Spitzer Suit Against Marsh to Open Lawsuit Floodgates and Reopen McCarren-Ferguson Act Debate
SAN FRANCISCO - October 18, 2004 - New York State Attorney General Eliot Spitzer's lawsuit will open a floodgate of policyholder lawsuits and reopen the discussion about the 1945 McCarren-Ferguson Act, which exempts insurance carriers from federal antitrust laws and puts the industry under state regulatory control.
David Wood, partner of Wood & Bender LLP is available to provide commentary and background on these new developments. Wood & Bender is one of the nation's leading firms in the fast-growing legal specialty area of insurance policy enforcement.
"ACE and others pledging to eliminate contingent commissions is pure window dressing," Mr. Wood notes. "Three months from now, carriers will figure out a way to continue the practice under a new name."
Mr. Wood believes a flood of lawsuits will result, but that individual lawsuits will prevail over class action suits. "The claims will be too large and the cases too fact specific for class action status," he notes. "Companies waiting to ride the coattails of a class action suit will be disappointed."
In addition, Mr. Wood believes there are now discussions at the federal level about repealing the notorious McCarren-Ferguson Act of 1945, which exempts carriers from federal antitrust scrutiny. The law was passed, under intense insurance industry pressure, under the dubious argument that the exemption would provide stability to carriers, enabling them to offer insurance coverage to a wider range of citizens.
"McCarren-Ferguson drove a stake through the heart of competition in the insurance industry, on the ridiculous premise that lack of competition would facility market stability," Mr. Wood noted. "While there may be a lot of debate and grandstanding opportunities for Republicans and Democrats alike, state regulation of the insurance industry won't go away. All regulation and interpretation of law is at the state level now, moving that to the federal level would cause massive disruption to the industry."
With carriers and brokers on the ropes as a result of the current Spitzer suit and other potential suits, Mr. Wood notes corporate counsel and risk managers have a unique opportunity to gain the upper hand when negotiating with brokers and carriers in the future. Among the exercises these corporate executives should undertake include:
* Review the corporation's risk factors to affirm that current factors are still of concern and to identify any new risk factors that have arisen.
* Determine the optimal risk management strategies for each risk factor and the role of insurance as part of that risk strategy.
* Negotiate or renegotiate policy terms with carriers and brokers, and attempt to remove the restrictions and exclusions that have rendered past policies sub-optimal to the corporation.
* Ask the broker directly if they are receiving any additional compensation in the sale of the policy. Review the policy for ambiguous wording regarding additional fee arrangements.
* Once negotiations are complete, demand a policy form within 30 days from the carrier or broker, and only pay a small percentage of the policy premium when signing the binder to retain financial leverage.
About Wood & Bender LLP
Wood & Bender LLP is one of the nation's leading law firm in the fast-growing practice of insurance policy enforcement. The firm focuses on five critical services: analyzing and recommending optimal insurance strategies, negotiating with carriers and customizing clients' insurance portfolios, evaluating and enforcing claims of loss, developing clients' business settlement and litigation strategies, and preparing the litigation defense of clients to compel insurers to assume their responsibilities. Wood & Bender serves mid-sized to Fortune 1000 corporations, large non-profit institutions and public entities, as well as partners with attorneys at mid-sized and large law firms who require support in insurance enforcement expertise. The firm is headquartered in Southern California.
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