Once Again, Spitzer Follows E-Mail Trail

By ALEX BERENSON
October 18, 2004

Several years ago, the manager of a big insurance company received an odd
request from a counterpart at Marsh & McLennan Companies, the world's largest
insurance broker.

The Marsh executive asked the insurance company in an e-mail message to send
someone to a meeting to pretend to make a bid for an insurance policy being
sought by a customer - even though Marsh had already decided to steer the
business to another insurer that agreed to pay a kickback to Marsh.

The e-mail message - written in 2001 and disclosed last week as part of a New
York State lawsuit asserting that Marsh Inc., a unit of Marsh & McLennan,
cheated customers - even made a joke about creating an illusion of competition.

"This month's recipient of our Coordinator of the Month Award requests a body at
the rescheduled April 23 meeting," wrote the Marsh executive, whose name was
blacked out in the released documents. "He just needs a live body. Anyone from
New York office would do. Given recent activities, perhaps you can send someone
from your janitorial staff - preferably a recent hire from the U.S. Postal
Service."

The manager from the other company, whose name had also been blacked out in the
documents, evidently did not find bid rigging quite so funny.

In all capital letters, he responded, "We don't have the staff to attend meeting
just for the sake of being a 'body.' While you may need 'a live body,' we need a
'live opportunity.' We'll take a pass."

The e-mail exchange is one of numerous potentially embarrassing communications
that were disclosed by Eliot Spitzer, the New York State attorney general, who
used similarly damaging e-mail messages to help press his successful
conflict-of-interest investigation of Wall Street analysts two years ago. The
accusations against Marsh also assert there was a conflict of interest in its
role as a broker.

Marsh is supposed to help its customers find the most complete insurance
coverage at the best possible price. In reality, the lawsuit contends, Marsh
directed business toward insurance companies that paid it kickbacks, while using
sham bids from other insurers to create the illusion of competition. As a
result, the suit says, the customers ended up paying more than they should have.

The latest foray by Mr. Spitzer, who said that his investigation into what he
called "widespread corruption" was still in its early stages, is already getting
results. In the wake of the lawsuit, Marsh said on Friday that it would
immediately stop the longstanding practice of accepting the lucrative payments,
which the industry calls incentive fees but critics contend are kickbacks. Marsh
received $800 million in incentive fee payments in 2003.

In addition to the civil suit against Marsh, two executives at the American
International Group, one of the world's largest insurers, and a manager at Ace
Ltd., another big insurer, pleaded guilty last week to criminal charges for
helping Marsh rig bids. All three executives are cooperating with investigators.

In a statement last week after the lawsuit was announced, Marsh said that it was
cooperating with the state investigation. "Marsh is committed to servicing its
clients to the highest professional and ethical standards," the company
said. Marsh's stock has fallen sharply since the suit was filed on Thursday. The
shares fell to $29.20 a share, down $5.65, on the New York Stock Exchange on
Friday, after plunging $11.28 a share on Thursday, for a two-day decline of 37
percent.

Maurice R. Greenberg, the chief executive of A.I.G., said in a conference call
on Friday that it was likely that his company would also stop making incentive
payments to brokers. A.I.G. shares fell $2.15, or 3.6 percent, to $57.85 on the
Big Board on Friday.

Ace said yesterday that it also would no longer pay brokers' fees known as
placement service agreements, or P.S.A.'s, for steering business toward the
company. "Therefore, effective immediately, we will discontinue all P.S.A.'s
throughout our organization," Evan G. Greenberg, Ace's chief executive, said in
an employee letter posted on the company's Web site. "We will continue to
cooperate fully" with New York's attorney general, he said.

Insurance industry executives, and some outside experts, have questioned whether
Mr. Spitzer is overreaching in this investigation. Brokers have long received
commissions - on top of their normal fees - from insurance companies in return
for getting clients steered to them, and many customers are aware of the
practice, executives say.

But the e-mail messages, and other documents that New York State released as
exhibits in its suit, appear to show that even some insurance companies doing
business with Marsh had serious concerns about offering fake bids.

In one June 2003 e-mail message, an Ace manager said that he was ready to offer
$25 million in insurance to Brambles, the shipping pallets and containers
company, for $850,000. But Marsh asked Ace to keep its bid higher so that
A.I.G. would win the contract. "Doherty gave me song & dance that game plan is
for AIG at $850,000 and to not commit our ability in writing!" the Ace manager
wrote in the e-mail message. "This is another AIG protection job."

Five months later, Ace executives became so concerned about Marsh that they
scheduled a special meeting to discuss their potential legal liability for
providing fake quotes, according to the lawsuit.

The strongest complaints about Marsh's practices came from a unit of Munich Re,
Munich-American Risk Partners, which is the same company whose manager rejected
Marsh's mocking request for a "live body."

"I am not some Goody Two Shoes who believes that truth is absolute, but I do
feel I have a pretty strict ethical code about being truthful and honest," one
manager said in a document presented at a Munich-American meeting in April
2001. "This idea of 'throwing the quote' by quoting artificially high numbers in
some predetermined arrangement for us to lose is repugnant to me, not so much
because I hate to lose, but because it is basically dishonest. And I basically
agree with the comments of others that it comes awfully close to collusion and
price-fixing."

According to the lawsuit, by December 2001, a Munich-American manager had his
own bitter joke about Marsh's unwillingness to let his company compete fairly
for business. Asked to offer a "nonquote" to insure a trucking company, he fired
off a sarcastic e-mail message to a Marsh manager.

"Thank you very kindly for forwarding what would appear to be an excellent risk
to our attention," the Munich-American manager wrote. "We regret to say, after
careful consideration coupled with a detailed and extensive analysis, we must
decline to participate on this risk."

He concluded, "I wish our well-meaning competition the very best as they
celebrate this well-earned, competitive, and hard-fought victory."

Copyright 2004 The New York Times Company