Insurance Broker Aon Establishes $190 Million Settlement Fund
July 27, 2005
The insurance broker Aon Corporation settled with the New York, Connecticut, and Illinois Attorneys General Offices, as well as the class in the Cook County, Illinois, case of Daniel v. Aon in March 2005. With respect to the attorneys general settlements, Aon agreed to create a restitution fund of $190 million (the AG Fund) for its U.S. policyholder clients (defined as U.S.-domiciled policyholder clients and policyholder clients who retained Aon’s U.S. offices to place, renew, consult on, or service insurance). In addition, Aon promised to continue to cooperate with the ongoing investigations. Aon was not required to admit or deny liability in the settlement.
The attorneys general allege that Aon unlawfully deceived its clients by:
a) steering clients’ insurance business to favored insurers,
b) promising increased retail business to insurers in return for their commitments to use Aon’s reinsurance services,
c) suggesting that an insurer raise its quotes for two of Aon’s clients,
d) entering into undisclosed “producer funding agreements” whereby insurers directly funded the hiring of Aon brokers,
e) entering into secret “pay-to-play” arrangements with insurers whereby Aon obtained undisclosed compensation,
f) agreeing with preferred insurers to “freeze out” a competing insurer,
g) withholding a lower quote and placing a client with a higher bidding insurer, and;
h) providing preferred insurers with first looks, last looks, and exclusive looks on preferred business.
The settlement included a statement by former Aon CEO Patrick G. Ryan, in which he apologized and acknowledged that some Aon personnel engaged in improper conduct. At the same time, however, Ryan stated that Aon did not agree with all of the allegations made in the complaint and emphasized that no criminal charges had been filed against Aon or its employees. Aon committed to undertake various business reforms set forth in the settlement agreement.
To qualify for a share of the AG Fund, you must be an eligible policyholder who used Aon to place, renew, consult on, or service insurance between January 2001 and December 2004 that resulted in contingent commissions or overrides to Aon during the same time period. Aon has calculated each customer's share of the fund based on a formula approved by the AG's office. In early July, Aon began to send out its settlement offers. Aon will make payments into the fund over the next 30 months in three installments, beginning in September of this year and ending in September 2007. Payments to policyholders will also be made over a three-year period, on or before November 30, 2005, September 30, 2006, and September 30, 2007.
Clients eligible to receive a distribution have until October 30 to file a claim. Those who elect to receive a cash distribution must release all their claims against Aon other than securities claims and claims belonging to members of the certified class in Daniel v. Aon.
There are different criteria for recovery of funds from the class settlement in Daniel v. Aon. Class members are defined as U.S. residents that directly or indirectly used an Aon Defendant to place, renew, consult on, or service insurance or other similar risk solutions products wherein Aon received or was eligible to receive contingent commissions during the period January 1, 1994, through December 31, 2004. The AG Fund and the Daniel Fund work in tandem. The proposed class settlement creates a fund of $38 million (the Daniel Fund), to compensate class members who purchased insurance through Aon between January 1, 1994, and December 31, 2004. The total amount available in the Daniel Fund will not be determined until sometime after November 2005. At that time, any unclaimed portion of the Attorney General Fund will be added to the Daniel Fund.
As noted above, if your institution is eligible to recover funds under the AG Fund, you will be notified in writing after July 1, 2005. Class members who receive a payment from the AG Fund may still participate in the Daniel Fund in the following manner. The amount they receive from the AG Fund will be compared to what they are entitled to recover under the Daniel Fund for the same years. If a class member would get more from the Daniel Fund than it received from the AG Fund for those years, the Daniel Fund will pay the difference to the class member. Class members who do not receive a payment from the AG Fund will receive their allocated Daniel Fund distribution, but if a class member is entitled to participate in the AG Fund and does not do so, any distributions from the Daniel Fund based on insurance purchased during 2001-04 will be limited to 80 percent of what they would have been from the AG Fund. The first payment to class members from the Daniel Fund will be mailed after February 1, 2006. This payment will be based on the original $38 million fund minus attorney’s fees of $19 million, if approved by the court, and $5 million in administration costs. The second payment will be made on or after September 30, 2007.
If you are a class member and did not opt out of the class by the January 31, 2005, deadline, and if the Court approves the settlement at the fairness hearing on October 11, 2005, your claims as a class member will be released against Aon and the other defendants (with the exception of securities claims), even if you do not make a claim or sign the release. If you did opt out of the class, you have the opportunity to opt back into the class if you do so by August 19, 2005. The deadline for filing objections to the class settlement is also August 19. For more details on the Aon settlements, visit www.Aon-Daniel-Settlement.com.
Marsh & McLennan Update
There are very recent developments with Marsh & McLennan. Two months ago, NACUBO announced that Marsh & McLennan would be sending out settlement offers to its clients disclosing the amount of restitution that Marsh was offering to each customer as part of Marsh's settlement with the New York Attorney General. The deadline for deciding whether to accept or reject the offer is September 20, 2005. Since the notices have gone out, the Attorney General of Massachusetts has gone on record as advising Marsh clients in Massachusetts that there is no benefit to early acceptance of the Marsh offer. The Attorney General of Ohio has gone a step further and has asked for an extension of time, until December 31, 2005, for public entities, including educational institutions, to consider the Marsh offer. On the litigation front, class counsel in New Jersey federal court has asked the court to send out a "curative notice" describing the class action proceedings in greater detail and has also sought to rescind any settlement offers that have been accepted due to the concerns over the Marsh settlement notices. Despite these developments, the September 20 deadline to accept or reject the settlement offer is firm unless and until you are officially notified that this is no longer the case.
If you have received a notice from Marsh or Aon, you may have questions about whether to participate in these settlement funds. The decision will be based on the individual facts and circumstances of each member's insurance coverage program. NACUBO cannot provide a recommendation to our members about their participation in these funds, or the effect of their inclusion in various class-action lawsuits pending around the country. NACUBO and the American Council on Education has retained the law firm of Dickstein Shapiro Morin & Oshinsky LLP, which has expertise in insurance coverage and complex litigation, to provide guidance to the associations regarding these matters. The law firm has not been hired to represent individual members, but if members wish to retain counsel to advise them with respect to the restitution funds or related matters, the contacts at Dickstein Shapiro Morin & Oshinsky are Elaine Metlin at firstname.lastname@example.org, Kent Withycombe at email@example.com, or Mark Kolman at firstname.lastname@example.org. NACUBO contact is Anne C. Gross at email@example.com.
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