The Spitzer Error
Liberty Mutual downplayed its recent victory when the New York Supreme Court declared that contingent commission agreements are not illegal.
“Contingent commission agreements between brokers and insurers are not illegal, and, in the absence of a special relationship between the parties, defendant(s) had no duty to disclose the existence of the contingent commission agreement,” the court said in its ruling.
The ruling stems from pending 2006 lawsuit brought by former New York Attorney General Eliot Spitzer that alleged, among other things, that Liberty Mutual and a number of other major brokers and insurers engaged in an industry-wide scheme to steer business to certain carriers in exchange for contingent commissions.
“We’re pleased but unsurprised by the decision,” a Liberty Mutual spokesman said modestly. The insurer still has the rest of the lawsuit that deals with allegations of bid-rigging to worry about, so perhaps it wasn’t in a celebratory mood yet.
But agents certainly were. They praised Liberty Mutual for balking when the suggestions that contingent commissions were immoral, illegal and improper first surfaced, and for sticking to its guns by defending the practices in court.
“The agent and broker community owes a debt of gratitude to Liberty Mutual for its conviction in the face of so many other major carriers who chose to settle without a fight and now can no longer pay contingent commissions,” said the Independent Insurance Agents and Brokers of New York.
According to National Association of Professional Insurance Agents President-Elect Kenneth R. Auerbach, “PIA agents are grateful to Liberty Mutual for remaining steadfast, being our allies in support of common sense and fighting for what is right.”
Liberty Mutual’s actions were very different from some leading agency companies that opted to stop contingent commissions, or at least require strict disclosure of them, under pressure from officials in New York and several other states. Those other companies might very well believe they did the right thing, and they could still be on the right side of this issue. Also, a number of the settlements agreed to several years ago have been loosened to permit contingent commissions in some circumstances.
Some have suggested that the decision marks the end of the Spitzer era, yet that may be wishful thinking. Nevertheless, the Liberty Mutual decision puts contingent commissions back in play. It could lead to rethinking the previous agreements’ restrictions on contingent commissions.
Within days after the court decision, New York officials scheduled a series of public hearings about producer compensation.
“Those who sell insurance deserve to be fairly compensated, and those who buy insurance deserve to be fairly treated. These hearings will help us understand how best to ensure the marketplace is competitive, transparent and fair to all,” said New York Insurance Superintendent Eric Dinallo, who was appointed by former Attorney General and Governor Spitzer.
It ain’t over yet.