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Spitzer's election raises questions on future probes

Posted On: Nov. 19, 2006 12:00 AM CST

Spitzer's election raises questions on future probes

ALBANY, N.Y.—While many in the insurance industry may be relieved to see Eliot Spitzer moving out of the attorney general's office and into the governors' office in New York, the industry could be subjected to more scrutiny as his successor will likely at least finish the job that Mr. Spitzer started, sources say.

When he takes office in January, Attorney General-elect Andrew Cuomo likely will take on any pending cases or major initiatives started by Mr. Spitzer, sources say.

Whether Mr. Cuomo draws a different conclusion from those initiatives, however, and whether his office will continue to target the insurance industry for further investigations, remains unknown.

Mr. Cuomo, the former Secretary of Housing and Urban Development under President Bill Clinton, will seek to differentiate himself from Mr. Spitzer, who gained nationwide attention for taking on alleged abuses in the insurance industry and various other sectors, including the mutual fund and music industries, sources say.

In addition, it is unknown how many, if any, of the staff attorneys in the investor protection bureau working on the industry investigations will stay under the new leadership and what impact that will have on pending investigations.

Mr. Cuomo has privately indicated to fellow Democrat Mr. Spitzer that he likes the direction the office is going in and will not seek any major changes, a source close to Mr. Spitzer's office said last week.

David Brown, chief of the investor protection bureau, for one though, has indicated that he will leave his post at the end of the year, which has prompted speculation that Mr. Spitzer might appoint him as the new superintendent of insurance to replace Republican Howard Mills.

Even with a changing of the guard, it is unlikely Mr. Cuomo will abandon major initiatives Mr. Spitzer has already started, sources close to Messrs. Spitzer and Cuomo say.

"He's going to want to put his own imprint on the agency and define it as Andrew Cuomo's attorney general's office...but I don't think he's going to come in and issue 'get out of jail free' passes to the insurance industry just because he's the new guy on the block," the source close to Mr. Spitzer said. "I think (Mr. Spitzer has) built cases that show...that there are some troubling business practices in the industry that need to be cleaned up. I don't think Andrew Cuomo is going to come in and just say, 'Nevermind.' "

A source close to Mr. Cuomo said that while the attorney general-elect has indicated that he will continue Mr. Spitzer's work when he takes office, Mr. Cuomo will evaluate Mr. Spitzer's pending insurance cases and may ultimately reach a different conclusion.

Mr. Cuomo has made clear "that he understands that there is a difference between enforcing the law and smothering business and industry in the state of New York," the source said. "With that in mind, I think people ought to expect he will continue what Spitzer has done in the insurance industry, but there may be differences between what the outcomes of those things are under Cuomo and what they would have been under Spitzer."

"Clearly every attorney general puts his or her own imprint on the office and that will be true with Cuomo," the source said.

Despite many unknowns, industry observers do not expect a rapid end to the investigations.

"It doesn't surprise me to think that we're going to see some continuance" of the investigations, said Ken A. Crerar, president of the Council of Insurance Agents and Brokers. "I don't think anyone should jump up and down" now that Mr. Spitzer is moving out of the attorney general office. "There were serious allegations and they're doing investigations and hopefully we've seen the key ones resolved and the industry can move on from there. But I think it's too hard to tell at this point."

"I imagine that investigations that have been set in motion, and certainly cases that already have been brought, are not going to go away," said Elaine Metlin, a partner with Dickstein Shapiro L.L.P. in Washington. It is too early to know, however, whether Mr. Cuomo will resolve the cases in the same manner as Mr. Spitzer, she said. 

"I just don't think (Mr. Cuomo) is going to stop the investigations midair. He's going to try to bring them to completion or try to get settlements," agreed Fran Semaya, who chairs the insurance, corporate and regulatory practice group of Cozen O'Connor in New York. "Either Spitzer will try to do it by year-end or Cuomo will pick those up."

Whether Mr. Cuomo pursues any new cases after that will depend on whether investigating the insurance industry is high on his agenda, Ms. Semaya said. "I think Spitzer has given him a lot of I don't see any reason for him not to."

But it may be some time before Mr. Cuomo initiates any action with the industry, said William G. Passannante, co-chairman of the insurance recovery group for Anderson Kill & Olick P.C. in New York.

"When you have that kind of turnover in senior staff that's been a major part of the investigations, I would think that it's got to...cause a significant delay," he said. "It's not as though you get experienced prosecutors who understand a complicated industry overnight."

Mr. Spitzer became a household name to the insurance industry in October 2004 with his fraud and bid-rigging suit against New York-based Marsh & McLennan Cos. Inc. His subsequent probes into broker compensation and finite reinsurance accounting practices resulted in lawsuits and settlements with several brokers and insurers during the past two years, in addition to criminal charges and numerous guilty pleas from various individuals (see box).

He also set off investigations by attorneys general in other states who have reached settlements jointly with Mr. Spitzer and, in the case of Connecticut Attorney General Richard Blumenthal, resulted in other suits and settlements.

Just how many more settlements are in the works in Mr. Spitzer's office is unknown. One outstanding case likely to fall under Mr. Cuomo's purview involves Liberty Mutual Group Inc., the only insurer so far unwilling to settle steering and bid-rigging charges leveled by Mr. Spitzer (BI, May 8), sources note.

At the same time, Mr. Cuomo's office also likely will oversee the contingent commission curtailment provisions Mr. Spitzer reached with several insurers. Under those provisions, various insurers agreed to stop paying contingent commissions for any line, product or segment of business if insurers that represent 65% of the gross written premiums on that line were not paying such commissions or were to reach similar settlements. The attorney general's office is charged with determining whether the 65% threshold has been met on any line and to notify the affected insurers.