal retention was important for CNA.
(3) Willis and its Co-Conspirators Agreed that in Return for Contingent Commissions, the Conspiring Insurers Would be Guaranteed Access to Premium Volume
386. Willis guaranteed conspiring Insurers access to premium by way of steering business to those insurers in return for contingent commission payments.
387. On October 21, 2003, Pearson sent a letter to Willis CMO’s, Office CEO’s and
Marketing Heads regarding Willis’ “growing relationship” with Hartford. Pearson’s letter disclosed the terms of an “Enterprise Bonus” Willis had negotiated with Hartford providing for
payment of a national contingent commission. The Enterprise Bonus Agreement was
“[I]mplemented to support share shift results in key Segments.” Pearson also emphasized the
reciprocal nature of Willis relationship with Hartford: “As a strategic partner, Hartford has
shown a willingness to help Willis generate new-new business towards meeting our objective of
____ in new business in 2004. Consistent with this, we are working with them to provide access
to our prospect pipeline.”
388. Willis communicated with its offices the necessity of steering business to
Hartford in order to maximize contingent commissions. Specifically, Willis took steps to ensure
that the local offices held sales planning meetings to go over the contingency targets. Hartford
communicated to its sales mangers the value of its National Producer agreement with Willis that
included “Willis’ commitment to deliver a certain level of sales, persistency and widespread
office participation in sales.”
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389. In the fall of 1999, CNA and Willis entered into a Surety Partnership Agreement,
and CNA was identified as a “preferred carrier.” Willis then directed that “business for the
remainder of this year [will] be focused on 3 strategic partners: CNA, Hartford and St. Paul.”
390. In 2003, in furtherance of its role as a conspiring Insurer and in accordance with
the PSA with Willis, CNA sought to make sure that business was steered to it. CNA e-mailed
Willis’s Chicago office (and cc’d Global Markets) regarding placement of the City of Chicago
Airports policy. CNA began its e-mail by making sure the Willis Chicago office was aware of
the “Additional Compensation Agreement between Willis and CNA offering an additional
compensation of 5%.” CNA then reminded the Chicago office that CNA shared its premium
numbers monthly with Global Markets and that it had even discussed this particular policy with
Global Markets. In response to CNA’s e-mail, Global Markets interceded to make sure the
placement was steered to CNA by telling the Chicago office that Willis could use the extra
income and by instructing the Carrier Advocate to put the account on the list so Global Markets
could track it.
391. Axis knew that the payment of contingents was the quid-pro-quo for premium
flow from Willis. In late 2002, just prior to launching operations in the U.S. market, Axis
planned its strategy. The Retail Property Business Plan (revised 11/02) for Axis Specialty
Insurance Company stated, “[W]e will need to consider a profit sharing agreement with Marsh,
and potentially other national brokers, as a price of entry into the marketplace.” According to
plan, Axis entered into an agreement with Willis in 2003, making Willis one of Axis’ first tier
National Brokers. These agreements were part of a strategy to “see a regular flow of business.”
392. Axis participated as a Willis conspiring Insurer as well. To maximize the benefits
to be received from the Axis PSA, in June 2003, Drinkwater directed Willis to send business to
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Axis and provided his internal directives to Jack Gressier, CEO and President of Axis Global
Insurance. Drinkwater focused on Axis' challenge for Willis to build business in the June 2003
directive provided to Axis:
AXIS have a very clearly defined broker strategy. They are committed to building their volume with Willis, however, they currently do not feel that they are getting the number of opportunities that they should be seeing from a Broker of our size. Their ultimate goal is to have a very limited number of brokers and they have challenged us to build our volume significantly over the next eighteen months in order for us to be one of their preferred partners. If we are successful, the rewards will be significant. Axis is an important emerging market that I ask you all to support wherever and whenever possible. This Global initiative is the first of its kind and we will monitor our progress closely and I will share the results with you on a quarterly basis. I ask you to share this important announcement with all of your staff.
393. In or about August, 2000, Liberty Mutual and Willis discussed entering into a
“partnership.” In return for partnering with Willis, Liberty Mutual expected Willis to “assist” with its goal of “profitable growth in the National Market arena.”
394. Liberty Mutual viewed PSAs as the means by which it would pay for Willis allocating clients to it in order to obtain the maximum compensation under the PSA. In May
2004, Mark Butler, Liberty Mutual’s Executive Vice President, Sales and Service Department,
National Markets, wrote:
I don’t believe in PSA’s but they are a fact of life. With that said, we set the expectations with regards to new business, retention, growth that WE must have for our business, not theirs.
Each represent [sic] the majority of our market. I simply want a bigger piece of what they already have. They deliver, we pay. They don’t deliver, we don’t.
395. Wausau, a Liberty Mutual subsidiary, entered into a “sweetener” agreement
whereby Wausau agreed to pay an extra point of contingent income for the entire Wausau book
of business if Willis could place $4 million with Wausau for the fourth quarter. At the time of
the agreement, Willis had placed $2.95M with Wausau for the fourth quarter. The Willis Carrier
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Advocate for the Wausau account then instructed the RMO’s that they “really need to make a
push and reach the $4M goal.”
396. After negotiating the “sweetener,” both Willis and Wausau were working hard to meet the contingency goal. Not only was Wausau aware of Willis steering customers to Wausau to meet the goal, but they encouraged it, suggesting to Drinkwater at Global Markets that “[w]e will probably need some higher level nudging to get to the $4 million bell ringer. Your extra effort is appreciated (and worth your while!).” Willis did some “higher level nudging,” with
RMO’s forwarding the agreement to the local offices and asking them to see if they had anything
that could be placed with Wausau.
397. The RMO at Global Markets for the Midwest, Michael Mann, sent an e-mail out
to the Midwest Willis offices attaching the Wausau agreement in order to make sure that they
steered business to Wausau in the last 2 weeks of the quarter. Mann noted that they would “only
need to generate an additional $1,250,000 in new business premium to Wausau in order to hit the
1% contingency on the book of business.” Mann then noted that meeting this goal would be a
“slam dunk” “[c]onsidering that there are 7 offices in the Midwest Region with business that
Wausau can write.”
398. Similarly, the RMO for the Southeast also sent an e-mail to his local offices
attaching the Carrier Advocate’s request for Wausau business, along with the Wausau
agreement. In response to the RMO’s request, the Director of Marketing for Willis Florida was
able to direct business to Wausau so that Willis would qualify for the contingency sweetener.
399. In the Fall of 2003, the plan between Willis and Crum & Forster for allocating
placements to Crum & Forster included Willis directing its local offices to deal with Crum &
Forster’s local offices. Consistent with that plan, on August 29, 2003, John Pearson sent an e-
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mail to James Drinkwater and a lengthy distribution list (all of Willis) announcing the “NEW
Crum & Forster / Willis Incentive Agreement.” Pearson directed the recipients to “review [their] renewal book of business and pipeline of new opportunities for clients and prospects meeting
C&F’s guidelines.” He further advised: “C&F is serious about growing with Willis. We must demonstrate our ability to bring significant opportunities to C&F before year end.” Pearson closed by stressing the need for Willis to “maximize the incentive opportunity.”
400. Similarly, in the September 2003 e-mail from Drinkwater to Pearson and other
Global market executives, discussed above, concerning the “NEW Crum & Forster / Willis
Incentive Agreement,” Drinkwater stated that he wants to be sure information on the Crum &
Forster agreement is appropriately articulated “to the marketing practice”, because it is important that those people understand who Willis’s “partner markets” are, and because it is important to show Willis’s “Partners” how Willis distributes information about them. Drinkwater concluded that, “most importantly,” Willis should ensure that “we move, where appropriate, business to
C&F”.
401. Willis also allocated business to St. Paul. A September 2003 internal report at
Willis stated, “Marketing centers are reviewing contingent, bonus and override plans to maximize all agreements during the fourth quarter. Special attention is being given to St. Paul,
Chubb, Liberty Mutual, Hartford and Crum & Forster due to special [contingent commission] agreements.” The following month, Willis put together a revenue growth strategy focused on contingent commissions.
402. According to a September 2003 Willis e-mail:
We all have some ability to direct premium to certain markets and there is a great deal of potential income to be made from the PSAs. Those of us who can direct premium need some “direction”. . . . This way we will funnel premium to carriers with PSAs and achieve greater numbers of thresholds than we would
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with an “unfocused” approach. Look forward [to] . . . some direction to help us achieve income goals without having to produce one cent of new biz.
(4) Insurer Co-Conspirators Understood Their Role and were Disciplined by Willis if They Did Not Participate
403. Insurers knew that being designated a “Preferred Market” by Willis would guarantee that their products would be in the select pool of insurance offered to Willis clients and that falling out of favor would eliminate or severely reduce business from Willis.
404. In December 2003, William Curcio, President of the ACE Risk Management reported that Mario Vitale, then CEO of Willis, told him that to meet a Willis income deficiency in 2003, he needed $500,000, and that Vitale was going “to approach a couple of ‘partner markets’ that he would then ‘guarantee’ significant new business growth into ’04. Those who did not choose to help him as a partner now would not be designated as a ‘favored’ market.”
(5) Communications Among Participants in the Conspiracy, Facilitated by Willis, Furthered the Conspiracy
405. Willis shared information with Chubb regarding its contingent commission plans with Royal, Hartford and Travelers.
406. The Hartford knew that CNA was a “Top Carrier” and “key market” for Willis.
407. Willis advised Travelers in December 2003 that it would be on an “equal footing” with partner markets Chubb and Hartford with respect to its contingent commission agreement.
408. Willis gave Crum & Forster information concerning other insurer co-conspirators’ renewal retentions.
(6) The Co-Conspirators Benefited From the Conspiracy’s Operation
409. Both Willis and its co-conspirators benefited from participating in the conspiracy.
410. In April 4, 2004, Drinkwater explained how an insurer would benefit from having a PSA agreement with Willis:
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Underwriters [insurers] need to realise [sic] that our PSA’s are a reward for services that we provide to carriers such as carrier advocacy . . . Carrier Advocacy includes transparency into our organisation [sic] and our book, access to our leadership and our clients, an unfair competitive advantage as well as other benefits that partnerships bring. While the downside of not partnering with us is impossible to calculate I think that Hartford, Axis, Ace, St. Paul would all advocate the value and the positive effect that it has on our business.
411. Chubb identified the following benefits it would realize from being a co- conspirator: “The first phase of this process will be the consolidation of their mid market commercial business. This would represent the movement of approx. $20 million of existing
Willis business from current markets to Chubb over the next 12 to 18 months…. Standard commissions will stay in place though we will pay a consolidation fee, some form of profit sharing…and a new incentive.” In consideration for Willis’ consolidation of markets in
Chubb’s favor, Chubb agreed in April 1997 to pay an additional 5-10% incentive override to
Willis, depending on the volume of premium written.
412. Chubb was consistently one of Willis’ top 5 carriers in terms of premium written and contingent commissions for 2002 through 2004.
413. In December 2003, Michael Mann, informed Liberty Mutual that Willis would
“be able to deliver results for our key Partner Markets on an unprecedented basis.”
414. St. Paul/Travelers discussed a “2004 Travelers Willis National Elite Profit
Sharing” agreement with Willis and listed the significant benefits for both organizations to have a national profit sharing agreement. Among the benefits highlighted were that the agreement requires a threshold of 20% maximum loss ratio, based on gross written premium and that the agreement offers a minimum award of $150,000.
415. Willis did not meet the threshold for receiving contingent income from CNA in
2003. Patricia Corrigan Johnston, the Willis Carrier Advocate responsible for CNA informed
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Drinkwater and others at Willis that “CNA is paying us $141,500 [as contingent commission income for 2003] which we are technically not owed. I think these payments of good faith need to be remembered. We frequently discuss ‘partner markets’ and ‘markets stepping up’. CNA is clearly putting their money where their mouth is in making a commitment to Willis.” This information was subsequently communicated to CNA by Johnston: “I feel strongly (and have conveyed my feeling to anyone who will listen!) that CNA is supporting Willis in a partner market fashion. We, in turn, will support CNA and drive growth through our retail offices.”
416. In early 2004, Willis entered into a new contingent agreement with CNA. E-
mails exchange between Suzanne Douglas of Willis and CNA in January 2004 noted that for the
Large Property operation, CNA's writings with Willis grew 60% in 2003 over 2002, meaning
that Willis would earn approximately $185,000 in contingent payout for 2003. Based upon this,
the proposed deal for 2004 was a 5% contingent for all business over the highest threshold which
they had met in 2003. Based upon this arrangement for Willis, Michael Mann indicated that
Willis should consider pushing CNA aggressively in the field because Willis would receive 5%
on every dollar placed with CNA over the threshold.
417. Willis had a “significant global business relationship with Ace as a Partner
Market on a retail, wholesale and reinsurance basis.” “Willis North America retail grew at a
49% rate with ACE USA in 2003.”
418. Intent to build upon the success of 2003, Willis and Ace entered into a significant
premium growth agreement for 2004 that tied placement of business with three Ace business
units - Ace Risk Management, Excess Casualty and Global Property – to PSA payments. Ace, in
turn, recognized that a more lucrative PSA arrangement would further its goal of elevating its
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position with Willis vis-à-vis other carriers. As of January 2004, Ace USA was Willis’s fifth
largest Partner Market.
419. Michael Mann wrote in a February 23, 2004 e-mail: “Remember - It’s all about
increasing commission percentages (always ask for more), driving business to our Partner
Markets and utilizing Group Resources. The RMOs will set expectations on an office by office
basis and follow-up for results.” Only days later, on February 25, 2004, Mann wrote another e-
mail regarding Willis North American contingent agreements that began: “One (very important)
element of meeting the $50MM revenue target for 2004 is ensuring that we maximize the use of
our existing contingent partnership agreements.”
Tom Motamed of Chubb described the benefits of being a participant in the Willis market
consolidation efforts as follows: “Needless to say, if we can capitalize on [Willis’s] greed, we
should.”
420. As consideration for Willis’ significant insurance placements with AIG, AIG
agreed to use Willis Re as its reinsurance broker, and listed Willis Re as an approved direct
reinsurer for AIG underwriters to use. In January 2002, AIG entered into a PSA with Willis Re
providing contingent commission payments to Willis Re on its placements of reinsurance for
AIG. For 2002, AIG placed a total of $255,489,580 in premium with Willis Re, and a
comparable amount for 2003.
Date: May 22, 2007 Respectfully submitted,
CAFFERTY FAUCHER LLP
/s/ Bryan L. Clobes Bryan L. Clobes Ellen Meriwether Melody Forrester Timothy Fraser 1717 Arch Street, Ste. 3610
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Philadelphia, PA 19103 Tel.: 215-864-2800 Fax: 215-864-2810
WHATLEY, DRAKE & KALLAS, LLC
/s/ Edith M. Kallas Edith M. Kallas Joseph P. Guglielmo Elizabeth Rosenberg Lili R. Sabo 1540 Broadway, 37th Floor New York, NY 10036 Tel.: 212-447-7070 Fax: 212-447-7077
Plaintiffs’ Co-Lead Counsel
FOOTE, MEYERS, MIELKE & FLOWERS Robert M. Foote 28 North First Street, Suite 2 Geneva, IL 60134 Tel.: 630-232-6333 Fax: 845-8982
LEVIN, FISHBEIN, SEDRAN & BERMAN Howard J. Sedran 510 Walnut Street - Suite 500 Philadelphia, PA 19106 Tel.: 215-592-1500 Fax: 215-592-4663
Plaintiffs’ Executive Committee
LITE DEPALMA GREENBERG & RIVAS, LLC Allyn Z. Lite Bruce D. Greenberg Michael E. Patunas Two Gateway Center, 12th Floor Newark, NJ 07102 Tel.: 973-623-3000
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Fax: 973-623-0858
Liaison Counsel for Commercial Insurance Litigation
BONNETT, FAIRBOURN, FRIEDMAN & BALINT, P.C. Andrew S. Friedman Elaine A. Ryan Patricia N. Hurd 2901 N. Central Avenue, Suite 1000 Phoenix, AZ 85012 Tel.: 602-274-1100 Fax: 602-274-1199
Liaison Counsel for Employee-Benefit Litigation
AUDET & PARTNERS, LLP William M. Audet 221 Main Street Suite 1460 San Francisco, CA 94105 Tel.: 415-568-2555 Fax: 415-568-2556
BEELER, SCHAD & DIAMOND, P.C. Lawrence W. Schad James Shedden Michael S. Hilicki Tony H. Kim 332 South Michigan Avenue, Suite 1000 Chicago, IL 60604 Tel.: 312-939-6280 Fax: 312-939-4661
BOLOGNESE & ASSOCIATES Anthony J. Bolognese One Penn Center 1617 John F. Kennedy Boulevard Suite 650 Philadelphia, PA 19103 Tel.: 215-814-6750 Fax.: 215-814-6764
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BONSIGNORE & BREWER Robert J. Bonsignore Robin Brewer Daniel D’Angelo 23 Forest Street Medford, MA 02155 Tel.: 781-391-9400 Fax: 781-391-9496
CAFFERTY FAUCHER LLP Jennifer W. Sprengel Nyran Rose Pearson 30 N. LaSalle Street, Suite 3200 Chicago, IL 60602 Tel: 312-782-4880 Fax: 312-782-4485
CAREY & DANIS L.L.C. Michael J. Flannery James Rosemergy 8235 Forsyth Blvd. Suite 1100 St. Louis, MO 63105 Tel.: 314-725-7700 Fax: 314-721-0905
CHAVEZ LAW FIRM, P.C. Kathleen C. Chavez P.O. Box 772 Geneva, IL 60134 Tel.: 630-232-4480 Fax: 630-232-8265
CHIMICLES & TIKELLIS LLP Nicholas E. Chimicles Michael D. Gottsch 361 West Lancaster Avenue Haverford, PA 19041 Tel.: 610-642-8500 Fax: 610-649-3633
COHN, LIFLAND, PEARLMAN, HERRMANN & KNOPF Peter S. Pearlman Park 80 Plaza West One
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Saddle Brook, NJ 07663 Tel.: 201-845-9600 Fax: 201-845-9423
COOPER & KIRKHAM, P.C. Josef D. Cooper 655 Montgomery Street, 17th Floor San Francisco, CA 94111 Tel.: 415-788-3030 Fax: 415-882-7040
DOFFERMYRE SHIELDS CANFIELD KNOWLES & DEVINE Kenneth S. Canfield Ralph I. Knowles, Jr. Martha J. Fessenden Samuel W. Wethern 1355 Peachtree Street, Suite 1600 Atlanta, GA 30309 Tel.: 404-881-8900 Fax: 404-881-3007
DRUBNER HARTLEY & O’CONNOR James E. Hartley, Jr. Gary O’Connor Charles S. Hellman 500 Chase Parkway, 4th Floor Waterbury, CT 06708 Tel.: 203-753-9291 Fax: 203-753-6373
EYSTER KEY TUBB WEAVER & ROTH, LLP Nicholas B. Roth Heather Necklaus Hudson P.O. Box 1607 Decatur, AL 35602 Tel: 256- 353-6761 Fax: 256- 353-6767
FINE KAPLAN & BLACK Roberta D. Liebenberg 1835 Market Street, 28th Floor Philadelphia, PA 19103 Tel.: 215-567-6565 Fax: 215-568-5872
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FINKELSTEIN, THOMPSON & LOUGHRAN Burton H. Finkelstein L. Kendall Satterfield Halley F. Ascher 1050 30th Street, N.W. Washington, D.C. 20007 Tel.: 202-337-8000 Fax: 202-337-8090
FURTH LEHMANN & GRANT, LLP Michael P. Lehmann Thomas P. Dove Julio J. Ramos Jon T. King 225 Bush Street, Suite 1500 San Francisco, CA 94104 Tel.: 415-433-2070 Fax: 415-982-2076
GRAY AND WHITE Mark K. Gray 1200 PNC Plaza Louisville, KY 40202 Tel.: 502-585-2060
HANSON BRIDGES MARCUS VLAHOS RUDY LLP David J. Miller 333 Market Street, 23rd Floor San Francisco, CA 94105 Tel.: 415-777-3200 Fax: 415-541-9366
HANZMAN CRIDEN & LOVE, P.A. Michael E. Criden Kevin B. Love Plaza 57 7301 SW 57th Court Suite 515 South Miami, Florida 33143 Tel.: 305-357-9010 Fax: 305-357-9050
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JANSSEN, MALLOY, NEEDHAM, MORRISON, REINHOLTSEN & CROWLEY, LLP W. Timothy Needham 730 Fifth Street, Post Office Drawer 1288 Eureka, CA 95502 Tel.: 707-445-2071 Fax: 707-445-8305
JEFFREY BRODKIN 1845 Walnut Street, 22nd Floor Philadelphia, PA 19103 Tel.: 215-567-1234 Fax.: 609-569-0809
JEFFREY LOWE, P.C. Jeff Lowe 8235 Forsyth Blvd., Ste. 1100 St. Louis, MO 63105 Tel.: 314-721-3668 Fax: 314-678-3401
JOHN P. MCCARTHY 217 Bay Avenue Somers Point, NJ 08224 Tel.: 609-653-1094 Fax.: 609-653-3029
KLAFTER & OLSEN LLP Jeffrey A. Klafter 1311 Mamaroneck Avenue, Suite 220 White Plains, NY 10602 Tel.: 914-997-5656 Fax: 914-997-2444
LARRY D. DRURY, LTD. Larry D. Drury 205 West Randolph, Suite 1430 Chicago, IL 60606 Tel.: 312-346-7950 Fax: 312-346-5777
LAW OFFICES OF GARY H. SAPOSNIK Gary H. Saposnik
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105 West Madison Street, Ste. 700 Chicago, IL 60602 Tel: 312-357-1777 Fax: 312-606-0413
LAW OFFICES OF RANDY R. RENICK Randy R. Renick 128 North Fair Oaks Avenue, Ste. 204 Pasadena, CA 91103 Tel.: 626-585-9608 Fax: 626-585-9610
LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS, LLP John J. Stoia, Jr. Theodore J. Pintar Bonny E. Sweeney James D. McNamara Mary Lynne Calkins Rachel L. Jensen 655 West Broadway Suite 1900 San Diego, CA 92101 Tel.: 619-231-1058 Fax: 619-231-7423
LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS, LLP Samuel H. Rudman 200 Broadhollow Road, Suite 406 Melville, NY 11747 Tel.: 631-367-7100 Fax: 631-367-1173
LEVINE DESANTIS, LLC Mitchell B. Jacobs 150 Essex St., Ste. 303 Millburn, New Jersey 07041 Tel: 973-376-9050 Fax: 973-379-6898
LOOPER, REED & MCGRAW James L. Reed, Jr. Travis Crabtree 1300 Post Oak Blvd. Ste. 2000 Houston, TX 77056
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Tel.: 713- 986-7000 Fax: 713- 986-7100
MAGER & GOLDSTEIN, LLP Jayne Arnold Goldstein 1640 Town Center Circle, Suite 216 Weston, FL 33326 Tel: 954-515-0123 Fax: 954-515-0124
MEREDITH COHEN GREENFOGEL & SKIRNICK, P.C. Steven J. Greenfogel Daniel B. Allanoff Architects Building, 22nd Floor 117 South 17th Street Philadelphia, PA 19103 Tel.: 215-564-5182 Fax: 215-569-0958
PHILIP STEINBERG 124 Rockland Avenue Bala Cynwood, PA 19004 Tel.: 610-664 3101 Fax.: 610-664-0972
SAVERI & SAVERI, INC. Guido Saveri R. Alexander Saveri Geoffrey C. Rushing Cadio Zirpoli One Eleven Pine, Suite 1700 San Francisco, CA 94111-5619 Tel.: 415-217-6810 Fax: 415-217-6813
SHAHEEN & GORDON William Shaheen D. Michael Noonan 140 Washington St., 2nd Fl. P.O. Box 977 Dover, NH 03821-0977 Tel.: 603-749-5000 Fax: 603-749-1838
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SHERMAN, SILVERSTEIN, KOHL, ROSE & PODOLSKY Alan C. Milstein Jeffrey P. Resnick Fairway Corporate Center 4300 Haddonfield Road, Ste. 311 Pennsauken, NJ 08109 Tel: 856-662-0700 Fax: 856-488-4744
SPECTOR, ROSEMAN & KODROFF, P.C. Theodore M. Lieverman Eugene A. Spector Jay S. Cohen 1818 Market Street, Suite 2500 Philadelphia, PA 19102 Tel.: 215-496-0300 Fax: 215-496-6611
TRUJILLO RODRIGUEZ & RICHARDS, LLP Lisa J. Rodriguez 8 Kings Highway West Haddonfield, NJ 08033 Tel: 856-795-9002
WHATLEY, DRAKE & KALLAS, LLC Joe R. Whatley, Jr. Charlene Ford Richard Rouco Richard Frankowski 2001 Park Place North Suite 1000 Birmingham, AL 35203 Tel.: 205-328-9576 Fax: 205-328-9669
WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLC Mary Jane Edelstein Fait Adam J. Levitt 656 West Randolph Street Suite 500 West Chicago, IL 60661 Tel.: 312-466-9200
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Fax: 312-466-9292
WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLC Fred Taylor Isquith Alexander Schmidt 270 Madison Avenue, 10th Floor New York, NY 10016 Tel.: 212-545-4600 Fax: 212-545-4653
ZWERLING, SCHACHTER & ZWERLING, LLP Robert S. Schachter Susan Salvetti Stephen L. Brodsky Daniel Drachler Justin M. Tarshis 41 Madison Avenue New York, NY 10010 Tel.: 212-223-3900 Fax: 212-371-5969
Attorneys for Plaintiffs
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Case No. 14-56140 UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
CALIFORNIA COALITION FOR FAMILIES AND CHILDREN
v.
SAN DIEGO COUNTY BAR ASSOCIATION, et al.,
Appeal From The United States District Court For The Southern District of California Case No. 03-cv-1944 CAB (JLB) The Honorable Cathy Ann Bencivengo
Exhibits to Motion to Take Judicial Notice
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UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY ______x IN RE: INSURANCE BROKERAGE : MDL No. 1663 ANTITRUST LITIGATION : : Civil No. 04-5184 (GEB) APPLIES TO ALL COMMERCIAL : INSURANCE BROKERAGE ACTIONS : Hon. Garrett E. Brown : : JURY TRIAL DEMANDED ______x
THIRD AMENDED COMMERCIAL INSURANCE PLAINTIFFS’ RICO CASE STATEMENT PURSUANT TO LOCAL RULE 16.1(B)(4) CaseCase: 2:04-cv-05184-GEB-PS 14-56140 10/22/2014 Document ID: 9287316 1239 DktEntry:Filed 06/29/2007 12 Page: Page 497 2of of 605 94
Pursuant to the Court’s Order of April 5, 20071, Plaintiffs respectfully submit this
Third Amended RICO Case Statement under Local Civil Rule 16.1(B)(4).
1. State whether the alleged unlawful conduct is in violation of 18 U.S.C. § 1962(a), (b), (c) and/or (d).
Plaintiffs assert violations of 18 U.S.C. § 1962(c) and 18 U.S.C. § 1962(d). There
are no alleged violations of 18 U.S.C. § 1962(a) or 18 U.S.C. § 1962(b).
2. List each Defendant and state the alleged misconduct and basis of liability of each defendant.
MARSH ENTERPRISE DEFENDANTS:
1 Pursuant to Order No. 1, dated March 11, 2005, Plaintiffs previously submitted a Joint RICO Case Statement, which addressed both commercial insurance allegations and employee benefit allegations. Plaintiffs submitted an Amended RICO Case Statement on August 15, 2005. Likewise, pursuant to an Order dated October 3, 2006, Plaintiffs submitted a Second Amended RICO Case Statement on October 25, 2006.
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Defendants Marsh2, ACE3, AIG4, Axis5, Chubb6, CNA7, Crum & Forster8,
Fireman’s Fund9, Hartford10, Liberty Mutual11, Munich12, St. Paul Travelers13, XL14 and
Zurich15 (herein referred to collectively as the “Marsh Enterprise Defendants”) formed an
2 “Marsh" collectively refers to the Defendants identified in Paragraphs 24 and 25 of the Second Consolidated Amended Commercial Class Action Complaint.
3 “ACE” collectively refers to the Defendants identified in Paragraphs 39 and 40 of the Second Consolidated Amended Commercial Class Action Complaint.
4 “AIG” collectively refers to the Defendants identified in Paragraphs 37 and 38 of the Second Consolidated Amended Commercial Class Action Complaint.
5 “Axis” collectively refers to the Defendants identified in Paragraphs 62 and 63 of the Second Consolidated Amended Commercial Class Action Complaint.
6 “Chubb” collectively refers to the Defendants identified in Paragraphs 48 and 49 of the Second Consolidated Amended Commercial Class Action Complaint.
7 “CNA” collectively refers to the Defendants identified in Paragraphs 56 and 57 of the Second Consolidated Amended Commercial Class Action Complaint.
8 “Crum & Forster” collectively refers to the Defendants identified in Paragraphs 50 and 51 of the Second Consolidated Amended Commercial Class Action Complaint.
9 “Fireman’s Fund” collectively refers to the Defendants identified in Paragraphs 52 and 53 of the Second Consolidated Amended Commercial Class Action Complaint.
10 “Hartford” collectively refers to the Defendants identified in Paragraphs 41 and 42 of the Second Consolidated Amended Commercial Class Action Complaint.
11 “Liberty Mutual” collectively refers to the Defendants identified in Paragraphs 60 and 61 of the Second Consolidated Amended Commercial Class Action Complaint.
12 “Munich” collectively refers to the Defendants identified in Paragraphs 58 and 59 of the Second Consolidated Amended Commercial Class Action Complaint.
13 “St. Paul” collectively refers to the Defendants identified in Paragraphs 43 and 44 of the Second Consolidated Amended Commercial Class Action Complaint.
14 “XL” collectively refers to the Defendants identified in Paragraphs 54 and 55 of the Second Consolidated Amended Commercial Class Action Complaint.
15 “Zurich” collectively refers to the Defendants identified in Paragraphs 45-47 of the Second Consolidated Amended Commercial Class Action Complaint.
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association in fact enterprise (the “Marsh Enterprise”) and participated in or conducted the
affairs of the Marsh Enterprise through a pattern of racketeering activity in violation of
18 U.S.C. § 1962(c), utilizing interstate mail and wire in furtherance of the scheme.
Marsh and the Marsh Enterprise Insurers likewise conspired to violate 18 U.S.C. §
1962(c) in violation of 18 U.S.C. § 1962(d).
Based on Marsh’s relationship with its clients, its fiduciary duty and its
representations, Marsh had a duty to fully disclose any conflicts of interest it had in
providing services to its clients as well as any material information that might impact its
ability to act in its client's best interest. Instead, the Marsh Enterprise Defendants
engaged in a scheme whereby the Marsh Enterprise Defendants engaged in steering and
other practices in order to maximize the volume of insurance placed with the Insurer
Defendants and maximizing the volume of renewal business placed with the
Insurer Defendants. In furtherance of the scheme, the Marsh Enterprise Defendants
knowingly and intentionally concealed the following material matters from Marsh's
clients who paid for the kickbacks through higher premiums:
• that Marsh was not acting in the best interest of its clients but was instead
acting on behalf of the Marsh Enterprise Insurers and in furtherance of its own
financial interests;
• the true nature of the association and agreements between Marsh and the
Marsh Enterprise Insurers;
• the conflict of interest inherent in the agreements between Marsh and the
Marsh Enterprise Insurers;
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• Marsh’s consolidation of its insurance markets to a few select strategic
partners;
• Marsh’s steering of insurance placements to Marsh Enterprise Insurers;
• that Marsh was protecting Marsh Enterprise Insurers from competition;
• the rigging of bids by Marsh and Insurer Defendants AIG, ACE, Axis, Chubb,
XL, Munich/AmRe, Liberty Mutual, St. Paul Travelers, Fireman’s Fund and
Zurich in furtherance of the scheme and to prevent disclosure;
• that Marsh Enterprise Insurers kick back a substantial portion of their
increased profits to Marsh in the form of contingent commissions, loans,
subsidies and payments for “services” as well as other agreements and tying
arrangements that serve the same function;
• that the Marsh Enterprise Insurers factor the kickbacks paid to Marsh into the
cost of Plaintiffs’ and Class Members’ insurance, resulting in injury to Plaintiffs’
and Class Members’ business and property.
The Marsh Enterprise Defendants’ fraudulent scheme violated 18 U.S.C. 1962(c) and (d).
In addition, as set forth in response to Question 14, Marsh violated 18 U.S.C.
1962(d) by conspiring with Aon, Willis, Gallagher, Wells Fargo/Acordia, and HRH to
prevent detection of each broker’s fraudulent scheme.
AON ENTERPRISE DEFENDANTS:
Aon16, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford,
Liberty Mutual, St. Paul Travelers, XL and Zurich (herein referred to collectively as the
16 “Aon” collectively refers to the Defendants identified in Paragraphs 26 and 27 of the Second Consolidated Amended Commercial Class Action Complaint.
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“Aon Enterprise Defendants”) formed an association in fact enterprise (the “Aon Enterprise”)
and participated in or conducted the affairs of the Aon Enterprise through a pattern of
racketeering activity in violation of 18 U.S.C. § 1962(c), utilizing interstate mail and wire
in furtherance of the scheme. The Aon Enterprise Defendants likewise conspired to
violate 18 U.S.C. § 1962(c) in violation of 18 U.S.C. § 1962(d).
Based on Aon’s relationship with its clients, its fiduciary duty and its
representations, Aon had a duty to fully disclose any conflicts of interest it had in
providing services to its clients as well as any material information that might impact its
ability to act in its client's best interest. Instead, the Aon Enterprise Defendants engaged
in a scheme whereby the Aon Enterprise Defendants engaged in steering and other
practices in order to maximize the volume of insurance placed with the Insurer
Defendants and maximizing the volume of renewal business placed with the
Insurer Defendants. In furtherance of the scheme, the Aon Enterprise Defendants
knowingly and intentionally concealed the following material matters from Aon's clients
who paid for the kickbacks through higher premiums:
• that Aon was not acting in the best interest of its clients but was instead acting
on behalf of the Aon Enterprise Insurers and in furtherance of its own
financial interests;
• the true nature of the association and agreements between Aon and the Aon
Enterprise Insurers;
• the conflict of interest inherent in the agreements between Aon and the Aon
Enterprise Insurers;
• Aon’s consolidation of its insurance markets to a few select strategic partners;
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• Aon’s steering of insurance placements to the Aon Enterprise Insurers;
• that Aon was protecting the Aon Enterprise Insurers from competition;
• that the Aon Enterprise Insurers kick back a substantial portion of their
increased profits to Aon in the form of contingent commissions, loans,
subsidies and payments for “services” as well as other agreements and tying
arrangements that serve the same function;
• that the Aon Enterprise Insurers factor the kickbacks paid to Aon into the cost
of Plaintiffs’ and Class Members’ insurance, resulting in injury to Plaintiffs’ and
Class Members’ business and property.
The Aon Enterprise Defendants’ fraudulent scheme violated 18 U.S.C. 1962(c) and (d).
In addition, as set forth in response to Question 14, Aon violated 18 U.S.C.
1962(d) by conspiring with Marsh, Willis, Gallagher, Wells Fargo/Acordia, and HRH to
prevent detection of each broker’s fraudulent scheme.
WILLIS ENTERPRISE DEFENDANTS:
Defendants Willis17, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s
Fund, Hartford, Liberty Mutual, St. Paul Travelers and Zurich (herein referred to
collectively as the “Willis Enterprise Defendants”) formed an association in fact enterprise
(the Willis Enterprise) and participated in or conducted the affairs of the Willis enterprise
through a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c), utilizing
interstate mail and wire in furtherance of the scheme. The Willis Enterprise Defendants
likewise conspired to violate 18 U.S.C. § 1962(c) in violation of 18 U.S.C. § 1962(d).
17 “Willis” collectively refers to the Defendants identified in Paragraphs 28 and 29 of the Second Consolidated Amended Commercial Class Action Complaint.
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Based on Willis’s relationship with its clients, its fiduciary duty and its
representations, Willis had a duty to fully disclose any conflicts of interest it had in
providing services to its clients as well as any material information that might impact its
ability to act in its client's best interest. Instead, the Willis Enterprise Defendants
engaged in a scheme whereby the Willis Enterprise Defendants engaged in steering and
other practices in order to maximize the volume of insurance placed with the Insurer
Defendants and maximizing the volume of renewal business placed with the
Insurer Defendants. In furtherance of the scheme, the Willis Enterprise Defendants
knowingly and intentionally concealed the following material matters from Willis's
clients who paid for the kickbacks through higher premiums:
• that Willis was not acting in the best interest of its clients but was instead
acting on behalf of the Willis Enterprise Insurers and in furtherance of its own
financial interests;
• the true nature of the association and agreements between Willis and the
Willis Enterprise Insurers;
• the conflict of interest inherent in the agreements between Willis and the
Willis Enterprise Insurers;
• Willis’s consolidation of its insurance markets to a few select strategic
partners;
• Willis’s steering of insurance placements to the Willis Enterprise Insurers;
• that Willis was protecting the Willis Enterprise Insurers from competition;
• that Willis Enterprise Insurers kick back a substantial portion of their
increased profits to Willis in the form of contingent commissions, loans,
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subsidies and payments for “services” as well as other agreements and tying
arrangements that serve the same function;
• that the Willis Enterprise Insurers factor the kickbacks paid to Willis into the
cost of Plaintiffs’ and Class Members’ insurance, resulting in injury to Plaintiffs’
and Class Members’ business and property.
The Willis Enterprise Defendants’ fraudulent scheme violated 18 U.S.C. 1962(c) and (d).
In addition, as set forth in response to Question 14, Willis violated 18 U.S.C.
1962(d) by conspiring with Marsh, Aon, Gallagher, Wells Fargo/Acordia, and HRH to
prevent detection of each broker’s fraudulent scheme.
GALLAGHER ENTERPRISE DEFENDANTS:
Gallagher18, AIG, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford and
St. Paul Travelers (herein referred to collectively as the “Gallagher Enterprise Defendants”)
formed an association in fact enterprise (the Gallagher Enterprise) and participated in or
conducted the affairs of the Gallagher enterprise through a pattern of racketeering activity
in violation of 18 U.S.C. § 1962(c), utilizing interstate mail and wire in furtherance of the
scheme. Gallagher Enterprise Defendants likewise conspired to violate 18 U.S.C. §
1962(c) in violation of 18 U.S.C. § 1962(d).
Based on Gallagher’s relationship with its clients, its fiduciary duty and its
representations, Gallagher had a duty to fully disclose any conflicts of interest it had in
providing services to its clients as well as any material information that might impact its
ability to act in its client's best interest. Instead, the Gallagher Enterprise Defendants
engaged in a scheme whereby the Gallagher Enterprise Defendants engaged in steering
18 “Gallagher” collectively refers to the Defendants identified in Paragraphs 30-33 of the Second Consolidated Amended Commercial Class Action Complaint.
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and other practices in order to maximize the volume of insurance placed with the Insurer
Defendants and maximizing the volume of renewal business placed with the
Insurer Defendants. In furtherance of the scheme, the Gallagher Enterprise Defendants
knowingly and intentionally concealed the following material matters from Gallagher's
clients who paid for the kickbacks through higher premiums:
• that Gallagher was not acting in the best interest of its clients but was instead
acting on behalf of the Gallagher Enterprise Insurers and in furtherance of its
own financial interests;
• the true nature of the association and agreements between Gallagher and the
Gallagher Enterprise Insurers;
• the conflict of interest inherent in the agreements between Gallagher and the
Gallagher Enterprise Insurers;
• Gallagher’s consolidation of its insurance markets to a few select strategic
partners;
• Gallagher’s steering of insurance placements to the Gallagher Enterprise
Insurers;
• that Gallagher was protecting the Gallagher Enterprise Insurers from
competition;
• that the Gallagher Enterprise Insurers kick back a substantial portion of their
increased profits to Gallagher in the form of contingent commissions, loans,
subsidies and payments for “services” as well as other agreements and tying
arrangements that serve the same function;
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• that the Gallagher Enterprise Insurers factor the kickbacks paid to Gallagher
into the cost of Plaintiffs’ and Class Members’ insurance, resulting in injury to
Plaintiffs’ and Class Members’ business and property.
The Gallagher Enterprise Defendants’ fraudulent scheme violated 18 U.S.C. 1962(c) and
(d).
In addition, as set forth in response to Question 14, Gallagher violated 18 U.S.C.
1962(d) by conspiring with Marsh, Aon, Willis, Wells Fargo/Acordia, and HRH to
prevent detection of each broker’s fraudulent scheme.
HRH ENTERPRISE DEFENDANTS:
Defendants HRH, CNA, Hartford and St. Paul Travelers (herein referred to
collectively as the “HRH Enterprise Defendants”) formed an association in fact enterprise
(the HRH Enterprise) and participated in or conducted the affairs of the HRH enterprise
through a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c), utilizing
interstate mail and wire in furtherance of the scheme. The HRH Enterprise Defendants
likewise conspired to violate 18 U.S.C. § 1962(c) in violation of 18 U.S.C. § 1962(d).
Based on HRH’s relationship with its clients, its fiduciary duty and its
representations, HRH had a duty to fully disclose any conflicts of interest it had in
providing services to its clients as well as any material information that might impact its
ability to act in its client's best interest. Instead, the HRH Enterprise Defendants engaged
in a scheme whereby the HRH Enterprise Defendants engaged in steering and other
practices in order to maximize the volume of insurance placed with the Insurer
Defendants and maximizing the volume of renewal business placed with the
Insurer Defendants. In furtherance of the scheme, the HRH Enterprise Defendants
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knowingly and intentionally concealed the following material matters from HRH's clients
who paid for the kickbacks through higher premiums:
• that HRH was not acting in the best interest of its clients but was instead
acting on behalf of the HRH Enterprise Insurers and in furtherance of its own
financial interests;
• the true nature of the association and agreements between HRH and the HRH
Enterprise Insurers;
• the conflict of interest inherent in the agreements between HRH and the HRH
Enterprise Insurers;
• HRH’s consolidation of its insurance markets to a few select strategic partners;
• HRH’s steering of insurance placements to HRH Enterprise Insurers;
• that HRH was protecting the HRH Enterprise Insurers from competition;
• that the HRH Enterprise Insurers kick back a substantial portion of their
increased profits to HRH in the form of contingent commissions, loans,
subsidies and payments for “services” as well as other agreements and tying
arrangements that serve the same function;
• that the HRH Enterprise Insurers factor the kickbacks paid to HRH into the
cost of Plaintiffs’ and Class Members’ insurance, resulting in injury to Plaintiffs’
and Class Members’ business and property.
HRH Enterprise Defendants’ fraudulent scheme violated 18 U.S.C. 1962(c) and (d).
In addition, as set forth in response to Question 14, HRH violated 18 U.S.C. 1962(d) by
conspiring with Marsh, Aon, Willis, Gallagher and Wells Fargo/Acordia to prevent
detection of each broker’s fraudulent scheme.
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WELLS FARGO/ACORDIA ENTERPRISE DEFENDANTS:
Wells Fargo/Acordia, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford,
St. Paul Travelers (herein referred to collectively to as the “Wells Fargo/Acordia
Enterprise Defendants”) formed an association in fact enterprise (the Wells Fargo/Acordia
Enterprise) and participated in or conducted the affairs of the Wells Fargo/Acordia
Enterprise through a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c),
utilizing interstate mail and wire in furtherance of the scheme. The Wells Fargo/Acordia
Enterprise Defendants likewise conspired to violate 18 U.S.C. § 1962(c) in violation of
18 U.S.C. § 1962(d).
Based on Wells Fargo/Acordia’s relationship with its clients, its fiduciary duty and
its representations, Wells Fargo/Acordia had a duty to fully disclose any conflicts of
interest it had in providing services to its clients as well as any material information that
might impact its ability to act in its client's best interest. Instead, the Wells
Fargo/Acordia Enterprise Defendants engaged in a scheme whereby the Wells
Fargo/Acordia Enterprise Defendants engaged in steering and other practices in order to
maximize the volume of insurance placed with the Insurer Defendants and maximizing
the volume of renewal business placed with the Insurer Defendants. In furtherance of the
scheme, the Wells Fargo/Acordia Enterprise Defendants knowingly and intentionally
concealed the following material matters from Wells Fargo/Acordia's clients who paid for
the kickbacks through higher premiums:
• that Wells Fargo/Acordia was not acting in the best interest of its clients but
was instead acting on behalf of the Wells Fargo/Acordia Enterprise Insurers
and in furtherance of its own financial interests;
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• the true nature of the association and agreements between Wells
Fargo/Acordia and the Wells Fargo/Acordia Enterprise Insurers;
• the conflict of interest inherent in the agreements between Wells
Fargo/Acordia and the Wells Fargo/Acordia Enterprise Insurers;
• Wells Fargo/Acordia’s consolidation of its insurance markets to a few select
strategic partners;
• Wells Fargo/Acordia’s steering of insurance placements to the Wells
Fargo/Acordia Enterprise Insurers;
• that Wells Fargo/Acordia was protecting the Wells Fargo/Acordia Enterprise
Insurers from competition;
• that the Wells Fargo/Acordia Enterprise Insurers kick back a substantial
portion of their increased profits to Wells Fargo/Acordia in the form of
contingent commissions, loans, subsidies and payments for “services” as well as
other agreements and tying arrangements that serve the same function;
• that the Wells Fargo/Acordia Enterprise Insurers factor the kickbacks paid to
Wells Fargo/Acordia into the cost of Plaintiffs’ and Class Members’ insurance,
resulting in injury to Plaintiffs’ and Class Members’ business and property.
The Wells Fargo/Acordia Enterprise Defendants’ fraudulent scheme violated 18 U.S.C.
1962(c) and (d).
In addition, as set forth in response to Question 14, Wells Fargo/Acordia violated
18 U.S.C. 1962(d) by conspiring with Marsh, Aon, Willis, Gallagher and HRH to prevent
detection of each broker’s fraudulent scheme.
3. List the alleged wrongdoers, other than the defendants listed above, and state the alleged misconduct of each wrongdoer.
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Additional wrongdoers not named as defendants include Karen Radke, Jean-
Baptiste Tateossian, Carlos Coello and James Mohs of AIG; Patricia Abrams of ACE;
John Keenan, Edward Coughlin and James Spiegel of Zurich American Insurance
Company; Kevin Bott of Liberty Mutual and Robert Stearns, Joshua Bewlay, Kathryn
Winter, Regina Hatton, Nicole Michaels, Jason Monteforte, Todd Murphy, Peter
Andersen, and Mark Manzi of Marsh. These individuals have pleaded guilty to criminal
charges for their involvement in a bid-rigging scheme. The following persons have also
been the subject of criminal investigations which led to indictments: Greg Doherty,
Kathleen Drake, William Gilman, Thomas T. Green, Edward Keane Jr., William
McBurnie, Edward McNenny, and Joseph Peiser.
4. List the alleged victims and state how each victim was allegedly injured.
Plaintiffs and Class Members are victims of Defendants’ pattern of racketeering
activity and conspiracies. Plaintiffs and Class Members were injured because Defendants’
illegally increased profits were imbedded in the premiums all Plaintiffs and Class
Members paid for insurance; accordingly, Defendants’ control of the enterprises through
the pattern of racketeering and their conspiracy regarding the fraudulent scheme and
concealment of the scheme proximately caused the cost of insurance obtained by all
Plaintiffs and Class Members to increase, thereby injuring them in their business and
property.
5 Describe in detail the pattern of racketeering activity or collection of unlawful debts alleged for each RICO claim. A description of the pattern of racketeering shall include the following information:
a. List the alleged predicate acts and the specific statutes which are allegedly violated;
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Defendants have engaged in numerous predicate acts of mail and wire fraud. In
carrying out these overt acts and fraudulent schemes described throughout this Amended
RICO Case Statement, Defendants have violated federal laws including mail and wire
fraud, 18 U.S.C. §§ 1341 and 1343. These predicate acts constitute a pattern of
racketeering through which defendants have violated 18 U.S.C. 1962(c) and (d).
b/c. Provide the dates of the predicate acts, the participants in the predicate acts, and a description of the facts surrounding the predicate acts; If the RICO claim is based on the predicate offenses of wire fraud, mail fraud, or fraud in the sale of securities, provide the “circumstances constituting fraud or mistake [which] shall be stated with particularity.” Fed. R. Civ. P. 9(b). Identify the time, place and contents of the alleged misrepresentations, and the identity of persons to whom and by whom the alleged misrepresentations were made;
Mail and Wire Fraud:
MARSH ENTERPRISE DEFENDANTS:
The Marsh Enterprise Defendants have violated 18 U.S.C. § 1341 and 18 U.S.C. §
1343 by utilizing or causing the use of the United States postal service, commercial
interstate carrier, wire or other interstate electronic media in furtherance of their
fraudulent scheme.
Defendants have engaged in a scheme whereby Marsh would allocate business to a
limited number of partner Insurer Defendants in exchange for kickbacks in the form of
contingent commissions and/or other payments which were factored into the premiums
paid by plaintiffs and class members. Specifically, as set forth in further detail in the
Revised Particularized Statement and the Second Amended Complaint, Marsh in
conjunction with the Marsh Insurer Defendants engaged in the following conduct:
- Marsh significantly consolidated the number of carriers to which it would
market its clients’ business.
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- Marsh entered into “strategic partnerships” with the Marsh Enterprise
Defendants to which Marsh agreed to steer the bulk of its business.
- As strategic partners, the Marsh Enterprise Defendants would be given access
to a guaranteed flow of premium volume from Marsh, as well as protection
from normal competition from both inside and outside of the strategic
partnership for renewal of each Insurer Defendant’s own business.
- In order to accomplish this, the Marsh Enterprise Defendants engaged in a
number of practices specifically set forth in the Revised Particularized
Statements including bid rigging, agreements not to bid renewals
competitively, limiting the marketing of renewals, disclosing other carriers’
bids and other actions designed to maximize the volume of insurance placed
with the Marsh Enterprise Insurers.
- In exchange for being given these unfair competitive advantages, the Marsh
Enterprise Insurers agreed to pay kickbacks to Marsh.
In furtherance of the scheme, the Marsh Enterprise Defendants have sent matters
and things through the mail and wire or have known that mail or wire would be used in
furtherance of the scheme. Materials sent by mail or wire have included correspondence,
emails, faxes, marketing materials, contracts or agreements between Marsh and the client,
requests for proposals, policies and policy materials, insurance quotes, contingent
commission agreements, insurance binders, commission schedules, invoices to clients
and payments from insurers to brokers.
The Marsh Enterprise Defendants have frequently communicated with each other
by mail and/or wire in furtherance of the scheme. Such communications have included
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contingent commission agreements, letters, faxes and emails memorializing various
agreements between Marsh and the Marsh Enterprise Insurers and details regarding
consolidation, requests for bids and bids, invoices, and contingent payments. Many
instances of these types of communications are further detailed in the Revised
Particularized Statement and the Second Amended Complaint.
Defendants’ scheme conflicts with Marsh’s duties and representations to its clients.
Marsh is retained by its clients, including Plaintiffs and Class Members, for the sole
purpose of acting on behalf of and providing the clients with unbiased advice concerning
the type, amount and level of insurance needed, as well as to provide sound and accurate
advice regarding the insurance companies they recommend.
Additionally, Marsh is a fiduciary of its clients, and therefore owes its clients,
including Plaintiffs and other members of the Class: (i) a duty of loyalty to act in the best
interests of its clients and to always put its clients’ interests ahead of its own; (ii) a duty of
full and fair disclosure and complete candor in connection with any insurance-related
products purchased by clients or services rendered by Marsh, including the duty to
disclose the source and amounts of all income it receives in or as a result of any
transaction involving its clients; (iii) a duty of care in connection with any insurance-
related products purchased by its clients or services rendered by Marsh; (iv) a duty to
provide impartial advice in connection with any insurance-related products purchased by
its clients or services rendered by Marsh; (v) a duty to use its best business judgment in
connection with any insurance-related products or services purchased by its clients – in
other words to find the best coverage at the lowest price; and, (vi) a duty of good faith
and fair dealing.
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In his 1998 speech to RIMS, Roger Egan recognized that Marsh has “a duty to
fully disclose [its] income.” Since the announcement of the investigation by Attorney
General Spitzer, Marsh has yet again acknowledged and affirmed its duty to act on behalf
of its clients. In a October 29, 2004 letter to “the Clients of Marsh” from Michael G.
Cherkasky, Chairman and Chief Executive Officer of Marsh Inc., Cherkasky stated, “We
must reaffirm our commitment to you and provide you with complete assurance that we
will execute transactions in your best interest and in accordance with the highest
professional and ethical standards.” Marsh then reaffirmed, “There are more than 42,000
colleagues at Marsh who believe – as they always have– that the clients’ interests must
come first.” In a document created to assist employees in responding to client questions
regarding regulatory investigations, Marsh wrote: “Our guiding principle is to consider our
client’s best interest in all placements. We are our clients’ advocates and we represent
them in negotiations. We don’t represent the markets.”
As a result of the nature of the relationship between Marsh and its clients, as a
result of Marsh’s fiduciary status and as a result of Marsh’s representations, Marsh had a
duty to fully disclose any conflicts of interest it had in providing services to its clients as
well as any material information that might impact its ability to act in its client’s best
interest. Marsh, however, did not disclose its conflicts of interest, its allocation of
business to a limited number of insurer partners or the resulting harm to its clients.
Throughout the Class Period, Marsh regularly disseminated materials by mail and
wire wherein Marsh routinely represented that Marsh was acting on the client’s behalf and
not on behalf of the insurer, that Marsh was functioning as the client’s broker, that Marsh
would keep the client informed and that Marsh would use its “best efforts” on behalf of the
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client. To the extent Marsh provided any information regarding contingent commission
income or Marsh’s relationship with the Marsh Enterprise Insurers the information was
either materially false or misleading. Marsh’s communications with its clients, including
Plaintiffs, which contained material misrepresentations and/or omissions are evidenced
by the examples set forth herein. For example, on or about January 1, 1995, Marsh &
McLennan, Inc. and the Golden Gate Bridge, Highway and Transportation District
entered into a “Contract for Professional Services” wherein Marsh agreed to act as an
“advisor and broker” for Golden Gate. The agreement contained no reference to contingent
commissions. Marsh made the following misrepresentations in brokerage agreements
with Plaintiffs Bayou Steel and City of Stamford:
This agreement reflects our understanding with you regarding our services on your behalf. We will act as your representative to the world insurance market with the objective of presenting to you an insurance placement opportunity which you regard as appropriate considering cost, coverage and continuity. We are first and foremost your representative in this function. As such, we do not speak for and are not bound to utilize any particular insurance company….It is our responsibility to negotiate on your behalf with your insurance company and to keep you informed of significant developments in those negotiations which are likely to have a bearing on your insurance program….It is our practice to make placements with insurance companies that meet prevailing guidelines established by us from time to time as circumstances and markets consideration may warrant.
On or about September 21, 1999 Marsh USA Inc. sent Plaintiff Bayou Steel Corporation
(“Bayou Steel”) a Brokerage Services Agreement containing this language. The agreement
was signed by Robert C. Hill on behalf of Marsh USA Inc. and by Brian P. Verrette on
behalf of Bayou Steel. Marsh likewise sent the City of Stamford an executed version of
this form agreement on or about July 1, 2001 signed by Chad F. Marrison. Marsh and the
City of Stamford entered an agreement with the same or substantially similar terms
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effective June 28, 2004, again signed by Chad F. Marrison on behalf of Marsh. The
document contained only the following reference to contingent commissions: “As used in
this paragraph, the term ‘commissions’ does not include contingent payments or
allowances by markets based on our overall book of business or its performance.” This
statement was insufficient to fully disclose Marsh’s compensation arrangements with the
Marsh Enterprise Insurers, noting only that commissions does not include contingent
payments while failing to provide any information regarding the strategic partnerships
that Marsh had entered into with the Marsh Enterprise Insurers or the significance these
partnerships and the contingent payment arrangements had on the insurance placement
process and the premiums charged.
The Engagement Letter or Client Service Agreement sent to Plaintiffs Cellect,
Comcar, Golden Gate, Opticare and Sunburst likewise reassured them that Marsh was
acting in their best interest as their insurance, risk management and risk financing advisor
and insurance broker, performing the following services:
- Identify and negotiate on your behalf with insurers and keep you informed of
significant developments. Marsh will be authorized to represent and assist you in
all discussions and transactions with all insurers, provided that Marsh will not
place any insurance on your behalf unless authorized by you….
- Use its best efforts to place insurance on your behalf, if so instructed by you….
- Keep you information of significant changes and/or trends in the insurance
marketplace….
- Provide you with detailed invoices, except in the case of direct billing by insurers….
- Act as a liaison between you and insurers…
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- Develop a mutually agreeable renewal action plan and timeline that highlights
accountability and meets your objectives.
Marsh also continued to assure clients that “Marsh does not speak for any insurer, is
not bound to utilize any particular insurer, and does not have the authority to make
binding commitments on behalf of any insurer.”
The following explanation regarding compensation was included in the
agreements which were commission based:
Marsh will be compensated for the services outlined in this letter through commissions received from insurance companies. In addition as is the custom in Marsh’s industry, Marsh has agreements with certain insurers under which Marsh may receive payments based upon such factors as the overall book of business placed by it and its affiliates, the performance of that book or the aggregate commissions paid for that book. Such “placement service revenue” would be in addition to any other compensation Marsh may receive such as retail, excess and surplus lines and wholesale brokerage fees or commissions, administrative fees and similar items. At your request, Marsh will provide additional information in this regard.
The fee based version of the agreement contained this explanation:
With respect to insurance placed by Marsh on your behalf, Marsh will disclose to you any commissions received by Marsh and credit them against the annual fee….Such commissions do not include: wholesale brokerage fees or commissions; administrative fees and similar items; or payments that Marsh may receive, in accordance with the custom of its industry, under agreements with certain insurers that provide for payments based upon such factors as the overall book of business placed by Marsh and its affiliates the performance of that book or the aggregate commissions paid for that book. At your request, Marsh will provide additional information in this regard.
This statement was insufficient to fully disclose Marsh’s compensation arrangements with
the Marsh Enterprise Insurers, noting only that Marsh “may receive” additional
compensation from “certain insurers” while failing to provide any information regarding
the strategic partnerships that Marsh had entered into with the Marsh Enterprise Insurers
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or the significance these partnerships and the contingent payment arrangements had on
the insurance placement process and the premiums charged. On or about September 10,
2003, Marsh USA Inc. sent Plaintiff Cellect, LLC (“Cellect”) a sample of this “Engagement
Letter” for fee based accounts and on or about September 22, 2003, Marsh sent Cellect a
completed version of the letter signed by Michael Swan on behalf of Marsh and Scott
Smith on behalf of Cellect. Margaret Groenendyke sent Comcar an executed
commission based version of the agreement on or about November 1, 2002 and again on
or about November 19, 2003 directed to the attention of Susie Kirkland. Likewise,
pursuant to its November 5, 2003 agreement with Golden Gate, Marsh agreed to “use its
best efforts to place insurance” on behalf of Golden Gate and assured the client that Marsh
“does not speak for any insurer, is not bound to utilize any particular insurer, and does not
have the authority to make binding commitments on behalf of any insurer.” The Client
Service Agreement executed by Stephen G. Geib on behalf of Marsh on November 15,
2002 and William A. Blaskiewiez on behalf of Opticare on December 15, 2002 also
contained the promises and the compensation “disclosure” set forth above as did the
agreement between Marsh USA and Opticare dated October 1, 2003. The agreement
between Sunburst and Marsh which was effective December 31, 2002 that was signed by
Gregory A. Wager on behalf of Marsh and by Pamela M. Williams on behalf of Sunburst
likewise contained this language.
Marsh also sent invoices to its clients which included the excess premiums
resulting from Defendants’ scheme without a separate accounting of the excess amount
being invoiced. In the invoices forwarded to clients, Marsh noted only that it “may have”
agreements with insurers “pursuant to which Marsh may derive compensation contingent
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upon such factors as size, growth and/or overall profitability of an entire book of business
placed by marsh with such insurers.” This statement was insufficient to fully disclose
Marsh’s compensation arrangements with the Marsh Enterprise Insurers, noting only that
Marsh “may have” agreements with insurers from which Marsh “may” derive additional
income while failing to provide any information regarding the strategic partnerships that
Marsh had entered into with the Marsh Enterprise Insurers or the significance these
partnerships and the contingent payment arrangements had on the insurance placement
process and the premiums charged. Marsh sent such invoices to Plaintiff Bayou Steel on
August 10, 2001, October 3, 2001 and October 2, 2002; to Plaintiff Cellect on September
30, 2003, October 1, 2003 and October 31, 2003; to Plaintiff Comcar on November 6,
2001, November 7, 2001, December 31, 2001, January 24, 2002, January 31, 2002,
March 4, 2202, April 2, 2002, April 11, 2002, May 2, 2002, and August 6, 2002; to
Plaintiff Golden Gate on January 23, 2001, March 1, 2001, March 2, 2001, April 3, 2001,
February 13, 2002, July 2, 2002, July 3, 2002, and July 3, 2003; to Plaintiff Opticare on
August 10, 2000, August 17, 2000, October 4, 2000, October 10, 2000, October 25, 2000,
November 2, 2000, December 27, 2000, December 29, 2000, August 12, 2002, May 5,
2003 and May 7, 2003; to Plaintiff City of Stamford on July 10, 2000, July 28, 2000, July
2, 2003 and July 7, 2003 and to Plaintiff Sunburst on May 2, 2002, June 13, 2002,
January 10, 2003 and May 2, 2003.
During the relevant time period, Marsh also transmitted to its clients, including
Plaintiffs, various other communications relating to its provision of brokerage services.
For example, on May 22, 2001 Marsh USA Inc. sent Comcar Industries, Inc. a letter
setting forth a risk management consulting and insurance brokerage services proposal.
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The letter stated that Marsh U.S.A. would “position Comcar with the underwriters very
early and in a way that gives you maximum leverage to get the best results.” On May 31,
2001, Marsh USA Ins. sent Comcar a “Marsh Risk Management Services Engagement
Letter” reiterating how much Marsh appreciated Comcar’s “confidence and trust.” On or
about June 17, 2003, in response to Golden Gate’s “Request for Proposal for Insurance
Broker Services,” Marsh submitted a Proposal for a 3 year contract which stated, inter alia,
“Through strong working relationships with the market leaders, Marsh is able to maintain
the best terms and conditions for the pricing.” Marsh USA Inc. transmitted to Plaintiff
Singer insurance policies and various other communications related to those policies,
including summaries of insurance transmitted on January 9, 2004 and again in 2004 or
2005. Marsh USA Inc. also sent Sunburst Hospitality Corp. various summaries and other
descriptions of insurance. These were typically direct to Chuck Warczak, its Chief
Financial Officer and/or Candi Tamar, its Manager of Risk Management. In 2003, Marsh
also sent Sunburst a presentation touting its ability to “negotiate the best deal for Sunburst
by accessing key carrier contacts and using our relationships and premium leverage in the
marketplace.”
Marsh did not disclose the following material facts in any of its communications
with clients:
• that Marsh was not acting in the best interest of its clients but was instead
acting on behalf of itself and its partner carriers to further their financial
interests at the expense of Marsh’s clients;
• the true nature of the association and agreements between Marsh and the
Marsh Enterprise Insurers;
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• the conflict of interest inherent in the agreements between Marsh and the
Marsh Enterprise Insurers;
• Marsh’s consolidation of its insurance markets to a few select strategic
partners;
• Marsh’s steering of insurance placements to the Marsh Enterprise Insurers, its
strategic partners;
• that Marsh was protecting the Marsh Enterprise Insurers from competition;
• the rigging of bids by Marsh and Insurer Defendants AIG, ACE, Chubb, XL,
Munich/AmRe, Liberty Mutual, St. Paul Travelers, Fireman’s Fund and Zurich
in furtherance of the scheme and to prevent disclosure;
• that the Marsh Enterprise Insurers kick back a substantial portion of their
increased profits to Marsh in the form of contingent commissions, loans,
subsidies and payments for “services” as well as other agreements and tying
arrangements that serve the same function;
• that the kickbacks to Marsh are factored into the cost of Plaintiffs and Class
Members’ insurance, resulting in injury to Plaintiffs’ and Class Members’
business and property.
Marsh’s misrepresentation of its allegiance to its client’s interests and concealment of
Marsh’s allocation of business to a limited number of partner Insurer Defendants was
necessary to encourage clients to retain Marsh, to conceal the scheme, to lull clients,
including Plaintiffs and Class Members, into a false sense of security and to assure
payment of the excess premiums. Likewise, inclusion of the excess amount of premium
resulting from Marsh and the Insurer Defendants’ scheme in invoices forwarded to each
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Plaintiff without explanation or a separate accounting for the excess premium was
necessary to conceal the scheme and to assure payment of the entire invoice amount.
The fraudulent scheme and the conspiracy in furtherance of the scheme
proximately caused the cost of insurance obtained by Plaintiffs and Class Members to
increase because the kickbacks paid to Marsh were included in the price of insurance paid
by Plaintiffs and Class Members. In addition, Plaintiffs and Class Members reasonably
relied on Marsh’s representations and the Defendants’ omissions in paying higher
premiums that included the kickbacks to Marsh.
Despite Marsh’s duties to its clients, despite Marsh’s acknowledgement of its
obligations and despite Marsh’s representations, Marsh did not act in its clients’ best
interests but instead engaged in a fraudulent scheme designed to increase the profits of
Marsh and its insurer partners at the expense of its clients.
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AON ENTERPRISE DEFENDANTS:
The Aon Enterprise Defendants have violated 18 U.S.C. § 1341 and 18 U.S.C. § 1343
by utilizing or causing the use of the United States postal service, commercial interstate
carrier, wire or other interstate electronic media in furtherance of their fraudulent scheme.
The Aon Enterprise Defendants have engaged in a scheme whereby Aon would
allocate business to a limited number of partner Insurer Defendants in exchange for
kickbacks in the form of contingent commissions and/or other payments which were
factored into the premiums paid by plaintiffs and class members. Specifically, as set
forth in further detail in the Revised Particularized Statement and the Second Amended
Complaint, Aon in conjunction with the Aon Enterprise Insurers engaged in the following
conduct:
- Aon significantly consolidated the number of carriers to which it would
market its clients’ business.
- Aon then entered into “strategic partnerships” with the Aon Enterprise Insurers
to which Aon agreed to steer the bulk of its business.
- As strategic partners, the Aon Enterprise Insurers would be given access to a
guaranteed flow of premium volume from Aon, as well as protection from
normal competition from both inside and outside of the strategic partnership
for renewal of each Insurer Defendant’s own business.
- In order to accomplish this, the Aon Enterprise Defendants engaged in a
number of practices specifically set forth in the Revised Particularized
Statements including “book rolls”, agreements not to bid renewals
competitively, limiting the marketing of renewals, disclosing other carriers’
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bids and other actions designed to maximize the volume of insurance placed
with the Aon Enterprise Insurers.
- In exchange for being given these unfair competitive advantages, the Aon
Enterprise Insurers agreed to pay kickbacks to Aon.
In furtherance of the scheme, Aon and the Aon Enterprise Insurers have sent
matters and things through the mail and wire or have known that mail or wire would be
used in furtherance of the scheme. Materials sent by mail or wire have included
correspondence, emails, faxes, marketing materials, contracts or agreements between
Aon and the client, requests for proposals, policies and policy materials, insurance
quotes, contingent commission agreements, insurance binders, commission schedules,
invoices to clients and payments from insurers to brokers.
The Aon Enterprise Defendants have frequently communicated with each other
by mail and/or wire in furtherance of the scheme. Such communications have included
contingent commission agreements, letters, faxes and emails memorializing various
agreements between Aon and its partner markets and details regarding consolidation,
requests for bids and bids, invoices, and contingent payments. Many instances of these
types of communications are further detailed in the Revised Particularized Statement and
the Second Amended Complaint.
The Aon Enterprise Defendants’ scheme conflicts with Aon’s duties and
representations to its clients. Aon is retained by its clients, including Plaintiffs and Class
Members, for the sole purpose of acting on behalf of and providing the clients with
unbiased advice concerning the type, amount and level of insurance needed, as well as to
provide sound and accurate advice regarding the insurance companies they recommend.
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Additionally, Aon is a fiduciary of its clients, and therefore owes its clients,
including Plaintiffs and other members of the Class: (i) a duty of loyalty to act in the best
interests of its clients and to always put its clients’ interests ahead of its own; (ii) a duty of
full and fair disclosure and complete candor in connection with any insurance-related
products purchased by clients or services rendered by Aon, including the duty to disclose
the source and amounts of all income it receives in or as a result of any transaction
involving its clients; (iii) a duty of care in connection with any insurance-related products
purchased by its clients or services rendered by Aon; (iv) a duty to provide impartial
advice in connection with any insurance-related products purchased by its clients or
services rendered by Aon; (v) a duty to use its best business judgment in connection with
any insurance-related products or services purchased by its clients – in other words to find
the best coverage at the lowest price; and, (vi) a duty of good faith and fair dealing.
As a result of the nature of the relationship between Aon and its clients, as a result
of Aon’s fiduciary status and as a result of Aon’s representations, Aon had a duty to fully
disclose any conflicts of interest it had in providing services to their clients as well as any
material information that might impact their ability to act in its client’s best interest. Aon,
however, did not disclose its conflicts of interest, its allocation of business to a limited
number of insurer partners or the resulting harm to its clients.
Aon has acknowledged and reaffirmed its duties to its clients. For example, Aon
sent the following letter to “Valued Aon Clients” dated 20 October 2004 signed by Patrick
G. Ryan, Chairman and CEO:
Aon has a clear code of conduct that all employees are expected to follow. Integrity is our most important company value, followed closely by a commitment to being Client Centric. We expect our colleagues to drive for the best terms for the clients using the highest ethical standards– that’s
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fundamental to the way we do business….Aon colleagues are expected to put our clients first – to focus on what is best for you, understanding your issues and bringing you solutions.
This simply echoes previous Aon statements:
We are a service organization committed to putting our clients first. We provide advice, service and consulting as the industry’s leading global distribution organization. Everything we do is ultimately focused on creating value for our clients….Acting as advocates for our clients, we offer them our specialized skills, industry experience and knowledge, innovative technology and professionalism.
Throughout the Class Period, Aon regularly disseminated materials by mail and
wire wherein Aon reinforced Aon’s commitments and routinely represented that Aon was
functioning as the client’s broker. Aon’s communications with its clients, including
Plaintiffs, which contained material misrepresentations and/or omissions are evidenced
by the examples set forth herein. For example, on or about August 19, 1999, Aon sent
Plaintiff Bayou Steel a Service and Retainer Agreement whereby Aon undertook to
“develop, recommend, negotiate, and place insurance” and to “administer all aspects of
relationship with insurance companies.” On or about February 16, 2000, Aon sent
Plaintiff Sunburst a Service Agreement whereby Aon likewise indicated that it would
“develop, recommend, negotiate, and place insurance” and “administer all aspects of
Sunburst Hospitality Corporation’s relationship with insurance companies.” In 1998, Aon
sent Sunburst a Service Agreement indicating that Aon would “negotiate and place
insurance” for Sunburst.
To the extent Aon provided any information regarding contingent commission
income or Aon’s relationship with the Aon Enterprise Insurers the information was either
materially false or misleading. For example, with respect to Aon’s compensation, each of
these agreements provided that “any revenue” Aon “might be entitled to from third parties
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due to contingencies, override, bonus commissions, and/or administrative expense
reimbursements are strictly for the benefit” of Aon. This statement was insufficient to
fully disclose Aon’s compensation arrangements with the Aon Enterprise Insurers, noting
only that Aon “might be entitled” to additional compensation from “third parties” while
failing to provide any information regarding the strategic partnerships that Aon had
entered into with the Aon Enterprise Insurers or the significance these partnerships and
the contingent payment arrangements had on the insurance placement process and the
premiums charged. On or about June 20, 2002, Aon sent Plaintiff Michigan Multi-King,
Inc. an “Insurance and Risk Management Proposal” wherein Aon represented that Aon will
“serve our clients’ needs” and that Aon has “access to virtually every major insurance
company and desirable specialty companies.” Aon sent similar proposals to Michigan
Multi-King on June 6, 2000; April 6, 2001; April 4, 2002; April 7, 2003; June 13, 2003;
March 29, 2004; October 12, 2004 and September 27, 2005.
Aon also sent invoices to its clients which included the excess premiums resulting
from Defendants’ scheme without a separate accounting of the excess amount being
invoiced. For example, on our about June 22, 2001, Aon sent Bayou Steel an invoice for
payment of insurance premiums. This invoice contained the following boilerplate
language on the reverse side:
Regarding Compensation
Subsidiaries of Aon Corporation receive revenue in several forms. For its insurance companies, premium is received on which underwriting and investment income is realized. For the subsidiaries of Aon Group, Inc., which provide insurance and reinsurance brokerage, risk management, underwriting management, captive management and benefits consulting, remuneration may be received as commissions paid by an insurer; fees paid by a client in lieu of, or in addition to, commissions; and investment income on premiums, claim payments and return premiums
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temporarily held as fiduciary funds. In certain circumstances, one or more of these subsidiaries may also receive compensation in the following forms: commissions or fees paid to reinsurance brokerage or captive management companies for placement or management of reinsurance of a client’s risk; commissions paid to a managing general agent to whom a risk has been referred for placement; contingent commissions paid by an insurer based on aggregate loss experience; overrides paid by an insurer/reinsurer based on services performed and the volume of business placed with the insurer/reinsurer; fees paid for premium financing; and fees paid for performance of technical or other services.
If you have any questions regarding the nature or amount of the compensation paid to any Aon Group company on your account, please contact the President of the Aon office that services the account.
Aon sent Bayou Steel similar invoices on November 1, 1998; October 1, 1999; October
30, 1999; November 1, 1999; January 1, 2000; April 1, 2000; November 6, 2000;
November 7, 2000; December 1, 2000; February 1, 2001; October 26, 2001; November 1,
2001; November 19, 2001; December 3, 2001; December 12, 2001; November 5, 2002;
November 6, 2002; November 12, 2002; November 21, 2003; and April 6, 2004.
On our about April 9, 2001, Aon sent Michigan Multi-King an invoice for
payment of insurance premiums. This invoice contained the following boilerplate
language on the reverse side:
Regarding Compensation
Subsidiaries of Aon Corporation receive revenue in several forms. For its insurance companies, premium is received on which underwriting and investment income is realized. For the subsidiaries of Aon Group, Inc., which provide insurance and reinsurance brokerage, risk management, underwriting management, captive management and benefits consulting, remuneration may be received as commissions paid by an insurer; fees paid by a client in lieu of, or in addition to, commissions; and investment income on premiums, claim payments and return premiums temporarily held as fiduciary funds. In certain circumstances, one or more of these subsidiaries may also receive compensation in the following forms: commissions or fees paid to reinsurance brokerage or captive management companies for placement or management of reinsurance of a client’s risk; commissions paid to a managing general agent to whom a risk
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has been referred for placement; contingent commissions paid by an insurer based on aggregate loss experience; overrides paid by an insurer/reinsurer based on services performed and the volume of business placed with the insurer/reinsurer; fees paid for premium financing; and fees paid for performance of technical or other services.
If you have any questions regarding the nature or amount of the compensation paid to any Aon Group company on your account, please contact the President of the Aon office that services the account.
Aon sent Michigan Multi-King similar invoices on April 10, 2001; February 3, 2004;
April 22, 2004; May 12, 2004; and May 27, 2004.
On or about January 28, 2000, Aon sent Sunburst an invoice for payment of
insurance premiums. This invoice contained the following boilerplate language on the
reverse side:
Regarding Compensation
Subsidiaries of Aon Corporation receive revenue in several forms. For its insurance companies, premium is received on which underwriting and investment income is realized. For the subsidiaries of Aon Group, Inc., which provide insurance and reinsurance brokerage, risk management, underwriting management, captive management and benefits consulting, remuneration may be received as commissions paid by an insurer; fees paid by a client in lieu of, or in addition to, commissions; and investment income on premiums, claim payments and return premiums temporarily held as fiduciary funds. In certain circumstances, one or more of these subsidiaries may also receive compensation in the following forms: commissions or fees paid to reinsurance brokerage or captive management companies for placement or management of reinsurance of a client’s risk; commissions paid to a managing general agent to whom a risk has been referred for placement; contingent commissions paid by an insurer based on aggregate loss experience; overrides paid by an insurer/reinsurer based on services performed and the volume of business placed with the insurer/reinsurer; fees paid for premium financing; and fees paid for performance of technical or other services.
If you have any questions regarding the nature or amount of the compensation paid to any Aon Group company on your account, please contact the President of the Aon office that services the account.
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In the invoices forwarded to clients, Aon noted only that “in certain circumstances” Aon
“may receive” contingent commissions. This statement was insufficient to fully disclose
Aon’s compensation arrangements with the Aon Enterprise Insurers, failing to provide any
information regarding the strategic partnerships that Aon had entered into with the Aon
Enterprise Insurers or the significance these partnerships and the contingent payment
arrangements had on the insurance placement process and the premiums charged.
During the relevant time period, Aon also transmitted to its clients, including
Plaintiffs, various other communications relating to Aon’s provision of brokerage
services.
Aon did not disclose the following material facts in any of its communications
with clients:
• that Aon was not acting in the best interest of its clients but was instead acting
on behalf of itself and its partner carriers to further their financial interests at
the expense of Aon’s clients;
• the true nature of the association and agreements between Aon and the Aon
Enterprise Insurers;
• the conflict of interest inherent in the agreements between Aon and the Aon
Enterprise Insurers;
• Aon’s consolidation of its insurance markets to a few select strategic partners;
• Aon’s steering of insurance placements to the Aon Enterprise Insurers, its
strategic partners;
• that Aon was protecting the Aon Enterprise Insurers from competition;
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• that the Aon Enterprise Insurers kick back a substantial portion of their
increased profits to Aon in the form of contingent commissions, loans,
subsidies and payments for “services” as well as other agreements and tying
arrangements that serve the same function;
• that the kickbacks to Aon are factored into the cost of Plaintiffs and Class
Members’ insurance, resulting in injury to Plaintiffs’ and Class Members’
business and property.
Aon’s misrepresentation of its allegiance to its client’s interests and concealment of
Aon’s allocation of business to a limited number of partner Insurer Defendants was
necessary to encourage clients to retain Aon, to conceal the scheme, to lull clients,
including Plaintiffs and Class Members, into a false sense of security and to assure
payment of the excess premiums. Likewise, inclusion of the excess amount of premium
resulting from Aon and the Insurer Defendants’ scheme in invoices forwarded to each
Plaintiff without explanation or a separate accounting for the excess premium was
necessary to conceal the scheme and to assure payment of the entire invoice amount.
The fraudulent scheme and the conspiracy in furtherance of the scheme
proximately caused the cost of insurance obtained by Plaintiffs and Class Members to
increase because the kickbacks paid to Aon were included in the price of insurance paid
by Plaintiffs and Class Members. In addition, Plaintiffs and Class Members reasonably
relied on Aon’s representations and the Defendants’ omissions in paying higher premiums
that included the kickbacks to Aon.
Despite Aon’s duties to its clients, despite Aon’s acknowledgement of its
obligations and despite Aon’s representations, Aon did not act in its clients’ best interests
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but instead engaged in a fraudulent scheme designed to increase the profits of Aon and its
insurer partners at the expense of its clients.
THE WILLIS ENTERPRISE DEFENDANTS:
The Willis Enterprise Defendants have violated 18 U.S.C. § 1341 and 18 U.S.C. §
1343 by utilizing or causing the use of the United States postal service, commercial
interstate carrier, wire or other interstate electronic media in furtherance of their
fraudulent scheme.
The Willis Enterprise Defendants have engaged in a scheme whereby Willis would
allocate business to a limited number of partner Insurer Defendants in exchange for
kickbacks in the form of contingent commissions and/or other payments which were
factored into the premiums paid by plaintiffs and class members. Specifically, as set
forth in further detail in the Revised Particularized Statement and the Second Amended
Complaint, Willis in conjunction with the Willis Enterprise Insurers engaged in the
following conduct:
- Willis significantly consolidated the number of carriers to which it would
market its clients’ business.
- Willis entered into “strategic partnerships” with the Willis Enterprise Insurers to
which Willis agreed to steer the bulk of its business.
- As strategic partners, the Willis Enterprise Insurers would be given access to a
guaranteed flow of premium volume from Willis, as well as protection from
normal competition from both inside and outside of the strategic partnership
for renewal of each Insurer Defendant’s own business.
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- In order to accomplish this, the Willis Enterprise Defendants engaged in a
number of practices specifically set forth in the Revised Particularized
Statements including “book rolls”, agreements not to bid placements or renewals
competitively, limiting the marketing of renewals and other actions designed
to maximize the volume of insurance placed with the Willis Enterprise
Insurers.
- In exchange for being given these unfair competitive advantages, the Willis
Enterprise Insurers agreed to pay kickbacks to Willis.
In furtherance of the scheme, Willis and the Willis Enterprise Insurers have sent
matters and things through the mail and wire or have known that mail or wire would be
used in furtherance of the scheme. Materials sent by mail or wire have included
correspondence, emails, faxes, marketing materials, contracts or agreements between
Willis and the client, requests for proposals, policies and policy materials, insurance
quotes, contingent commission agreements, insurance binders, commission schedules,
invoices to clients and payments from insurers to brokers.
The Willis Enterprise Defendants have frequently communicated with each other
by mail and/or wire in furtherance of the scheme. Such communications have included
contingent commission agreements, letters, faxes and emails memorializing various
agreements between Willis and its partner markets and details regarding consolidation,
requests for bids and bids, invoices, and contingent payments. Many instances of these
types of communications are further detailed in the Revised Particularized Statement and
the Second Amended Complaint.
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Defendants’ scheme conflicts with Willis’ duties and representations to its clients.
Willis is retained by its clients, including Plaintiffs and Class Members, for the sole
purpose of acting on behalf of and providing the clients with unbiased advice concerning
the type, amount and level of insurance needed, as well as to provide sound and accurate
advice regarding the insurance companies they recommend.
Additionally, Willis is a fiduciary of its clients, and therefore owes its clients,
including Plaintiffs and other members of the Class: (i) a duty of loyalty to act in the best
interests of its clients and to always put its clients’ interests ahead of its own; (ii) a duty of
full and fair disclosure and complete candor in connection with any insurance-related
products purchased by clients or services rendered by Willis, including the duty to
disclose the source and amounts of all income it receives in or as a result of any
transaction involving its clients; (iii) a duty of care in connection with any insurance-
related products purchased by its clients or services rendered by Willis; (iv) a duty to
provide impartial advice in connection with any insurance-related products purchased by
its clients or services rendered by Willis; (v) a duty to use its best business judgment in
connection with any insurance-related products or services purchased by its clients – in
other words to find the best coverage at the lowest price; and, (vi) a duty of good faith
and fair dealing.
As a result of the nature of the relationship between Willis and its clients, as a
result of Willis’ fiduciary status and as a result of Willis’ representations, Willis had a duty
to fully disclose any conflicts of interest it had in providing services to its clients as well
as any material information that might impact their ability to act in its client’s best
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interest. Willis, however, did not disclose its conflicts of interest, its allocation of
business to a limited number of insurer partners or the resulting harm to its clients.
Since the announcement of the regulatory investigations, Willis has
acknowledged and reaffirmed its duty to act on behalf of its clients. In an October 22,
2004 letter to “all Clients of Willis Group Holdings” Joseph J. Plumeri, Chairman and
Chief Executive Officer of Willis Group Holdings Ltd. stated, “Willis continues to run its
business by a basic principle: Our first priority is our clients. We represent you and
conduct business in your best interest utilizing our global resources….Willis represents the
client’s best interests through a Client Advocate….Willis’ recommendations and solutions
will be driven by what is in the client’s best interests.” Willis also reaffirmed that the
clients Willis represents are Willis’ continuing priority in an October 27, 2004
communication to CEOs, CFOs, Treasurers, Risk Managers and Human Resource
Managers.
Prior to the announcement of the investigations, Willis in a September 15, 2003
news release discussed its “client advocacy model”, referring to clients as “partner[s] in the
insurance placement process” and promising “access to the Markets on a worldwide basis”
and “the best insurance program available from the worldwide insurance marketplace.”
Willis likewise lauded “constant coordination and communication between client,
producer, marketer and carrier.”
These statements echoed other communications from Willis to its clients such as
statements that Willis would negotiate on behalf of clients and acknowledgements that
Willis was acting in the capacity of a broker. As indicated in correspondence sent via fax
from Willis to Plaintiff Sunburst Hospitality Company (Sunburst) on December 21, 2000,
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Willis acknowledge that it was functioning as Sunburst’s broker with respect to property
insurance and umbrella liability insurance. Willis Corroon Corp. sent an insurance
proposal to Sunburst on or about November 12, 1998. Willis also sent invoices to its
clients, including Plaintiff Sunburst, which included the excess premiums resulting from
Defendants’ scheme without a separate accounting of the excess amount being invoiced.
For example, Willis sent such invoices to Plaintiff Sunburst on or about December 29,
1999, January 5, 2000, January 7, 2000, July 7, 2000, February 9, 2000, January 2, 2001,
January 5, 2001, January 12, 2001, and January 17, 2001. The invoices sent from Willis
to Sunburst failed to disclose compensation agreements between Willis and the Willis
Enterprise Insurers that may have resulted in additional income in the form of contingent
commissions paid by the Willis Enterprise Insurers to Willis.
Beginning in or about September 2001, the invoices sent by Willis to clients
contained language stating only that “it is possible” that Willis “may receive contingent
payments or allowances from insurers based on factors which are not client-specific, such
as the size or performance of an overall book of business produced with an insurer by us.”
This statement was insufficient to fully disclose Willis’ compensation arrangements with
the Willis Enterprise Insurers, noting only that “it is possible” that Willis may have
agreements with insurers from which Willis could derive additional income while failing
to provide any information regarding the strategic partnerships and the contingent
payment arrangements had on the insurance placement process and the premiums
charged.
During the relevant time period, Willis also transmitted to its clients, including
Plaintiffs, various other communications relating to Willis’ provision of brokerage
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services. Willis disclosed none of the following material facts in any of its
communications to clients:
• that Willis was not acting in the best interest of its clients but was instead
acting on behalf of itself and its partner carriers to further their financial
interests at the expense of Willis’ clients;
• the true nature of the association and agreements between Willis and the
Willis Enterprise Insurers;
• the conflict of interest inherent in the agreements between Willis and the
Willis Enterprise Insurers;
• Willis’ consolidation of its insurance markets to a few select strategic partners;
• Willis’ steering of insurance placements to the Willis Enterprise Insurers, its
strategic partners;
• that Willis was protecting the Willis Enterprise Insurers from competition;
• that the Willis Enterprise Insurers kick back a substantial portion of their
increased profits to Willis in the form of contingent commissions, loans,
subsidies and payments for “services” as well as other agreements and tying
arrangements that serve the same function;
• that the kickbacks to Willis are factored into the cost of Plaintiffs and Class
Members’ insurance, resulting in injury to Plaintiffs’ and Class Members’
business and property.
Willis’ representation that Willis was acting on behalf of its client and concealment of
Willis’s allocation of business to a limited number of partner Insurer Defendants was
necessary to encourage clients to retain Willis, to conceal the scheme, to lull clients,
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including Plaintiffs and Class Members, into a false sense of security and to assure
payment of the excess premiums. Likewise, inclusion of the excess amount of premium
resulting from Willis and the Insurer Defendants’ scheme in invoices forwarded to each
Plaintiff without explanation or a separate accounting for the excess premium was
necessary to conceal the scheme and to assure payment of the entire invoice amount.
Despite Willis’ duties to its clients, despite Willis’ acknowledgement of its
obligations and despite Willis’ representations, Willis did not act in its clients’ best
interests but instead engaged in a fraudulent scheme designed to increase the profits of
Willis and its insurer partners at the expense of its clients.
The fraudulent scheme and the conspiracy in furtherance of the scheme
proximately caused the cost of insurance obtained by Plaintiffs and Class Members to
increase because the kickbacks paid to Willis were included in the price of insurance paid
by Plaintiffs and Class Members. In addition, Plaintiffs and Class Members reasonably
relied on the Willis’s representations and the Defendants’ omissions in paying higher
premiums that included the kickbacks to Willis.
GALLAGHER ENTERPRISE DEFENDANTS:
The Gallagher Enterprise Defendants have violated 18 U.S.C. § 1341 and 18 U.S.C. §
1343 by utilizing or causing the use of the United States postal service, commercial
interstate carrier, wire or other interstate electronic media in furtherance of their
fraudulent scheme.
The Gallagher Enterprise Defendants have engaged in a scheme whereby Gallagher
would allocate business to a limited number of partner Insurer Defendants in exchange
for kickbacks in the form of contingent commissions and/or other payments which were
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factored into the premiums paid by plaintiffs and class members. Specifically, as set
forth in further detail in the Revised Particularized Statement and the Second Amended
Complaint, the Gallagher Enterprise Insurers Defendants engaged in the following
conduct:
- Gallagher significantly consolidated the number of carriers to which it would
market its clients’ business.
- Gallagher entered into “strategic partnerships” with the Gallagher Enterprise
Insurers to which Gallagher agreed to steer the bulk of its business.
- As strategic partners, the Gallagher Enterprise Insurers would be given access
to a guaranteed flow of premium volume from Gallagher, as well as protection
from normal competition from both inside and outside of the strategic
partnership for renewal of each Insurer Defendant’s own business.
- In order to accomplish this, the Gallagher Enterprise Defendants engaged in a
number of practices specifically set forth in the Revised Particularized
Statements including “book rolls”, agreements not to bid renewals
competitively, limiting the marketing of renewals, disclosing other carriers’
bids and other actions designed to maximize the volume of insurance placed
with the Gallagher Enterprise Insurers.
- In exchange for being given these unfair competitive advantages, the
Gallagher Enterprise Insurers agreed to pay kickbacks to Gallagher.
In furtherance of the scheme, the Gallagher Enterprise Defendants have sent
matters and things through the mail and wire or have known that mail or wire would be
used in furtherance of the scheme. Materials sent by mail or wire have included
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correspondence, emails, faxes, marketing materials, contracts or agreements between
Gallagher and the client, requests for proposals, policies and policy materials, insurance
quotes, contingent commission agreements, insurance binders, commission schedules,
invoices to clients and payments from insurers to brokers.
The Gallagher Enterprise Defendants have frequently communicated with each
other by mail and/or wire in furtherance of the scheme. Such communications have
included contingent commission agreements, letters, faxes and emails memorializing
various agreements between Gallagher and its partner markets and details regarding
consolidation, requests for bids and bids, invoices, and contingent payments. Many
instances of these types of communications are further detailed in the Revised
Particularized Statement and the Second Amended Complaint.
Defendants’ scheme conflicts with Gallagher’s duties and representations to its
clients. Gallagher is retained by its clients, including Plaintiffs and Class Members, for
the sole purpose of acting on behalf of and providing the clients with unbiased advice
concerning the type, amount and level of insurance needed, as well as to provide sound
and accurate advice regarding the insurance companies they recommend.
Additionally, Gallagher is a fiduciary of its clients, and therefore owes its clients,
including Plaintiffs and other members of the Class: (i) a duty of loyalty to act in the best
interests of its clients and to always put its clients’ interests ahead of its own; (ii) a duty of
full and fair disclosure and complete candor in connection with any insurance-related
products purchased by clients or services rendered by Gallagher, including the duty to
disclose the source and amounts of all income it receives in or as a result of any
transaction involving its clients; (iii) a duty of care in connection with any insurance-
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related products purchased by its clients or services rendered by Gallagher; (iv) a duty to
provide impartial advice in connection with any insurance-related products purchased by
its clients or services rendered by Gallagher; (v) a duty to use its best business judgment
in connection with any insurance-related products or services purchased by its clients – in
other words to find the best coverage at the lowest price; and, (vi) a duty of good faith
and fair dealing.
In a November 3, 2004 letter to Gallagher’s “Valued Clients”, J. Patrick Gallagher
reaffirmed Gallagher’s duty to act on behalf of its clients:
For 77 years, the leaders and employees of this company have always understood that to succeed as an enterprise we must put customers first….I’ d like to take this opportunity to reiterate that we view ourselves as your advocates in the marketplace. We want there to be absolutely no confusion about our priorities. Our employees understand that clients come first at Gallagher.
As a result of the nature of the relationship between Gallagher and its clients, as a result
of Gallagher’s fiduciary status and as a result of Gallagher’s representations, Gallagher had
a duty to fully disclose any conflicts of interest it had in providing services to their clients
as well as any material information that might impact its ability to act in its client’s best
interest. Gallagher, however, did not disclose its conflicts of interest, its allocation of
business to a limited number of insurer partners or the resulting harm to its clients.
Instead, Gallagher in communications with clients simply reinforced that it was
acting in its clients’ interests. Gallagher’s communications with its clients, including
Plaintiffs, which contained material misrepresentations and/or omissions are evidenced
by the examples set forth herein. Throughout the Class Period, Gallagher regularly
disseminated materials by mail and wire wherein Gallagher routinely represented that
Gallagher was acting on the client’s behalf and not on behalf of the insurer, that Gallagher
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was functioning as the client’s broker, and that Gallagher would use its “best efforts” on
behalf of the client. To the extent Gallagher provided any information regarding
contingent commission income or Gallagher’s relationship with the Gallagher Enterprise
Insurers the information was either materially false or misleading. Gallagher routinely
represented that it would use its “best efforts” in providing brokerage services to its clients.
For example, on or about January 6, 2003, Arthur J. Gallagher (“Gallagher”) sent Clear
Lam a “Fee Agreement” stating that “Gallagher will provide insurance brokerage services to
Client and will use its best efforts to secure insurance required for the proper
administration of Client’s business.” The Fee Agreement further provides as follows:
Gallagher shall receive its usual and customary brokerage commission for the services provided hereunder. Gallagher will be charging a fee of $29,766 for brokerage and administration services, in addition to 15% commission on boiler and machinery coverage, 7.5% on pollution liability and 1% commission on auto coverage (already included in the premiums proposed)….
In addition to the fees (commissions) provided herein, it is understood and agreed that other parties, such as excess and surplus lines brokers, wholesalers, reinsurance intermediaries, underwriting managers, and similar parties, some of which may be owned in whole or in part by Gallagher’s corporate parent, may earn and retain usual and customary commissions and fees in the course of providing insurance products to client pursuant to this Agreement. Any such fees or commission will not constitute compensation to Gallagher….
Gallagher from time to time enters into arrangements with certain insurance carriers or those carriers’ reinsurers providing for compensation, in addition to commissions, to be paid by such carriers or reinsurers to Gallagher or its affiliates based on, among other things, the volume of premium and/or underwriting profitability of the insurance coverages written through Gallagher by such carriers or reinsurers. In addition, Gallagher and its affiliates provide management and other services to, and receive compensation for those services from, certain reinsurers that reinsurer insurance coverages written through Gallagher by other insurance carriers. The insurance coverages you purchase through Gallagher might be issued by an insurance carrier or reinsured by a reinsurer that has such a relationship with Gallagher or its affiliates.
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This statement was insufficient to fully disclose Gallagher’s compensation arrangements
with the Gallagher Enterprise Insurers, noting only that Gallagher has agreements with
“certain” insurers and that the client’s policies “might” be issued by one of those carriers while
failing to provide any information regarding the strategic partnerships that Gallagher had
entered into with the Gallagher Enterprise Insurers or the significance these partnerships
and the contingent payment arrangements had on the insurance placement process and the
premiums charged. Gallagher also sent Plaintiff Clear Lam an “Insurance Proposal” with
an effective date of December 2003 in which Gallagher again indicated that it would “use
its best efforts” on Clear Lam’s behalf.
Gallagher also routinely sent invoices to its clients which included the excess
premiums resulting from Defendants’ scheme without a separate accounting of the excess
amount being invoiced. For example, on April 4 and April 5, 2003, Gallagher transmitted
invoices to Clear Lam which did not separately account for contingent commission
payments and in no way referenced contingent commission income. Gallagher also
transmitted invoices to Redwood Oil Co. on September 10, 1998, August 26, 1999,
August 27, 1999, August 15, 2000, November 7, 2000 and December 6, 2000.
During the relevant time period, Gallagher also transmitted to its clients,
including Plaintiffs, various other communications relating to Gallagher’s provision of
brokerage services. For example, Gallagher transmitted to plaintiff Mulcahy certificates
of insurance and various other communications related to those policies. These included
a Certificate of Insurance transmitted on or about February 25, 2004. During the time
that Arthur J. Gallagher (“Gallagher”) was the broker for plaintiff Redwood Oil Company
(“Redwood Oil”) Gallagher also transmitted various communications to Redwood Oil
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including, for example, general summaries, titled “Summary of Insurance,” such as those
transmitted on or about August 13, 1995, and January 14, 1997. On or about April 4,
2001, Gallagher transmitted a “Summary of Insurance” to Redwood Oil that contained the
following statement:
“ADDITIONAL DISCLOSURE – BROKER/CARRIER COMPENSATION
Gallagher from time to time enters into arrangements with certain insurance carriers or those carriers’ reinsurers providing for compensation, in addition to commissions, to be paid by such carriers or reinsurers to Gallagher or its affiliates based on, among other things, the volume of premium and/or underwriting profitability of the insurance coverages written through Gallagher by such carriers or reinsurers. In addition, Gallagher and its affiliates provide management and other services to, and receive compensation for those services from, certain reinsurers that reinsure insurance coverages written through Gallagher by other insurance carriers. The insurance coverages you purchase through Gallagher might be issued by an insurance carrier or reinsured by a reinsurer that has such a relationship with Gallagher or its affiliates.”
This statement was insufficient to fully disclose Gallagher’s compensation arrangements
with the Gallagher Enterprise Insurers, noting only that Gallagher has agreements with
“certain” insurers and that the client’s policies “might” be issued by one of those carriers while
failing to provide any information regarding the strategic partnerships that Gallagher had
entered into with the Gallagher Enterprise Insurers or the significance these partnerships
and the contingent payment arrangements had on the insurance placement process and the
premiums charged.
Gallagher did not disclose the following material facts in any of its communications
to clients:
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• that Gallagher was not acting in the best interest of its clients but was instead
acting on behalf of itself and its partner carriers to further their financial
interests at the expense of Gallagher’s clients;
• the true nature of the association and agreements between Gallagher and the
Gallagher Enterprise Insurers;
• the conflict of interest inherent in the agreements between Gallagher and the
Gallagher Enterprise Insurers;
• Gallagher’s consolidation of its insurance markets to a few select strategic
partners;
• Gallagher’s steering of insurance placements to the Gallagher Enterprise
Insurers, its strategic partners;
• that Gallagher was protecting the Gallagher Enterprise Insurers from
competition
• that the Gallagher Enterprise Insurers kick back a substantial portion of their
increased profits to Gallagher in the form of contingent commissions, loans,
subsidies and payments for “services” as well as other agreements and tying
arrangements that serve the same function;
• that the kickbacks to Gallagher are factored into the cost of Plaintiffs and
Class Members’ insurance, resulting in injury to Plaintiffs’ and Class Members’
business and property.
Gallagher’s misrepresentation of its allegiance to its client’s interests and concealment
of Gallagher’s allocation of business to a limited number of partner Insurer Defendants
was necessary to encourage clients to retain Gallagher, to conceal the scheme, to lull
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clients, including Plaintiffs and Class Members, into a false sense of security and to
assure payment of the excess premiums. Likewise, inclusion of the excess amount of
premium resulting from Gallagher and the Insurer Defendants’ scheme in invoices
forwarded to each Plaintiff without explanation or a separate accounting for the excess
premium was necessary to conceal the scheme and to assure payment of the entire
invoice amount.
The fraudulent scheme and the conspiracy in furtherance of the scheme proximately
caused the cost of insurance obtained by Plaintiffs and Class Members to increase
because the kickbacks paid to Gallagher were included in the price of insurance paid by
Plaintiffs and Class Members. In addition, Plaintiffs and Class Members reasonably
relied on Gallagher’s representations and the Defendants’ omissions in paying higher
premiums that included the kickbacks to Gallagher.
Despite Gallagher’s duties to its clients, despite Gallagher’s acknowledgement of
its obligations and despite Gallagher’s representations, Gallagher did not act in its clients’
best interests but instead engaged in a fraudulent scheme designed to increase the profits
of Gallagher and its insurer partners at the expense of its clients.
HRH ENTERPRISE DEFENDANTS:
The HRH Enterprise Defendants have violated 18 U.S.C. § 1341 and 18 U.S.C. §
1343 by utilizing or causing the use of the United States postal service, commercial
interstate carrier, wire or other interstate electronic media in furtherance of their
fraudulent scheme.
Defendants have engaged in a scheme whereby HRH would allocate business to a
limited number of partner Insurer Defendants in exchange for kickbacks in the form of
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contingent commissions and/or other payments which were factored into the premiums
paid by plaintiffs and class members. Specifically, as set forth in further detail in the
Revised Particularized Statement and the Second Amended Complaint, the HRH
Enterprise Defendants engaged in the following conduct:
- HRH significantly consolidated the number of carriers to which it would
market its clients’ business.
- HRH entered into “strategic partnerships” with the HRH Enterprise Insurers to
which HRH agreed to steer the bulk of its business.
- As strategic partners, the HRH Enterprise Insurers would be given access to a
guaranteed flow of premium volume from HRH, as well as protection from
normal competition from both inside and outside of the strategic partnership
for renewal of each Insurer Defendant’s own business.
- In order to accomplish this, HRH and the HRH Enterprise Insurers engaged in
a number of practices specifically set forth in the Revised Particularized
Statements including “book rolls”, agreements not to bid renewals
competitively, limiting the marketing of renewals and other actions designed
to maximize the volume of insurance placed with the HRH Enterprise
Insurers.
- In exchange for being given these unfair competitive advantages, the HRH
Enterprise Insurers agreed to pay kickbacks to HRH.
In furtherance of the scheme, the HRH Enterprise Defendants have sent matters
and things through the mail and wire or have known that mail or wire would be used in
furtherance of the scheme. Materials sent by mail or wire have included correspondence,
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emails, faxes, marketing materials, contracts or agreements between HRH and the client,
requests for proposals, policies and policy materials, insurance quotes, contingent
commission agreements, insurance binders, commission schedules, invoices to clients
and payments from insurers to brokers.
The HRH Enterprise Defendants have frequently communicated with each other
by mail and/or wire in furtherance of the scheme. Such communications have included
contingent commission agreements, letters, faxes and emails memorializing various
agreements between HRH and its partner markets and details regarding consolidation,
requests for bids and bids, invoices, and contingent payments. Many instances of these
types of communications are further detailed in the Revised Particularized Statement and
the Second Amended Complaint.
Defendants’ scheme conflicts with HRH’s duties and representations to its clients.
HRH is retained by its clients, including Plaintiffs and Class Members, for the sole
purpose of acting on behalf of and providing the clients with unbiased advice concerning
the type, amount and level of insurance needed, as well as to provide sound and accurate
advice regarding the insurance companies they recommend.
Additionally, HRH is a fiduciary of its clients, and therefore owes its clients,
including Plaintiffs and other members of the Class: (i) a duty of loyalty to act in the best
interests of its clients and to always put its clients’ interests ahead of its own; (ii) a duty of
full and fair disclosure and complete candor in connection with any insurance-related
products purchased by clients or services rendered by HRH, including the duty to
disclose the source and amounts of all income it receives in or as a result of any
transaction involving its clients; (iii) a duty of care in connection with any insurance-
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related products purchased by its clients or services rendered by HRH; (iv) a duty to
provide impartial advice in connection with any insurance-related products purchased by
its clients or services rendered by HRH; (v) a duty to use its best business judgment in
connection with any insurance-related products or services purchased by its clients – in
other words to find the best coverage at the lowest price; and, (vi) a duty of good faith
and fair dealing.
As a result of the nature of the relationship between HRH and its clients, as a
result of HRH’s fiduciary status and as a result of HRH’s representations, HRH had a duty
to fully disclose any conflicts of interest it had in providing services to its clients as well
as any material information that might impact their ability to act in its client’s best
interest. HRH, however, did not disclose its conflicts of interest, its allocation of
business to a limited number of insurer partners or the resulting harm to its clients.
Throughout the Class Period, HRH regularly disseminated materials by mail and
wire wherein HRH routinely represented that HRH was acting on the client’s behalf,
using, among others, the following phrases:
- “We work for our customers, literally. We’re paid by them. We have to listen
to them entirely.”
- “your advocate in the negotiation of claim settlements”
- “an objective and unbiased evaluation of the various coverage terms,
conditions and exclusions”
- “represent the financial interest of our clients. Our very existence and
continued success is wholly dependent upon meeting the needs and
expectations of our clients”
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- “Everything we do, everything we are and everything we’re going to be is
driven by our clients”
- “HRH Claims Professionals work for you”
- “We want you to have confidence that our recommendations are driven by your
needs, not our own”
- “We want to represent you in the marketplace”
- “functioning as your broker, we will negotiate with all companies on your
behalf and protect your interests”
- “We negotiate ethically and tirelessly on your behalf”
- “We advocate our clients [sic] needs and desires first and foremost”
Following institution of the regulatory investigations, HRH determined that phrases that
suggest that HRH is a “selfless, disinterested party working for the client” would no longer
be “allowed”. Yet HRH’s Chairman and Chief Executive Officer Martin L. (Mell)
Vaughan, III in a news release on or about October 26, 2004 reiterated HRH’s
“longstanding commitment to serve [HRH’s] clients in accordance with the highest
professional and ethical standards.”
To the extent HRH provided any information regarding contingent commission
income or HRH’s relationship with the HRH Enterprise Insurers the information was
either materially false or misleading. HRH’s statement that it “may have” contingent fee
agreements with insurance carriers was insufficient to fully disclose HRH’s compensation
arrangements with the HRH Enterprise Insurers, noting only that HRH “may have”
agreements with insurers from which HRH “may” derive additional income while failing to
provide any information regarding the strategic partnerships that HRH had entered into
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with the HRH Enterprise Insurers or the significance these partnerships and the
contingent payment arrangements had on the insurance placement process and the
premiums charged.
HRH also sent invoices to its clients, including Plaintiffs Tri-State and Opticare,
which included the excess premiums resulting from Defendants’ scheme without a
separate accounting of the excess amount being invoiced as well as policies and other
communications relating to HRH’s provision of brokerage services.
HRH did not disclose the following material facts in any of its communications
with clients:
• that HRH was not acting in the best interest of its clients but was instead
acting on behalf of itself and its partner carriers to further their financial
interests at the expense of HRH’s clients;
• the true nature of the association and agreements between HRH and the HRH
Enterprise Insurers;
• the conflict of interest inherent in the agreements between HRH and the HRH
Enterprise Insurers;
• HRH’s consolidation of its insurance markets to a few select strategic partners;
• HRH’s steering of insurance placements to the HRH Enterprise Insurers, its
strategic partners;
• that HRH was protecting the HRH Enterprise Insurers from competition;
• that the HRH Enterprise Insurers kick back a substantial portion of their
increased profits to HRH in the form of contingent commissions, loans,
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subsidies and payments for “services” as well as other agreements and tying
arrangements that serve the same function;
• that the kickbacks to HRH are factored into the cost of Plaintiffs and Class
Members’ insurance, resulting in injury to Plaintiffs’ and Class Members’
business and property.
HRH’s misrepresentation of its allegiance to its client’s interests and concealment of
HRH’s allocation of business to a limited number of partner Insurer Defendants was
necessary to encourage clients to retain HRH, to conceal the scheme, to lull clients,
including Plaintiffs and Class Members, into a false sense of security and to assure
payment of the excess premiums. Likewise, inclusion of the excess amount of premium
resulting from HRH and the Insurer Defendants’ scheme in invoices forwarded to each
Plaintiff without explanation or a separate accounting for the excess premium was
necessary to conceal the scheme and to assure payment of the entire invoice amount.
The fraudulent scheme and the conspiracy in furtherance of the scheme
proximately caused the cost of insurance obtained by Plaintiffs and Class Members to
increase because the kickbacks paid to HRH were included in the price of insurance paid
by Plaintiffs and Class Members. In addition, Plaintiffs and Class Members reasonably
relied on HRH’s representations and the Defendants’ omissions in paying higher premiums
that included the kickbacks to HRH.
Despite HRH’s duties to its clients, despite HRH’s acknowledgement of its
obligations and despite HRH’s representations, HRH did not act in its clients’ best interests
but instead engaged in a fraudulent scheme designed to increase the profits of HRH and
its insurer partners at the expense of its clients.
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WELLS FARGO/ACORDIA ENTERPRISE DEFENDANTS:
The Wells Fargo/Acordia Enterprise Defendants have violated 18 U.S.C. § 1341
and 18 U.S.C. § 1343 by utilizing or causing the use of the United States postal service,
commercial interstate carrier, wire or other interstate electronic media in furtherance of
their fraudulent scheme.
Defendants have engaged in a scheme whereby Wells Fargo/Acordia would allocate
business to a limited number of partner Insurer Defendants in exchange for kickbacks in
the form of contingent commissions and/or other payments which were factored into the
premiums paid by plaintiffs and class members. Specifically, as set forth in further detail
in the Revised Particularized Statement and the Second Amended Complaint, the Wells
Fargo/Acordia Enterprise Defendants engaged in the following conduct:
- Wells Fargo/Acordia significantly consolidated the number of carriers to
which it would market its clients’ business.
- Wells Fargo/Acordia entered into “strategic partnerships” with the Wells
Fargo/Acordia Enterprise Insurers to which Wells Fargo/Acordia agreed to
steer the bulk of its business.
- As strategic partners, Wells Fargo/Acordia Enterprise Insurers would be given
access to a guaranteed flow of premium volume from Wells Fargo/Acordia, as
well as protection from normal competition from both inside and outside of
the strategic partnership for renewal of each Insurer Defendant’s own business.
- In order to accomplish this, the Wells Fargo/Acordia Enterprise Defendants
engaged in a number of practices specifically set forth in the Revised
Particularized Statements including “book rolls”, agreements not to bid renewals
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competitively, limiting the marketing of renewals, disclosing other carriers’
bids and other actions designed to maximize the volume of insurance placed
with the Wells Fargo/Acordia Enterprise Insurers.
- In exchange for being given these unfair competitive advantages, the Wells
Fargo/Acordia Enterprise Insurers agreed to pay kickbacks to Wells
Fargo/Acordia.
In furtherance of the scheme, the Wells Fargo/Acordia Enterprise Defendants
have sent matters and things through the mail and wire or have known that mail or wire
would be used in furtherance of the scheme. Materials sent by mail or wire have
included correspondence, emails, faxes, marketing materials, contracts or agreements
between Wells Fargo/Acordia and the client, requests for proposals, policies and policy
materials, insurance quotes, contingent commission agreements, insurance binders,
commission schedules, invoices to clients and payments from insurers to brokers.
The Wells Fargo/Acordia Defendants have frequently communicated with each
other by mail and/or wire in furtherance of the scheme. Such communications have
included contingent commission agreements, letters, faxes and emails memorializing
various agreements between Marsh and its partner markets and details regarding
consolidation, requests for bids and bids, invoices, and contingent payments. Many
instances of these types of communications are further detailed in the Revised
Particularized Statement and the Second Amended Complaint.
Defendants’ scheme conflicts with Wells Fargo/Acordia’s duties and
representations to its clients. Wells Fargo/Acordia is retained by its clients, including
Plaintiffs and Class Members, for the sole purpose of acting on behalf of and providing
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the clients with unbiased advice concerning the type, amount and level of insurance
needed, as well as to provide sound and accurate advice regarding the insurance
companies they recommend.
Additionally, Wells Fargo/Acordia is a fiduciary of its clients, and therefore owes
its clients, including Plaintiffs and other members of the Class: (i) a duty of loyalty to act
in the best interests of its clients and to always put its clients’ interests ahead of its own;
(ii) a duty of full and fair disclosure and complete candor in connection with any
insurance-related products purchased by clients or services rendered by Wells
Fargo/Acordia, including the duty to disclose the source and amounts of all income it
receives in or as a result of any transaction involving its clients; (iii) a duty of care in
connection with any insurance-related products purchased by its clients or services
rendered by Wells Fargo/Acordia; (iv) a duty to provide impartial advice in connection
with any insurance-related products purchased by its clients or services rendered by
Wells Fargo/Acordia; (v) a duty to use its best business judgment in connection with any
insurance-related products or services purchased by its clients– in other words to find the
best coverage at the lowest price; and, (vi) a duty of good faith and fair dealing.
As a result of the nature of the relationship between Wells Fargo/Acordia and its
clients, as a result of Wells Fargo/Acordia’s fiduciary status and as a result of Wells
Fargo/Acordia’s representations, Wells Fargo/Acordia had a duty to fully disclose any
conflicts of interest it had in providing services to its clients as well as any material
information that might impact its ability to act in its client’s best interest. Wells
Fargo/Acordia, however, did not disclose its conflicts of interest, its allocation of
business to a limited number of insurer partners or the resulting harm to its clients.
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Wells Fargo/Acordia’s form “Client Services Agreement” acknowledges that Wells
Fargo/Acordia is acting as an “insurance broker” and will be providing “insurance brokerage
services.” This agreement, at least at times, contained the notation that Wells
Fargo/Acorida has “agreements with certain insurers under which they may receive
payments based upon factors that are not client specific such as the overall book of
business placed and the performance of that book." This statement was insufficient to
fully disclose Wells Fargo/Acordia’s compensation arrangements with the Wells
Fargo/Acordia Enterprise Insurers, noting only that Wells Fargo/Acordia “may receive”
additional compensation from “certain insurers” while failing to provide any information
regarding the strategic partnerships that Marsh had entered into with Wells
Fargo/Acordia Enterprise Insurers or the significance these partnerships and the
contingent payment arrangements had on the insurance placement process and the
premiums charged.
During the relevant time period, Wells Fargo/Acordia also transmitted to its
clients, including Plaintiffs, various other communications relating to its provision of
brokerage services, including insurance policies, correspondence and quotes. Wells
Fargo/Acordia also sent invoices to its clients which included the excess premiums
resulting from Defendants’ scheme without a separate accounting of the excess amount
being invoiced. Wells Fargo/Acordia sent an invoice to Omni Group on or about August
2003.
Wells Fargo/Acordia did not disclose the following material facts in any of its
communications with clients:
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• that Wells Fargo/Acordia was not acting in the best interest of its clients but
was instead acting on behalf of itself and its partner carriers to further their
financial interests at the expense of Wells Fargo/Acordia’s clients;
• the true nature of the association and agreements between Wells
Fargo/Acordia and the Wells Fargo/Acordia Enterprise Insurers;
• the conflict of interest inherent in the agreements between Wells
Fargo/Acordia and the Wells Fargo/Acordia Enterprise Insurers;
• Wells Fargo/Acordia’s consolidation of its insurance markets to a few select
strategic partners;
• Wells Fargo/Acordia’s steering of insurance placements to the Wells
Fargo/Acordia Enterprise Insurers , its strategic partners;
• that Wells Fargo/Acordia was protecting the Wells Fargo/Acordia Enterprise
Insurers from competition;
• that the Wells Fargo/Acordia Enterprise Insurers kick back a substantial
portion of their increased profits to Wells Fargo/Acordia in the form of
contingent commissions, loans, subsidies and payments for “services” as well as
other agreements and tying arrangements that serve the same function;
• that the kickbacks to Wells Fargo/Acordia are factored into the cost of
Plaintiffs and Class Members’ insurance, resulting in injury to Plaintiffs’ and
Class Members’ business and property.
Wells Fargo/Acordia’s misrepresentation of its allegiance to its client’s interests and
concealment of Wells Fargo/Acordia’s allocation of business to a limited number of
partner Insurer Defendants was necessary to encourage clients to retain Wells
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Fargo/Acordia, to conceal the scheme, to lull clients, including Plaintiffs and Class
Members, into a false sense of security and to assure payment of the excess premiums.
Likewise, inclusion of the excess amount of premium resulting from Wells
Fargo/Acordia and the Insurer Defendants’ scheme in invoices forwarded to each Plaintiff
without explanation or a separate accounting for the excess premium was necessary to
conceal the scheme and to assure payment of the entire invoice amount.
The fraudulent scheme and the conspiracy in furtherance of the scheme
proximately caused the cost of insurance obtained by Plaintiffs and Class Members to
increase because the kickbacks paid to Wells Fargo/Acordia were included in the price of
insurance paid by Plaintiffs and Class Members. In addition, Plaintiffs and Class
Members reasonably relied on Wells Fargo/Acordia’s representations and the Defendants’
omissions in paying higher premiums that included the kickbacks to Wells
Fargo/Acordia.
Despite Wells Fargo/Acordia’s duties to its clients, despite Wells Fargo/Acordia’s
acknowledgement of its obligations and despite Wells Fargo/Acordia’s representations,
Wells Fargo/Acordia did not act in its clients’ best interests but instead engaged in a
fraudulent scheme designed to increase the profits of Wells Fargo/Acordia and its insurer
partners at the expense of its clients.
d. State whether there has been a criminal conviction in regard to the predicate acts;
To date, there have been ten criminal convictions in connection with the
allegations in the complaints in the following proceedings:
a. People v. Patricia Abrams (N.Y. County Supreme Court) (felony complaint against former ACE executive resulting in guilty plea entered on or about October 14, 2004);
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b. People v. Karen Radke (N.Y. County Supreme Court) (felony complaint against former AIG executive resulting in guilty plea entered on or about October 14, 2004);
c. People v. Jean-Baptiste Tateossian (N.Y. County Supreme Court) (felony complaint against former AIG executive resulting in guilty plea entered on or about October 14, 2004);
d. People v. John Keenan (N.Y. County Supreme Court) (felony complaint against former Zurich American Insurance Company executive resulting in guilty plea entered on or about November 16, 2004);
e. People v. Edward Coughlin (N.Y. County Supreme Court) (felony complaint against former Zurich American Insurance Company executive resulting in guilty plea entered on or about November 16, 2004);
f. People v. Robert Stearns (N.Y. County Supreme Court) (felony complaint against former Marsh executive resulting in guilty plea entered on or about January 4, 2005);
g. People v. Carlos Coello (N.Y. County Supreme Court) (felony complaint against former AIG executive resulting in guilty plea entered on or about January 19, 2005);
h. People v. John Mohs (N.Y. County Supreme Court) (felony complaint against former AIG executive resulting in guilty plea entered on or about January 25, 2005);
i. People v. Joshua M. Bewlay (N.Y. County Supreme Court) (felony complaint against former Marsh executive resulting in guilty plea entered on or about February 14, 2005); and
j. People v. Kathryn Winter (N.Y. County Supreme Court) (felony complaint against former Marsh executive resulting in guilty plea entered on or about February 18, 2005).
In addition, the following persons have now been indicted:
Kevin Bott
Greg Doherty
Kathleen Drake
William Gilman
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Thomas T. Green
Regina Hatton
Edward Keane Jr.
William McBurnie
Edward McNenny
Nicole Michaels
Todd Murphy
Joseph Peiser
James Spiegel
e. State whether civil litigation has resulted in a judgment in regard to the predicate acts;
Several Defendants have settled with regulators for the conduct at issue in this
case as set forth in the Second Amended Complaint.
f. Describe how the predicate acts form a “pattern of racketeering activity”; and
Defendants’ predicate acts form a “pattern of racketeering activity” consisting of
multiple related acts of racketeering activity since at least the mid to late 1990’s. Each
and every predicate act of mail and wire fraud was related in that the purpose of each was
to prevent detection of the scheme involving allocation of business to the insurer
Defendants. Each predicate act involved the same or similar participants – the broker
Defendant and the Insurer Defendants associated with each broker-centered enterprise.
Each predicate act involved the same method of commission including the transmittal of
documents to the Broker Defendants’ clients which included misrepresentations and
omissions aimed at preventing detection of the Defendants’ scheme. The predicate acts
had the similar result of obscuring Defendants’ activities and impacted similar victims – the
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clients of the Broker Defendants, including Plaintiffs and Members of the Class. The
predicate acts amount to continued racketeering activity in that the predicate acts
occurred repeatedly over an extended period of time, beginning in the mid to late 1990’s.
Accordingly, the predicate acts constitute a “pattern of racketeering activity.”
g. State whether the alleged predicate acts relate to each other as part of a common plan. If so, describe in detail.
The predicate acts of mail fraud and wire fraud were part of a common
plan whereby the members of each broker-centered Enterprise engaged in numerous acts
of mail and wire to conceal and prevent detection of a scheme whereby the broker
defendants consolidated their markets and allocated their business to the Insurer
Defendants associated with their Enterprise.
6. State whether the existence of an “enterprise” is alleged within the meaning of 18 U.S.C. § 1961(4). If so, for each such enterprise, provide the following information:
Six association in fact enterprises are alleged.
a. State the names of the individuals, partnerships, corporations, associations or other legal entities, which allegedly constitute the enterprise.
Each of the following constitutes a group of persons or entities associated in fact:
(1) Marsh, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford, Liberty Mutual, Munich, St. Paul Travelers, XL and Zurich (the “Marsh Enterprise”). The Marsh Enterprise is an ongoing organization which has existed continuously since the mid to late 1990’s.
(2) Aon, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford, Liberty Mutual, St. Paul Travelers, Zurich and XL (the “Aon Enterprise”) The Aon Enterprise is an ongoing organization which has existed continuously since the mid to late 1990’s.
(3) Willis, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford, Liberty Mutual, St. Paul Travelers and Zurich (the “Willis Enterprise”) The Willis Enterprise is an ongoing organization which has existed continuously since the mid to late 1990’s.
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(4) Gallagher, AIG, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford and St. Paul Travelers (the “Gallagher Enterprise”). The Gallagher Enterprise is an ongoing organization which has existed continuously since the mid to late 1990’s.
(5) HRH, CNA, Hartford and St. Paul Travelers (the “HRH Enterprise”). The HRH Enterprise is an ongoing organization which has existed continuously since the mid to late 1990’s.
(6) Wells Fargo/Acordia, Chubb, CNA, Fireman’s Fund, Hartford and St. Paul Travelers (the “Wells Fargo/Acordia Enterprise”). The Wells Fargo/Acordia Enterprise is an ongoing organization which has existed continuously since the mid to late 1990’s.
b. Describe the structure, purpose, function and course of conduct of the enterprise;
The purpose of each Enterprise is (1) to make money through the creation of a
defined and limited group of insurance carriers to which the broker defendant steers the
insurance business of class members with limited or no competition in exchange for
sharing increased profits and (2) to conceal this scheme from customers.
The structure for decision-making within each enterprise includes the following:
(1) one or more broker executives who have responsibility and authority for interfacing
with the insurers to determine compensation, to plan for the steering or retention of
business, and to monitor and direct that business be retained or steered to insurer
members of the enterprise; (2) broker account executives who implement direction
regarding the retention or steering of business; (3) one or more executives at each insurer
who have the responsibility and authority to plan with the broker, to monitor the
placement of business and to determine compensation for the steering or retention of
business; (4) an employee or employees of the insurer who monitor(s) and reports
placement volume to insurer executives as well as the broker; (5) an employee or
employees of the broker who keeps track of reports received from the insurers regarding
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placement volume; (6) an employee or employees who implement decisions regarding
the placement of business; and (7) an employee or employee who factor(s) the cost of the
kickbacks into the insurance premiums paid by Plaintiffs and Class Members. In
addition, the broker assumes primary responsibility for concealment of the scheme with
support and assistance from the insurer members of the enterprise.
Each enterprise has undertaken a course of conduct to develop, coordinate,
monitor and conceal the fraudulent scheme.
c. State whether any defendants are employees, officers or directors of the alleged enterprise;
Defendants are not employees, officers or directors of any of the Enterprises.
d. State whether any defendants are associated with the alleged enterprise;
The Marsh Enterprise Defendants associated with, participate in and control the
affairs of the Marsh Enterprise.
The Aon Enterprise Defendants are associated with, participate in and control the
affairs of the Aon Enterprise.
The Willis Enterprise Defendants are associated with, participate in and control
the affairs of the Willis Enterprise.
The Gallagher Enterprise Defendants are associated with, participate in and
control the affairs of the Gallagher Enterprise.
The HRH Enterprise Defendants are associated with, participate in and control the
affairs of the HRH Enterprise.
The Wells Fargo/Acordia Enterprise Defendants are associated with, participate in
and control the affairs of the Wells Fargo/Acordia Enterprise.
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e. State whether you are alleging that the defendants are individuals or entities separate from the alleged enterprise, or that the defendants are the enterprise itself, or members of the enterprise; and
While these Defendants participate in and are members of each enterprise as
indicated above, they have an existence separate and distinct from the enterprise.
f. If any defendants are alleged to be the enterprise itself, or members of the enterprise, explain whether such defendants are perpetrators, passive instruments, or victims of the alleged racketeering activity.
Defendants are perpetrators of the racketeering activity.
7. State and describe in detail whether you are alleging that the pattern of racketeering activity and the enterprise are separate or have merged into one entity.
The racketeering activity and the enterprise are separate. The members of each
Enterprise share a common purpose and each Enterprise is continuing and has a structure
for decision-making and for oversight, coordination and facilitation of the predicate
offenses. The pattern of racketeering activity includes numerous acts of mail and wire
fraud in furtherance of a fraudulent scheme whereby each Broker Defendant allocates
business to the Insurer members in exchange for kickbacks in the form of contingent
commissions and/or other payments.
8. Describe the alleged relationship between the activities of the enterprise and the pattern of racketeering activity. Discuss how the racketeering activity differs from the usual and daily activities of the enterprise, if at all.
Each Enterprise oversees, coordinates and facilitates the commission of numerous
predicate offenses. The daily activities of the enterprise include some legitimate
activities relating to the distribution of insurance on a competitive basis. The
racketeering activity is comprised of a fraudulent scheme to allocate business on a
noncompetitive basis resulting in additional profits for all Defendants as well as
concealment of the scheme.
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9. Described what benefits, if any, the alleged enterprise receives from the alleged pattern of racketeering.
Each Enterprise benefits from the pattern of racketeering through reduced
competition and additional profits as well as concealment of the scheme.
10. Describe the effect of the activities of the enterprise on interstate or foreign commerce.
Each Enterprise operates on a nation-wide basis and utilizes interstate
communications including United States mail and wire across state lines. The activities of
the enterprises are national in scope, affecting most of the commercial insurance market
in the United States. The enterprises have a substantial impact upon the economy and
upon interstate commerce.
11. If the complaint alleges a violation of 18 U.S.C. § 1962(a), provide the following information:
Plaintiffs do not allege a violation of 18 U.S.C. § 1962(a).
a. State who received the income derived from the pattern of racketeering activity or through the collection of an unlawful debt; and
Not applicable.
b. Describe the use or investment of such income.
Not applicable.
12. If the complaint alleges a violation of 18 U.S.C. § 1962(b), describe in detail the acquisition or maintenance of any interest in or control of the alleged enterprise.
Plaintiffs do not allege a violation of 18 U.S.C. § 1962(b).
13. If the complaint alleges a violation of 18 U.S.C. § 1962(c), provide the following information:
a. State who is employed by or associated with the enterprise; and
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Marsh, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund,
Hartford, Liberty Mutual, Munich, St. Paul Travelers, XL and Zurich are
associated with the Marsh Enterprise.
Aon, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund,
Hartford, Liberty Mutual, St. Paul Travelers, Zurich and XL are associated with
the Aon Enterprise.
Willis, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund,
Hartford, Liberty Mutual, St. Paul Travelers and Zurich are associated with the
Willis Enterprise.
Gallagher, AIG, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford
and St. Paul Travelers are associated with the Gallagher Enterprise.
HRH, CNA, Hartford and St. Paul Travelers are associated with the HRH
Enterprise.
Wells Fargo/Acordia, Chubb, CNA, Fireman’s Fund, Hartford and St. Paul
Travelers are associated with the Wells Fargo/Acordia Enterprise.
b. State whether the same entity is both the liable “person” and the “enterprise” under § 1962(c).
The same entity is not both the liable person and the enterprise under § 1962(c).
c. Describe specifically how the defendant(s) participated in the operation or management of the enterprise.
As set forth herein, each Defendant had officers and employees who had responsibility
for participating in, operating and managing each enterprise. The Broker Defendants
have participated in the operation or management of each Enterprise in at least the
following ways:
a. consolidation of the broker’s insurance markets;
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b. reaching agreement with the Insurer Defendants with whom the Broker
Defendant is associated regarding amount of contingent commissions to be
paid to the Broker and the level of business to be steered to each Insurer
Defendant;
c. the monitoring of current and new business;
d. determining whether a partner carrier is to retain current business and the
insurer partner to whom new business is to be steered;
e. steering of business to preferred partners;
f. collection of inflated premiums; and coordinating concealment of the scheme.
The Insurer Defendants have participated in the operation or management of each
Enterprise with which they are associated in at least the following ways:
a. reaching agreement with the Broker Defendants with whom the Insurer
Defendant is associated regarding amount of contingent commissions to be paid
to the Broker and the level of business to be steered to each Insurer Defendant;
b. monitoring and reporting of business levels;
c. computation of premium levels to encompass contingent commissions;
d. payment of kickbacks; and coordinating concealment of the scheme.
ALTERNATIVE ENTERPRISE RESPONSES:
6. State whether the existence of an “enterprise” is alleged within the meaning of 18 U.S.C. § 1961(4). If so, for each such enterprise, provide the following information:
a. State the names of the individuals, partnerships, corporations, associations or other legal entities, which allegedly constitute the enterprise.
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CIAB is a legal entity which constitutes a RICO enterprise referred to herein at
the “CIAB Enterprise.”
b. Describe the structure, purpose, function and course of conduct of the enterprise;
The purpose of the CIAB Enterprise is to further the interests of larger brokers
generally and to further the Defendants’ scheme specifically including implementation
and concealment of the scheme. The CIAB Enterprise has a structure for decision-
making that includes an Executive Committee , Board of Directors and various other
committees and decision-making structures as well as the Council of Insurance Company
Executives.
c. State whether any defendants are employees, officers or directors of the alleged enterprise;
Defendants are not employees of the CIAB Enterprise. However, at times,
Defendants or representatives of Defendants have served as officers or directors within
the CIAB Enterprise.
d. State whether any defendants are associated with the alleged enterprise;
Defendants are associated with the enterprises and participate and control the
affairs of the CIAB Enterprise. Defendants’ control and participation in the enterprise is
necessary for the successful operation of Defendants’ scheme. While Defendants
participate in and are members of the Enterprise, Defendants also have an existence
separate and distinct from the Enterprise.
e. State whether you are alleging that the defendants are individuals or entities separate from the alleged enterprise, or that the defendants are the enterprise itself, or members of the enterprise; and
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Defendants are members of the CIAB Enterprise but have an existence separate
and distinct from the Enterprise.
f. If any defendants are alleged to be the enterprise itself, or members of the enterprise, explain whether such defendants are perpetrators, passive instruments, or victims of the alleged racketeering activity.
Defendants are perpetrators of the racketeering activity.
7. State and describe in detail whether you are alleging that the pattern of racketeering activity and the enterprise are separate or have merged into one entity.
The CIAB enterprise is a legal entity that has an ascertainable structure separate
and apart from the pattern of racketeering activity in which the defendants have engaged.
The Defendants have engaged in continuing mail and wire fraud in order to further and to
conceal their fraudulent scheme.
8. Describe the alleged relationship between the activities of the enterprise and the pattern of racketeering activity. Discuss how the racketeering activity differs from the usual and daily activities of the enterprise, if at all.
Defendants have been enabled to commit the predicate offenses solely by virtue
of their position in the CIAB Enterprise or involvement in or control over the affairs of
the CIAB Enterprise. Defendants were able to devise, implement and conceal their
scheme through CIAB. Concealment as well as controlled and coordinated
representations and disclosures, which were crucial to the success of the scheme, could
not have occurred absent the coordinating mechanism of CIAB. Defendants not only
used CIAB as the vehicle for developing, coordinating, monitoring and concealing the
scheme but also to disseminate misrepresentations in furtherance of the scheme. Absent
the Defendants’ participation in and control of CIAB, the Defendants would have been
unable to perpetrate the fraudulent scheme and the attendant predicate acts. CIAB
provided Defendants the necessary mechanism for decision-making regarding the
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fraudulent scheme, regarding concealment of Defendants’ relationships and activities, and
regarding controlled and coordinated representations and disclosures. The CIAB
Enterprise is separate and distinct from the pattern of racketeering activity. However, the
predicate offenses are related to the activities of the CIAB Enterprise. The purpose of the
CIAB Enterprise is furtherance of the interest of large brokers generally and furtherance
of the Defendants’ scheme more specifically. Accordingly, the predicate acts taken in
furtherance of the scheme necessarily relate to the CIAB Enterprise. The racketeering
activity differs significantly from the usual and daily activities of the CIAB enterprise
which include political advocacy and continuing education opportunities for member
brokers.
9. Described what benefits, if any, the alleged enterprise receives from the alleged pattern of racketeering.
CIAB is a membership organization. The members of CIAB benefit
tremendously from the pattern of racketeering. Likewise, members of CICE benefit from
the pattern of racketeering. Accordingly, CIAB benefits from the pattern of racketeering
through continuing and increased participation by its most powerful and wealthy
members and through continued sponsorship by the Insurer Defendants.
10. Describe the effect of the activities of the enterprise on interstate or foreign commerce.
The activities of the CIAB Enterprise are national in scope, affecting must of the
commercial insurance market in the United States. The CIAB Enterprise has a
substantial impact upon the economy and upon interstate commerce. The activities of the
Enterprise were carried out through mail, wire and other facilities of interstate commerce.
11. If the complaint alleges a violation of 18 U.S.C. § 1962(a), provide the following information:
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Plaintiffs do not allege a violation of 18 U.S.C. § 1962(a).
a. State who received the income derived from the pattern of racketeering activity or through the collection of an unlawful debt; and
Not applicable
b. Describe the use or investment of such income.
Not applicable.
12. If the complaint alleges a violation of 18 U.S.C. § 1962(b), describe in detail the acquisition or maintenance of any interest in or control of the alleged enterprise.
Plaintiffs do not allege a violation of 18 U.S.C. § 1962(b).
13. If the complaint alleges a violation of 18 U.S.C. § 1962(c), provide the following information:
a. State who is employed by or associated with the enterprise; and
The CIAB Enterprise has several employees. The Broker Defendants and Insurer
Defendants are associated with the Enterprise.
b. State whether the same entity is both the liable “person” and the “enterprise” under § 1962(c).
The same entity is not both the liable person and the enterprise under § 1962(c).
c. Describe specifically how the defendant(s) participated in the operation or management of the enterprise.
The Broker Defendants have participated in the operation or management of the
CIAB Enterprise in the at least the following ways:
a. through the positions held in CIAB by the Broker Defendants’ employees and officers including board memberships, committee memberships and other influential positions and as a result of the power the Broker Defendants enjoyed in CIAB as a consequence of their size and market share;
b. by developing methods for concealment of the fraudulent scheme;
c. by submitting false or misleading information to customers;
d. by consolidating markets and steering business to strategic insurance partners;
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e. in some instances by bid rigging; and
f. by sharing information relating to such matters as market conditions, placements and payments.
The Insurer Defendants have participated in the operation or management of the
Enterprise in at least the following ways:
a. through their position in CICE, their sponsorship of CIAB, their attendance at the Insurance Leadership Forum at The Greenbrier and as a result of their importance to CIAB and CIAB’s members
b. by developing methods for concealment of the fraudulent scheme;
c. by kicking back profits to the Broker Defendants;
d. by submitting false or misleading information to customers or to brokers for
submission to customers;
e. by providing or withholding quotes as directed by Broker Defendants;
f. by sharing information relating to such matters as market conditions, placements
and payments.
14. If the complaint alleges a violation of 18 U.S.C. § 1962(d), describe in detail the alleged conspiracy.
Since at least 1998, Marsh, Aon, Willis, Gallagher, HRH and Wells
Fargo/Acordia have conspired to facilitate the scheme being operated through each of the
Broker-Centered Enterprises and to further their common purpose of preventing detection
of these schemes through misrepresentations, concealment and coordinated and
controlled disclosures. The Broker Defendants’ conspiracy has been conducted,
implement and facilitated through the sharing of information among the Broker
Defendants and through their participation in CIAB. The purpose and effect of the
conspiracy was to prevent Plaintiffs and Members of the Class from becoming aware of
the terms and the significance of the contingent commission agreements between the
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Defendants and the conflicts of interest arising out of the Broker Defendants’ strategic
partnerships with the Insurer Defendants, thereby allowing the Broker Defendants to
increase the compensation they received from the Insurer Defendants. The Broker
Defendants accomplished this by conspiring with one another to adopt substantially
similar vague and incomplete disclosure (or non-disclosure) policies regarding contingent
compensation matters modeled after CIAB’s 1998 position statement and by employing
CIAB to engage in a public relations campaign designed to create the impression that “full
disclosure” was the industry standard and to oppose any efforts to require meaningful
disclosure of contingent commission arrangements. Through their coordinated efforts,
the Broker Defendants were able to successfully prevent insurance purchasers from
becoming aware of the true nature of the relationships between the Broker Defendants
and the Insurer Defendants and from obtaining actual and complete disclosure of the
manner in which the Broker Defendants were compensated by the Insurer Defendants.
Each Broker Defendant was aware of the general nature of the conspiracy and its role in
facilitating the objectives of the conspiracy. Further, each Broker Defendant has agreed
to the overall objective of the conspiracy. Each Broker Defendant has committed overt
acts in furtherance of the alleged conspiratorial objectives. As a result of the Broker
Defendants’ conspiracy, Plaintiffs and other Members of the Class have paid more than
they otherwise would have paid for insurance they procured through the Broker
Defendants.
Additionally, the following broker-centered conspiracies have existed since the
mid to late 1990’s:
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(1) A conspiracy involving the Marsh Enterprise Defendants in furtherance of the fraudulent scheme and to conceal the scheme.
(2) A conspiracy involving the Aon Enterprise Defendants in furtherance of the fraudulent scheme and to conceal the scheme.
(3) A conspiracy involving the Willis Enterprise Defendants in furtherance of the fraudulent scheme and to conceal the scheme.
(4) A conspiracy involving the Gallagher Enterprise Defendants in furtherance of the fraudulent scheme and to conceal the scheme.
(5) A conspiracy involving the HRH Enterprise Defendants in furtherance of the fraudulent scheme and to conceal the scheme.
(6) A conspiracy involving the Wells Fargo Enterprise Defendants in furtherance of the fraudulent scheme and to conceal the scheme.
The purpose and effect of each broker-centered conspiracy was to engage in a scheme
whereby each Broker Defendant would steer business to its strategic partner Insurer
Defendants and protect them from competition in exchange for increased compensation
paid to the Broker Defendants in the form of contingent commissions, and to conceal the
existence of the scheme from each Broker Defendant’s clients. Each Defendant within
each broker-centered conspiracy was aware of the general nature of the conspiracy and its
role in facilitating the objectives of the conspiracy. Further, each Defendant within each
broker-centered conspiracy has agreed to the overall objective of the conspiracy. Each
Defendant within each broker-centered conspiracy had committed overt acts in
furtherance of the alleged conspiratorial objective. As a result of the broker-centered
conspiracies, Plaintiffs and other Members of the Class have paid more they otherwise
would have for insurance that they procured through the Broker Defendants.
Alternatively, Plaintiffs allege that the Defendants have conspired to violate 18
U.S.C. § 1962(c). The conspiracy has been conducted, implemented and facilitated
through CIAB. The purpose and effect of the conspiracy was to prevent Plaintiffs and
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Members of the Class from becoming aware of the terms and the significance of the
contingent commission agreements between the Defendants and the conflicts of interest
arising out of the Broker Defendants’ strategic partnerships with the Insurer Defendants,
thereby allowing the Broker Defendants to increase the compensation they received from
the Insurer Defendants and the Insurer Defendants to increase the business they received
from the Broker Defendants without competition. Each Defendant was aware of the
general nature of the conspiracy and its role in facilitating the objectives of the
conspiracy. Further, each Defendant has agreed to the overall objective of the
conspiracy. Each Defendant has committed overt acts in furtherance of the alleged
conspiratorial objectives. As a result of the Defendants’ conspiracy, Plaintiffs and other
Members of the Class have paid more than they otherwise would have paid for insurance
they procured through the Broker Defendants.
15. Describe the alleged injury to business or property.
Plaintiffs and Class Members have been injured in their business or property by
paying excessive premiums for insurance.
16. Describe the direct causal relationship between the alleged injury and the violation of the RICO statute.
The fraudulent scheme and conspiracy involving each Broker Defendant and the
Insurer Defendants associated in the broker-centered enterprise with the Broker
Defendant and the conspiracy between Marsh, Aon, Willis, Gallagher, HRH and Wells
Fargo/Acordia to prevent detection of each broker’s fraudulent scheme proximately
caused the cost of insurance obtained by Plaintiffs and Class Members to increase
because the kickbacks paid to the Broker Defendant were included in the price of
insurance paid by Plaintiffs and Class Members. In addition, Plaintiffs and Class
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Members reasonably relied on the Broker Defendant’s representations and omissions in
paying higher premiums that included the kickbacks to the Broker Defendant.
17. List the damages sustained by reason of the violation of § 1962, indicating the amount for which each defendant is allegedly liable.
Each and every Defendant is jointly and severally liable for treble the damages
sustained by each Plaintiff and Class Member by paying higher premiums as a result of
Defendants’ fraud and conspiracy.
18. List all other Federal causes of action, if any, and provide the relevant statute numbers.
The following additional Federal claim has been alleged in the actions currently
pending before the Court: Sherman Act, 15 U.S.C. § 1.
19. List all pendent state claims, if any.
Plaintiffs allege several state claims for which independent jurisdiction existence
pursuant to the Class Action Fairness Act (“CAFA”), 28 U.S.C. 1332(d)(2), et seq
These claims include claims for unjust enrichment and breach of fiduciary duty
as well as for violations of the statutes listed below:
State Antitrust Laws
Alaska Sta. §§45.50.462 et seq.
Arizona Revised Stat. §§44-1401 et seq.
Arkansas Stat. Ann. §44-75-309 et seq., §§4-75-201 et seq.
Cal. Bus. Prof. Code §§16700 et seq., §§17000 et seq.
Colorado Rev. Stat. §§6-4-101 et seq.
Connecticut Gen. Stat. §§35-26 et seq.
D.C. Code Ann. §§28-4503 et seq.
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Delaware Code Ann. Tit. 6, §§2103 et seq.
Florida Stat. §§501-201 et seq.
Georgia Code Ann. §§16-10-22 et seq, §§ 13-8-2 et seq.
Hawaii Rev. Stat. §§480-1 et seq.
Idaho Code §§48-101 et seq.
740 Illinois Comp. Stat. §§10/1 et seq.
Indiana Code Ann. §§24-1-2-1 et seq.
Iowa Code §§553.1 et seq.
Kansas Stat. Ann. §§50-101 et seq.
Kentucky Rev. Stat. §§367.175 et seq., §446.070
Louisiana Rev. Stat. §§55:137 et seq.
Maine Rev. Stat. Ann. 10, §§1101 et seq.
Maryland Code Ann. Title 11, §§11-201 et seq.
Massachusetts Ann. Laws ch. 92 §§1 et seq.
Michigan Comp. Laws. Ann. §§445.773 et seq.
Minnesota Stat. §§325D.52 et seq.
Mississippi Code Ann. §§75-21-1 et seq.
Missouri Stat. Ann. §§416.011 et seq.
Montana Code Ann. §§30-14-101 et seq.
Nebraska Rev. Stat. §§59-801 et seq.
Nev. Rev. Stat. Ann. §§598A et seq.
New Hampshire Rev. Stat. Ann. §§356:1 et seq.
New Jersey Stat. Ann. §§56:9-1 et seq.
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New Mexico Stat. Ann. §§57-1-1 et seq.
N.Y. Gen. Bus. Law §§340 et seq.
North Carolina Gen. Stat. §§75-1 et seq.
North Dakota Cent. Code §§51-08.1-01 et seq.
Ohio Rev. Code §§1331.01 et seq.
Oklahoma Stat. tit. 79 §§203(A) et seq.
Oregon Rev. Stat. §§646.705 et seq.
Rhode Island Gen. Laws §§6-36-1 et seq.
South Carolina Code §§39-1-10 et seq.
South Dakota Codified Laws Ann. §§37-1 et seq.
Tennessee Code Ann. §§47-25-101 et seq.
Texas Bus. & Com. Code §§15.01 et seq.
Utah Code Ann. §§76-10-911 et seq.
Vermont Stat. Ann. 9 §§2453 et seq.
Virginia Code §§59-1-9.2 et seq.
Washington Rev. Code §§19.86.010 et seq.
West Virginia §§47-18-1 et seq.
Wisconsin Stat. §§133.01 et seq.
Wyoming Stat. §§40-4-101 et seq.
20. Provide any additional information that you feel would be helpful to the Court in processing your RICO claim.
Dated: May 22, 2007 Respectfully submitted,
WHATLEY, DRAKE & KALLAS, LLC
/s/ Edith M. Kallas
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Edith M. Kallas Joseph P. Guglielmo Elizabeth Rosenberg Lili R. Sabo 1540 Broadway, 37th Floor New York, NY 10036 Tel.: 212-447-7070 Fax: 212-447-7077
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CAFFERTY FAUCHER LLP
/s/ Bryan L. Clobes Bryan L. Clobes Ellen Meriwether Melody Forrester Timothy Fraser One Logan Square 18th and Cherry Streets, Suite 1700 Philadelphia, PA 19103 Tel.: 215-864-2800 Fax: 215-864-2810
Plaintiffs’ Co-Lead Counsel
FOOTE, MEYERS, MIELKE & FLOWERS Robert M. Foote 416 South Second Street Geneva, IL 60134 Tel.: 630-232-6333
LEVIN, FISHBEIN, SEDRAN & BERMAN Howard J. Sedran 510 Walnut Street - Suite 500 Philadelphia, PA 19106 Tel.: 215-592-1500 Fax: 215-592-4663
Plaintiffs’ Executive Committee
LITE DEPALMA GREENBERG & RIVAS, LLC Allyn Z. Lite Bruce D. Greenberg Michael E. Patunas Two Gateway Center, 12th Floor Newark, NJ 07102 Tel.: 973-623-3000 Fax: 973-623-0858
Liaison Counsel for Commercial Insurance Litigation
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BONNETT, FAIRBOURN, FRIEDMAN & BALINT, P.C. Andrew S. Friedman Elaine A. Ryan Patricia N. Hurd 2901 N. Central Avenue, Suite 1000 Phoenix, AZ 85012 Tel.: 602-274-1100 Fax: 602-274-1199
Liaison Counsel for Employee-Benefit Litigation
AUDET & PARTNERS, LLP William M. Audet 221 Main Street Suite 1460 San Francisco, CA 94105 Tel.: 415-568-2555 Fax: 415-568-2556
BEELER, SCHAD & DIAMOND, P.C. Lawrence W. Schad James Shedden Michael S. Hilicki Tony H. Kim 332 South Michigan Avenue, Suite 1000 Chicago, IL 60604 Tel.: 312-939-6280 Fax: 312-939-4661
BOLOGNESE & ASSOCIATES Anthony J. Bolognese One Penn Center 1617 John F. Kennedy Boulevard Suite 650 Philadelphia, PA 19103 Tel.: 215-814-6750 Fax.: 215-814-6764
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BONSIGNORE & BREWER Robert J. Bonsignore Robin Brewer Daniel D’Angelo 23 Forest Street Medford, MA 02155 Tel.: 781- 391-9400 Fax: 781- 391-9496
CAREY & DANIS L.L.C. Michael J. Flannery James Rosemergy 8235 Forsyth Blvd. Suite 1100 St. Louis, MO 63105 Tel.: 314-725-7700 Fax: 314-721-0905
CHAVEZ LAW FIRM, P.C. Kathleen C. Chavez P.O. Box 772 Geneva, IL 60134 Tel.: 630-232-4480 Fax: 630-232-8265
CHIMICLES & TIKELLIS LLP Nicholas E. Chimicles Michael D. Gottsch 361 West Lancaster Avenue Haverford, PA 19041 Tel.: 610-642-8500 Fax: 610-649-3633
COHN, LIFLAND, PEARLMAN, HERRMANN & KNOPF Peter S. Pearlman Park 80 Plaza West One Saddle Brook, NJ 07663 Tel.: 201-845-9600 Fax: 201-845-9423
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COOPER & KIRKHAM, P.C. Josef D. Cooper 655 Montgomery Street, 17th Floor San Francisco, CA 94111 Tel.: 415-788-3030 Fax: 415-882-7040
DOFFERMYRE SHIELDS CANFIELD KNOWLES & DEVINE Kenneth S. Canfield Ralph I. Knowles, Jr. Martha J. Fessenden Samuel W. Wethern 1355 Peachtree Street, Suite 1600 Atlanta, GA 30309 Tel.: 404-881-8900 Fax: 404-881-3007
DRUBNER HARTLEY & O’CONNOR James E. Hartley, Jr. Gary O’Connor Charles S. Hellman 500 Chase Parkway, 4th Floor Waterbury, CT 06708 Tel.: 203-753-9291 Fax: 203-753-6373
EYSTER KEY TUBB WEAVER & ROTH, LLP Nicholas B. Roth Heather Necklaus Hudson P.O. Box 1607 Decatur, AL 35602 Tel: 256- 353-6761 Fax: 256- 353-6767
FINE KAPLAN & BLACK Roberta D. Liebenberg 1835 Market Street, 28th Floor Philadelphia, PA 19103 Tel.: 215-567-6565 Fax: 215-568-5872
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FINKELSTEIN, THOMPSON & LOUGHRAN Burton H. Finkelstein L. Kendall Satterfield Halley F. Ascher 1050 30th Street, N.W. Washington, D.C. 20007 Tel.: 202-337-8000 Fax: 202-337-8090
FURTH LEHMANN & GRANT, LLP Michael P. Lehmann Thomas P. Dove Julio J. Ramos Jon T. King 225 Bush Street, Suite 1500 San Francisco, CA 94104 Tel.: 415-433-2070 Fax: 415-982-2076
GRAY AND WHITE Mark K. Gray 1200 PNC Plaza Louisville, KY 40202 Tel.: 502-585-2060
HANSON BRIDGES MARCUS VLAHOS RUDY LLP David J. Miller 333 Market Street, 23rd Floor San Francisco, CA 94105 Tel.: 415-777-3200 Fax: 415-541-9366
HANZMAN CRIDEN & LOVE, P.A. Michael E. Criden Kevin B. Love Plaza 57 7301 SW 57th Court Suite 515 South Miami, Florida 33143 Tel.: 305-357-9010 Fax: 305-357-9050
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JANSSEN, MALLOY, NEEDHAM, MORRISON, REINHOLTSEN & CROWLEY, LLP W. Timothy Needham 730 Fifth Street, Post Office Drawer 1288 Eureka, CA 95502 Tel.: 707-445-2071 Fax: 707-445-8305
JEFFREY BRODKIN 1845 Walnut Street, 22nd Floor Philadelphia, PA 19103 Tel.: 215-567-1234 Fax.: 609-569-0809
JEFFREY LOWE, P.C. Jeff Lowe 8235 Forsyth Blvd., Ste. 1100 St. Louis, MO 63105 Tel.: 314-721-3668 Fax: 314-678-3401
JOHN P. MCCARTHY 217 Bay Avenue Somers Point, NJ 08224 Tel.: 609-653-1094 Fax.: 60-653-3029
KLAFTER & OLSEN LLP Jeffrey A. Klafter 1311 Mamaroneck Avenue, Suite 220 White Plains, NY 10602 Tel.: 914-997-5656 Fax: 914-997-2444
LARRY D. DRURY, LTD. Larry D. Drury 205 West Randolph, Suite 1430 Chicago, IL 60606 Tel.: 312-346-7950 Fax: 312-346-5777
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LAW OFFICES OF GARY H. SAPOSNIK Gary H. Saposnik 105 West Madison Street, Ste. 700 Chicago, IL 60602 Tel: 312- 357- 1777 Fax: 312- 606- 0413
LAW OFFICES OF RANDY R. RENICK Randy R. Renick 128 North Fair Oaks Avenue, Ste. 204 Pasadena, CA 91103 Tel.: 626-585-9608 Fax: 626-585-9610
LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS, LLP John J. Stoia, Jr. Theodore J. Pintar Bonny E. Sweeney James D. McNamara Mary Lynne Calkins Rachel L. Jensen 655 West Broadway Suite 1900 San Diego, CA 92101 Tel.: 619-231-1058 Fax: 619-231-7423
LERACH COUGHLIN STOIA GELLER RUDMAN & ROBBINS, LLP Samuel H. Rudman 200 Broadhollow Road, Suite 406 Melville, NY 11747 Tel.: 631-367-7100 Fax: 631-367-1173
LEVINE DESANTIS, LLC Mitchell B. Jacobs 150 Essex St., Ste. 303 Millburn, New Jersey 07041 Tel: 973-376-9050 Fax: 973-379-6898
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LOOPER, REED & MCGRAW James L. Reed, Jr. Travis Crabtree 1300 Post Oak Blvd. Ste. 2000 Houston, TX 77056 Tel.: 713- 986- 7000 Fax: 713- 986- 7100
MAGER & GOLDSTEIN, LLP Jayne Arnold Goldstein 2825 University Drive, Suite 350 Coral Springs, FL 33065 Tel.: 954-341-0844 Fax: 954-341-0855
MEREDITH COHEN GREENFOGEL & SKIRNICK, P.C. Steven J. Greenfogel Daniel B. Allanoff Architects Building, 22nd Floor 117 South 17th Street Philadelphia, PA 19103 Tel.: 215-564-5182 Fax: 215-569-0958
PHILIP STEINBERG 124 Rockland Avenue Bala Cynwood, PA 19004 Tel.: 610-664 3101 Fax.: 610-664-0972
SAVERI & SAVERI, INC. Guido Saveri R. Alexander Saveri Geoffrey C. Rushing Cadio Zirpoli One Eleven Pine, Suite 1700 San Francisco, CA 94111-5619 Tel.: 415-217-6810 Fax: 415-217-6813
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SHAHEEN & GORDON William Shaheen D. Michael Noonan 140 Washington St., 2nd Fl. P.O. Box 977 Dover, NH 03821-0977 Tel.: 603-749-5000 Fax: 603-749-1838
SHERMAN, SILVERSTEIN, KOHL, ROSE & PODOLSKY Alan C. Milstein Jeffrey P. Resnick Fairway Corporate Center 4300 Haddonfield Road, Ste. 311 Pennsauken, NJ 08109 Tel: 856- 662- 0700 Fax: 856- 488- 4744
SPECTOR, ROSEMAN & KODROFF, P.C. Theodore M. Lieverman Eugene A. Spector Jay S. Cohen 1818 Market Street, Suite 2500 Philadelphia, PA 19102 Tel.: 215-496-0300 Fax: 215-496-6611
TRUJILLO RODRIGUEZ & RICHARDS, LLP Lisa J. Rodriguez 8 Kings Highway West Haddonfield, NJ 08033 Tel: 856-795-9002
WHATLEY, DRAKE & KALLAS, LLC Joe R. Whatley, Jr. Charlene Ford Richard Rouco 2001 Park Place North Suite 1000 Birmingham, AL 35203 Tel.: 205-328-9576 Fax: 205-328-9669
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WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLC Mary Jane Edelstein Fait Adam J. Levitt 656 West Randolph Street Suite 500 West Chicago, IL 60661 Tel.: 312-466-9200 Fax: 312-466-9292
WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLC Fred Taylor Isquith 270 Madison Avenue, 10th Floor New York, NY 10016 Tel.: 212-545-4600 Fax: 212-545-4653
ZWERLING, SCHACHTER & ZWERLING, LLP Robert S. Schachter Susan Salvetti Stephen L. Brodsky Justin M. Tarshis 41 Madison Avenue New York, NY 10010 Tel.: 212-223-3900 Fax: 212-371-5969
Attorneys for Plaintiffs
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Case No. 14-56140 UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
CALIFORNIA COALITION FOR FAMILIES AND CHILDREN
v.
SAN DIEGO COUNTY BAR ASSOCIATION, et al.,
Appeal From The United States District Court For The Southern District of California Case No. 03-cv-1944 CAB (JLB) The Honorable Cathy Ann Bencivengo
Exhibits to Motion to Take Judicial Notice
Exhibit 5
An excerpted recording of the oral argument in Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047 (9th Cir. 2011) is available by link to an internet website located at http://youtu.be/SGCo1ISXo9U Case: 14-56140 10/22/2014 ID: 9287316 DktEntry: 12 Page: 591 of 605
Case No. 14-56140 UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
CALIFORNIA COALITION FOR FAMILIES AND CHILDREN
v.
SAN DIEGO COUNTY BAR ASSOCIATION, et al.,
Appeal From The United States District Court For The Southern District of California Case No. 03-cv-1944 CAB (JLB) The Honorable Cathy Ann Bencivengo
Exhibits to Motion to Take Judicial Notice
Exhibit 6 Case: 14-56140 10/22/2014 ID: 9287316 DktEntry: 12 Page: 592 of 605 Clear Form
1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 CASE NO. 12 Plaintiff, vs. 13
14 Defendant. 15 16 RICO CASE STATEMENT 17 1. State whether the alleged unlawful conduct is in violation of 18 U.S.C. 1962(a), (b), (c), 18 and/or (d). 19 2. List the defendants and state the alleged misconduct and basis of liability of each 20 defendant. 21 3. List alleged wrongdoers, other than the defendants listed above, and state the alleged 22 misconduct of each wrongdoer. 23 4. List the alleged victims and state how each victim was allegedly injured. 24 5. Describe in detail the pattern of racketeering activities or collection of unlawful debts 25 alleged for each RICO claim. The description of the pattern of racketeering shall include the 26 following information: 27 a. List the alleged predicate acts and the specific statutes that were allegedly violated; 28
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1 b. Provide the date of each predicate act, the participants in each predicate act, and a 2 description of the facts constituting each predicate act; 3 c. If the RICO claim is based on the predicate offenses of wire fraud, mail fraud, or 4 fraud in the sale of securities, the “circumstances constituting fraud or mistake shall be stated 5 with particularity.” Fed. R. Civ. P. 9(b). Identify the time, place and substance of the alleged 6 misrepresentations, and the identity of persons to whom and by whom the alleged 7 misrepresentations were made; 8 d. State whether there has been a criminal conviction for violation of any predicate 9 act; 10 e. State whether civil litigation has resulted in a judgment with regard to any 11 predicate act; 12 f. Describe how the predicate act forms a “pattern of racketeering activity;” and 13 g. State whether the alleged predicate acts relate to each other as part of a common 14 plan. If so, describe the alleged relationship and common plan in detail. 15 6. Describe in detail the alleged “enterprise” for each RICO claim. A description of the 16 enterprise shall include the following: (a) state the name of the individuals, partnerships, corporations, 17 associations, or other legal entities, which allegedly constitute the enterprise; (b) a description of the 18 structure, purpose, function and course of conduct of the enterprise; © a statement of whether any 19 defendants are employees, officers or directors of the alleged enterprise; (d) a statement of whether 20 any defendants are associated with the alleged enterprise; (e) a statement of whether plaintiff is 21 alleging that the defendants are individuals or entities separate from the alleged enterprise or that the 22 defendants are the enterprise itself, or members of the enterprise; (f) if any defendants are alleged to 23 be the enterprise itself, or members of the enterprise, an explanation of whether such defendants are 24 perpetrators, passive instruments, or victims of the alleged racketeering activity. 25 7. State and describe in detail whether plaintiff is alleging that the pattern of racketeering 26 activity and the enterprise are separate or have merged into one entity. 27 8. Describe the alleged relationship between the activities of the enterprise and the pattern of 28 racketeering activity. Discuss how the racketeering activity differs from the usual daily activities of
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1 the enterprise, if at all. 2 9. Describe what benefits, if any, the alleged enterprise receives from the alleged pattern of 3 racketeering. 4 10. Describe the effect of the activities of the enterprise on interstate or foreign commerce. 5 11. If the complaint alleges a violation of 18 U.S.C. 1962(a), provide the following: (a) state 6 who received the income derived from the pattern of racketeering activity or through the collection of 7 unlawful debt; and (b) describe the use or investment of such income. 8 12. If the complaint alleges a violation of 18 U.S.C. 1962(b), describe in detail the acquisition 9 of maintenance of any interest in or control of the alleged enterprise. 10 13. If the complaint alleges a violation of 18 U.S.C. 1962(c), provide the following: (a) state 11 who is employed by or associated with the alleged enterprise, and (b) state whether the same entity is 12 both the liable “person” and the “enterprise” under 18 U.S.C. 1962(c). 13 14. If the complaint alleges a violation of 18 U.S.C. 1962(d), describe in detail the facts 14 showing the existence of the alleged conspiracy. 15 15. Describe the alleged injury to business or property. 16 16. Describe the direct casual relationship between the alleged injury and the violation of the 17 RICO statute. 18 17. List the damages sustained by reason of the violation of 18 U.S.C. 1962, indicating the 19 amount for which each defendant is allegedly liable. 20 18. List all other federal causes of action, if any, and provide the relevant statute numbers. 21 19. List all pendent state claims, if any. 22 20. Provide any additional information that you feel would be helpful to the court in 23 processing your RICO claims. 24 DATED: 25 26 ______27 Attorney for Plaintiff(s) 28
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Case No. 14-56140 UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
CALIFORNIA COALITION FOR FAMILIES AND CHILDREN
v.
SAN DIEGO COUNTY BAR ASSOCIATION, et al.,
Appeal From The United States District Court For The Southern District of California Case No. 03-cv-1944 CAB (JLB) The Honorable Cathy Ann Bencivengo
Exhibits to Motion to Take Judicial Notice
Exhibit 7
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INSTRUCTIONS FOR FILING
CIVIL RIGHTS COMPLAINT UNDER 42 U.S.C. 1983
IN THE UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
1. This complaint must be legibly handwritten or typewritten, and signed by the plaintiff. All questions must be answered concisely in the proper space on the form. DO NOT write on the back of any page.
2. Additional pages are not permitted except with the respect to the facts which you reply upon to support you grounds for relief. No citation of authorities need be furnished. If briefs or arguments are submitted, they should be submitted in the form of a separate memorandum.
3. Upon receipt of a fee of $400 your complaint will be filed if it is in proper order. The $400 fee must be submitted with the complaint, not separately.
4. If you do not have the necessary funds to pay the $400 filing fee or cannot afford to pay for transcripts, counsel, appeal, or other costs connected with this civil action, you may request permission to proceed in forma pauperis, in which event you must execute a separate form provided by the Court, entitled “Motion and Declaration Under Penalty of Perjury in Support of Motion to Proceed In Forma Pauperis” setting forth information establishing your inability to pay fees or costs.
IF YOU ARE A PRISONER, you MUST attach a certified copy of your prison trust account statements for the 6-month period immediately preceding the filing of the complaint per 28 U.S.C. 1915(a)(2) or your motion to proceed in forma pauperis will be denied. Even if your motion to proceed in forma pauperis is granted, however, the Court will assess an initial partial filing fee at the time you action is filed. After the initial partial fee is assessed, YOU WILL STILL OWE THE BALANCE OF THE FILING FEE WHICH THE COURT WILL ORDER GARNISHED FROM YOUR PRISON TRUST ACCOUNT.
5. When the complaint is fully completed the original and at least two copies must be mailed to: Clerk of the U.S. District Court, 333 West Broadway, Suite 420, San Diego, CA 92101. Case: 14-56140 10/22/2014 ID: 9287316 DktEntry: 12 Page: 597 of 605
(Name)
(Address)
(City, State, Zip)
(CDC Inmate No.)
United States District CourtCourtUnited Southern District of CaliforniaCaliforniaSouthern
______, ) (Enter full name of plaintiff in this action.) ) ) Plaintiff, ) Civil Case No. ______) (To be supplied by Court Clerk) v. ) ) ______, ) Complaint Under the ______, ) Civil Rights Act ______, ) 42 U.S.C. § 1983 ______, ) (Enter full name of each defendant in this action.) ) Defendant(s). ) ______) A. Jurisdiction
Jurisdiction is invoked pursuant to 28 U.S.C. § 1343(a)(3) and 42 U.S.C. § 1983. If you wish to assert jurisdiction under different or additional authority, list them below. ______.
B. Parties
1. Plaintiff: This complaint alleges that the civil rights of Plaintiff, ______(print Plaintiff’s name) ______, who presently resides at ______(mailing address or place of confinement) ______, were violated by the actions of the below named individuals. The actions were directed against Plaintiff at______on (dates) ______, ______, and ______. (institution/place where violation occurred) (Count 1) (Count 2) (Count 3) 2. Defendants: (Attach same information on additional pages if you are naming more than 4 defendants.)
§ 1983 SD Form ::ODMA\PCDOCS\WORDPERFECT\22834\1 (Rev. 5/98) Case: 14-56140 10/22/2014 ID: 9287316 DktEntry: 12 Page: 598 of 605
Defendant ______resides in ______, (name) (County of residence) and is employed as a ______. This defendant is sued in (defendant’s position/title (if any)) his/her 9 individual 9 official capacity. (Check one or both.) Explain how this defendant was acting under color of law:
Defendant ______resides in ______, (name) (County of residence) and is employed as a ______. This defendant is sued in (defendant’s position/title (if any)) his/her 9 individual 9 official capacity. (Check one or both.) Explain how this defendant was acting under color of law:
Defendant ______resides in ______, (name) (County of residence) and is employed as a ______. This defendant is sued in (defendant’s position/title (if any)) his/her 9 individual 9 official capacity. (Check one or both.) Explain how this defendant was acting under color of law:
Defendant ______resides in ______, (name) (County of residence) and is employed as a ______. This defendant is sued in (defendant’s position/title (if any)) his/her 9 individual 9 official capacity. (Check one or both.) Explain how this defendant was acting under color of law:
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C. Causes of Action (You may attach additional pages alleging other causes of action and the facts supporting them if necessary.) Count 1: The following civil right has been violated:______(E.g., right to medical care, access to courts, ______. due process, free speech, freedom of religion, freedom of association, freedom from cruel and unusual punishment, etc.)
Supporting Facts: [Include all facts you consider important to Count 1. State what happened clearly and in your own words. You need not cite legal authority or argument. Be certain to describe exactly what each defendant, by name, did to violate the right alleged in Count 1.] ______.
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Count 2: The following civil right has been violated: ______(E.g., right to medical care, access to courts, ______. due process, free speech, freedom of religion, freedom of association, freedom from cruel and unusual punishment, etc.)
Supporting Facts: [Include all facts you consider important to Count 2. State what happened clearly and in your own words. You need not cite legal authority or argument. Be certain to describe exactly what each defendant, by name, did to violate the right alleged in Count 2.] ______. Count 3: The following civil right has been violated:______(E.g., right to medical care, access to courts,
§ 1983 SD Form ::ODMA\PCDOCS\WORDPERFECT\22834\1 (Rev. 5/98) 4 Case: 14-56140 10/22/2014 ID: 9287316 DktEntry: 12 Page: 601 of 605
______. due process, free speech, freedom of religion, freedom of association, freedom from cruel and unusual punishment, etc.)
Supporting Facts: [Include all facts you consider important to Count 3. State what happened clearly and in your own words. You need not cite legal authority or argument. Be certain to describe exactly what each defendant, by name, did to violate the right alleged in Count 3.] ______. D. Previous Lawsuits and Administrative Relief 1. Have you filed other lawsuits in state or federal courts dealing with the same or similar facts involved in this case? 9 Yes 9 No.
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If your answer is "Yes", describe each suit in the space below. [If more than one, attach additional pages providing the same information as below.]
(a) Parties to the previous lawsuit: Plaintiffs: ______Defendants: ______(b) Name of the court and docket number: ______.
(c) Disposition: [ For example, was the case dismissed, appealed, or still pending?] ______. (d) Issues raised: ______. (e) Approximate date case was filed: ______. (f) Approximate date of disposition: ______.
2. Have you previously sought and exhausted all forms of informal or formal relief from the proper administrative officials regarding the acts alleged in Part C above? [E.g., CDC Inmate/Parolee Appeal Form 602, etc.] ? 9 Yes 9 No.
If your answer is "Yes", briefly describe how relief was sought and the results. If your answer is "No", briefly explain why administrative relief was not sought. ______.
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E. Request for Relief Plaintiff requests that this Court grant the following relief: 1. An injunction preventing defendant(s): ______. 2. Damages in the sum of $ ______. 3. Punitive damages in the sum of $ ______. 4. Other:______.
F. Demand for Jury Trial
Plaintiff demands a trial by 9 Jury 9 Court. (Choose one.)
G. Consent to Magistrate Judge Jurisdiction
In order to insure the just, speedy and inexpensive determination of Section 1983 Prisoner cases filed in this district, the Court has adopted a case assignment involving direct assignment of these cases to magistrate judges to conduct all proceedings including jury or bench trial and the entry of final judgment on consent of all the parties under 28 U.S.C. § 636(c), thus waiving the right to proceed before a district judge. The parties are free to withhold consent without adverse substantive consequences.
The Court encourages parties to utilize this efficient and expeditious program for case resolution due to the trial judge quality of the magistrate judges and to maximize access to the court system in a district where the criminal case loads severely limits the availability of the district judges for trial of civil cases. Consent to a magistrate judge will likely result in an earlier trial date. If you request that a district judge be designated to decide dispositive motions and try your case, a magistrate judge will nevertheless hear and decide all non-dispositive motions and will hear and issue a recommendation to the district judge as to all dispositive motions.
You may consent to have a magistrate judge conduct any and all further proceedings in this case, including trial, and the entry of final judgment by indicating your consent below.
Choose only one of the following: ‘ Plaintiff consents to magistrate OR ‘ Plaintiff requests that a district judge judge jurisdiction as set forth be designated to decide dispositive above. matters and trial in this case.
I declare under the penalty of perjury that the foregoing is true and correct.
______Date Signature of Plaintiff
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Case No. 14-56140
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CALIFORNIA COALITION FOR FAMILIES AND CHILDREN, PBC, a Delaware public benefit corporation, and COLBERN C. STUART, III, an individual,
Plaintiffs-Appellants,
v.
SAN DIEGO COUNTY BAR ASSOCIATION, et al.,
Defendants-Appellees
Appeal From The United States District Court For The Southern District of California Case No. 03-cv-1944 CAB (JLB) The Honorable Cathy Ann Bencivengo
CERTIFICATE OF SERVICE
Colbern C. Stuart III, J.D. Dean Browning Webb, Esq. California Coalition for Families Law Offices of Dean Browning Webb and Children, PBC 515 E 39th St. 4891 Pacific Highway Ste. 102 Vancouver, WA 98663-2240 San Diego, CA 92110 Telephone: 503-629-2176 Telephone: 858-504-0171 Email: [email protected] E-Mail: [email protected] Counsel for Plaintiff-Appellant Plaintiff-Appellant In Pro Se California Coalition for Families and Children, PBC
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CERTIFICATE OF SERVICE
I hereby certify that I electronically filed the foregoing with the Clerk of the
Court for the United States Court of Appeals for the Ninth Circuit by using the appellate CM/ECF system on October 22, 2014 per Federal Rules of Appellate
Procedure Ninth Circuit Rule 25-5(g).
I certify that all participants in the case are registered CM/ECF users and that service will be accomplished by the appellate CM/ECF system. Any other counsel of record will be served by facsimile transmission and/or first class mail this 22nd day of October, 2014.
By: s/ Colbern C. Stuart III Colbern C. Stuart, III President, California Coalition For Families and Children, PBC, in Pro Se