Liberty Mutual Breaks With Pack To Fight Spitzer Suit

After watching several of its competitors settle suits brought by New York Attorney General Eliot Spitzer alleging that they were part of a rigged system that over-charged policyholders, Liberty Mutual decided to fight.

American international Group paid $1.6 million to settle. Marsh & McLennan paid $850 million to settle. Aon Corp., St. Paul Travelers and other insurance giants paid millions to settle.

Spitzer claimed that the insurance brokers had rigged bids and were directing business to certain carriers in return for contigent commissions. Spitzer claimed that insurance brokers owe their clients a fiduciary duty. Because of that fiduciary duty, Spitzer argued, the brokers were obligated to obtain the best policy at the best price for each client.

Arguing that insurance brokers and agents have no fiduciary duty to seek out the best policy at the best price for its clients, Liberty Mutual has chosen to fight Spitzer’s suit.

How much harm will this course of action cause Liberty Mutual?

As J. Boyd Page, senior partner of Page Perry, said, “Insurance companies advertise heavily to promote their good name and long legal battles risk that.” Mr. Page went on to say, “These decisions [to settle] are made to put a bad situation behind them and avoid the repercussions of negative publicity.”

MarketWatch, August 13, 2006, Liberty Mutual becomes first insurer to fight Spitzer suit