PIA National and IIABA have filed amicus curiae briefs in the United States District Court for the District of New Jersey in which they oppose certain parts of a multi-state settlement that Zurich reached with 10 state attorneys general in March, and a three-state settlement reached with the attorneys general of New York, Connecticut, and Illinois. Both settlements dealt with producer disclosure issues.

PIA, which initially filed a brief, said in a statement released on September 19 that it objects to recent multi-state settlements that:

Create disparate impact on PIA members livelihood by prohibiting the payment by carriers of certain contingency payments;

Introduce legal conflict and confusion of insurance buyers rights by imposing a defective disclosure notice;

Increase discrimination against PIA members in light of the most recent announcements by leading mega-brokers that their 2004 settlements have been revised, permitting them to receive certain specific contingency earnings, when settlements referred to in this class action suit could prohibit such payments to all other participants in the industry.

Mandatory Disclosure Statement

While PIA addresses issues in both settlements, the brief mainly deals with the use of a mandatory disclosure statement called for in the multi-state settlement.

The brief states, Specifically, approval of the class settlement would require the use of a disclosure form captioned Zurich Agent/Broker Compensation Policy that will mislead class members " thousands of insurance consumers across the country " regarding the legal relationship of agents and brokers to insurance carriers like Zurich and to class members themselves.

The PIA brief cites many instances in which the mandatory disclosure statement misrepresents or misinterprets the role of agents and brokers, and also the processes through which they are compensated.

The association was especially displeased with a section that states, If you [the consumer] have chosen to compensate your agent or broker directly or you have not consented to your agent or broker taking a commission, you should speak directly to your agent or broker.

PIA stated, This language is perhaps the most objectionable part of the mandatory disclosure statement. Class members reading this provision will likely believe that they have a choice as to: (a) whether the agent or broker receives a commission at all; and (b) the manner in which the agent or broker receives the commission.

Based on this language, class members will likely conclude that they have the power to negotiate the agents compensation, when they do not. New Jersey and many other states have mandatory place laws, often in connection with automobile insurance policies. These laws require an agent to place consumers with a carrier. If one consumer refuses to consent to the agents receipt of commission based on this language, the agent must follow the same procedure for all consumers under anti-rebating laws. As a result, an agent could be forced to provide for coverage without receiving any compensation, or else risk violating either the anti-rebating or mandatory placement laws. In addition, class members might think they had the option of choosing to compensate their agent directly, which would violate existing law in several states.

The association asserts in the brief, The mandatory disclosure statement proceeds from fundamentally flawed premises. Among other things, it obliterates the long-standing common law and statutory distinctions between independent agents and brokers, and the established common law and statutory duties of full and fair disclosure that have long been imposed upon agents/brokers when dealing with their insurance company principals.

PIA further notes that it tried to participate in the negotiations that culminated in the mandatory disclosure statement, but was rebuffed.

PIA executive vice president and CEO Len Brevik explained, The alleged abuses that led to these settlements were not committed by Main Street insurance agents. Regrettably, this settlement agreement and others like it attempt to create a remedy for alleged wrongdoing and then impose it on those who were not involved in any wrongdoing. As a result, PIA is compelled to address these issues formally through our direct involvement in this class action, on behalf of our members and their business interests.

Imposed Settlements Overreach

Brevik added that PIAs filing also addresses the broader issue of efforts by several attorneys general to use the settlement process to compel support for changing the way American business operates by attempting to make incentive compensation illegal.

In the case of the proposed settlement involving Zurich, Brevik stated, this includes a provision in the three-state settlement requiring the company to support legislation and regulations in the United States to abolish contingent compensation for insurance products or lines.

Brevik said that the PIA filing also notes that several of the original settlements reached in 2004 have, in recent weeks, been amended by state attorneys general to liberalize earlier prohibitions against receiving any contingency earnings, in signed settlements involving Marsh, Aon, and Willis, among others, while not changing aspects of settlements that may adversely impact Main Street agents, who were never accused of any wrongdoing.

PIA National president-elect Donna Pile asserted, These voluntary settlement agreements, which are not truly voluntary, are being entered into by carriers under threat of legal sanction by various state attorneys general. Provisions in these settlements place the burden of these sanctions squarely on the shoulders of the local Main Street agents, creating an enormous financial strain on our PIA agencies. It is dangerously disconcerting that the Main Street agent force is paying the price for a few wrongdoers from a totally different arena. This is not due process.

Second Association Files Brief

For its part, IIABA said that its brief supports transparency in insurance transactions and states that the company should be responsible for making its own disclosures.

Rather than involve independent brokers and agents in the implementation of the Zurich Settlement, [Zurich] should provide their mandatory disclosure form directly to their insured, notes the brief. This delivery method, IIABA said, would be more effective for the court to directly monitor and enforce compliance with Zurich than with thousands of agents and brokers who are not necessarily under the courts jurisdiction.

The brief goes on to explain that if other carriers follow Zurichs lead and also require agents and brokers to deliver written disclosures about compensation, consumers will be inundated with forms and end up being more confused.

The brief also takes issue with a provision in the three-state settlement, which establishes a mechanism whereby Zurich would stop paying contingent commissions on lines of business if 65 percent of the U.S. market for a particular line of business is not paying such commissions.

IIABA opposes the three-state agreements potential limitations on incentive compensation. If these limitations are put in place, it will harm consumers because it will make it more difficult for smaller-sized agents to remain in business, which will in turn decrease competition and lead to higher prices. Ultimately, it is not for attorneys general to determine whether carriers should be permitted to offer incentive compensation or how it should be disclosed to consumers, IIABA stated.

AGs Respond

PIA has said that, in response to its filing, the attorneys general of the 10 states involved in the multi-state settlement have filed a motion with the court. The AGs filing, according to PIA, contends that PIAs concerns are more properly reserved for the final fairness hearing " not preliminary approval. It also states, PIAs objections have little to do with the reasonableness of the settlement, and focus instead on the scope and proper interpretation of the disclosure form. These objections are more appropriately raised and considered at the final approval hearing....