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WASHINGTON--The National Assn. of Professional Insurance Agents has asked a New Jersey federal court to decline approval of Zurich American Insurance Co.'s proposed class action settlement over its broker compensation practices, which the PIA says would unfairly harm insurance buyers and independent agents.
In an amicus brief filed with the U.S. District Court for the District of New Jersey, the Alexandria, Va.-based trade group specifically takes issue with the mandatory disclosure statement set forth in a regulatory settlement that agents would be required to use with clients if transacting business with the insurer.
Schaumburg, Ill.-based Zurich reached two regulatory settlements in connection with the proposed class action lawsuit pending in the New Jersey court against several commercial insurers and brokerages allegedly involved in improper broker compensation and insurance placement practices. In March, Zurich American agreed to pay $171.7 million and reform certain business practices to resolve charges of price fixing and bid rigging by nine state attorneys general. Days later, the insurer agreed to pay an additional $153 million to resolve similar allegations brought by officials in New York, Connecticut and Illinois.
In objecting to the proposed class action settlement, the PIA said the disclosure statement, in its current form, is "inaccurate, violates existing state and common law and is rife with serious and fatal flaws."
Among other things, the disclosure statement "obliterates the longstanding common law and statutory distinctions" between independent agents, which act on behalf of insurance companies, and brokers, which act on behalf of insurance buyers, the PIA said.
If the statement is left intact, independent agents would be required to make "inaccurate and misleading statements that will only confuse policyholders regarding the compensation system and the compensation relationship between carriers and agents," the PIA said.
Furthermore, it may leave policyholders "with the mistaken belief that they have certain rights against their agents, with the potential to spawn a rash of unsuccessful and unmeritorious litigation that could clog the courts and cause policyholders and agents to incur unnecessary inconvenience and expense," the PIA said.
The PIA also notes in its brief that Zurich's prior settlements create a disparate impact on independent agents' livelihood by prohibiting insurers from paying contingent commissions in certain circumstances.
As part of its settlement with Connecticut, Illinois and New York, Zurich agreed to cease paying contingent commissions on excess casualty business through 2008, and to stop paying the commissions for any line of business in which insurers that represent 65% of the gross written premiums on that line do not pay such commissions or were to reach similar settlements.
"The alleged abuses that led to these settlements were not committed by Main Street insurance agents," PIA Executive Vp and Chief Executive Officer Len Brevik said in a statement. "Regrettably, this settlement agreement and others like it attempt to create a remedy for alleged wrongdoing and then impose it on those who were not involved in any wrongdoing."
The association also noted in the brief that while state attorneys general have not changed aspects of the settlements that may adversely impact independent agents that were never accused of any wrongdoing, they have recently liberalized earlier prohibitions against the collection of contingents with the world's three largest brokerages.
Marsh Inc., Aon Corp. and Willis Group Holdings recently reached agreements with various state attorneys general, amending their 2005 settlements to allow them to collect contingent commissions when they act as managing general agents on behalf of insurers.
The PIA noted in the brief that it is not the association's intent to obstruct the consummation of the Zurich settlement and delay payments to harmed policyholders, but rather to prevent the harm that the disclosure statement, as currently drafted, would cause to the class and PIA members.