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Appeals court denies former Marsh execs severance benefits

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A federal appeals court has upheld Marsh & McLennan Cos. Inc.'s refusal to pay employment benefits to two former executives who were terminated when they refused to cooperate in the 2004 bid-rigging investigation by then-New York Attorney General Eliot Spitzer.

In 2004, Mr. Spitzer began investigating contingent commission arrangements where insurance brokers allegedly steered clients to particular insurers, according to Thursday's ruling by the 2nd U.S. Court of Appeals in New York in William W. Gilman, Edward J. McNenney Jr. v. Marsh & McLennan Cos. Inc.

In September 2004, the investigation shifted to a bid-rigging scheme involving Marsh and several insurers including American International Group Inc., according to the ruling. After an AIG employee identified Messrs. Gilman and McNenney as co-conspirators, AIG filed a civil complaint against Marsh for alleged fraudulent business practices and antitrust violations.

“The fallout from the civil complaint was swift and severe,” said the ruling. “Marsh's stock price plunged, a raft of private civil suits were filed, and Marsh's directors, clients, and shareholders demanded answers to the bid-rigging allegations.” In October 2004, Marsh CEO Jeffrey W. Greenberg resigned and was replaced by Michael Cherkasky.

Messrs. Gilman and McNenney, who were Marsh managing directors, were fired by the broker in November 2004 and October 2004, respectively, after both refused its requests they sit for in-house interviews. As Marsh employees, both had been eligible for valuable employee benefits, including stock options and severance, according to the ruling.

However under terms of Marsh's plans, these benefits were forfeited for workers fired “for cause,” and the brokerage took the position this was the case here.

The men filed suit in 2010 seeking the lost benefits, and the U.S. District Court granted Marsh summary judgment, concluding the company's interview requests were reasonable, and they had been fired for cause.

A three-judge appellate panel agreed in Thursday's ruling. “Marsh had cause to fire them, as it did, and Gilman and McNenney are entitled to none of the employee benefits they seek,” said the ruling.

“Marsh was presumptively entitled to seek information from its own employees about suspicions of on-the-job criminal conduct,” said the ruling. “And as corporate officers, Gilman and McNenney had a duty to Marsh to disclose information they had about the AG's allegations.”

While “Marsh's demands placed Gilman and McNenney in the tough position of choosing between employment and incrimination (assuming of course the truth of the allegations)” that did not immunize them from the “collateral consequences” of those acts, including leaving Marsh “with no practical option” other than to remove them, said the court, in citing a ruling in another case.

In February 2008, the men were each found guilty on a single count of restraint of trade and competition. But in July 2010, a New York judge tossed the convictions, citing new evidence, and the New York attorney general's office subsequently decided to drop its appeal of the ruing.