Magazine article Risk Management

Life after Spitzer

Magazine article Risk Management

Life after Spitzer

Article excerpt

The recent allegations by New York Attorney General Eliot Spitzer of price-fixing and deceptive practices by major brokers and insurers have left many companies wondering if they have been paying too much for their insurance. If so, should they risk enormous expense and time in pursuing claims against brokers and insurers when the outcome and collectibility of judgments are uncertain--and when other lawsuits are sure to compete?

It will not take long for many companies to recognize signs of overcharging. Unexplained premium increases, an unwillingness of brokers to advocate on their clients' behalf during claims disputes, vague engagement agreements and an unwillingness to disclose any contingency fee arrangements are all red flags to watch for.

To investigate whether there is a basis for claiming carrier or broker liability, corporate counsel should ask personnel in finance or risk management to provide copies of the broker's engagement agreement, all communications with brokers and carriers for the past several years, all policies placed, and all claim-related communications. Then, counsel should interview the key company personnel who interact with the broker followed by the broker itself.

If a company has evidence that broker-carrier misconduct has led to overcharging, undisclosed broker compensation or some compromise in the scope of coverage, three initial questions emerge: What is the extent of damages? Do statutes of limitations apply? Is a judgment collectible?

The extent of damages can be quite easy to determine in the case of broker overcharging. If comparable coverage was available from sources other than the carrier presented by the broker as the putative low bid, then the policyholder's damages are measured by the difference between what it paid and the price at which comparable coverage was available. However, undisclosed broker compensation and compromises to the scope of coverage are difficult to quantify in the absence of a denied claim that would have been covered had the broker been acting with the policyholder's best interests in mind.

The first line of defense to claims of fraud (against carriers and brokers) and malpractice (against brokers) are the statutes of limitations. …

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