New Jersey Company Settles Massachusetts Lawsuit for $239K

A New Jersey insurance company agreed Tuesday to pay just over $239,000 to settle allegations that it offered improper incentives to a Boston-based brokerage firm.

Massachusetts Attorney General Martha Coakley’s office said the Chubb Corp. will pay customers and the state to resolve charges stemming from offenses that go back to 1997.

The Warren, N.J.-based Chubb was accused of loaning $3 million to William Gallagher Associates Insurance Brokers Inc. (WGA) but offering to forgive the loan if the firm directed enough business to the insurance company.

Authorities said Chubb also invited WGA to invest in a Chubb-sponsored reinsurance company — a company that protects insurance companies against policyholder claims — and established a trust fund for WGA to subsidize Chubb’s premiums when other companies had lower prices.

Authorities said these practices gave WGA a financial interest in Chubb and distorted competitive bidding processes.

The brokerage firm returned $3.3 million to customers and paid more than $1 million to the state by November 2008 as part of a consent judgment, the attorney general’s office said.

Under the terms of Chubb’s settlement, the company will pay $182,815 to certain WGA customers and $56,196 to the state. Chubb also agreed to observe limitations concerning participation in reinsurance companies, stop providing trust funds to Massachusetts agents and brokers and no longer make loans to Massachusetts insurance brokers unless the loans are disclosed to customers.

Chubb does not admit wrongdoing. Spokesman Mark Schussel says the company cooperated with investigators and believes its business practices were legal and proper.

A WGA spokesman, Patrick Veale, didn’t immediately return a telephone message left on his cell phone after business hours.