Attorney General Martha Coakley Distributes $182,815 to Customers Steered by William Gallagher Associates and Chubb
Recoveries stem from Attorney General Coakley's investigation of alleged unfair broker practices
"Businesses large and small in Massachusetts are struggling in this economy, and the last thing they need is to lose more money as the result of unfair business practices," said Attorney General Coakley. "We are pleased that this settlement will compensate businesses that were unfairly led to purchase Chubb insurance by WGA. Our office makes protecting local businesses that play by the rules a priority and will continue to work to protect companies in the Commonwealth from improper business practices."
Of the 24 businesses that have received checks as a part of this settlement, 19 operate in the Commonwealth. The companies are predominantly local biotech, life science, and information technology entities. Local businesses who are receiving compensation as a result of this settlement include:
- Sycamore Networks, located in Chelmsford, MA, received $26,797.
- Arqule, located in Woburn, MA, received $15,815.
- Vicor Corp., located in Andover, MA, received $12,985.
- SeaChange International, Inc., in Acton, MA, received $8,736.
The Attorney General's Office filed a lawsuit against WGA on December 19, 2007, in Suffolk Superior Court, alleging that WGA bilked its customers by charging undisclosed fees and deceiving customers concerning its compensation practices. According to the complaint filed against WGA, Chubb loaned WGA in excess of $3 million, but offered to forgive this loan and any accrued interest if WGA directed enough profitable business to Chubb. Chubb also invited WGA to invest in a Chubb-sponsored reinsurance company through which WGA insured a portion of numerous insurance policies belonging to WGA's clients. Reinsurance is insurance that companies like Chubb purchase to protect themselves against their policyholders' claims. According to the complaint, WGA's participation in Chubb's reinsurance program turned WGA into a reinsurer with a financial interest in keeping its customers' highly profitable insurance policies with Chubb.
The Attorney General's Office believes that WGA's drive to maximize the benefits it received from Chubb unfairly distorted WGA's relationship with its customers and created conflicts of interest. For example, one exhibit to the complaint was an e-mail that documented how a WGA employee was "pushed to renew a bio-tech account with Chubb even though" she felt that better pricing and terms were available from another insurance company. Similarly, another e-mail attached to the complaint documents how, after Lloyds of London ("Lloyds") lowered its commissions in 2002, WGA's president suggested "…let's put our Lloyds business with Chubb where we get Profit Sharing." Finally, another WGA employee wrote in an e-mail that he had "been virtually 'forced' to keep [a customer] with Chubb due to our goals." This customer, SeaChange International, Inc., is one of the victims compensated by the Chubb settlement.
Pursuant to the Consent Judgment the Attorney General's Office obtained in December 2007, WGA returned $3.3 Million to its customers, paid over $1 Million to the Commonwealth, and adopted conduct reforms. After completing its action against WGA, the Attorney General continued with several related cases stemming from the Attorney General's action against WGA. The Attorney General obtained settlements from FM Global Insurance Company, AFCO Credit Corp., and Beecher Carlson that provided an additional $126,000 in restitution for customers and $76,000 to the Commonwealth and its local consumer aid programs.
Under the terms of the settlement reached with Chubb, which was filed in February 2009 in Suffolk Superior Court, the insurance company will pay $182,815 in restitution to certain WGA customers and $56,196 to the Commonwealth. Chubb agreed that it will no longer make loans to Massachusetts insurance brokers unless the loans are disclosed to customers. Chubb also agreed to limitations concerning participation in reinsurance companies and make other conduct reforms.
This matter was handled by Investigations Supervisor Arwen Thoman and Assistant Attorney General Glenn Kaplan of Attorney General Coakley's Insurance & Financial Services Division.