12 Appellants' Motion to Take Judicial Notice

7/18/2019 12 Appellants' Motion to Take Judicial Notice

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Case No. 14-56140

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

CALIFORNIA COALITION FOR FAMILIES AND CHILDREN,

PBC, a Delaware public benefit corporation, and COLBERN C. STUART,

III, an individual,

Plaintiffs-Appellants,

v.

SAN DIEGO COUNTY BAR ASSOCIATION, et al.,

Defendants-Appellees

Appeal From The United States District Court

For The Southern District of California

Case No. 03-cv-1944 CAB (JLB)

The Honorable Cathy Ann Bencivengo

APPELLANTS’ MOTION TO TAKE JUDICIAL NOTICE

Colbern C. Stuart III, J.D.

California Coalition for Families

and Children, PBC

4891 Pacific Highway Ste. 102

San Diego, CA 92110Telephone: 858-504-0171

EMail:

[email protected]

Plaintiff-Appellant In Pro Se

Law Offices of Dean Browning

Webb

515 E 39th St.

Vancouver, WA 98663-2240

Telephone: 503-629-2176Email: [email protected]

Counsel for Plaintiff-Appellant

California Coalition for Families and

Children, PBC

Case: 14-56140 10/22/2014 ID: 9287316 DktEntry: 12 Page: 1 of 605



I. MOTION TO TAKE JUDICIAL NOTICE

Under Federal Rule of Evidence 201 and in connection with the Joint

Opening Brief of Plainitffs-Apellants California Coalition for Families and

Children, PBC and Colbern C. Stuart, III (collectively “California Coalition”),

filed concurrently with this motion, California Coalition moves this Court to take

judicial notice of 4 court records from other district courts including the following:

Exhibit 1: The 131 page Complaint in U.S. v. Philip Morris, United States

District Court for the District of Columbia, Case No. 1:99-02496 (GK) filed

September 22, 1999.

Exhibit 2: The 213 page “Second Consolidated Amended Commercial Class

Action Complaint” from In Re: Insurance Brokerage Cases, United States District

Court for the District of New Jersey, Case No. 04-5184 (GEB) filed June 29, 2007.

Exhibit 3: The 138 page “Revised Particularized Statement Describing the

Horizontal Conspiracies Alleged in the Second Consolidated Amended

Commercial Class Action Complaint” from In Re: Insurance Brokerage Cases,

United States District Court for the District of New Jersey, Case No. 04-5184

(GEB) filed June 29, 2007.

Exhibit 4: The 94 page “Third Amended Commercial Insurance Plaintiffs’

RICO Case Statement” from In Re: Insurance Brokerage Cases, United States




District Court for the District of New Jersey, Case No. 04-5184 (GEB) filed June

29, 2007.;

Exhibit 5: An excerpted recording of the oral argument in Cafasso, U.S. ex

rel. v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047 (9th Cir. 2011) is available by

link to an internet website located at http://youtu.be/SGCo1ISXo9U;

Exhibit 6 : A RICO Case Statement used by the United States District Court

for the Southern District of California;

Exhibit 7 : “Complaint Under the Civil Rights Act 42 U.S.C. §1983”

available at:

https://www.casd.uscourts.gov/Attorneys/Lists/Forms/Attachments/36/Civil%20Ri

ghts%20Complaint.pdf.

II. AUTHORITY

“The court may take judicial notice at any stage of the proceeding,”

including for the first time on appeal. Fed. R. Evid. 201(d); see Bryant v. Carleson,

444 F.2d 353, 357 (9th Cir. 1971). Paragraph (b)(2) of Rule 201 states in part that

“[t]he court may judicially notice a fact that is not subject to reasonable dispute

because it: . . . can be accurately and readily determined from sou-rces whose

accuracy cannot reasonably be questioned.” “[T]he most frequent use of judicial

notice of ascertainable facts is in noticing the content of court records.” Colonial

Penn Ins. Co. v. Coil, 887 F.2d 1236, 1239 (4th Cir. 1989). Records subject to




judicial notice on appeal include “the records of an inferior court in other cases.”

U.S. v. Wilson, 631 F.2d 118, 119 (9th Cir. 1980).

III. DISCUSSION

California Coalition proffers the exhibits as examples of initiating

pleadings in complex civil racketeering matters similar to the case below. The

exhibits include two complaints, a “particularized case statement” and a RICO

Case Statement. The exhibits are not proffered from the facts therein asserted or

any controversial matter.

The materials are relevant to demonstrate the following:

A.

Use of acronyms and defined terms are common in complex

racketeering litigation:

The district court’s July 9, 2014 Order Dismissing Case with Prejudice (ER

6) found California Coalition’s FAC violated Rule 8 by virtue of its use of “unique

acronyms, defined terms, and terms with no discernable meaning” ER 8. The

highlighted portions of the attached exhibits demonstrate that use of acronyms and

defined terms are common in racketeering matters. Plaintiffs asserting the

plausible existence of “associations in fact” enterprises under 18 U.S.C. § 1962(c)

commonly must describe lose affiliations—gangs, groups, or individuals

undertaking coordinated purposeful effort—that operate without formal

designation. See, e.g., Boyle v. United States, 129 S. Ct. 2237, 2244 (2009) (“[A]n




association-in-fact enterprise . . . . need not have a hierarchical structure or a ‘chain

of command’ . . . . The group need not have a name, regular meetings, dues,

established rules and regulations, disciplinary procedures, or induction or initiation

ceremonies.”); Odom v. Microsoft , 486 F.3d 541, 551 (9th Cir. 2007) (enterprise

consisting of an unnamed marketing joint venture); Countrywide Financial Corp.

Mortgage Marketing and Sales Practices Litigation, 601 F. Supp.2d 1201, 1212-

1214 (S.D. Calif. 2009) (alternative “Countrywide Broker Enterprise” and

“Countrywide Enterprise”); Friedman v. 24 Hour Fitness Co., 580 F.Supp.2d 985,

993 (C.D. Calif. 2008) (enterprise of “contractual relationship for ordinary

financial services”).

The FAC follows this practice, assigning each of five defined enterprises

and several conspiracies an acronym moniker far simpler than repetition of the

extended names of the enterprises. “Domestic Dispute Industry Criminal

Enterprise” is “DDICE” and may be pronounced “dice” (ER 642); “Domestic

Dispute Industry Forensic Investigator Criminal Enterprise” is “DDI-FICE”

pronounced “device” (ER 646); “DDI-IACE” is pronounced “de (“the”) ace” (ER

645); “Stuart AHCE” is pronounced “Stuart ache” (ER 647-648); DDIL

pronounced “dull” or “dill” (ER 649); “Federal Indictable Civil Rights Offense”

conspiracy is “FICRO” (ER 684), etc. The court criticized use of “defined terms”

such as “STUART ASSAULT” and “MALICIOUS PROSECUTION” which refer




to lengthy passages of foundational facts that constitute relevant “facts in support”

to numerous claims. Labeling them enables pleading “short, plain” claims

throughout the complaint. The court is incorrect that there are “terms with no

discernable meaning” (ER 8); the court overlooked definitions for the terms it

identified, located at FAC ¶955 (“black hat”) and ¶985 (“poser advocacy,”

“paperwads,” and “kite bombs”). Such practices are not prohibited by any rule or

order, and facilitates pleading “short, plain” claims referring to supporting facts

and complex entities throughout the litigation.

B.

Lengthy, difficult to manage complaints are common in

racketeering litigation:

The district court also found the FAC violated Rule 8 because it “is even

longer than the original and remains unmanageable, argumentative, confusing, and

frequently incomprehensible.” ER 10. These exhibits demonstrate that RICO

complaints are commonly lengthy and can at times be confusing, argumentative,

and arguably verbose, prolix, and even “frequently incomprehensible.” Yet these

district courts have not dismissed the complaints with prejudice for violations of

Rule 8. Indeed, the titles of the pleadings indicate multiple amendments.

Exhibits 2-4 from In Re Insurance Brokerage Cases racketeering and

antitrust litigation consist of a 213-page second amended complaint, a 138 page

“Revised Particularized Statement” attachment identifying the “horizontal”




racketeering conspiracies, and a 94 page RICO Case Statement, for a total of 445

pages. The complaint (Exhibit 2) contains several lengthy narratives containing

what could be regarded as “prolixity” “verbiage” and “argument” such as that

criticized by the district court.

Exhibit 1 contains highly argumentative—indeed attacking—passages

describing the tobacco industry’s 53 year -long fraudulent schemes to deceive

smokers using “independent” scientists, public relations firms, and even some of

our nation’s most prestigious law firms.

C.

District Courts have many tools to manage complex litigation:

The exhibits demonstrate several methods for managing complicated

racketeering cases, including amendment (all exhibits), a RICO case statement

(Exhibit 4), and the “revised particularized statement” (Exhibit 3) plaintiffs filed

concurrent with the complaint (Exhibit 2) to flesh out the critical issue in that

case—whether the “horizontal” enterprise (aka “hub and spoke”) was a cognizable

“enterprise” under 18 U.S.C. § 1961(c). See, In re Ins. Brokerage Antitrust Litig.,

618 F.3d 300, 327 (3d Cir. 2010).

Exhibits 6 is the RICO Case Statement from the Southern District attached

to demonstrate a tool readily available to the district court to assist in managing

this litigation.




D. This Court’s recorded oral argument in Cafasso, U.S. ex rel. v. Gen.

Dynamics C4 Sys., Inc., 637 F.3d 1047 (9th Cir. 2011) shows the bizarre

procedural posture of that case is inapposite to this action.

The district court below dismissed the First Amended Complaint based

largely on this Court’s decision in Cafasso. California Coalition argues in its

briefing that Cafasso is inapposite. See Enlarged Brief Sec. VI.B.2.c. The oral

argument from Cafasso makes clear the bizarre procedural history leading to the

filing of a 733 page complaint without a single claims. An edited version of this

court’s hearing in Cafasso is provided at Exhibit 5.

E. The Southern District of California’s form for “short, plain”

pleading of Civil Rights Act claims requires mere recitation of a prima facia

case.

The district court dismissed the FAC below for failure to observe the court’s

vague instructions on amendment. Exhibit 7 is the Southern District’s form for

pleading civil rights claims. Presumably it satisfied Rule 8 as the court created it

for civil rights actions. It does not require plaintiff to plead to the specificity the

district court below commanded. The claims of the complaint contain similar

“short, plain” recitations of statutory language and abundant factual detail in

support. Nothing more is required.




IV. CONCLUSION

California Coalition respectfully requests the Court to take judicial notice of

the attached Exhibits.

Dated: October 22, 2014 By: s/

Colbern C. Stuart, III

President, California Coalition for

Families and Children, PBC,

in Pro Se

Dated: October 22, 2014 By: s/

Dean Browning Webb, Esq.

Law Offices of Dean Browning Webb

Counsel for Plaintiff-Appellant

California Coalition for

Families and Children, PBC

Colbern C. Stuart III

Dean Browning Webb, Esq.




Case No. 14-56140



CALIFORNIA COALITION FOR FAMILIES AND CHILDREN

v.






Exhibits to Motion to Take Judicial Notice

Exhibit 1




UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA )

United States Department of Justice )

950 Pennsylvania Avenue, N.W. )

Washington, D.C. 20530-0001, )

)

Plaintiff, )

) COMPLAINT FOR DAMAGES

vs. ) AND INJUNCTIVE AND

) DECLARATORY RELIEF

PHILIP MORRIS, INC. )

120 Park Avenue )

New York, New York 10017; )

)

R.J. REYNOLDS TOBACCO COMPANY )

401 North Main Street )

Winston-Salem, North Carolina 27102; )) Civ. No.

BROWN & WILLIAMSON TOBACCO CORPORATION )

1500 Brown & Williamson Tower )

Louisville, Kentucky 40202, )

directly and as successor by merger to )

AMERICAN TOBACCO COMPANY )



)

LORILLARD TOBACCO COMPANY )

714 Green Valley Road )

Greensboro, North Carolina 27408; )

)THE LIGGETT GROUP, INC. ) PLAINTIFF DEMANDS A

300 North Duke Street ) TRIAL BY JURY

Durham, North Carolina 27702, )

directly and as parent to )

LIGGETT & MYERS, INC. )

810 Craghead Street )

Danville, Virginia 24541; )

)




directly and as successor to )

the tobacco interests of )AMERICAN BRANDS, INC. )

1700 East Putnam Avenue )

Old Greenwich, Connecticut 06870; )

)

PHILIP MORRIS COMPANIES, INC. )

120 Park Avenue )





2

BRITISH AMERICAN TOBACCO, P.L.C. )

Windsor House )

50 Victoria Street )

London SW1H ONL, England, )


B.A.T. INDUSTRIES P.L.C. )

Windsor House )50 Victoria Street )

London SW1H ONL, England; )

)

BRITISH AMERICAN TOBACCO )

(INVESTMENTS) LTD. )

Globe House )

1 Water Street )

London WC2R 3LA, England, )


BRITISH-AMERICAN TOBACCO )

COMPANY, LTD. )

Globe House )

4 Temple Place )London WC2R 2PG, England; )

)

THE COUNCIL FOR TOBACCO )

RESEARCH--U.S.A., INC. )

900 Third Avenue )

New York, New York 10022; and )

)

THE TOBACCO INSTITUTE, INC. )

1875 I Street N.W., Suite 800 )

Washington, D.C. 20006, )

)

Defendants. )

__________________________________________________)

COMPLAINT

The United States of America, plaintiff herein, by and through its undersigned attorneys,

for its complaint herein, alleges as follows:

INTRODUCTION

This is an action to recover health care costs paid for and furnished, and to be paid

for and furnished, by the federal government for lung cancer, heart disease, emphysema, and other

tobacco-related illnesses caused by the fraudulent and tortious conduct of defendants, and to




3

restrain defendants and their co-conspirators from engaging in fraud and other unlawful conduct in

the future, and to compel defendants to disgorge the proceeds of their unlawful conduct.

This action is brought pursuant to the Medical Care Recovery Act, 42 U.S.C. §§

2651, et seq. (Count One), and the Medicare Secondary Payer provisions of Subchapter 18 of the

Social Security Act, 42 U.S.C. § 1395y(b)(2)(B)(ii) &(iii) (Count Two), and the civil provisions of

Chapter 96 of Title 18, United States Code, codified at 18 U.S.C. §§ 1961 through 1968, entitled

Racketeer Influenced and Corrupt Organizations ("RICO"), that authorize the United States to

seek a judicial order preventing and restraining certain unlawful conduct (Counts Three and Four).

Defendants, who manufacture and sell almost all of the cigarettes purchased in this

country, and their co-conspirators have for many years sought to deceive the American public

about the health effects of smoking. Defendants have repeatedly and consistently denied that

smoking cigarettes causes disease, even though they have known since 1953, at the latest, that

smoking increases the risk of disease and death. Defendants have repeatedly and consistently

denied that cigarettes are addictive even though they have long understood and intentionally

exploited the addictive properties of nicotine. Defendants have repeatedly and consistently stated

that they do not market cigarettes to children while using advertising and marketing techniques to

make their products attractive to children. Even though they have long understood the hazards

caused by smoking and could have developed and marketed less hazardous cigarette products,

defendants chose and conspired not to do so. Instead, they have knowingly marketed cigarettes --

called "low tar/low nicotine" cigarettes -- that consumers believed to be less hazardous even

though consumers actually receive similar amounts of tar and nicotine as they receive from other

cigarettes; and therefore these cigarettes are in fact not less hazardous than other cigarettes.




4

In all relevant respects, defendants acted in concert with each other in order to

further their fraudulent scheme. Beginning not later than 1953, defendants, their various agents

and employees, and their co-conspirators, formed an "enterprise" ("the Enterprise") as that term is

defined in 18 U.S.C. § 1961(4). That Enterprise has functioned as an organized association-in-fact

for more than 45 years to achieve, through illegal means, the shared goals of maximizing their

profits and avoiding the consequences of their actions. Each defendant has participated in the

operation and management of the Enterprise, and has committed numerous acts to maintain and

expand the Enterprise.

In order to avoid discovery of their fraudulent conduct and the possibility that they

might be called to account for their conduct, defendants engaged in a widespread scheme to

frustrate public scrutiny by making false and deceptive statements and by concealing documents

and research that they knew would have exposed their public campaign of deceit. This scheme

included making false and deceptive statements to the public and in congressional, judicial, and

federal agency proceedings.

Defendants' tortious and unlawful course of conduct has caused consumers of

defendants' products to suffer dangerous diseases and injuries. As a consequence of defendants'

tortious and unlawful conduct, the Federal Government spends more than $20 billion annually for

the treatment of injuries and diseases caused by defendants' products. The effect of defendants'

fraudulent scheme and wrongful conduct continues to this day; defendants are continuing to

prosper and profit from their unlawful and tortious conduct; and, unless restrained by this Court,

defendants are likely to continue their unlawful activities into the future.




5

I. JURISDICTION

Jurisdiction in this action is predicated upon 28 U.S.C. §§ 1331, 1345, and 2201,

and 18 U.S.C. §§ 1964(a) and (b).

II. VENUE

Venue for this action is predicated upon 18 U.S.C. § 1965 and 28 U.S.C. §§

1391(b) and (c). The United States invokes the expanded service of process provisions of 18

U.S.C. § 1965(b). Each defendant cigarette company, or its predecessor or successor, has

marketed cigarettes for sale in the District of Columbia and elsewhere from at least 1953 to the

present. In addition, the Departments of Health and Human Services and Veterans Affairs and the

Office of Personnel Management, federal agencies with their headquarters in Washington, D.C.,

among others, have paid for and provided health care to millions of smokers whose smoking

related injuries were caused by defendants.

III. THE PARTIES

Plaintiff UNITED STATES OF AMERICA (the "United States"), is a sovereign

and body politic.

A. Cigarette Company Defendants

Defendant PHILIP MORRIS, INC. ("Philip Morris") is a Virginia corporation with

its principal place of business at 120 Park Avenue, New York, New York. Philip Morris is a

subsidiary of PHILIP MORRIS COMPANIES, INC. At relevant times, Philip Morris has

manufactured, advertised, and sold cigarettes, including Alpine, Basic, Dunhill, Benson & Hedges,

Cambridge, English Ovals, Galaxy, Marlboro, Merit, Parliament, Philip Morris, Players, Saratoga,

and Virginia Slims brand cigarettes throughout the United States, including in the District of




6

Columbia. In addition, on or about January 12, 1999, Philip Morris entered into an agreement

with defendant LIGGETT GROUP, INC. to purchase certain brands of cigarettes previously

manufactured by Liggett, including Lark, Chesterfield, and L&M, which Philip Morris also has

sold throughout the United States and in the District of Columbia. At times pertinent to this

Complaint, Philip Morris, individually and through its agents, alter egos, subsidiaries, divisions, or

parent companies, materially participated in the Enterprise, and materially participated, conspired,

assisted, encouraged, and otherwise aided and abetted one or more of the other defendants in the

unlawful, misleading, and fraudulent conduct alleged herein, and has affected foreign and interstate

commerce in the United States, including the District of Columbia.

Defendant R.J. REYNOLDS TOBACCO COMPANY ("Reynolds" or "RJR") is a

New Jersey corporation with its principal place of business at 401 North Main Street, Winston-

Salem, North Carolina. At relevant times, Reynolds has manufactured, advertised, and sold

cigarettes, including Best Value, Bright Rite, Camel, Century, Doral, Magna, Monarch, More,

Now, Salem, Sterling, Vantage, and Winston brand cigarettes throughout the United States,

including in the District of Columbia. At times pertinent to this Complaint, Reynolds, individually

and through its agents, alter egos, subsidiaries, divisions, or parent companies, materially

participated in the Enterprise, and materially participated, conspired, assisted, encouraged, and

otherwise aided and abetted one or more of the other defendants in the unlawful, misleading, and

fraudulent conduct alleged herein, and has affected foreign and interstate commerce in the United

States, including the District of Columbia.

Defendant BROWN & WILLIAMSON TOBACCO CORPORATION ("Brown &

Williamson") is a Delaware corporation with its principal place of business at 1500 Brown &




7

Williamson Tower, Louisville, Kentucky. Brown & Williamson is a wholly owned subsidiary,

directly or indirectly, of BATUS Holdings, Inc., a Delaware corporation, and its ultimate parent

company is defendant BRITISH AMERICAN TOBACCO P.L.C. At relevant times, Brown &

Williamson has manufactured, advertised, and sold cigarettes, including Barclay, Bel Air, Capri, Eli

Cutter, GPC, Kool, Laredo, Prime, Private Stock, Raleigh, Richland, Summit, Tall, Tareyton, and

Viceroy brand cigarettes throughout the United States, including in the District of Columbia. As a

result of its acquisition of defendant AMERICAN TOBACCO COMPANY in 1994 (either directly

or through BAT Industries, p.l.c., the predecessor to BRITISH AMERICAN TOBACCO P.L.C.),

Brown & Williamson has succeeded to the liabilities of defendant American either by operation of

law, or as matter of fact. At times pertinent to this Complaint, Brown & Williamson, individually






Defendant LORILLARD TOBACCO COMPANY, INC. ("Lorillard") is a

Delaware corporation with its principal place of business at 1 Park Avenue, New York, New

York. Lorillard is a subsidiary of Loews Corp., a Delaware corporation. At relevant times,

Lorillard has manufactured, advertised, and sold cigarettes, including Golden Lights, Harley-

Davidson, Heritage, Kent, Maverick, Max, Newport, Newport Red, Old Gold, Satin, Spring,

Spring Lemon Lights, Style, Triumph, and True brand cigarettes throughout the United States,

including in the District of Columbia. At times pertinent to this Complaint, Lorillard, individually




8






Defendant LIGGETT GROUP, INC. ("Liggett") is a Delaware corporation with its

principal place of business at 700 West Main Street, Durham, North Carolina. Liggett is the

successor to the tobacco interests of Liggett & Myers, Inc., and Liggett & Myers Tobacco Co.

Liggett is a subsidiary of the Brooke Group, a Delaware corporation. At relevant times, Liggett

has manufactured, advertised, and sold cigarettes, including Chesterfield, Decade, Dorado, Eve,

Generic, Lark, L&M, Pyramid, and Stride brand cigarettes throughout the United States, including

in the District of Columbia. At times pertinent to this Complaint, Liggett, individually and through

its agents, alter egos, subsidiaries, divisions, or parent companies, materially participated in the

Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided and

abetted one or more of the other defendants in the unlawful, misleading, and fraudulent conduct

alleged herein, and has affected foreign and interstate commerce in the United States, including the

District of Columbia.

Defendant the AMERICAN TOBACCO COMPANY ("American") is or was a

Delaware corporation with its principal place of business at 1500 Brown Williamson Tower,

Louisville, Kentucky. At relevant times, American manufactured, marketed, and sold American,

Bull Durham, Carlton, Iceberg, Lucky Strike, Malibu, Misty, Montclair, Newport, Pall Mall, Silk

Cut, Silva Thins, Sobrania, and Tareyton cigarettes throughout the United States, including in the




9

District of Columbia. American is successor to the tobacco interests of American Brands, Inc. In

1994, American was purchased by and merged into Brown & Williamson, which has succeeded to

the liabilities of American. At times pertinent to this Complaint, American, individually and

through its agents, alter egos, subsidiaries, parent companies and divisions, materially participated

in the Enterprise, and materially participated, conspired, assisted, encouraged, and otherwise aided

and abetted one or more of the other defendants in the unlawful, misleading, and fraudulent

conduct alleged herein, and has affected foreign and interstate commerce in the United States,

including the District of Columbia.

Defendants PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON,

LORILLARD, LIGGETT, and AMERICAN are referred to herein collectively as the "Cigarette

Companies," each of which marketed cigarettes for sale in the District of Columbia and elsewhere.

B. The Parent Company Defendants

Defendant PHILIP MORRIS COMPANIES, INC. ("Philip Morris Companies"), is

a Virginia corporation whose principal place of business is located at 120 Park Avenue, New

York, New York 10017. Philip Morris Companies is the parent corporation of Philip Morris and

Philip Morris International, Inc., and has participated in the manufacture and distribution of

cigarettes and tobacco products both individually and through its agents defendant Philip Morris

and Philip Morris International, Inc. In acting as alleged herein, Philip Morris and Philip Morris

International, Inc., have acted within the course and scope of their agency and employment, and

with the knowledge, consent, permission, and authorization of Philip Morris Companies. Actions

of Philip Morris were ratified and approved by the officers and managing agents of Philip Morris

Companies. At times relevant herein, Philip Morris Companies has participated substantially in the




10

management and control of Philip Morris. Through Philip Morris, Philip Morris Companies has

placed cigarettes into the stream of commerce with the expectation that substantial sales of

cigarettes would be made in the United States, including in the District of Columbia, and

elsewhere. At times pertinent to this Complaint, Philip Morris Companies, individually and

through its agents, alter egos, subsidiaries, or divisions, materially participated in the Enterprise,

and materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one

or more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein,

and has affected foreign and interstate commerce in the United States, including the District of

Columbia.

Defendant BRITISH AMERICAN TOBACCO, P.L.C. (“BAT p.l.c.”) is a British

corporation with its principal place of business at Globe House, 4 Temple Place, London WC2R

2PG, England. BAT p.l.c. is sued directly and as successor to B.A.T. INDUSTRIES, P.L.C.

("B.A.T. Industries"). (This Complaint will refer to this defendant alternatively as “BAT p.l.c” and

"BAT Industries"). Defendant Brown & Williamson is the agent of defendant BAT p.l.c. In acting

as alleged herein, Brown & Williamson has acted within the course and scope of its agency and

employment, and with the consent, permission, and authorization of BAT p.l.c. Actions of Brown

& Williamson were ratified and approved by the officers and managing agents of BAT p.l.c.

Through a succession of intermediary corporations and holding companies, BAT p.l.c. is the sole

shareholder of Brown & Williamson. At times relevant herein, BAT p.l.c. has participated

substantially in the management and control of Brown & Williamson. Through Brown &

Williamson, BAT p.l.c. has placed cigarettes into the stream of commerce with the expectation that

substantial sales of cigarettes would be made in the United States, including in the District of




11

Columbia. At times pertinent to this Complaint, BAT p.l.c., individually and through its agents,

alter egos, subsidiaries, or divisions, materially participated in the Enterprise, and materially

participated, conspired, assisted, encouraged, and otherwise aided and abetted one or more of the

other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and has

affected foreign and interstate commerce in the United States, including the District of Columbia.

Defendant BRITISH AMERICAN TOBACCO (INVESTMENTS) LTD. ("BAT

Investments") is a British corporation whose registered office is at Millbank, Knowle Green,

Staines, Middlesex, TW18 1DY, England. BAT Investments is sued directly and as successor to

BRITISH AMERICAN TOBACCO COMPANY, LTD. ("BAT Co."). (This Complaint will refer

to this defendant generally as “BAT Co.”). At relevant times pertinent to this Complaint, BAT Co.

was a parent corporation of defendant Brown & Williamson and BATUS Holdings. In acting as

alleged herein, Brown & Williamson has acted within the course and scope of its agency and

employment, and with the consent, permission, and authorization of BAT Co. Actions of Brown &

Williamson were ratified and approved by the officers and managing agents of BAT Co. At times

relevant herein, BAT Co. has participated substantially in the management and control of Brown &

Williamson. At times pertinent to this Complaint, BAT Co., individually and through its agents,

alter egos, subsidiaries, divisions, or parent companies, materially participated in the Enterprise, and

materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or

more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and

has affected foreign and interstate commerce in the United States, including the District of

Columbia.

Defendants PHILIP MORRIS COMPANIES, BAT P.L.C., and BAT




12

INVESTMENTS are referred to herein collectively as the "Parent Companies.''

C. The Industry "Research," Public Relations, and Lobbying Defendants

Defendant COUNCIL FOR TOBACCO RESEARCH -- U.S.A., Inc. ("CTR"), is or

was a New York non-profit corporation with its principal place of business at 900 Third Avenue,

New York, New York. CTR is the successor in interest to the Tobacco Industry Research

Committee ("TIRC"). TIRC and CTR were not primarily "research" organizations but they were

established by the Cigarette Companies to carry out their fraudulent course of conduct beginning in

January 1954. At all relevant times, TIRC and CTR operated as public relations and lobbying arms

of the Cigarette Companies and as agents and employees of the Cigarette Companies. They also

acted as facilitating agencies and co-conspirators in furtherance of the Cigarette Companies'

combination and conspiracy as described in this Complaint. In acting as alleged herein, TIRC and

CTR acted within the course and scope of their agency and employment, and with the knowledge,

consent, permission, and authorization of the Cigarette Companies. All actions of TIRC and CTR

were ratified and approved by the officers and managing agents of each of the Cigarette Companies.

At times pertinent to this Complaint, TIRC and CTR, individually and through their agents,

materially participated in the Enterprise, and materially participated, conspired, assisted,

encouraged, and otherwise aided and abetted one or more of the other defendants in the unlawful,

misleading, and fraudulent conduct alleged herein, and have affected foreign and interstate

commerce in the United States, including the District of Columbia.

Defendant THE TOBACCO INSTITUTE, INC. ("Tobacco Institute" or "TI") is or

was a New York non-profit corporation with its principal place of business at 1875 I Street N.W.,

Suite 800, Washington, D.C. At all relevant times, the Tobacco Institute has operated as a public




13

relations arm of the Cigarette Companies, and as an agent and employee of the Cigarette

Companies. It has also acted as a participant and facilitating agent and co-conspirator in

furtherance of the conspiracy of the Cigarette Companies as described in this Complaint. In acting

as alleged herein, the Tobacco Institute has acted within the course and scope of its agency and

employment, and with the knowledge, consent, permission, and authorization of each of the

Cigarette Companies. All actions of the Tobacco Institute were ratified and approved by the

officers and managing agents of the Cigarette Companies. At times pertinent to this Complaint, the

Tobacco Institute, individually and through its agents, materially participated in the Enterprise, and

materially participated, conspired, assisted, encouraged, and otherwise aided and abetted one or

more of the other defendants in the unlawful, misleading, and fraudulent conduct alleged herein, and

has affected foreign and interstate commerce in the United States, including the District of

Columbia.

At all relevant times, each defendant was a "person" within the meaning of 18 U.S.C.

§1961(3), because each defendant was "capable of holding a legal or beneficial interest in property."

The Cigarette Companies, the Parent Companies, CTR, and the Tobacco Institute are referred to

herein collectively as "defendants."

IV. THE FACTS

A. The Impact of Cigarette Smoking on the American Public

Cigarette smoking is the single largest preventable cause of premature death in the

United States. Each year, millions of people suffer from smoking-related diseases, which often

require a long-term course of medical and surgical treatment. Each year more than 400,000

Americans die from cigarette smoking. Nearly one in every five deaths in the United States is




14

smoking related.

Each year, as a result of the diseases, illness, or injuries caused by cigarettes, the

United States spends more than $20 billion under a variety of programs to pay for or furnish

medical care to smokers.

Cigarette smoking causes lung and other types of cancers, emphysema and other

chronic lung diseases, heart attacks, strokes, and a variety of other diseases. Cigarette smoking by

pregnant women is also a leading cause of low birth weight infants.

Cigarettes contain nicotine, which is an addictive drug. The addictiveness of

cigarette smoking significantly increases the adverse health consequences of cigarette smoking.

Although it is illegal to sell cigarettes to children, the vast majority of adults who

smoke began smoking before they were 18. Children are particularly susceptible to cigarette

advertising, especially advertising that presents smoking as a rite of passage into adulthood. When

they first begin to smoke, children do not believe that they will have difficulty in quitting, but

because of the addictive nature of nicotine, many are unable to quit once they have started.

More than one million children under age 18 begin smoking each year in America.

Of these children, most continue as adult smokers and will suffer from some smoking-related illness

and diminished health, which will directly and indirectly have an enormous adverse effect on public

welfare and the public fisc; and approximately one in three of these children who become regular

smokers will die of a smoking-related disease.

B. The Formation of the Enterprise and the Nature of the Conspiracy

In the 1940's and early 1950's, scientific researchers published findings that indicated

a relationship between cigarette smoking and diseases, including lung cancer.




15

Senior Cigarette Company executives and researchers closely monitored such

research and knew that if the public came to understand that cigarette smoking causes cancer and

other diseases, the Cigarette Companies' profits would decline and the industry would face the

prospect of civil liability and government regulation. In response to the published research linking

cigarettes and disease, in December 1953, Paul Hahn, President of American Tobacco Company,

sent a telegram to the other Cigarette Company presidents, suggesting a meeting to formulate "an

industry response" to the studies.

As a direct result of Mr. Hahn's telegram, on December 15, 1953, the chief

executives of American, Brown & Williamson, Lorillard, Philip Morris, and Reynolds met at the

Plaza Hotel in New York City. At that meeting, these chief executives agreed that the published

studies were "extremely serious" and "worthy of drastic action." At the meeting, the chief

executives determined to respond to this serious public health issue with a concerted public

relations campaign intended to preserve their profits.

The decisions made by these chief executives at the Plaza Hotel meeting have shaped

the actions of the Cigarette Companies, including companies not in attendance at the meeting, to

this day. The chief executives at the Plaza Hotel agreed that the strategy they were implementing

was a "long-term one" that required defendants to act in concert with each other on the current

health controversy, as well as on issues that would face them in the future. This Enterprise and

conspiracy still continues today.

The fundamental goal of the Enterprise and conspiracy was to preserve and expand

the market for cigarettes and to maximize the Cigarette Companies' profits. To achieve this goal,

defendants' strategy was to respond to scientific evidence of the adverse health consequences of




16

cigarette smoking with fraud and deception. Rather than provide full disclosure to the public and in

congressional, federal agency, and judicial proceedings about what they knew or learned about the

dangers of cigarette smoking, defendants and their agents determined, in furtherance of this

Enterprise and conspiracy, to deny that smoking caused disease and to maintain that whether

smoking caused disease was an "open question," despite having actual knowledge that smoking did

cause disease.

Defendants sought to ensure that no company -- in the United States or overseas -- -

broke ranks from defendants' public posture, which was based on falsehood and deception. If any

Company admitted that smoking was hazardous, that nicotine was addictive, that the delivery of

nicotine was manipulated by the Cigarette Companies, that defendants' research commitment was a

sham, or that the Cigarette Companies marketed to children, the conspiracy would be endangered.

To further and protect the Enterprise and conspiracy and their profits, defendants:

C made false and misleading statements to the public through press releases,

advertising, and public statements, such as before Congress, that were intended to be

heard by the consuming public.

C adhered to their common scheme of deception and falsehood in lawsuits, including,

among other things, destroying and concealing documents.

Throughout the course of the Enterprise and conspiracy and to the present day,

defendants have engaged in these acts knowingly and intentionally and with a common purpose.

Their own documents -- secreted in internal files and revealed only in recent years despite

defendants' involvement in continuous litigation about their products for more than 45 years --

demonstrate that defendants:




17

C sought to create false doubt about the health effects of smoking because they knew

that such doubt would influence consumers to begin or to continue smoking;

C falsely denied that nicotine was addictive and controlled the nicotine delivery of

cigarettes so that they could addict new users and make it more difficult for addicted

cigarette smokers to quit;

C suppressed research, destroyed documents, and took steps to prevent discovery of

such documents;

C aggressively targeted children as new smokers because children fail to appreciate the

hazards of smoking and the addictiveness of nicotine and are more easily induced to

start an addiction that would lead to a lifetime of cigarette purchases; and

C knew that use of their product was unreasonably and unnecessarily dangerous to the

lifelong customers that they sought to addict.

C. False Statements About Smoking and Disease

Consistent with the recommendations made in connection with the December 1953

meeting at the Plaza Hotel, defendants formed the TIRC and, on January 4, 1954, caused to be

published a full-page statement to the American public called "A Frank Statement to Cigarette

Smokers" in 448 newspapers in the United States. The "Frank Statement" explained that:

Recent reports on experiments with mice have given wide publicity to

a theory that cigarette smoking is in some way linked with lung

cancer in human beings.

Although conducted by doctors of professional standing, these

experiments are not regarded as conclusive in the field of cancer

research. However, we do not believe results are inconclusive, should

be disregarded or lightly dismissed. At the same time, we feel it is in

the public interest to call attention to the fact that eminent doctors




18

and research scientists have publicly questioned the claimed

significance of these experiments.

Distinguished authorities point out:

That medical research of recent years indicates many possiblecauses of lung cancer.

That there is no agreement among the authorities regarding what the

cause is.

That there is no proof that cigarette smoking is one of the

causes.

That statistics purporting to link cigarette smoking with the

disease could apply with equal force to any one of many other

aspects of modern life. Indeed the validity of the statisticsthemselves is questioned by numerous scientists.

We accept an interest in people's health as a basic responsibility,

paramount to every other consideration in our business.

We believe the products we make are not injurious to health.

We always have and always will cooperate closely with those whose

task it is to safeguard the public health.

For more than 300 years tobacco has given solace, relaxation, andenjoyment to mankind. At one time or another during those years

critics have held it responsible for practically every disease of the

human body. One by one these charges have been abandoned for lack

of evidence.

Regardless of the record of the past, the fact that cigarette smoking

today should even be suspected as a cause of a serious disease is a

matter of deep concern to us.

Many people have asked us what we are doing to meet the public's

concern aroused by the recent reports. Here is the answer:

We are pledging aid and assistance to the research effort into all

phases of tobacco use and health. This joint financial aid will of

course be in addition to what is already being contributed by




19

individual companies.

For this purpose we are establishing a joint industry group consisting

initially of the undersigned. This group will be known as TOBACCO

INDUSTRY RESEARCH COMMITTEE.

In charge of the research activities of the Committee will be a

scientist of unimpeachable integrity and national repute. In addition

there will be an Advisory Board of scientists disinterested in the

cigarette industry. A group of distinguished men from medicine,

science, and education will be invited to serve on this Board. These

scientists will advise the Committee on its research activities.

This statement is being issued because we believe the people are

entitled to know where we stand on this matter and what we intend

to do about it.

Before the Frank Statement's claim that "there is no proof that cigarette smoking is

one of the causes" of lung cancer, defendants knew of the published literature on smoking and

health and researchers employed by the Cigarette Companies had reported the relationship between

smoking and disease. Moreover, although the Cigarette Companies refrained from doing much of

the basic biological research related to the effects of their products, by January, 1954, the

Companies had identified the presence of carcinogenic substances in tobacco smoke. Thus,

defendants were well aware of the health hazards posed by smoking.

Despite their knowledge, which only increased in the ensuing years, at no time did

defendants disclose to the public that smoking caused disease or make public their own analyses

which confirmed the published literature. Instead, over the last forty-five years, defendants have

made false and misleading statements to persuade the American public that there was an "open

question" as to whether smoking caused disease. In every available regulatory, judicial, and

congressional proceeding, as well as in every public forum, including through press releases and




20

advertisements, defendants denied that smoking caused disease or claimed that there was

insufficient proof that smoking caused disease.

The Cigarette Companies went so far as to claim that they would cease selling

tobacco if they determined that smoking was harmful or would change the product in order to make

certain that it was no longer harmful. For example,

C George Weissman, Vice-President of Philip Morris, told the Pioneer Press on

March 31, 1954, that the cigarette industry would "stop business tomorrow"

if it believed smoking was harmful.

C Bowman Gray, the head of RJR, testified before Congress in June of 1964,

that "the tobacco industry is profoundly conscious of the gravity of questions

concerning smoking and health." *** "If it is proven that cigarettes are

harmful, we want to do something about it regardless of what somebody else

tells us to do. And we would do our level best. This is just being human."

Even those companies that were not involved in the issuance of the Frank Statement

joined, and committed acts in furtherance of, the Enterprise and conspiracy. Defendant Liggett,

which joined TIRC/CTR in 1964, maintained the same false and misleading public positions as the

other Cigarette Companies until 1997, when Liggett admitted that smoking is harmful, nicotine is

addictive, and that the Cigarette Companies have marketed to children. The Parent Company

defendants also acted in furtherance of the Enterprise and conspiracy by committing acts as

described in the Appendix to this Complaint (which Appendix is essential to determination of this

action, see LCvR 5.1(g)) and by using their corporate families, particularly overseas, to keep

documents and research out of reach of courts and others in the United States. For example, BAT




21

p.l.c., by itself or through its agents, subsidiaries, or co-conspirators, has conducted significant

research for Brown & Williamson on the topics of smoking, disease, and addiction. Brown &

Williamson also sent to England research conducted in the United States on the topics of smoking,

disease and addiction in order to remove sensitive and inculpatory documents from United States

jurisdiction, and such documents were subject to the control of BAT p.l.c.

In addition to the false statements made by the Cigarette Companies themselves and

in furtherance of their scheme to defraud, in 1958 defendants created the Tobacco Institute, a public

relations organization whose function was to make certain that defendants' false and misleading

positions on issues related to, among other things, the connection between smoking and disease,

were kept constantly before the public, doctors, the press, and the government. At all times,

defendants controlled the Tobacco Institute, including its public statements made on behalf of

defendants. Examples of the Tobacco Institute's false and misleading statements are identified in

the attached Appendix.

In contrast to defendants, who long knew and understood the adverse health effects

of cigarette smoking, many members of the public did not fully appreciate the risk to their health

posed by cigarettes. At all times, defendants made such false and misleading statements with the

express purpose of deceiving the public and inducing smokers and non-smokers to minimize the

health risks and continue or start smoking. Defendants also had full knowledge that, as their fraud

succeeded, more Americans would suffer from tobacco-related disease. Because they failed to

warn consumers and lied about the health effects of smoking, many Americans, including millions of

children, became addicted to cigarettes, and many people who were already smoking had more

difficulty quitting, with resulting damage to their health.




22

D. The Myth of Independent Research

1. The "Gentleman's Agreement"

As a means to further the aims of the Enterprise and conspiracy and as an adjunct to

their claims that there was an open question as to whether smoking causes disease, defendants -- in

the "Frank Statement" and repeatedly over the 45 years since then -- undertook an obligation to

protect the public health by conducting and disclosing unbiased and authenticated research on the

health risks of cigarette smoking. This promise was false when made, has been repeatedly

reaffirmed throughout the years, and has never been fulfilled.

Contrary to their repeated promises, the Cigarette Companies had a "gentleman's

agreement" -- so called by defendants themselves -- not to perform or commission internal research

designed to investigate the relationship between smoking and health. They did not routinely employ

or support scientists to conduct such research; and, in the rare instances that the companies did

conduct such research internally, they did so in secret and suppressed the results, in some cases by

destroying documents and in other cases by taking other steps to shield documents and materials

from discovery.

Two components to this "gentleman's agreement" were: (1) any company

discovering an innovation permitting the manufacture of an essentially "safe" cigarette would share

the discovery with others in the industry; and (2) no domestic company would perform in-house

biomedical research on animals.

Although they recognized that research and testing were essential to evaluating the

health risk posed by their products, defendants, pursuant to the "gentleman's agreement," generally

did not perform biological research on smoking and health. In a secret internal communication in




23

1964, Philip Morris Research and Development Vice President Helmut Wakeham acknowledged

the legal jeopardy inherent in defendants' joint agreement, when he (unsuccessfully) recommended

that "[t]he industry should abandon its past reticence with respect to medical research. Indeed,

failure to do such research could give rise to negligence charges." Despite Mr. Wakeham's

warning, defendants persisted in their agreement.

By the late 1960's, individual companies were performing limited biological research

in violation of the "gentleman's agreement." Nonetheless, the fundamental understanding and

agreement remained intact: information and activities that would tend to establish the harmfulness

of cigarettes would be restrained, suppressed, and concealed. This included restraining, concealing,

and suppressing research on the adverse health effects of smoking, including the addictive qualities

of cigarettes.

The biological research that the Cigarette Companies did perform was closely

controlled to ensure that, if it resulted in additional evidence that smoking causes disease, it would

not become public or subject to discovery in court proceedings. This control included performing

much of the research outside the United States in order to keep documents and witnesses hidden

and out of the reach of State and Federal courts, and by taking other steps to shield documents and

materials from discovery.

Philip Morris, for example, conducted in-house research in Europe in order to avoid

disclosure of unfavorable results to the public. In 1970, Philip Morris purchased a research facility

in Cologne, Germany, known as INBIFO. One perceived value of INBIFO was that Philip Morris

could control the research conducted there; therefore, overseas experiments could be terminated at

will. Philip Morris took steps to conceal this arrangement. Company scientists shipped documents




24

from locations in the United States to Cologne for storage in order to remove unfavorable or

embarrassing research results from Philip Morris' files during and in advance of litigation and

thereby to avoid discovery of adverse documents. Discussing how to handle records relating to the

INBIFO arrangement, senior Philip Morris scientist Thomas Osdene characterized the arrangement

as follows: "Ship all documents to Cologne . . . . Keep in Cologne . . . . If important letters have

to be sent please send to home & I will act on them and destroy."

Brown & Williamson conducted some biological research in the United States in

conjunction with its English parent company, BAT p.l.c. When the company sought to avoid

discovery of these documents in a number of personal injury lawsuits, Brown & Williamson sent

much of the American company's biological research to England so that it would not have to be

produced. Brown & Williamson sent sensitive research documents to London to avoid production

in litigation, stamped scientific documents "attorney/client, work product," and edited and

suppressed the minutes of scientific meetings to remove references to topics that might be the

subject of litigation.

Brown & Williamson also endeavored in litigation brought by smokers to prevent

the disclosure of research documents created by its affiliate, BAT Co., which contained information

contrary to Brown & Williamson's public positions that smoking did not cause disease and that

cigarettes were not addictive. To further this effort, a Brown & Williamson research scientist

received scientific reports and designated documents harmful to Brown & Williamson as protected

by the attorney work product privilege.

Defendants also enforced the conspiracy by stopping inconsistent research efforts by

any member of the group. For example, in the 1960's Reynolds established a facility in




25

Winston-Salem, North Carolina, to research the health effects of smoking using mice. In the facility

that Reynolds nicknamed the "Mouse House," Reynolds scientists researched a number of specific

areas, including studies of the actual mechanism whereby smoking causes emphysema. Internally, a

Reynolds-commissioned report favorably described the Mouse House work as the most important

of the smoking and health research efforts because it had come close to determining the underlying

mechanism of emphysema.

In 1970, Philip Morris' president complained to Reynolds about the work going on in

the Mouse House. Despite the progress made there, Reynolds responded to the complaint by

closing the Mouse House -- disbanding in one day, without notice to the staff, the entire research

division, firing all 26 scientists working there, and destroying years of smoking and health research.

Reynolds also sought to prevent documents containing research reports contrary to

the company's public positions regarding smoking and health from being disclosed in smoking and

health litigation in which Reynolds was a defendant or witness. In December 1969, the Reynolds

Research Department reported that it did "not foresee any difficulty in the event a decision is

reached to remove certain reports from Research files. Once it becomes clear that such action is

necessary for the successful defense of our present and future suits, we will promptly remove all

such reports from our files. . . . As an alternative to invalidation [of adverse reports], we can have

the authors rewrite those sections of the reports which appear objectionable."

2. The Lack of Independence of CTR

Rather than perform relevant research in-house, the Cigarette Companies claimed

that they would fulfill their promise to research and publish their findings about smoking and health

by funding independent research through the Tobacco Industry Research Committee ("TIRC"),




26

which was later renamed the Council for Tobacco Research ("CTR"). In the "Frank Statement" of

January 1954 and repeatedly over the 45 years since then, the Cigarette Companies told the public,

Congress, federal agencies, and the courts that CTR's purpose was to fund and to perform

independent scientific research on the issue of smoking and health.

For example, in 1954, TIRC told the United States Department of Justice that its

function was to fulfill the "responsibility on the part of the management of the tobacco

manufacturers and others engaged in the tobacco industry to aid in the final determination of this

controversy [as to whether smoking causes disease]," and that TIRC would "communicate

authoritative factual information on the subject to the public." Further, TIRC assured the

Department of Justice that it was "in nowise to be considered or to operate as a trade association or

to participate in any activity, or give consideration to any matters, affecting the business conduct or

activities of its members."

For example, in 1963, TIRC and TI ran an advertisement captioned, "A Statement

About Tobacco and Health," which included the statements:

C "We recognize that we have a special responsibility to the public — to help

scientists determine the facts about tobacco and health, and about certain

diseases that have been associated with tobacco use."

C "We accepted this responsibility in 1954 by establishing the Tobacco Industry

Research Committee, which provides research grants to independent

scientists. We pledge continued support of this program of research until all

the facts are known."

C "Scientific advisors inform us that until much more is known about such

diseases as lung cancer, medical science probably will not be able to

determine whether tobacco or any other single factor plays a causative role

— or whether such a role might be direct or indirect, incidental or

important."




27

C "We shall continue all possible efforts to bring the facts to light."

In numerous court cases, defendants made similar claims about their search for the

"truth" about smoking and disease. Indeed, in the very first personal injury suit litigated in federal

court following the 1954 "Frank Statement," the Reynolds Tobacco Company stated in

interrogatory answers that the purposes of TIRC was to sponsor research into the health aspects of

tobacco and to advance medical knowledge on smoking and disease.

These and similar statements were false and misleading when made. From its

inception, TIRC (later CTR) was essentially a public relations organization designed to counter

adverse publicity concerning smoking and health, and not as an independent research organization

dedicated to getting to the bottom of the smoking and health controversy. TIRC/CTR's true

purpose, as acknowledged by Cigarette Company executives, was to provide a cover for

defendants' efforts to conceal the truth about smoking and health. While TIRC/CTR served as a

front for the Cigarette Companies' claim that they were committed to independent research,

TIRC/CTR funds were actually funneled into research controlled by defendants and designed to

advance defendants' interests in litigation.

TIRC/CTR's purported independence derived from the Scientific Advisory Board

("SAB"), which defendants claimed controlled TIRC/CTR's research priorities. By directing

attention to the SAB, defendants were able to appear to be furthering research efforts while their

true aim was to preserve and foster false doubt about the adverse health effects of smoking in order

to dissuade existing smokers from quitting and to encourage non-smokers to start.

Defendants and their agents falsely represented in public and in court that the SAB

grant process functioned independently from industry influence and was the mechanism by which




28

they were fulfilling the obligations they had undertaken in the "Frank Statement" and elsewhere. In

fact, defendants "deliberately isolated" the SAB from the activities ongoing in other parts of CTR so

that the SAB could be held out as a group of independent scientists, while CTR operated under

defendants' control. The SAB controlled only a grant process for certain research, and even that

process was closely controlled by the Cigarette Companies through their agents and attorneys, who

helped to screen proposals, to ensure that the SAB did not approve research that might suggest a

link between smoking and disease.

Consequently, the research that was funded through the SAB addressed general

issues of cancer causation and incidence -- without a focus on smoking or its role in causing disease

-- and was deliberately designed to avoid developing information on the relationship between

smoking and disease or on other science that might result in findings that were harmful to

defendants. Nor did other parts of TIRC/CTR fund objective research on the link between smoking

and disease.

While defendants promoted the SAB as an "independent" board, they funneled funds

through TIRC/CTR to conduct non-SAB research projects that were not objective or independent

as the industry had promised, but instead were designed to conclude that there was no link between

smoking and disease, and to develop favorable research and expert witnesses to defend the industry

in court. These components of TIRC/CTR were controlled by the Cigarette Companies' agents,

including attorneys, and included activities known as Special Projects. TIRC/CTR Special Projects

were initiated and developed by the Cigarette Companies through their agents, including outside

counsel, who used them to provide research funding for scientists and doctors who might be willing

to provide testimony favorable to the Cigarette Companies on smoking and health matters.




29

Special Projects were often funded when the SAB would not approve the proposed

research or when the Cigarette Companies needed favorable research for litigation and wanted it

done quickly. On occasion, the industry would use TIRC/CTR to publicize the results of carefully

selected Special Projects-funded work that was favorable to the industry, so that the work would be

more credible due to TIRC/CTR's purported independence. Defendants also planned to protect the

projects funded through Special Projects by invoking the attorney-client privilege and work product

doctrine. Through Special Projects, the Cigarette Companies funded many research projects that

were controlled by their lawyers and intended to advance the Companies' interests in lawsuits and

legislative proceedings. By design, these projects were secret unless and until defendants decided

to make them public.

The Cigarette Companies knew that the "Special Projects" work was neither

independent science nor good science. Internal company documents express concern about the

"degree to which [Special Projects] make advocacy primary and science becomes secondary," and

that, to aid in litigation, the companies, through Special Projects, were funding science that was

"not worth a damn."

When researchers funded by TIRC/CTR reached conclusions that threatened to

confirm the link between smoking and disease, the companies, at times, terminated the research and

concealed the results. For example, when Dr. Freddy Homburger concluded in 1974 that his study

of smoke exposure on hamsters indicated that cigarettes were addictive and caused disease, CTR

Scientific Director Robert Hockett and CTR lawyer Ed Jacob threatened to cut off Dr.

Homburger’s funding if his paper were published without deleting the word "cancer."

When Special Projects came under scrutiny in the 1990s, defendants ceased to




30

administer Special Projects through CTR. In fact, counsel for Lorillard suggested in an internal

document that using Special Projects to "purchase favorable judicial or legislative testimony. . .

[was] perpetrating a fraud on the public." On information and belief, defendants have continued to

fund such projects, but have moved them out of CTR and placed them directly under the auspices

of their agents and attorneys, who had long been involved in control of CTR.

In addition to Special Projects, CTR maintained various "Special Accounts" for

funding research projects that the Companies believed needed to be conducted for their own

information, but which they did not want to be discovered, in litigation or otherwise. As with

Special Projects, defendants sought to hide the existence of Special Accounts projects by taking

steps to protect documents and materials from disclosure, including instructing Cigarette Company

witnesses not to mention the existence of such accounts in legislative hearings.

E. Misrepresentations about Nicotine’s Addictiveness and Manipulation of Nicotine

Delivery

The primary factor that prevents cigarette smokers from quitting smoking is their

addiction to nicotine, and their need for continuing intake of nicotine in order to avoid nicotine

withdrawal. The addictive nature of nicotine is directly related to the harm caused by cigarettes,

because the risk from smoking increases with prolonged use.

Defendants and their agents have long known that nicotine is an addictive drug and

have sought to hide its addictive and pharmacological qualities. They also have long recognized

that getting smokers addicted to nicotine is what preserves the market for cigarettes and ensures

their profits. In contrast, the average consumer has not been fully aware of the addictive properties

of nicotine, and most beginning smokers — particularly children — falsely believe that they will be




31

able to quit after smoking for a few years and thereby avoid the diseases caused by smoking. By

hiding their knowledge of nicotine and making false and misleading statements concerning nicotine,

defendants have induced existing smokers to continue using their products, and induced others to

begin to smoke, particularly children, who believe, usually mistakenly, that they will be able to quit

and avoid the diseases caused by smoking.

Defendants have understood nicotine’s addictive properties since the early 1960's at

the latest. For example, Philip Morris internally discussed methods for increasing the nicotine

content of cigarettes as early as 1960. Sir Charles Ellis, scientific advisor to the board of directors

of BAT Industries, asserted in a 1962 meeting attended by Brown & Williamson representatives

that "smoking is a habit of addiction," and scientists in the Geneva laboratories of the International

Division of the Battelle Memorial Institute reported to BAT Industries on the mechanics of nicotine

addiction in 1963. BAT sponsored research at the Battelle Memorial Institute at Geneva to

investigate the physiological aspects of smoking. B&W general counsel Addison Yeaman stated in

1963 that "nicotine is addictive" and that "we are . . . in the business of selling nicotine, an addictive

drug[.]" Reynolds, understanding the importance of retaining sufficient nicotine to maintain

dependence on its so-called "low tar/low nicotine" cigarettes, internally proposed in 1971 that the

company undertake research into determining more exactly the "habituating level of nicotine."

Defendants concealed their research on the addictiveness of nicotine because they

have known that revelation of that research might substantially change the market for cigarettes and

result in successful lawsuits against defendants. The Cigarette Companies thus performed much of

their research clandestinely, and in at least one case threatened scientists who sought to publish their

research on addiction. All of this constituted a comprehensive campaign by the Cigarette




32

Companies to keep secret their knowledge of nicotine's addictive nature. For example,

C A 1977 Philip Morris study on the withdrawal effects of nicotine was

permitted to proceed only if the results were what the Cigarette Companies

wanted. If not, as a Philip Morris researcher explained, "we will want to

bury it."

C An internal 1978 Brown & Williamson memo discussed addictiveness of

nicotine and characterized nicotine as a poison, while noting that most

consumers are unaware of this. "Very few consumers are aware of the

effects of nicotine, i.e. its addictive nature and that nicotine is a

poison...hardly any consumers use nicotine numbers as a basis for their

purchase."

C In March 1980, a Philip Morris scientist produced an internal memorandum

discussing company research into the psychopharmacology of nicotine. The

research was "aimed at understanding that specific action of nicotine which

causes the smoker to repeatedly introduce nicotine into his body." The

internal memorandum noted that it was "a highly vexatious topic" that

company lawyers did not want to become public because nicotine's drug

properties, if known, would support regulation of tobacco by the federal

Food and Drug Administration (“FDA”). Consequently, the memorandum

observed, "[o]ur attorneys . . . will likely continue to insist on a clandestine

effort in order to keep nicotine the drug in low profile."

C In the early 1980's, Philip Morris hired Victor DeNoble and Paul Mele to




33

study the effects of nicotine on the behavior of rats and to research and test

potential nicotine analogues. DeNoble and Mele' s research demonstrated

that nicotine was addictive and that in terms of addictiveness, "nicotine

looked like heroin." In August 1983, Phillip Morris ordered DeNoble to

withdraw a research paper on nicotine that had already been accepted for

publication after a full peer review by the journal Psychopharmacology. Less

than a year later, Philip Morris abruptly closed DeNoble's nicotine research

lab. Philip Morris executives threatened DeNoble and Mele with legal action

if they published or talked about their nicotine research. The animals were

killed, the equipment was removed, and all traces of the former lab were

eliminated.

As with the adverse health effects of smoking, defendants failed to warn consumers

and others of the addictive nature of nicotine and made false and misleading statements to the public

and others about addiction. For example,

C In 1963, when the Surgeon General was preparing his first report on

smoking and health, Brown & Williamson considered whether to provide its

research indicating the addictiveness of nicotine, but withheld this research

from the Surgeon General. The Surgeon General's Report did not conclude

that nicotine is addictive.

C In 1988, when the Surgeon General finally concluded, based on non-industry

research, that nicotine is addictive, the Tobacco Institute, on behalf of the

Cigarette Companies, attacked the report by saying that "claims that




34

cigarettes are addictive contradict common sense. . . . The claim that

cigarette smoking causes physical dependence is simply an unproven attempt

to find some way to differentiate smoking from other behaviors."

Statements such as this, frequently repeated by the Cigarette Companies and their agents, were

knowingly false and misleading when made.

Defendants' efforts to suppress information on the addictiveness of nicotine continue

today. For example, in 1997, Liggett broke ranks and began placing a statement on the packs of

cigarettes manufactured by it specifically warning that smoking is addictive. On or about January

12, 1999, Philip Morris entered into an agreement with Liggett to purchase certain brands of

cigarettes previously manufactured by Liggett, including Lark, Chesterfield, and L&M, each of

which, at the time of their sale to Philip Morris, contained the warning concerning the addictiveness

of smoking. After it purchased these brands, Philip Morris altered the packaging of Lark,

Chesterfield, and L&M cigarettes to eliminate the warning concerning addictiveness. These brands

of cigarettes were no less addictive after their purchase by Philip Morris than when they had been

manufactured by Liggett. This alteration continued defendants’ efforts to conceal from cigarette

purchasers, and from the public in general, the addictive nature of cigarette smoking.

As a result of the defendant’s false statements denying the addictive nature of

cigarettes, and their suppression of information demonstrating the addictive nature of cigarettes,

more people have become addicted or remained addicted to the product. In fact, among 12-17 year

old smokers, 70% regret their decision to start smoking, and 66% want to quit. Similarly, 70% of

cigarette smokers would like to stop completely.

At the same time they were denying the addictiveness of nicotine, the Cigarette




35

Companies were developing and using highly sophisticated technologies designed to deliver nicotine

in precisely calculated ways that are more than sufficient to create and sustain addiction in the vast

majority of individuals who smoke regularly. The Cigarette Companies control the nicotine content

of their products through selective breeding and cultivation of plants for nicotine content and

careful tobacco leaf purchasing and blending plans, and control nicotine delivery (i.e., the amount

absorbed by the smoker) with various design and manufacturing techniques. For example, as

explained in an internal 1973 Reynolds document:

Methods which may be used to increase smoke pH and/or nicotine

"kick" include: (1) increasing the amount of (strong) burley in the

blend, (2) reduction of casing sugar used on the burley and/or blend,(3) use of alkaline additives, usually ammonia compounds, to the

blend, (4) addition of nicotine to the blend, (5) removal of acids from

the blend, (6) special filter systems to remove acids from or add

alkaline materials to the smoke, and (7) use of high air dilution filter

systems. Methods 1-3, in combination, represent the Philip Morris

approach, and are under active investigation [by Reynolds].

The Cigarette Companies have also investigated a wide variety of other additives,

ingredients, and techniques aimed at improving their control of nicotine and thereby their ability to

manipulate the addictiveness of cigarettes. Cigarette Companies’ use of certain ingredients in their

products has been predicated on the belief that they increased the potency, absorption, or effect of

nicotine.

The Cigarette Companies have repeatedly (and falsely) denied that they manipulate

the nicotine levels and nicotine delivery in their products.

For example, the Cigarette Companies have sought to mislead the public about

whether they manipulate nicotine by maintaining that nicotine levels follow tar levels. In his 1994

testimony before the Subcommittee on Health and the Environment of the Committee on Energy




36

and Commerce, United States House of Representatives ("Health Subcommittee"), the Vice

Chairman and Chief Operating Officer of Lorillard, Dr. Alexander Spears, stated that "[n]icotine

follows the tar level," and the correlation between the two "is essentially perfect," and "shows that

there is no manipulation of nicotine." In a 1981 study, however, Dr. Spears had previously stated

explicitly that “low-tar” cigarettes use special blends of tobacco to keep the level of nicotine up

while tar is reduced: "[T]he lowest tar segment [of product categories] is composed of cigarettes

utilizing a tobacco blend which is significantly higher in nicotine." Dr. Spears did not inform

Congress of his earlier statement.

Reynolds, Lorillard, B&W, American, and TI have also represented to the public and

to the FDA that the nicotine levels in their products are purely a function of setting the tar levels of

such products. American told the Health Subcommittee in an October 14, 1994 letter that "nicotine

follows 'tar' delivery, i.e., high 'tar' -- high nicotine, low 'tar' -- low nicotine." Similarly, a 1994

Reynolds advertisement appearing after the Health Subcommittee hearings stated: "We do not

increase the level of nicotine in any of our products in order to addict smokers. Instead of

increasing the nicotine levels in our products, we have in fact worked hard to decrease 'tar' and

nicotine." (emphasis in original). The ad further touted Reynolds' use of "various techniques that

help us reduce the 'tar' (and consequently the nicotine) yields of our products."

By falsely denying that the Cigarette Companies manipulate the delivery of nicotine

levels in cigarettes, defendants furthered their common efforts to deceive the public concerning the

addictive nature of nicotine and consequently of cigarettes that contain nicotine.

F. Deceptive Marketing to Exploit Smokers' Desire for Less Hazardous Products

The Cigarette Companies have misled consumers by marketing products that




37

consumers believe are less harmful, even though they are not.

Despite the existence of evidence that smoking causes disease, the Cigarette

Companies claimed in the 1940's and 50's both that their products did not cause health problems,

and that cigarette smoking was good for people's health. These health claims were false and

misleading and made without adequate investigation or testing of the products sold. During the

1940's and 50's, the United States Federal Trade Commission ruled that some of the Cigarette

Companies' health claims were false and deceptive.

In response to concern among smokers about the adverse health effects of cigarette

smoking, the Cigarette Companies sought to boost sales during the 1950's by advertising filtered

cigarettes with explicit warranties of tar/nicotine content and health claims. These claims were also

misleading and made without adequate investigation or testing of the Cigarette Companies'

products.

Consumers continued to be concerned about the adverse health effects of smoking,

and, in the 1960's, the Cigarette Companies responded by developing and marketing so-called

"light" or "low tar/low nicotine" cigarettes. These cigarettes are designed to generate lower tar and

nicotine on standard machine smoking tests than do other cigarettes, and they do so. Consequently,

the Cigarette Companies have marketed these products with claims such as "light" and "ultra low

tar" to suggest to consumers that smokers of these products inhale less tar and nicotine than

smokers of other cigarettes. Consumers therefore believe that these products are less hazardous.

However, the Cigarette Companies deliberately designed these cigarettes in a way that, as actually

smoked by most cigarette smokers, they typically do not actually deliver less tar or nicotine. As a

result, there is no basis for believing they are safer than other cigarettes.




38

The Cigarette Companies manipulate the design of such cigarettes in order to

decrease the smoking machine's intake of tar and nicotine in a way that is not replicated by human

smokers. One common means by which Cigarette Companies achieve "low tar/low nicotine" levels

on the standard machine tests is through the use of tiny ventilation holes in the filter. These

ventilation holes are so small that they are virtually invisible except under magnification and are

placed so that consumers routinely block them with their lips or fingers during smoking, but the

smoking machine does not block them. Most smokers are either unaware of the use of ventilated

filters on cigarettes or are unaware that blocking the vents has the effect of increasing the tar and

nicotine yield of the cigarettes as they are actually smoked. In addition, as the Cigarette Companies

have long known, smokers unconsciously tend to "compensate" for a lower nicotine yield, either by

inhaling more deeply or taking more puffs, so that they receive sufficient nicotine to satisfy their

addiction. Thus, while the Cigarette Companies lead smokers to believe they are reducing their

health risk by switching to a "low tar/low nicotine" brand, those smokers are in fact not appreciably

reducing their health risk.

In addition to the use of ventilated filters, the Cigarette Companies have increased

the potency of the nicotine that "low tar/low nicotine" cigarettes contain by a variety of methods,

including blending.

Despite the Cigarette Companies' knowledge that addicted smokers compensate to

obtain sufficient nicotine, and that "low tar/low nicotine" cigarettes are not appreciably less

hazardous than other cigarettes, the Cigarette Companies have recognized, contributed to, and

exploited — for their own profit — consumers' misconception that "low tar/low nicotine" cigarettes

are less hazardous.




39

By advertising "light," "ultra-light," and "low tar/ low nicotine" cigarettes, the

Cigarette Companies have lulled smokers into believing that they can reduce the health risk created

by cigarette smoking by switching to these "light" products, and have thereby reduced the incentive

for smokers to quit smoking. The effectiveness of this marketing effort is demonstrated by the fact

that "low tar/low nicotine" cigarettes now account for a substantial majority of the American

cigarette market.

The Cigarette Companies have advertised for "low tar/low nicotine" cigarettes

through misleading advertising that emphasizes the health of those pictured without expressly

making health claims. The Cigarette Companies know and intend that these advertisements mislead

consumers into believing that the products pictured are less hazardous than other cigarettes.

Despite their knowledge that "low tar/low nicotine" cigarettes were in fact not significantly less

hazardous than other cigarettes, the Cigarette Companies expressly marketed such cigarettes as a

viable alternative to quitting smoking from a health standpoint. For example, in 1975, Lorillard

advertised "True" cigarettes by depicting a female smoker saying, "I thought about all I'd read and

said to myself, either quit or smoke True. I smoke True," as well as by depicting a male smoker

saying, "I'd heard enough to make me decide one of two things: quit or smoke True. I smoke

True." Similarly, in 1976, Reynolds’ advertising campaign for its Vantage cigarettes told smokers,

"If you're like a lot of smokers these days, it probably isn't smoking that you want to give up. It's

some of that 'tar' and nicotine you've been hearing about." The Cigarette Companies are continuing

to advertise their products in the national news media in such a manner as to lull smokers into

believing that they can, by using so-called "low tar/low nicotine" cigarettes, reduce their exposure

to the harmful constituents of cigarette smoke, despite knowledge on the part of the Cigarette




40

Companies that most smokers do not substantially reduce their tar and nicotine exposure by

switching to them.

G. Targeting the Youth Market

For most of this century, it has been illegal to sell cigarettes to children in most

states. Currently, it is illegal to sell cigarettes to children under the age of 18 in all states.

Defendants used the Tobacco Institute to shield the Cigarette Companies' advertising

to minors. In 1964, defendants publicized a voluntary "cigarette advertising code" that had been

agreed to by all the major cigarette manufacturers. The code prohibited advertising directed at

young people or the use of celebrities or sports figures in advertisements for cigarettes. Over the

next thirty years, defendants, primarily through publications of the Tobacco Institute and in

congressional testimony, reiterated their pledge to avoid advertising directed at young people, while

at the same time individual companies were aggressively marketing cigarettes to young people

through advertising.

Despite the illegality of sales to children, and despite denying that they do so, the

Cigarette Companies have engaged in a campaign to market cigarettes to children. The Cigarette

Companies have long known that recruiting new smokers when they are teenagers ensures a stream

of profits well into the future because these new smokers will become addicted and continue to

smoke for many years, and the young smokers are "replacements" for older smokers who either

reduce or cease smoking or die.

Recognizing the profits to be had from this illegal market, the Cigarette Companies

researched how to target their marketing at children and actively marketed cigarettes to children.

As a result of this research -- including research conducted in the 1950's into the smoking habits of




41

12-year-olds -- defendants have long known that young people tend to begin smoking for reasons

unrelated to the presence of nicotine in cigarette smoke, but then become confirmed, long-term

smokers because they become addicted to nicotine. Defendants are further aware that although

beginning smokers realize that there are some health risks associated with long-term smoking,

beginning smokers almost universally fail to appreciate the addictive nature of cigarette smoking,

and therefore fail to appreciate the risk that, by engaging in smoking while they are adolescents,

they will become long-term smokers because of the development of an addiction to nicotine.

Moreover, the earlier a person begins to smoke, the more likely it is that he or she will develop a

smoking related disease.

The Cigarette Companies have aggressively targeted their advertising campaigns to

children. Cigarette Companies' advertising glamorizes smoking and its content is intended to entice

young people to smoke, for example, as a rite of passage into adulthood or as a status symbol.

Among the techniques used by the Cigarette Companies to attract underage smokers were

advertising in stores near high schools, promoting brands heavily during spring and summer breaks,

giving cigarettes away at places where young people are likely to be present in large numbers,

paying motion picture producers for product placement in motion pictures designed to attract large

youth audiences, placing advertisements in magazines commonly read by teenagers, and sponsoring

sporting events and other activities likely to appeal to teenagers.

During the 1970's and 1980's, Reynolds' substantial market research indicated that

Philip Morris, and particularly its Marlboro brand, was dominating the youth market. Reynolds

recognized that, in order to maintain its profits over the long term, it was critically important to

attract its own cadre of teen-age smokers. Internal Reynolds documents specifically cited the need




42

to recruit youths as "replacement smokers." Thus, Reynolds developed the Joe Camel campaign —

based on a cartoon character — to appeal to the youngest potential smokers. In 1988, Reynolds

began a massive dissemination of products such as matchbooks, signs, clothing, mugs and drink can

holders advertising Camel cigarettes. The advertising was effective in attracting adolescents and, as

a result of the campaign, the number of teenage smokers who smoked Camel cigarettes rose

dramatically.

Despite the overwhelming evidence that they have deliberately sought to target

young people for the sale of cigarettes, defendants have denied such activities in false and

misleading communications to the public, to legislative and regulatory bodies, and in judicial

proceedings. For example, in 1981, Brown & Williamson denied that it geared its advertising to

young people following criticism in a press report. Others have followed suit: Reynolds ran a

series of advertisements in 1984 claiming that "We don't advertise to children."

To avoid full disclosure of its practices regarding Joe Camel, in 1991, while the

Federal Trade Commission was investigating Reynolds' practices of advertising and marketing to

children, Reynolds instructed its advertising agency to destroy documents in the advertising

agency's possession related to the Joe Camel campaign.

The Cigarette Companies have long maintained that their expenditures on

advertising and promotion — more than $68 billion between 1954 and 1997— was directed solely

at persuading current smokers to switch brands, not to attracting new smokers and not to attract

children. These statements were false and misleading, and were intended to ensure that they could

continue to entice young people to smoke and become addicted by defeating potential efforts by

parents and governmental entities to stop such marketing efforts.




43

In July 1969, the Chairman of the Tobacco Institute, Joseph F. Cullman, III,

testified before a Senate Commerce subcommittee: "It is the intention of the cigarette

manufacturers to avoid advertising directed to young persons . . . to avoid advertising which

represents that cigarette smoking is essential to social prominence, success, or sexual attraction; and

to refrain from depicting smokers engaged in sports or other activities requiring stamina or

conditioning beyond those required in normal recreation."

In 1983, the Tobacco Institute published a pamphlet entitled "Voluntary Initiatives

of a Responsible Industry." The pamphlet noted that "in 1964, the industry adopted a cigarette

advertising code prohibiting advertising, marketing and sampling directed at young people." The

pamphlet made the claim that "all companies continue to observe the principles of this code."

The Cigarette Companies actively targeted their marketing to children with full

knowledge that sales to children were illegal, that children would not appreciate the dangers of the

product or its addictiveness, that most of the children who began to smoke would become addicted,

and that a significant percentage would develop smoking-related diseases or suffer premature death

as a result. They denied doing so with full knowledge that such denials were false and misleading.

H. Defendants' Concerted Plan Not To Make Cigarettes Less Hazardous

Defendants also retained and maintained their agreement by restraining, concealing,

and suppressing the research and marketing of less hazardous cigarettes. The Cigarette Companies

have been and are able to develop an alternative product that is less hazardous than the products

that they have been selling. Cigarettes are much more complex products than simple rolled

tobacco. The Cigarette Companies manipulate their products in many ways. They add chemicals

and flavorings (some of which are harmful when burned and inhaled), manipulate levels of nicotine




44

and other chemicals, and engineer the delivery of tobacco smoke though filters, ventilation holes,

and other means. At least since the early 1960's, the Cigarette Companies have been able to remove

potential carcinogens and to independently alter the delivery of tar and nicotine respectively. Many

alternative designs are possible, some of which are less hazardous than the cigarettes that the

Cigarette Companies actually manufactured and sold.

By the early 1960s, defendants discovered that many specific constituents in tobacco

smoke were carcinogens, or were linked to other diseases. By November 1961, Philip Morris had

conducted sufficient research to conclude that a "medically acceptable low-carcinogen cigarette

may be possible." Although Philip Morris never publicly released the results of this research, the

research and development department at Philip Morris continued research into less hazardous

cigarettes in order to be prepared to compete in the event that another cigarette company marketed

such a product. Based on the extensive research it had conducted and its preparation for

competition with other manufacturers, in 1964, defendant Philip Morris test marketed the Saratoga

cigarette, which used a charcoal filter and which was, in their researchers' view, "superior to

anything in the market place" from a health standpoint.

In the late 1980's, defendant Reynolds selectively marketed Premier, a smokeless

cigarette that Reynolds believed was less hazardous than its conventional products. Research

relevant to the development of the Premier cigarette at Reynolds dates back to the 1960's.

Liggett also developed, but did not market, a product that Liggett believed was a

less hazardous cigarette. The product was developed through a research project called "Project

XA" that had first begun in the late 1960's. After extensive research, Liggett employees believed

that they had discovered which cigarette smoke constituents were carcinogens and had found a way




45

to remove them.

Despite their demonstrated ability to design cigarettes that they believed were less

hazardous, defendants have refused to test and/or actively promote such products, and have

suppressed the marketing of such products by others, and have refused to acknowledge the

possibility of a less hazardous product.

The Cigarette Companies' refusal to acknowledge the possibility of a less hazardous

product is in part a result of their efforts to avoid liability for, among other things, negligence and

product liability claims. To state that a less hazardous product could be — or has in fact been —

developed would constitute an admission that the products they currently sell are hazardous, or

unreasonably so. Just as they suppressed information about the health effects and addictive nature

of smoking, defendants also suppressed any information they developed about less hazardous

design.

Philip Morris' research and development of the Saratoga cigarette, for example, was

intended as a scheme to defeat any effort by its competitors to market a less hazardous cigarette. A

presentation to the Philip Morris Board of Directors, in October 1964, noted: "[T]he Research and

Development Department is working to establish a strong technological base with both defensive

and offensive capabilities in the smoking and health situation. Our philosophy is not to start a war,

but if war comes, we aim to fight well and to win." Their strategy was to develop a less hazardous

product but to market it only if necessary, and to use it as a deterrent to marketing of such products

by other companies. Although internal company documents demonstrate that Philip Morris

researchers thought the product to be a less hazardous cigarette, Philip Morris discontinued

production after the initial phase of test marketing.




46

Despite Liggett officials' belief that the cigarette developed as a result of Project XA

was commercially marketable, the company never promoted the less hazardous cigarette and

suppressed the research that led to its development.

Another reason why some of defendants did not produce and market a less

hazardous cigarette was because other defendants threatened retribution in the event the company

proceeded. For example, Liggett's assistant research director, Dr. James Mold, said that Liggett's

president had reported that he was "told by someone in the Phillip Morris Company that if we tried

to market such a product [as XA] that they would clobber us."

A further mechanism defendants employed to deter the development and marketing

of less hazardous products was the "gentleman's agreement." The Cigarette Companies' mutual

commitment to share discovery of a "safe" cigarette with all other Cigarette Companies, by design,

substantially reduced the financial incentive any Cigarette Company might otherwise have had to

develop and market such a product.

I. The Present and Continuing Threat

Defendants' conspiracy to deceive, mislead, and withhold information from the

public, and from public legislative, regulatory, and judicial bodies about the adverse health effects of

smoking, the addictiveness of nicotine, the manipulation of the delivery of nicotine, marketing to

children, and the possibility of less hazardous designs has continued up through the present day.

In 1994, the chief executive officers of the Cigarette Companies testified under oath

before the Health Subcommittee and once again repeated defendants' "party line." These executives

knowingly provided misleading testimony regarding smoking, health, and addiction.

The Cigarette Company executives made these representations, among others,




47

despite the substantial body of evidence, including information developed by the Cigarette

Companies themselves dating back for many years prior to their testimony, indicating that nicotine

is addictive and is the central reason why people continue to smoke, that the Cigarette Companies

sought to ensure that smokers stayed addicted and that cigarettes are potentially lethal to smokers

when used as intended by the Cigarette Companies.

In their public statements, the Cigarette Companies continued to deny that nicotine

is addictive and, instead, used various misleading explanations for the role of nicotine, such as

"enhances the taste of the smoke" and affects "the way it feels on the smoker's palate," and that it

provides "satisfaction," "strength," "rich aroma," "mouth impact," and "pleasure," despite

widespread agreement in the medical and scientific communities that the primary, if not sole,

function of nicotine is to provide a pharmacological effect on the smoker that leads to addiction.

According to the 1988 U.S. Surgeon General report: "The pharmacologic and behavioral processes

that determine tobacco addiction are similar to those that determine addiction to drugs such as

heroin and cocaine."

In addition to their repetition of the same false and misleading statements discussed

above, the Cigarette Companies also continued to suppress and conceal documents and information

in their possession concerning, inter alia, smoking and health, addiction, the addictiveness of

nicotine, the health effects of low tar and low nicotine products, the potential availability of a less

hazardous product, and their efforts to market to children.

In January 1998, as Congress was considering comprehensive legislation that might

have limited the industry's liability, the Cigarette Companies finally acknowledged that smoking may

cause disease. Philip Morris Companies admitted that "a substantial body of evidence which




48

supports the judgment that cigarette smoking plays a causal role in the development of lung cancer

and other diseases in smokers." Similarly, the Chairman and CEO of RJR Nabisco, Reynolds'

parent corporation, stated his belief that "smoking plays a role in causing cancer, lung cancer in

some people."

The Cigarette Company executives also conceded that cigarettes are addictive under

some accepted definitions. In early 1998, Brown & Williamson and RJR Nabisco executives agreed

that nicotine is addictive under the "man in the street's definition" and as "people use the term

[addiction] today." Moreover, the CEO of Brown & Williamson admitted that his personal position

-- that smoking is not addictive -- was at odds with "the rest of the world," and did not dispute the

"rest of the world's" use of the word addiction in relation to cigarette smoking.

The Cigarette Companies' careful, semantic admissions were short-lived. In the

spring of 1998, during the state of Minnesota's trial against the Cigarette Companies, defendants'

officials returned to the same false and misleading statements that they have always made and

denied the addictiveness of nicotine and the health effects of smoking.

The Cigarette Companies eventually settled their suits with the states in the fall of

1998. Despite the injunctive relief obtained by the states, defendants continue to market their

products in many of the same ways they had before the settlement, and continue to keep secret

research and other documents that would provide the public and regulators with a fuller

understanding of the health effects of cigarettes, particularly the addictiveness of nicotine. In

particular, the results of defendants' research overseas for the last few decades have not been made

public.

Indeed, to this day, defendants are continuing to block disclosure of the very




49

documents that reveal the deception in the Cigarette Companies' half-century false and misleading

promotion of TIRC/CTR — in public, in Congress, and in court — as an independent organization

designed to find out the truth about smoking and health.

The Cigarette Companies, who hold 99% of the market for cigarettes in the United

States, pose a continuing threat to the health and well-being of the American public and there is

every reason to believe that they will continue with their fraudulent and unlawful conduct.

The effects of defendants' conspiracy will be felt for many years into the future, and

the Cigarette Companies continue to benefit from their fraudulent statements, and suppression of

information. Smokers remain addicted and will be far into the foreseeable future, and they, as well

as the federal government, will be forced to furnish and pay for medical care and treatment for

smoking-related diminished health, diseases, illnesses, and injuries well into the next century — all

while the tobacco companies continue to earn enormous profits from addicted smokers.

V. DEFENDANTS' LIABILITY FOR THE UNITED STATES' HEALTH CARE COSTS

A. Count One: Liability Under The Medical Care Recovery Act

The United States of America realleges and incorporates by reference in this Count

the allegations contained in Sections I. through IV., above, and in the Appendix to this Complaint, as

if fully set forth herein.

The Medical Care Recovery Act, 42 U.S.C. § 2651, et seq., authorizes the United

States to recover the reasonable value of certain hospital, medical, surgical, or dental care and

treatment. Pursuant to the Medical Care Recovery Act, the United States is entitled to recover for

such care or treatment under circumstances creating a tort liability upon a third person.

Each year, the United States, pursuant to various statutory entitlement programs,




50

furnishes and pays for hospital, medical, surgical, and dental care (hereinafter collectively referred to

as "health care services") for numerous current and former consumers of the Cigarette Companies'

products. The statutes pursuant to which the United States furnishes and pays for such health care

costs include, but are not limited to,

(1) the Medicare statute, Subchapter XVIII of the Social Security Act, 79 Stat. 290,

as amended, 42 U.S.C. § 1395 et seq., pursuant to which the Health Care Financing

Administration ("HCFA"), which is part of the Department of Health and Human

Services, pays for certain health care services, including, but not limited to, the costs

of hospital care, post-hospital care, home health services, and hospice care as well as

services rendered by physicians and other health care practitioners, for tens of

millions of eligible beneficiaries, including, but not limited to, individuals over the age

of 65, individuals with disabilities, and individuals with end-stage renal disease

(hereinafter referred to as the "Medicare Program");

(2) Chapter 17 of Title 38 of the United States Code, 38 U.S.C. § 1701 et seq.,

pursuant to which the Department of Veterans Affairs ("VA"), through the Veterans

Health Administration ("VHA") and the Civilian Health and Medical Program for the

VA ("CHAMPVA"), provides and pays for inpatient and outpatient health care

services for veterans and their dependents and survivors as well as nursing home care

for many veterans (hereinafter referred to as the "VA Health Benefits Program");

(3) Chapter 55 of Title 10 of the United State Code, 10 U.S.C. § 1071 et seq.,

pursuant to which the Department of Defense ("DOD") provides and pays for health

care services, through military hospitals, clinics, and other facilities and through the




51

Civilian Health and Medical Program for the Uniformed Services ("CHAMPUS"),

and the newer program known as TRICARE, for millions of current members and

certain former members of the uniformed services and their dependents (hereinafter

referred to as the "Military Health System" or "MHS");

(4) the Federal Employees Health Benefits Act ("FEHBA"), 5 U.S.C. § 8901 et seq.,

pursuant to which the United States, through the Office of Personnel Management

("OPM"), pays for a large portion of the cost of the health care services provided to

millions of Federal Government employees and certain other individuals (hereinafter

referred to as the "Federal Employees Health Benefits Program" or "FEHBP").

Pursuant to these statutes and to other laws, the United States furnishes and pays for,

and will in the future be authorized and required to continue to furnish and pay for, hospital, medical,

surgical and dental care for diseases, illnesses, and injuries resulting from cigarette smoking. Care

provided for the diseases, illness, and injuries caused by cigarette smoking and furnished or paid for

by the United States has a reasonable value of more than $20 billion per year.

The cigarette smokers on whose behalf the United States furnishes or pays for

hospital, medical, surgical, and dental care have been injured or suffer disease under circumstances

that create a tort liability upon defendants. That tort liability arises as follows:

1. Defendants' Liability for Fraud (Fraudulent Misrepresentation, Concealment,

and Nondisclosure)

Defendants and their co-conspirators have engaged in a consistent course of conduct

through which they have fraudulently misled past, present and prospective smokers, governmental

authorities, and other members of the public. Defendants and their co-conspirators have made false




52

and misleading statements that there is no causal connection between cigarette smoking and adverse

health effects or that there is an open question as to whether smoking causes disease. They have

made false promises to conduct and disclose objective research on the issue of smoking and health,

and they have fraudulently concealed information relating to the issue of smoking and health.

Defendants and their co-conspirators have made affirmative material misrepresentations, have

omitted material facts, and have concealed material information concerning the health risks

associated with smoking cigarettes, particularly "light" or "low tar/ low nicotine" cigarettes. They

have made false and misleading statements and concealed material information concerning both the

addictiveness of nicotine and their own manipulation of the nicotine delivery in cigarettes. They

have falsely denied marketing cigarettes to children.

At the time that these false or misleading statements and representations were made,

defendants and their co-conspirators knew or should have known that their statements were

materially fraudulent, false or misleading, and they intentionally omitted or concealed material

information. Additionally or in the alternative, defendants and their co-conspirators made the

statements recklessly with conscious disregard for the truth or falsity of their representations to the

public.

Defendants and their co-conspirators had superior access to information about

smoking and health, had made public promises to be completely forthcoming with such information

and made misleading partial disclosure as to these issues. They had therefore assumed a duty to

disclose to government regulators and to the public material facts concerning the relationship

between cigarette smoking and disease generally, including material facts about the addictiveness of

nicotine, their own manipulation of the nicotine delivery in cigarettes, and the health risks associated




53

with cigarettes, including "light" or "low tar/low nicotine" cigarettes. Defendants also had a legal

duty to disclose their efforts and ability to research, develop, and market a less hazardous and less

addictive cigarette. They had a duty not to market their products to children. Nevertheless,

defendants and their co-conspirators intentionally or recklessly failed to disclose or deliberately

concealed those material facts from the public and from governmental agencies.

Defendants and their co-conspirators committed hundreds, and perhaps thousands, of

acts involving material fraudulent misrepresentations, fraudulent concealment, and fraudulent

nondisclosures over the course of the last forty-five years. Defendants' and their co-conspirators'

acts of concealment took a number of forms, many of which are unknown to Plaintiff because such

actions and concealment are within the exclusive knowledge of defendants. The United States is

unable to allege in full the numerous advertisements, press releases, and other communications that

defendants and their co-conspirators released over the past forty-five years because the United States

does not have access to this information. Indeed, it is defendants themselves who are in the best

position to know the contents of each and every such misrepresentation and fraudulent statement.

Specific examples of the material fraudulent misrepresentations, fraudulent concealment, and

fraudulent nondisclosure of defendants and their co-conspirators include, but are not limited to, the

acts set forth in Section IV, above, and in the Appendix to this Complaint, which are alleged and

relied upon here as if fully set forth herein.

Defendants and their co-conspirators made these and other fraudulent

misrepresentations and omissions intending to deceive consumers, and to induce members of the

public and governmental agencies to believe that cigarettes are not addictive and to believe that

cigarettes are not dangerous to health or to harbor false doubts about the health risks of cigarettes.




54

By making the false and misleading representations and omissions, defendants and their co-

conspirators intended to create a false controversy about smoking and disease and to induce smokers

and prospective smokers to buy and smoke cigarettes. Defendants and their co-conspirators also

intended to discourage smokers from reducing their consumption of cigarettes and from trying to

quit smoking.

Members of the public believed in the truth and completeness of the statements made

by defendants and their co-conspirators. They relied upon the statements by defendants and their co-

conspirators, including statements that created a false controversy about smoking and disease, and

demonstrated that reliance by purchasing and smoking cigarettes, and by refraining from trying to

quit or reduce their consumption of cigarettes. The belief in and reliance upon defendants' and their

co-conspirators' representations by members of the public was intended by defendants and was both

justifiable and reasonable.

As a direct and proximate result of the fraudulent misrepresentations, omissions, and

concealment by defendants and their co-conspirators, individually and collectively, members of the

public began to smoke and continued smoking and, as a result, they suffered harm. Among other

things, smokers experienced diminished overall health and an increased risk of disease and illness,

and endured smoking-related diseases, and injuries. Among those who suffered injury as a result of

defendants' and their co-conspirators' fraudulent conduct are persons for whom the United States

was authorized and required to furnish and pay for, has furnished and paid for, and will furnish and

pay for, hospital, medical, surgical, or dental care and treatment under various federal programs,

including those referred to in the third numbered paragraph of Section V. A., above.




55

2. Defendants' Liability for Violations of State Consumer Protection Statutes

(Unfair, Unconscionable, and Deceptive Acts or Practices)

All of the states and the District of Columbia have consumer protection statutes that

prohibit unfair, unconscionable, deceptive and misleading trade practices directed toward consumers,

and private consumers may recover damages for conduct that violates these statutes. See Ala. Code

Ann. § 8-19-1 et seq.; Alaska Stat. § 45.50.471 et seq.; Ariz. Rev. Stat. § 44-1521 et seq.; Ark.

Code Ann. § 4-88-101 et seq.; Cal. Civ. Code § 1750 et seq.; Colo. Rev. Stat. § 6-1-101 et seq.;

Conn. Gen. Stat. § 42-110a et seq.; Del. Code tit. 6 §§ 2511 et seq., 2531 et seq.; D.C. Code § 28-

3901 et seq.; Fla. Stat. §§ 501.201 et seq., 817.40 et seq.; Ga. Code § 10-1-390 et seq.; Haw. Rev.

Stat. §§ 480-1 et seq.; Idaho Code § 48-601 et seq.; Ill. Rev. Stat. ch. 815 §§ 505, 510; Ind. Code §

24-5-0.5-1 et seq.; Iowa Code §§ 714.16 et seq., 611.21; Kan. St. Ann. § 50-623 et seq.; Ky. Rev.

Stat. §§ 367.110 et seq., 517.020, 517.030, 446.070; La. Rev. Stat. § 51:1401 et seq.; Me. Rev.

Stat. tit. 5 § 205A et seq.; Md. Com. Law Code § 13-101 et seq.; Mass. Gen Laws ch. 93A; Mich.

Comp. Laws §§ 445.901 et seq., 445.356 et seq.; Minn. Stat. §§ 8.31, 325D.09 et seq., 325D.44 et

seq., 325F.67, 325F.68 et seq.; Miss. Code § 75-24-1 et seq.; Mo. Rev. Stat. § 407.010 et seq.;

Mont. St. Ann. § 30-14-101 et seq.; Neb. Rev. Stat. §§ 59-1601 et seq.; Nev. Rev. Stat §§ 41.600 et

seq., 598.0903 et seq.; N.H. Rev. Stat. § 358-A:1 et seq.; N.J. Stat. Ann. § 56:8-2 et seq.; N.M.

Stat. § 57-12-1 et seq.; N.Y. Gen. Bus. Law §§ 349, 350; N.C. Gen. Stat. § 75-1.1 et seq.; N.D.

Cent. Code §§ 51-15-01 et seq., 51-12-01 et seq.; Ohio Rev. Code §§ 1345.01 et seq.; 4165; Okla.

Stat. tit. 15 § 751 et seq.; Okla. Stat. tit. 78 § 51 et seq.; Or. Rev. Stat. § 646.605 et seq.; Pa. Stat.

tit. 73 § 201-1 et seq.; R.I. Gen. Law § 6-13.1-1 et seq.; S.C. Code § 39-5-10 et seq.; S.D. Codified

Laws Ann. § 37-24-1 et seq.; Tenn. Code Ann. § 47-18-101 et seq.; Tex. Bus. & Com. Code




56

§ 17.41 et seq.; Utah Code §§ 13-11-1 et seq., 13-11A-1 et seq.; Vt. Stat. tit. 9 § 2451 et seq.; Va.

St. §§ 59.1-196 et seq., 18.2-216, 59.1-68.3; Wash Rev. Code § 19.86.010 et seq.; W. Va. Code

§ 46A-6-101 et seq.; Wis. Stat. §§ 100.18, 100.20; and Wyo. Stat. § 40-12-101 et seq.

The conduct of defendants and their co-conspirators, as set forth above, violated their

duty imposed upon them by the above-cited statutes to refrain from engaging in unfair, deceptive,

and unconscionable trade practices. In particular, the knowingly fraudulent misrepresentations,

fraudulent omissions, and fraudulent concealment of material facts described in Section IV, above,

and in the Appendix to this Complaint, had the capacity, tendency, or effect of deceiving or

misleading consumers and constituted unfair, deceptive, and unconscionable trade practices for

which defendants were and are subject to tort liability under the above-cited statutes.

Defendants and their co-conspirators made false and misleading statements that there

is no causal connection between cigarette smoking and adverse health effects or that there is an open

question as to whether smoking causes disease. They have made false promises to conduct and

disclose objective research on the issue of smoking and health, and they have fraudulently concealed

information relating to the issue of smoking and health. Defendants and their co-conspirators have

made affirmative material misrepresentations, have omitted material facts, and have concealed

material information concerning the health risks associated with smoking cigarettes, particularly

"light" or "low tar/low nicotine" cigarettes. They have made false and misleading statements and

concealed material information concerning both the addictiveness of nicotine and their own

manipulation of nicotine delivery in cigarettes. They have falsely denied marketing cigarettes to

children. In so doing, defendants further violated their duties under the state consumer protection

statutes to refrain from representing that their products are of a particular standard, grade, or quality




57

when they are not, from representing that their cigarettes have characteristics, ingredients, uses, or

benefits that they do not have, and from engaging in false and misleading advertising.

Defendants and their co-conspirators further engaged in unconscionable conduct

prohibited by the state consumer protection statutes by knowingly and intentionally causing

cigarettes to be marketed and sold to the vulnerable population of children, in part by: (a) designing

their marketing campaigns with the intent that children be induced by defendants' advertisements to

smoke cigarettes; (b) engaging in other conduct with the purpose of causing children to smoke; (c)

concealing that their marketing was designed to encourage children to smoke and publicly claiming

that they discouraged children from smoking; and (d) concealing that their products are addictive

and harmful, and defrauding and misleading the public, including children, on these subjects.

Defendants' and their co-conspirators' knowing violations of their duty under the state

consumer protection statutes to refrain from engaging in unfair, unconscionable, deceptive, and

misleading trade practices had the tendency to deceive consumers. Consumers relied upon

defendants' and their co-conspirators' misleading and deceptive statements to their detriment by

purchasing and smoking cigarettes, or by refraining from trying to quit, or by failing to reduce their

consumption of cigarettes. Consumers suffered harm from smoking. Among other things,

consumers who smoke have experienced diminished overall health and an increased risk of disease

and illness, and endured smoking-related diseases, and injuries. Among those who suffered injury as

a result of defendants' and their co-conspirators' tortious and unlawful conduct are persons for whom

the United States has furnished or paid for, and will furnish and pay for, hospital, medical, surgical,

or dental care and treatment under various federal programs, including those referred to in the third

numbered paragraph of Section V. A., above.




58

3. Defendants' Liability for Breach of Manufacturers' Duties, Including Failure to

Warn, Failure to Test, Sale of Defective and Unreasonably Dangerous Products

(Strict Liability, Negligence, and Breach of Implied Warranty)

All states and the District of Columbia impose duties on manufacturers and suppliers

of products intended for human use and consumption, to exercise reasonable care and to refrain from

selling products that are defective or unreasonably dangerous when used as intended by foreseeable

users of the product. The Cigarette Companies' duties included the duty to test their products

adequately to determine that they were safe for their intended use; to design their products so that,

when used as intended, they were reasonably fit and safe for their foreseeable users; and to warn

foreseeable users of dangers related to their products' use. The Cigarette Companies have also

impliedly warranted that their products had been adequately tested and were not defective or

unreasonably dangerous when used as intended by foreseeable users.

In breach of their duty and implied warranty, the Cigarette Companies manufactured

and supplied products that were defective and unreasonably dangerous when used as intended by

foreseeable users of their product. The Cigarette Companies' products were defective, unreasonably

dangerous, and not fit for ordinary use when they left the possession of the Cigarette Companies.

The cigarettes manufactured by the Cigarette Companies were expected to, and did, reach the

consumer in substantially unchanged condition from that in which they were manufactured. The

Cigarette Companies have had superior knowledge and access to information about their products

and knew that consumers, particularly children whom they targeted, were unaware of the full range

of health risks caused by the companies' products, including addictiveness, the companies'

manipulation of their products, and the effects such manipulation would have on the users' health.




59

The Cigarette Companies manufactured and sold cigarettes that, when used as

intended, caused a large percentage of users to become addicted and to develop often fatal diseases,

including lung cancer, emphysema, stroke, and heart disease.

Rather than testing to determine whether their products were safe for their intended

use or how hazardous their cigarette products were, the Cigarette Companies, along with their co-

conspirators, deliberately designed a research program so as to avoid determining the full scope of

the dangers posed by their products, and acted to suppress and terminate research that threatened to

expose the health dangers and addictiveness of smoking.

The Cigarette Companies knew or should reasonably have known, in light of methods

available at the time of manufacture, about less hazardous, feasible alternative designs for their

products. Despite the feasibility of less hazardous alternative designs for their products, the

Cigarette Companies failed to research or adopt such less hazardous alternatives, and did instead fail

to reduce by a meaningful amount the harmful components of tobacco smoke in the cigarettes they

sold to the public; and misled the public by marketing so-called "low tar/low nicotine" cigarettes

that, defendants well knew, were not significantly lower in tar or nicotine not less hazardous as

smoked by defendants' customers.

Prior to the time that warnings were specifically required by the federal government

under the Public Health Cigarette Smoking Act of 1969 and despite knowledge by the Cigarette

Companies, many years before the addition of such warnings, that smoking posed serious health

hazards, the Cigarette Companies also failed to warn the foreseeable users of their products of the

dangers associated with the use of those products, including the extremely addictive nature of

nicotine and the high risk of disease and death. Instead of warning of such dangers, the Cigarette




60

Companies, along with their co-conspirators, actively sought to stifle or contradict, and thereby,

neutralize any such warnings that might be issued by other entities and further intentionally directed

their marketing toward children and adolescents, who would be less likely to be aware of cigarettes'

dangerous and addictive properties or able to appreciate the risks of smoking. The presence of an

adequate warning, including a warning about the addictive properties of nicotine, would have limited

injuries caused by use of the Cigarette Companies' products.

The extreme dangers of disease and death caused by using the Cigarette Companies'

products, including the risk that consumers would become addicted and thus unable to stop smoking

before developing smoking-caused diseases, were known or reasonably should have been known to

the Cigarette Companies.

The true nature of the health risks of smoking cigarettes were beyond that reasonably

contemplated by the ordinary smoker, and in particular beyond that contemplated by the ordinary

beginning smoker who was not yet dependent upon nicotine. The full range of health risks of

smoking cigarettes was beyond that contemplated by children, whom defendants targeted with their

marketing. Moreover, the true risks of their products, as designed, engineered, and marketed by

defendants, were not open or obvious to consumers, particularly children.

Because defendants had available to them means to reduce the hazards of cigarette

smoking but chose not to develop or effectively implement them, the extreme danger of the design of

the cigarettes manufactured by the Cigarette Companies — including the danger of diseases arising

from their long term use — substantially outweighed the utility of the design.

The Cigarette Companies failed to use reasonable care in testing the safety of the

cigarettes manufactured by them, in designing the cigarettes manufactured by them, and, in providing




61

instructions to users and, prior to the enactment of the Public Health Cigarette Smoking Act of

1969, in providing adequate warnings concerning the use of the cigarettes manufactured by them.

The Cigarette Companies' breach of their duties and implied warranty was done in

reckless and wanton disregard of the safety of cigarette smokers, and with actual knowledge of the

fact that the conduct of the Cigarette Companies would cause serious illness or death to large

numbers of cigarette smokers.

As a direct and proximate result of the breach of their duties and implied warranty by

the Cigarette Companies, individually and collectively, millions of users of the Cigarette Companies'

products have suffered and will continue to suffer physical harm. Among other things, smokers

experienced diminished overall health and an increased risk of disease and illness, and endured

smoking-related diseases, injuries, and death. Among those who suffered injury as a result of

Defendants' tortious conduct are persons for whom the United States has furnished or paid for, and

will furnish and pay for, hospital, medical, surgical, or dental care and treatment under various

federal programs, including those referred to in the third numbered paragraph of Section V. A.,

above.

4. Defendants' Liability For Negligent Performance of Voluntary Undertakings

Defendants, along with their co-conspirators, deliberately and voluntarily made

statements to the public and to governmental agencies, public officials, and others who advance and

protect the public health, in which they made the following undertakings: (a) to accept an interest in

the public’s health as a basic and paramount responsibility; (b) to cooperate closely with those who

safeguard the public health; (c) to aid and assist the research effort into all phases of tobacco use and

health; (d) to continue research and all possible efforts until all the facts are known; and (e) to




62

provide complete and authenticated information about cigarette smoking and health.

These statements were made to reassure the public of the safety of defendants'

products and their commitment to ensure that defendants' products were as safe as possible. In fact,

however, defendants had no intention of determining the safety of their products, advising their

customers of their safety, or ensuring that their products were as safe as possible. Defendants,

acting in concert, used these promises to gain credibility for their false and misleading statements,

and intended to create a false controversy about the relationship between smoking and disease.

By making such undertakings, defendants voluntarily assumed duties under the laws

of the states and the District of Columbia to render services for the protection of the public health.

Defendants owed and continue to owe these duties to the consumers and potential consumers of

cigarettes, including consumers and potential consumers for whom the United States is obligated or

authorized to pay costs of health care. Defendants also owed and continue to owe these duties to

governmental agencies, public officials, and others who advance and protect the public health.

Defendants intended consumers and government officials to rely upon them to fulfill

their publicly stated commitment, and recognized or should have recognized that truly independent

research and full disclosure consistent with that publicly stated commitment was necessary to protect

the health of the consumers and potential consumers of cigarettes. Defendants realized that their

conduct would affect the smoking behavior and health of millions of Americans.

Defendants have failed to exercise reasonable care in the performance of their

undertaking. Through such failure, they have breached and continue to breach their assumed duties.

Defendants' failure to exercise reasonable care has increased and continues to increase the risk of

physical harm to consumers and potential consumers of cigarettes, including those for whom the




63

United States is obligated to pay costs of health care.

As a direct and proximate result of defendants’ failure to exercise reasonable care in

the performance of their undertaking, cigarette smokers have suffered and will continue to suffer

physical harm. Among other things, smokers have experienced diminished overall health and an

increased risk of disease and illness, and have endured smoking-related diseases, and injuries.

Among those who suffered injury as a result of defendants' tortious conduct are persons for whom

the United States has furnished or paid for, and will furnish and pay for, hospital, medical, surgical,

or dental care and treatment under various federal programs, including those referred to in the third

numbered paragraph of Section V. A., above.

5. Defendants' Liability for Civil Conspiracy

At all times material to this action, defendants participated in a civil conspiracy

among themselves, and with other persons known and unknown, the purposes of which were, inter

alia: (a) to conceal knowledge of the harmful effects of cigarette smoking from the public, the

medical and scientific community, and governmental authorities; (b) to create an illusion of

conducting scientific research on cigarettes and cigarette smoking so as to mislead the public

concerning the health effects of smoking and the industry's knowledge of those health effects; (c) to

create an illusion of a genuine scientific controversy concerning whether smoking was harmful to

health, when no such genuine controversy actually existed; (d) to mislead the general public, the

medical and scientific community, and governmental authorities concerning the addictive properties

of nicotine; (e) to mislead the general public, the medical and scientific community, and

governmental bodies about the actual nicotine and tar delivery of supposedly "low tar" and "low

nicotine" cigarettes as they are actually smoked, in order to mislead smokers into believing that




64

switching to such cigarettes was a reasonable alternative to smoking cessation; (f) to suppress

research into smoking and health; (g) to prevent development and marketing of less hazardous

products; (h) to market cigarettes to minors in order to insure a lucrative future market for

cigarettes; (i) to mislead the public concerning their efforts to market cigarettes to minors, and to

interfere with effective anti-youth smoking efforts; and (j) to maintain a market for their defective

and unreasonably dangerous products.

During the course of the conspiracy, the conspirators, acting in concert, engaged in

numerous concerted acts to further the purposes of the conspiracy, including but not limited to those

described in Section IV., above, and in the Appendix to this Complaint.

Each act of the conspiracy was ratified by the other co-conspirators, who acted as

each other's agents in carrying out the conspiracy.

As a direct and proximate result of the conduct of defendants, numerous smokers

have suffered illness or disease, with respect to whom the United States has furnished or paid for,

and will furnish and pay for, hospital, medical, surgical, or dental care and treatment under various

federal programs.

Each defendant is jointly and severally liable for the torts of the other members of the

conspiracy which were committed in furtherance of the goals of the conspiracy.

B. Count Two: Liability under The Medicare Secondary Payer Provisions


the allegations contained in Sections I. through IV., and Section V.A., above, and in the Appendix to

this Complaint, as if fully set forth herein.




65

Each year, the United States, through the Health Care Financing Administration

("HCFA") of the United States Department of Health and Human Service ("HHS"), expends

extraordinary amounts, pursuant to the Medicare Program, 42 U.S.C., § 1395 et seq., paying for the

care and treatment of Medicare beneficiaries inflicted with and suffering from diseases, illnesses,

injuries, and diminished health caused by defendants' acts and omissions.

The Medicare Secondary Payer ("MSP") provisions of Subchapter 18 of the Social

Security Act, 42 U.S.C. § 1395y(b)(2), provide that the Medicare Program will not pay for the cost

of medical care if certain third parties -- such as liability insurance plans, including self-insured plans

-- have paid, or can reasonably be expected to pay promptly for those costs. 42 U.S.C.

§ 1395y(b)(2)(A)(i) and (ii). Where the Medicare Program does reimburse the beneficiary's health

care costs, it does so "conditioned on reimbursement" to HHS by the responsible third party. 42

U.S.C. § 1395y(b)(2)(B)(i).

The MSP provisions authorize the United States to bring a direct statutory action,

independent of the rights of the Medicare beneficiary, to recover payments that HCFA has made but

with respect to which such third parties are "required or responsible . . . to make payment." 42

U.S.C. § 1395y(b)(2)(B)(ii). In addition, the United States is also subrogated to the rights of the

beneficiary and may recover in any instance in which the beneficiary would be able to recover from

the party required or responsible to pay. 42 U.S.C. § 1395y(b)(2)(B)(iii).

As a result of the conduct described herein, defendants are required and responsible

to make payment for the health care costs of Medicare beneficiaries that were caused by defendants'

tortious and unlawful conduct, which costs have been and will be unlawfully shifted to the United

States.




66

VI. DEFENDANTS' LIABILITY FOR VIOLATIONS OF THE RACKETEER

INFLUENCED AND CORRUPT ORGANIZATIONS STATUTE

A. Count Three: Violation of Title 18, United States Code, Section 1962(c)

Conducting the Affairs of the EnterpriseThrough a Pattern of Racketeering Activity


the allegations contained in Sections III and IV, above, and in the Appendix to this Complaint, as if

fully set forth herein.

From at least the early 1950's and continuing up to and including the date of the filing

of this complaint, in the District of Columbia and elsewhere, defendants,

PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON,

LORILLARD, LIGGETT, AMERICAN, PHILIP MORRIS

COMPANIES, BAT PLC, BAT INVESTMENTS, COUNCIL FOR

TOBACCO RESEARCH, and TOBACCO INSTITUTE,

and others known and unknown, being persons employed by and associated with the Enterprise

described in Section VI. B., below, did unlawfully, knowingly, and intentionally conduct and

participate, directly and indirectly, in the conduct, management, and operation of the affairs of the

aforementioned Enterprise, which was engaged in, and the activities of which affected, interstate and

foreign commerce, through a pattern of racketeering activity consisting of numerous acts of

racketeering in the District of Columbia and elsewhere, indictable under 18 U.S.C. §§ 1341 (mail

fraud) and 1343 (wire fraud), including, but not limited to, the acts of racketeering alleged in the

Appendix to this Complaint which are incorporated by reference and realleged as if fully set forth




67

herein, in violation of 18 U. S. C. § 1962 (c).

B. The Enterprise Manner and Means

From at least the early 1950s, and continuing up to and including the date of the filing

of this complaint, in the District of Columbia and elsewhere, defendants





and others known and unknown, including agents and employees of defendants, collectively have

constituted an "enterprise," as that term is defined in 18 U.S.C. § 1961(4), that is, a group of

business entities and individuals associated in fact, which was engaged in, and the activities of which

affected, interstate commerce and foreign commerce. Each defendant participated in the operation

and management of the Enterprise.

The Enterprise functioned as a continuing unit for more than 45 years to achieve

shared goals through unlawful means including the following: (1) to preserve and enhance the

market for cigarettes and defendants' own profits, regardless of the truth, the law, or the health

consequences to the American people; (2) to deceive consumers into starting and continuing to

smoke by maintaining that there was an open question as to whether smoking causes disease, despite

the fact that defendants knew otherwise; (3) to deceive consumers into starting and continuing to

smoke by undertaking an obligation to do everything in its power, including fund independent

research, in order to determine if smoking causes cancer or other diseases, while concealing and

suppressing relevant research and funding biased or irrelevant research; (4) to deceive consumers




68

into becoming or staying addicted to cigarettes by maintaining that nicotine is not addictive, despite

the fact that defendants knew that nicotine is addictive; (5) to deceive consumers into becoming or

staying addicted to cigarettes by manipulating the design of cigarettes and the delivery of nicotine to

smokers, while at the same time denying that they engaged in such manipulation; and (6) to deceive

consumers, particularly parents and children, by claiming that they did not market to children, while

engaging in marketing and advertising with the intent of addicting children into becoming lifetime

smokers.

The Enterprise came into existence not later than December 15, 1953, at the above-

described meeting at the Plaza Hotel in New York, New York. The participants agreed at that

meeting to conduct a false and misleading public relations and advertising campaign to deceive

consumers and others about the health effects of cigarettes in order to protect the profits of

Cigarette Companies. In furtherance of the Enterprise, the participants agreed to form TIRC (later

CTR), a New York non-profit corporation that was falsely held out to the public as an independent

research organization that would consider whether smoking caused disease. In reality, TIRC was

created as the centerpiece of a public relations campaign to protect the cigarette market from the

perceived threat posed by adverse medical reports.

The Enterprise has pursued a course of conduct of deceit and misrepresentation and

conspiracy to defraud the public, to withhold from the public facts material to the decision to

purchase and use tobacco products, to promote and maintain sales of tobacco products, and the

profits derived therefrom, as well as to shield themselves from public, judicial, and governmental

scrutiny. The fraudulent, misleading and unlawful efforts of the Enterprise have continued from its

inception to the present and threaten to continue into the future.




69

The participants in this Enterprise have repeatedly utilized advertisements and

promotions, and have made numerous other public statements through the mails and in broadcasts

and other media, Congressional hearings, and other public appearances as part of a concerted and

coordinated campaign to reaffirm their January 1954 promise to put people's health before every

other consideration in their business, and to support and reveal unbiased and trustworthy research to

answer questions about smoking and health. Defendants and their co-conspirators used the

Enterprise to make these material fraudulent representations to induce public acceptance of their

representations, to avoid civil liability, and to conceal their efforts to misrepresent, suppress, distort,

and confuse the facts about the health dangers of tobacco products, including nicotine addiction.

Behind the shield of its public disinformation campaign and the false claims that

TIRC/CTR would conduct unbiased research and publicly reveal all results thereof, the Enterprise

has repeatedly concealed, suppressed, and/or misrepresented the material facts concerning that

research. The Enterprise, through CTR and other entities supported by defendants, suppressed

negative health and addiction research results from the public. In some cases, members of the

Enterprise shut down research before final data could be obtained and reported. The participants in

the Enterprise also funded research studies designed to buttress defendants' knowingly fraudulent

claims that the causal link between smoking and disease remained an "open question."

The participants in the Enterprise have not disclosed, and have denied, contrary to

fact, that the Cigarette Companies manipulate and control the content, delivery, and potency of

nicotine in their products to create and sustain consumers' addiction to tobacco products.

The Enterprise has further suppressed the development, testing, and marketing of less

hazardous cigarettes, while fraudulently maintaining that cigarettes are safe and that there are no




70

safer alternatives to their products.

The formation, existence, and actions of the Enterprise were essential to the success

of the campaign of deceit, concealment, and misinformation. The constituent members of the

Enterprise were aware that, unless they agreed to act and acted as an enterprise, their sales of

tobacco products would substantially decrease, and accordingly, the profits of the Cigarette

Companies would substantially diminish. The participants were also aware that, if the truth about

the health effects of smoking, the addictiveness of nicotine, and the Cigarette Companies' targeting

of children became known, profits would have substantially decreased, and the future of the cigarette

industry would have been threatened.

At all relevant times, the Enterprise has existed separate and apart from defendants'

racketeering acts and their conspiracy to commit such acts. The Enterprise has an ascertainable

structure and purpose beyond the scope and commission of defendants' predicate acts. It has a

consensual decision making structure that is used to coordinate strategy, manipulate scientific data,

suppress the truth about the consequences of smoking, and otherwise further defendants' fraudulent

scheme.

The Enterprise is an ongoing organization whose constituent elements function as a

continuing unit in maximizing the sales of the products of all of the Cigarette Companies, misleading

the public, the Congress, federal agencies, and the courts as to the health hazards of cigarettes,

concealing and suppressing the truth concerning the addictive properties of nicotine and of the

Cigarette Companies' control of nicotine delivery, marketing to children, and carrying out other

elements of defendants' scheme. The Enterprise continues actively to disguise the nature of

defendants' wrongdoing and to conceal defendants' participation in the conduct of the Enterprise in




71

order to avoid and/or minimize their exposure to criminal and civil penalties and damages.

In order to further the conspiracy and as part of their Enterprise that was engaged in

a pattern of racketeering activity, defendants formed the TIRC (later CTR) and the Tobacco

Institute. Each of these organizations furthered the goals of the Enterprise in numerous ways:

C They served as a principal channel of communication among defendants to

ensure that the companies continued to espouse the party line and to react to

new threats to the industry.

C They served to provide a uniform voice to propagate defendants' and their co-

conspirators' false and misleading material statements about smoking and

health, defendants' commitment to research, and other issues.

C They provided an "independent" front for defendants' activities. CTR, for

example, was used by defendants to claim falsely that they were funding

independent research into smoking and health. Similarly, the Cigarette

Companies were able to market to youth and to deny doing so under the

cover of TI's print campaign which purported to discourage children from

smoking.

C They were mechanisms for enforcing the conspiracy and ensuring that all

defendants continued to participate in the Enterprise. Defendants and/or their

attorneys were in constant contact with each other through CTR and TI. The

numerous committees and boards that exercised control over TI and CTR

provided regular opportunities for defendants' agents to meet and to ensure

that defendants were continuing to act in concert.




72

At all times, CTR and TI were controlled by the Cigarette Companies and their

agents and employees. Defendants controlled each organization directly and through the web of

committees made up of representatives of the Cigarette Companies and outside counsel. Over time,

defendants' in-house and outside counsel took on a greater role in controlling the activities of

TIRC/CTR and TI. Although CTR and TI have been or will be dissolved, on information and belief,

the functions they have served continue to be served by the Companies' agents and employees.

TIRC/CTR's Board of Directors was comprised of the Presidents of the member

Cigarette Companies. TIRC/CTR was funded by the member companies, and the TIRC/CTR Board

of Directors approved the annual budget of the organization. The Board handled administrative

matters and was responsible for ensuring the necessary funds were available to maintain TIRC/CTR.

TIRC/CTR also had a Scientific Director and a scientific staff. The Scientific Director and the

TIRC/CTR scientific staff were selected by representatives of defendants .

TIRC/CTR's Industry Technical Committee ("ITC"), made up of the Research

Directors of the various member companies, and representatives of Hill & Knowlton, a public

relations firm that at various times represented both TIRC/CTR and TI, selected the first members of

the SAB. Subsequent appointments were approved by TIRC/CTR's Chairman, a position that was

usually filled by a retired tobacco company president or general counsel.

Defendants, through their attorneys and other agents, took an active role in

controlling TIRC/CTR's research and other priorities. The Research Liaison Committee ("RLC"),

formed in 1974, approved projects and monitored all phases of TIRC/CTR, including approving

grants. The RLC had grant approval authority. The Cigarette Companies' in-house attorneys

operated through the "Committee of Counsel," a group that included the General Counsel of each




73

Cigarette Company, along with outside counsel who represented the Cigarette Companies. The

Committee of Counsel also reviewed and controlled TIRC/CTR's research priorities. Outside

counsel for the Cigarette Companies even administered some of TIRC/CTR's research funds through

Special Projects and Special Accounts, in order to funnel money to the development of expert

witnesses.

The Tobacco Institute (TI) is or was a non-profit organization formed in January

1958 whose member companies were manufacturers of tobacco products, including the five largest

Cigarette Companies. TI was formed, at least in part, in response to a growing resentment by some

SAB members of the public relations functions of the SAB and TIRC/CTR.

TI served as defendants' propaganda arm and was controlled by defendants. As part

of the Enterprise, TI served to disseminate defendants' "party line" on issues such as smoking and

health, regardless of what defendants knew.

TI was run by a variety of Committees, which were made up of representatives from

the Cigarette Companies, each of whom initially had two members on TI's Executive Committee.

The Executive Committee had the "final voice on TI matters" and TI's statements. TI's Management

Committee met six to eight times per year to direct its activities, and its Communications Committee

cleared TI's advertisements. Through these Committees, defendants, through their agents and

attorneys, controlled TI and set policy, including the misleading and fraudulent statements about

material matters made by TI. Over time, this structure changed somewhat, but defendants always

maintained control over TI's activities.

The Cigarette Companies funded TI as well. The member companies paid dues to TI

"based on a set membership fee and then an additional fee was added based on the number of




74

cigarettes the member company had manufactured in the previous year."

The Cigarette Companies also exercised control over TI through the Committee of

Counsel. The Committee of Counsel assisted TI in setting strategy, preparing witnesses on smoking

and health issues, briefings, reviewing press releases, advertisements, and other public statements,

and "follow-up" activities.

TI's stated goal was to bring "about a greater awareness that the cigarette

controversy is not a closed question" -- i.e., to provide misleading information on the issue of

smoking and health. TI took an active role in designing, writing, and seeking the publication of

advertisements for defendants' products and prepared literally hundreds of advertisements from 1958

to 1998 that advanced defendants' primary position that "the question of smoking and health is still a

question." TI regularly issued public statements questioning or disputing statements from health

organizations that smoking caused disease and reiterating defendants' positions on other issues.

TI produced scores of witnesses for testimony in Congress, the courts, and state

legislatures to advocate the false and misleading industry line — often without noting sponsorship by

the Cigarette Companies or TI. TI also sponsored radio and TV campaigns. TI lobbied on behalf of

the Cigarette Companies to prevent the release of public information about the effect of cigarettes on

public health. TI also furthered the Enterprise by coordinating the Cigarette Companies' position

with those of tobacco companies throughout the world.

Despite the fact that TI was formed in order to distance TIRC/CTR from defendants'

public relations activities, after TI was created, TIRC/CTR continued its public relations functions,

and continued to retain public relations counsel.

Although CTR purported to be "independent," TI and TIRC/CTR often worked




75

together to advance defendants' positions. TI used TIRC/CTR's research material to further the goal

of maintaining defendants' "open controversy" position.

In furtherance of their common goals, including preserving, protecting, and enhancing

the market for cigarettes, the Cigarette Companies jointly created and funded TIRC/CTR and TI.

By the Cigarette Companies' frequent and continuous interaction as controlling participants on the

boards, committees, and other structures within TIRC/CTR and TI, defendants and others have

constituted an association-in-fact enterprise as defined in 18 U.S.C. § 1961(4).

On information and belief, by frequent and continuous communications among, and

coordinated activities of, defendants and their agents that continue to the present day, defendants

and others continue to constitute an association-in-fact enterprise as defined in 18 U.S.C. § 1961(4).

C. Count Four: Violation of Title 18, United States Code, Section 1962(d); Conspiracy to

Violate Title 18, United States Code, Section 1962(c)

Conspiracy to Conduct the Affairs of the Enterprise

Through a Pattern of Racketeering Activity


the allegations contained in Sections I. through IV., and in Section VI. B., above, and in the

Appendix to this Complaint, as if fully set forth herein.

From at least the early 1950's up to and including the date of the filing of this

Complaint, in the District of Columbia and elsewhere, defendants,







76


and others known and unknown, being persons employed by and associated with the Enterprise

described in Section VI. B., above, did unlawfully, knowingly and intentionally combine, conspire,

confederate, and agree together with each other, and with others whose names are both known and

unknown, to conduct and participate, directly and indirectly, in the conduct of the affairs of the

aforementioned Enterprise, which was engaged in, and the activities of which affected, interstate and

foreign commerce, through a pattern of racketeering activity consisting of multiple acts indictable

under 18 U.S.C. §§ 1341 and 1343, in violation of 18 U.S.C. § 1962(d).

The Enterprise Manner and Means: Section VI. B, above, is incorporated by

reference and realleged as if fully set forth herein.

Each defendant agreed that at least two acts of racketeering activity would be

committed by a member of the conspiracy in furtherance of the conduct of the Enterprise. It was

part of the conspiracy that defendants and their co-conspirators would commit numerous acts of

racketeering activity in the conduct of the affairs of the Enterprise, including, but not limited to, the

acts of racketeering set forth in the Appendix, in the District of Columbia and elsewhere.

D. THE PATTERN OF RACKETEERING ACTIVITY

Racketeering Acts Related to The Mail And Wire Fraud Scheme

Racketeering Acts 1 through 116: The following sub-paragraphs a. through n. are

realleged as a part of each of Racketeering Acts Nos. 1 through 116 relating to mail fraud and wire

fraud set forth in the Appendix to the Complaint.

a. From at least as early as December 1953, and continuing until the time of

filing of this complaint, in the District of Columbia and elsewhere, defendants and others known and




77

unknown did knowingly and intentionally devise and intend to devise a scheme and artifice to

defraud, and obtain money and property from, members of the public by means of material false and

fraudulent pretenses, representations, and promises, and omissions of material facts, knowing that

the pretenses, representations, and promises, were false when made.

b. It was part of said scheme and artifice that the Cigarette Companies would

and did sell products for purchase by smokers that were represented to pose no proven substantial

risk of disease, and that were not addictive, and that smoking was a matter of free choice by adults,

when in fact, cigarette smoking posed substantial health risks, that nicotine in cigarettes is highly

addictive, and that the Cigarette Companies had targeted children as "replacement smokers" for

adult smokers who either reduced or ceased smoking or had died.

c. It was further part of said scheme and artifice that defendants and their

co-conspirators would and did maintain sales and profits of the Cigarette Companies, by concealing,

and suppressing material information regarding the health consequences associated with smoking,

including that cigarette smoking posed substantial health risks, that nicotine in cigarettes is highly

addictive, that they had the ability to manipulate and manipulated nicotine delivery, and that the

Cigarette Companies had targeted children as "replacement smokers" for adult smokers who either

reduced or ceased smoking or had died.

d. It was further part of said scheme and artifice that, in order to conceal the

health risks of cigarette smoking and the addictiveness of nicotine, defendants and their

co-conspirators would and did make false representations and misleading statements in national

publications, would and did falsely represent that defendants would fund and conduct objective,

scientific research, and disclose the results of such research, to resolve concerns about




78

tobacco-related diseases, would and did falsely represent that defendants did not target children for

sales of cigarettes, would and did suppress and destroy documents to hide adverse research results,

would and did misrepresent and fail to disclose their ability to manipulate and the manipulation of

nicotine delivery and the addictive qualities of cigarettes, would and did conceal the availability of

less hazardous and less addictive cigarettes, and would and did misrepresent their actions to

government personnel and others and in judicial proceedings.

e. It was further part of said scheme and artifice that defendants and their

co-conspirators would seek to impair, impede, and defeat government authorities' ability to

understand the actual risks of cigarette smoking and the addictiveness of nicotine, and to impair,

impede, and defeat governmental efforts to regulate and control the manufacture and distribution of

cigarettes, and to impair, impede, and defeat parties in litigation from learning the adverse health

effects and addictiveness of cigarette smoking, in that defendants and their co-conspirators would

and did attempt to cover up their knowledge of the adverse health risks of smoking, the

addictiveness of nicotine, and their efforts to recruit children as smokers, and would and did

misrepresent that adverse health effects of smoking and addictiveness were unknown or unproven;

and would and did attempt to prevent to the public, Congress, courts and government officials from

uncovering those activities.

f. It was further part of said scheme and artifice that defendants'

communications directed toward government officials and courts would be and were designed to

preserve and increase the market for cigarettes while concealing the deleterious health effects caused

by smoking cigarettes. Examples of such communications include defendants' communications with

government agencies, and communications with congressional subcommittees, members, and staff,




79

as well as their communications among themselves regarding what should not be disclosed to

government agencies and to courts and Congress.

g. It was further a part of said scheme and artifice that defendants communicated

to the public nationwide in newspapers, magazines, and other periodicals that were distributed

through the mails, as well as through the broadcast media, to deceive the public.

h. It was further part of said scheme and artifice that defendants would cause

assurances and guarantees that the Cigarette Companies were seeking answers to public health issues

to be disseminated by mail and by interstate wire transmissions.

i. It was further part of said scheme and artifice that defendants would take and

receive and cause to be taken and received from the mails communications concerning research

relating to the health effects of smoking.

j. It was further part of said scheme and artifice that defendants and their

co-conspirators would mail and otherwise distribute press releases and other public statements

addressing public health concerns and commenting on particular research issues.

k. It was a further part of said scheme and artifice that defendants and their

co-conspirators would and did misrepresent, conceal, and hide and cause to be misrepresented,

concealed, and hidden, the purpose of, and acts done in furtherance of, the scheme to defraud.

l. It was a further part of said scheme and artifice, and in furtherance thereof, that

defendants would and did communicate with each other and with their co-conspirators and others, in

person, by mail, and by telephone and other interstate and foreign wire facilities, regarding health

effects of smoking, health research and research into the effects of nicotine, and ways to suppress

such information, and regarding ways to identify and target children for the sale of cigarettes.




80

m. For the purpose of executing and attempting to execute the scheme and artifice

described herein, defendants and their co-conspirators would and did: knowingly place and cause to

be placed in any post office or authorized depository for mail matter, matters and things to be sent

and delivered by the United States Postal Service (and its predecessor, the United States Post Office

Department); took and received therefrom such matters and things; and knowingly caused to be

delivered by mail according to the direction thereon, and at the place at which it is directed to be

delivered by the person to whom it is addressed, any such matter and thing, in violation of 18 U.S.C.

§ 1341, including, but not limited to, the instances set forth in Racketeering Acts 1 through 102 of the

Appendix to the Complaint.

n. For purposes of executing and attempting to execute that scheme and artifice,

defendants and their co-conspirators would and did knowingly transmit and cause to be transmitted in

interstate and foreign commerce by means of wire, radio and television communication writings,

signs, signals, pictures and sounds (collectively "transmissions") in violation of 18 U.S.C. § 1343,

including, but not limited to, the transmissions set forth in Racketeering Acts 103 through 116 of the

Appendix to the Complaint.

Racketeering Acts Nos. 1 through 116 appearing in the Appendix to this Complaint

are realleged and incorporated by reference into the Complaint as if fully set forth herein.

E. Summary of the Racketeering Acts Charged Against Each Defendant

Set forth below is a chart indicating those Racketeering Acts, in which each defendant

that is named in this Complaint in its individual capacity, personally participated. Each of these Acts

was committed pursuant to and in furtherance of the above-described Enterprise, and such Acts

include false and misleading statements, as well as other uses of the mails and wire transmissions, to




81

further and execute defendants' scheme and artifice to defraud. The Racketeering Acts are set forth in

the attached Appendix, which is incorporated by reference and realleged as if fully set forth herein:

DEFENDANT RACKETEERING ACTS VIOLATIONS

PHILIP MORRIS 1, 2, 3, 5, 6, 7, 8, 10, 12, 13, 16, 17, 18, 19, 18 USC § 1341

20, 21, 22, 23, 24, 26, 27, 28, 29, 31, 33, 18 USC § 1343

34, 35, 38, 40, 41, 42, 43, 44, 46, 47, 48,

49, 56, 58, 59, 66, 67, 70, 73, 77, 79, 81,

87, 88, 91, 93, 98, 100, 105, 108, 109, 114

REYNOLDS 1, 2, 3, 4, 5, 6, 7, 8, 10, 12, 13, 17, 18, 21, 18 USC § 1341

22, 23, 24, 26, 27, 28, 29, 31, 33, 34, 35, 18 USC § 1343

36, 38, 39, 42, 43, 44, 46, 49, 56, 61, 62,

64, 65, 66, 67, 68, 70, 73, 76, 77, 79, 81,

82, 83, 84, 85, 86, 87, 88, 89, 91, 93, 94,96, 97, 98, 99, 102, 104, 107, 110

BROWN & WILLIAMSON 1, 2, 3, 5, 6, 7, 8, 10, 11, 12, 13, 17, 18, 21, 18 USC § 1341

22, 23, 24, 27, 28, 29, 30, 31, 32, 33, 34, 18 USC § 1343

35, 38, 42, 43, 44, 45, 46, 49, 50, 51, 52,

53, 54, 55, 56, 57, 60, 63, 66, 67, 70, 73,

77, 79, 81, 87, 88, 91, 93, 98, 103, 106,

115, 116

LORILLARD 1, 2, 3, 5, 6, 7, 8, 10, 12, 13, 17, 18, 21, 22, 18 USC § 1341

23, 24, 27, 28, 29, 31, 33, 34, 35, 37, 38, 18 USC § 1343

42, 43, 44, 46, 49, 56, 66, 67, 70, 73, 77,79, 81, 87, 88, 91, 93, 98, 104, 111

LIGGETT 13, 17, 22, 28, 31, 38, 44, 66, 67, 70, 73, 18 USC § 1341

77, 88, 112 18 USC § 1343

AMERICAN 1, 2, 3, 5, 6, 7, 8, 10, 12, 13, 17, 18, 21, 22, 18 USC § 1341

23, 24, 27, 29, 31, 33, 34, 35, 38, 42, 43, 18 USC § 1343

44, 46, 49, 56, 66, 67, 70, 73, 77, 79, 81,

87, 88, 90, 91, 93, 98, 113

PHILIP MORRIS 69, 71, 72, 74, 75, 78, 80, 92, 95 18 USC § 1341

COMPANIES 18 USC § 1343

BAT PLC 55, 59, 101, 108 18 USC § 1341

(BAT INDUSTRIES) 18 USC § 1343




DEFENDANT RACKETEERING ACTS VIOLATIONS

82

BAT INVESTMENTS 11, 30, 50, 51, 53, 54, 57, 60, 63, 103, 106 18 USC § 1341

(BAT Co.) 18 USC § 1343

COUNCIL FOR 2, 9, 13, 14, 15, 17, 22, 25, 31, 38, 44, 66, 18 USC § 1341

TOBACCO RESEARCH / 67, 70, 73, 77, 88, 98 18 USC § 1343

TOBACCO INDUSTRY

RESEARCH

COMMITTEE

TOBACCO INSTITUTE 3, 5, 6, 7, 8, 10, 12, 18, 21, 23, 24, 27, 29, 18 USC § 1341

91, 93

33, 34, 35, 42, 43, 46, 49, 56, 79, 81, 87, 18 USC § 1343

F. Equitable Relief Is Necessary to Prevent and Restrain Defendants' Unlawful Conduct in

the Future

Defendants' affirmative and intentional acts of fraudulent concealment, suppression,

and denial of the facts as alleged above has continued unabated over a span of many decades.

Defendants have maintained a unified scheme to thwart public awareness of adverse scientific and

medical information concerning the health risks of cigarette smoking by suppressing and subverting

medical and scientific research. They have concealed and denied the addictive properties of nicotine

and the Cigarette Companies' manipulation of the levels of nicotine in their products. They have

misrepresented the tobacco industry's targeting of youth smokers and their endeavors to exploit the

addictive properties of nicotine to maintain a market for cigarettes -- all through an uninterrupted

pattern of fraudulent and deceitful conduct aimed at maintaining a market for their products and

increasing industry profits at the expense of the smokers they endeavored to deceive.

The pattern of defendants' conduct reflects an unwillingness to concede, and

affirmative efforts to conceal from the public, from courts, and from regulatory bodies, pertinent and




83

properly available information concerning the dangers of their products. After a span of more than

forty-five years of deception and fraud, it would be unreasonable to believe that defendants will

voluntarily cease their unlawful conduct, or that their pattern of racketeering activity will cease

without intervention by this Court.

Unless restrained, defendants will continue their attempts to keep internal information

from public disclosure. They will refuse to admit, and continue to conceal, the fact that smoking

cigarettes causes disease and kills and that the nicotine in their products is addictive. Affirmative

relief is required to ensure that defendants fulfill their duty to disclose non-public information over

which defendants have had exclusive control, and which is crucial to the consuming public in making

informed purchasing decisions. Equitable relief is necessary to ensure an end to defendants' continued

efforts to confuse and mislead the public concerning the health consequences of smoking and the

addictive nature of nicotine, and to end their deceptive campaign to induce children and minors to

become addicted and subject to a high risk of disease.

Defendants' violations of 18 U.S.C. § 1962, and their continuing pattern of

racketeering acts will continue in connection with the affairs of the Enterprise unless this Court

implements the relief requested below.

VII. PRAYER FOR RELIEF

WHEREFORE, the United States of America prays for relief and judgment against all

defendants, jointly and severally, as follows:

A. Remedies at Law:

Awarding damages, along with pre-judgment and post-judgment interest as provided by law,

to the United States of America, pursuant to Counts One and Two, for defendants' tortious and




84

wrongful acts, as alleged above, as follows:

1. Under Count One, awarding the United States money damages for an amount that is

sufficient to provide restitution and repay the United States for the sums it has spent or will spend,

constituting, as provided by law, the reasonable value of hospital, medical, surgical, and dental care

and treatment furnished and to be furnished, paid for and to be paid for, by the United States to or on

behalf of beneficiaries of various federal programs including those referred to in the third numbered

paragraph of Section V. A., above, as a result of the wrongful conduct of defendants, which amount

is to be determined at trial by a jury. The United States has suffered and in the future will continue to

incur substantial monetary damages as a result of this same conduct. An actual, justiciable

controversy exists between plaintiff and defendants regarding the ultimate legal and financial

responsibility for these future medical expenditures.

2. Under Count Two, awarding the United States money damages for an amount that is

sufficient to provide restitution and repay the United States for the sums it has spent or will spend,

past and present, pursuant to the United States' right, independent of the rights of Medicare

beneficiaries, to recover compensation for the costs that the United States has paid, pursuant to the

Medicare Program, to reimburse health care providers for treating Medicare beneficiaries suffering

from diseases and other health problems as a result of defendants' wrongful and unlawful conduct,

which payments HCFA has made but with respect to which defendants are "required or responsible

. . . to make payment," as provided by law (42 U.S.C. § 1395y(b)(2)(B)(ii) & (iii)), which amount is

to be determined at trial by a jury. The United States has suffered and in the future will continue to

incur substantial monetary damages as a result of this same conduct. An actual, justiciable

controversy exists between plaintiff and defendants regarding the ultimate legal and financial




85

responsibility for these future medical expenditures.

3. Awarding the United States the costs of this suit, together with such other and further

relief as may be necessary and appropriate.

B. Equitable Remedies:

Pursuant to the provisions of 18 U.S.C. § 1964, that this Court issue an Order and Judgment,

jointly and severally, against defendants, providing the following relief:

1. That this Court order that all of the defendants who are found to have violated 18

U.S.C. § 1962, disgorge all proceeds derived from any violation of 18 U.S.C. § 1962.

2. That this Court issue a permanent injunction that will do the following:

a. Prohibit each defendant and its successors, officers, employees, and all persons

acting in concert with each defendant, from committing any act of racketeering, as defined in 18

U.S.C. § 1961(1), and from associating directly or indirectly, with any other person known to them to

be engaged in such acts of racketeering or with any person in concert or participation with them.

b. Enjoin and restrain each defendant and all other persons in concert with each

defendant from participating in any way, directly or indirectly, in the management and/or control of

any of the affairs of CTR and TI, or, if either CTR or TI has been or becomes dissolved, any

successor entities of CTR and TI, or other entity affiliated with CTR and TI, known to them to be

engaged in acts of racketeering, and from having any dealings about any matter that relates directly or

indirectly to the management and/or control of CTR and TI or any successor or affiliated entities

known to them to be engaged in acts of racketeering.

c. Enjoin each defendant and persons in concert with each defendant from making

false, misleading or deceptive statements or representations concerning cigarettes.




86

d. Prohibit each defendant and its agents from engaging in any public relations

endeavor that misrepresents, or suppresses information concerning, the health risks associated with

cigarette smoking or the addictive nature of nicotine, and from associating with any other persons for

the purpose of engaging in such conduct.

e. Order each defendant to disclose, disseminate, and make available to the

Department of Justice and such public health and regulatory authorities as the Court may select, all

documents relating to research previously conducted directly or indirectly by themselves and their

respective agents, affiliates, servants, officers, directors, employees, and all persons acting in concert

with them, that relate to the health consequences of cigarette smoking and nicotine addiction, and the

ability to develop less hazardous cigarettes.

f. Order each defendant to fund, but have no part of or influence over the control

of or decision making relating to, a legitimate and sustained corrective public education campaign,

administered and controlled by an independent third party, relating to the public health issues of

cigarette smoking and nicotine addiction.

g. Order each defendant to disclose, disseminate, and make available to the

Department of Justice and such public health and regulatory authorities as the Court may select, all

documents relating to marketing or advertising campaigns that target and/or encourage children to

purchase and consume cigarettes; enjoin each defendant from engaging in any such campaigns in the

future; and order each defendant to provide mechanisms to ensure compliance.

h. Order each defendant to make corrective statements regarding the health risks

of cigarette smoking and the addictive properties of nicotine in future advertising, marketing, and

promotion of their tobacco products.




87

i. Order each defendant to fund, but have no part of or influence over the control

of or decision making relating to, sustained cessation programs including the provision of medically

approved nicotine replacement therapy for dependent smokers.

j. Order each defendant to fund, but have no part of or influence over the control

of or decision making relating to, a sustained educational campaign devoted to the prevention of

smoking by children.

3. That this Court award the United States the costs of this suit, together with such other

and further relief as may be necessary and appropriate to prevent and restrain further violations of 18

U.S.C. § 1962, and to end the ongoing wrongful conduct of defendants.

C. DECLARATORY RELIEF:

Pursuant to 28 U.S.C. § 2201, that this Court declare that defendants are liable, jointly and

severally, for future costs of hospital, medical, surgical, or dental care and treatment (including

prostheses and medical appliances) to be furnished, or to paid for, by the United States resulting from

the past tortious and wrongful conduct of defendants.

VIII. DEMAND FOR JURY TRIAL

The United States of America demands a trial by jury on all issues so triable under

Counts One and Two in this action.




88

DATED: September 22, 1999

David W. Ogden Wilma A. LewisActing Assistant Attorney General United States Attorney

Civil Division for the District of Columbia

D.C. Bar No. 555 Fourth Street, Room 5806

William B. Schultz J. Patrick Glynn

Deputy Assistant Attorney General Director

D.C. Bar No. 218990 D.C. Bar No. 219162

Thomas J. Perrelli Sharon Y. Eubanks

Deputy Assistant Attorney General Deputy Director

D.C. Bar No. 438929 D.C. Bar No. 420147

United States Department of Justice Tobacco Litigation Team

Civil Division Torts Branch, Civil Division

950 Pennsylvania Avenue, N.W. 950 Pennsylvania Avenue, N.W.Washington, D.C. 20530-0001 Washington, D.C. 20530-0001

Washington, D.C. 20001

United States Department of Justice

202/616-4185





FOR THE DISTRICT OF COLUMBIA

UNITED STATES OF AMERICA )

United States Department of Justice )

950 Pennsylvania Avenue, N.W. )

Washington, D.C. 20530-0001, )

)

Plaintiff, ) APPENDIX TO COMPLAINT

)

vs. )

)

PHILIP MORRIS, INC. )

120 Park Avenue )


)

R.J. REYNOLDS TOBACCO COMPANY )

401 North Main Street )

Winston-Salem, North Carolina 27102; )) CIV. NO.

BROWN & WILLIAMSON TOBACCO CORPORATION )



directly and as successor by merger to )



Louisville, Kentucky 40202; )

)

LORILLARD TOBACCO COMPANY )

714 Green Valley Road )

Greensboro, North Carolina 27408; )

)THE LIGGETT GROUP, INC. )

300 North Duke Street )

Durham, North Carolina 27702, )

directly and as parent to )

LIGGETT & MYERS, INC. )

810 Craghead Street )

Danville, Virginia 24541; )

)





the tobacco interests of )AMERICAN BRANDS, INC. )

1700 East Putnam Avenue )

Old Greenwich, Connecticut 06870; )

)

PHILIP MORRIS COMPANIES, INC. )

120 Park Avenue )


)




1/ This Appendix is essential to the determination of this action under LCvR 5.1(g).

2

BRITISH AMERICAN TOBACCO, P.L.C. )

Windsor House )

50 Victoria Street )

London SW1H ONL, England, )


B.A.T. INDUSTRIES P.L.C. )

Windsor House )50 Victoria Street )

London SW1H ONL, England; )

)

BRITISH AMERICAN TOBACCO )

(INVESTMENTS) LTD. )

Globe House )

1 Water Street )

London WC2R 3LA, England, )


BRITISH-AMERICAN TOBACCO )

COMPANY, LTD. )

Globe House )

4 Temple Place )London WC2R 2PG, England; )

)

THE COUNCIL FOR TOBACCO )

RESEARCH--U.S.A., INC. )

900 Third Avenue )

New York, New York 10022; and )

)

THE TOBACCO INSTITUTE, INC. )

1875 I Street N.W., Suite 800 )

Washington, D.C. 20006, )

)

Defendants. )

__________________________________________________)

APPENDIX TO COMPLAINT1/

Set forth below is a listing of Racketeering Acts, all of which are alleged, in the Complaint

filed by the United States of America in the above-entitled action, to have been committed as part

of a pattern of racketeering activity. The Racketeering Acts set forth in this Appendix are

incorporated by reference and re-alleged as if fully set forth in the Complaint filed by the United

States of America.




3

RACKETEERING ACTS RELATING TO MAIL FRAUD

1. Racketeering Act No. 1: On or about January 4, 1954, defendants PHILIP

MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, AMERICAN, and co-

conspirators caused to be placed in numerous newspapers nationwide, including The Washington

Post, a daily newspaper, an advertisement entitled "A Frank Statement To Smokers," which

newspaper was then sent and delivered by the United States mails to subscribers and others. In

this advertisement, defendants promised to safeguard the health of smokers, support disinterested

research into smoking and health, and reveal to the public the results of research into the effects

of smoking on smokers' health.

2. Racketeering Act No. 2: On or about July 15, 1957, defendants PHILIP

MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and AMERICAN, through

the TOBACCO INDUSTRY RESEARCH COMMITTEE (predecessor to defendant COUNCIL

FOR TOBACCO RESEARCH), did knowingly cause a press release entitled "Scientist

Comments on Benzypyrene Report" to be sent and delivered by the United States mails to

newspapers and news outlets. This press release disputed the United States Surgeon General's

report that Benzypyrene had been identified in cigarette smoke, and stated that scientists had

"generally concluded" that Benzypyrene in cigarette smoke cannot be a cause of cancer in

smokers.

3. Racketeering Act No. 3: On or about November 27, 1959, defendants PHILIP


defendant TOBACCO INSTITUTE, did knowingly cause a press release to be sent and delivered

by the United States mails to newspapers and news outlets. This press release contained




4

statements attacking an article written by then-United States Surgeon General Leroy Burney

about the hazards of smoking.

4. Racketeering Act No. 4: On or about December 9, 1959, defendant

REYNOLDS did knowingly receive from the mails a letter addressed to W.A. Sugg, R.J.

Reynolds Tobacco Company, Winston-Salem, North Carolina, from George McGovern of

William Esty Company, 100 East 42nd Street, New York, New York. The letter included a

marketing study of the smoking habits of high school and college students.




by the United States mails to newspapers and news outlets. This press release was titled "Allen

Gives Tobacco Institute Position on 'Health Scares'" and stated that "[t]he tobacco industry itself

is more interested than anyone else in finding out and making public the true facts about tobacco

and health" and that "research in recent years has produced findings that weaken rather than

support the claim that smoking is a major contributor to lung cancer."




by the United States mails to newspapers and news outlets. This press release stated "the tobacco

industry's position that smoking is a custom for adults and that it is not the intent of the industry

to promote or encourage smoking among youth" and "[t]he industry wants to make it

demonstrably clear that it does not wish to promote or encourage smoking among youth."




5




by the United States mails to newspapers and news outlets. Through this press release,

defendants stated that they were on a "crusade" to find answers to the "questions about smoking

and health," and that it "should be a crusade neither for nor against tobacco. It is a crusade for

research . . . ." Defendants asserted the position that the question of causation was still

unresolved.

8. Racketeering Act No. 8: On or about March 6, 1964, defendants PHILIP



by the United States mails to newspapers and news outlets. This press release announced the

reorganization of the Tobacco Industry Research Committee into the Council for Tobacco

Research and represented that CTR's research policy would be set by doctors and scientists

independent of the tobacco industry.

9. Racketeering Act No. 9: On or about November 23, 1965, defendant

COUNCIL FOR TOBACCO RESEARCH did knowingly receive from the mails a letter

addressed to Edwin J. Jacob, Esq., Cabell Medinger Forsyth & Decker, 51 West 51st Street,

Rockefeller Center, New York, New York, counsel to CTR, from Alvan R. Feinstein, Associate

Professor of Medicine, Yale School of Medicine, New Haven, Connecticut, requesting funding

for research on data indicating that the clinical effects of cancers were no worse in smokers than

in nonsmokers.




6

10. Racketeering Act No. 10: On or about December 29, 1965, defendants PHILIP




defendants stated that research had not established whether smoking causes disease and this was

still an "open question." "If there is something in tobacco that is causally related to cancer or any

other disease, the tobacco industry wants to find out what it is, and the sooner the better."

11. Racketeering Act No. 11: On or about February 28, 1966, defendants BROWN

& WILLIAMSON did knowingly cause to be sent and delivered by the United States mails, and

BRITISH-AMERICAN TOBACCO COMPANY (predecessor to BAT INVESTMENTS)

thereafter received, a letter addressed to A. D. McCormick, Esq., BAT Co., P.O. Box 482,

7 Millbank, London, SW1, England, from Addison Yeaman, Esq., General Counsel of Brown &

Williamson, promoting cooperation among defendants in resisting regulation by Congress and by

the Federal Trade Commission by attacking existing scientific studies linking smoking to disease,

by making representations to governmental regulators that defendants were engaged in

accelerated research, and by suppressing information unfavorable to defendants.

12. Racketeering Act No. 12: On or about October 21, 1966, defendants PHILIP




defendants stated that they knew "of no valid scientific evidence demonstrating that either 'tar' or

nicotine is responsible for any human illness."




7


MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, LIGGETT, and

AMERICAN, through defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause

to be sent and delivered by the United States mails letters addressed separately to each member of

CTR's Ad Hoc Committee:

Miss Janet Brown, Esq., Chadbourne Park, Whiteside & Wolff, 25 Broadway, New York,

New York 10004, counsel to American; Kevin L. Carroll, Esq., Donald J. Cohn, Esq., and

Francis K. Decker, Esq., Webster Sheffield Fleischmann Hitchcock & Chrystie,

1 Rockefeller Plaza, New York, New York 10020, counsel to Liggett; Edward J. Cooke,

Jr., Esq., Davis, Polk, Wardwell, Sunderland, & Kiendl, 1 Chase Manhattan Plaza, New

York, New York 10005, counsel to Reynolds; Alexander Holtzman, Esq., Conboy,

Hewitt, O'Brien & Boardman, 20 Exchange Place, New York, New York 10005, counsel

to Philip Morris; Edwin J. Jacob, Esq., Cabell Medinger Forsyth & Decker, 51 W. 51st

Street, New York, NY 10019, counsel to CTR; William W. Shinn, Esq., Shook, Hardy,

Ottman, Mitchell & Bacon, 915 Grand Avenue, Kansas City, MS 64106; and Edward

DeHart, Hill & Knowlton, 1735 K Street, NW, Washington, DC 20006,

each of which was from David R. Hardy, Esq., counsel to CTR's Ad Hoc Committee, requesting

the recipients to recommend persons who could act as witnesses before Congressional hearings to

perpetuate defendants' "open question" position, and assigning the members of the Ad Hoc

Committee oversight of CTR "special projects" designed to be of "practical use" for defendants

during congressional hearings.




8

14. Racketeering Act No. 14: On or about February 2, 1967, defendant COUNCIL

FOR TOBACCO RESEARCH did knowingly cause to be sent and delivered by the United States

mails a letter addressed to David R. Hardy, Esq., counsel to CTR's Ad Hoc Committee, from

William W. Shinn, Esq., Shook, Hardy, Ottman, Mitchell & Bacon, 915 Grand Avenue, Kansas

City, Missouri 64106, a member of CTR's Ad Hoc Committee, and copied the Ad Hoc

Committee and Ed DeHart of Hill & Knowlton. The letter responded to Hardy's request for

recommendations of persons who could act as witnesses before congressional hearings to

perpetuate defendants' "open question" position.

15. Racketeering Act No. 15: On or about May 19, 1967, defendant COUNCIL

FOR TOBACCO RESEARCH did knowingly cause to be sent and delivered by the United States

mails a letter addressed to Alexander Holtzman, Esq., Conboy, Hewitt, O'Brien & Boardman,

20 Exchange Place, New York, New York 10005, counsel to Philip Morris, from William W.

Shinn, Esq., regarding CTR Special Projects, outlining a proposal to support and publicize

research advancing the theory of smoking as beneficial to health as a stress reducer, even for

"coronary prone" persons; representing that stress (rather than nicotine addiction), explains why

smoking clinics fail; and proposing to publicize the "image of smoking as 'right' for many people .

. . as a scientifically approved 'diversion' to avoid disease causing stress."

16. Racketeering Act No. 16: On or about October 3, 1968, defendant PHILIP

MORRIS did knowingly cause to be sent and delivered by the United States mails a letter

addressed to David R. Hardy, Esq., Shook, Hardy, Ottman, Mitchell, and Bacon, 915 Grand

Avenue, Kansas City, Missouri from Philip Morris Assistant General Counsel Alexander




9

Holtzman, proposing "Special Project" funding for a scientist whose application to CTR for

funding was previously turned down but who was likely to produce data useful to defendants.




to be sent and delivered by the United States mails letters separately addressed to Liggett General

Counsel Frederick P. Haas, Esq.; American General Counsel Cyril Hetsko, Esq.; Reynolds

General Counsel H. Henry Ramm, Esq.; Philip Morris General Counsel Paul D. Smith, Esq.; and

Brown & Williamson General Counsel Addison Yeaman, Esq., from David R. Hardy, Esq.,

Shook, Hardy & Bacon, 915 Grand Avenue, Kansas City, Missouri, counsel to CTR's Committee

of Counsel. The letter proposed "Special Project" funding for a scientist whose application to

CTR for funding was previously turned down but who was likely to produce data useful to

defendants.

18. Racketeering Act No. 18: In or about 1968, the exact date being unknown,

defendants PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD,

AMERICAN, and co-conspirators, through defendant TOBACCO INSTITUTE, did knowingly

distribute reprints of an article written by Stanley Frank and originally published in True

magazine, and caused copies of said document to be sent and delivered by the United States

mails, addressed to various physicians and civic leaders. This article disputed the link between

smoking and disease, and was distributed anonymously.

19. Racketeering Act No. 19: On or about May 27, 1969, defendant PHILIP

MORRIS did knowingly cause to be sent by the United States mails a letter from Philip Morris




10

Vice President for Corporate Research and Development, Helmut Wakeham, to defendant Dr.

M. Hausermann, Director of Research and Quality Control, Fabriques de Tabacs, Reunies S.A.,

Neuchatel-Serrieres, Switzerland. The letter communicated the approval of Paul Smith, Philip

Morris' General Counsel, for the publication by Dr. Hausermann of a paper describing the Smoke

Exposure Machine developed at Philip Morris' Cologne, Germany, Institute for Biological

Research, known as INBIFO. The letter clarified the scope of the article, and stated that "[t]he

paper should not include any statements with regard to the effect of smoke on the rats in terms of

initiation of disease, etc."

20. Racketeering Act No. 20: On or about September 10, 1969, defendant PHILIP

MORRIS did receive from the United States mails a letter from M. Hausermann, Fabriques de

Tabacs, Reunies S.A., Neuchatel Switzerland, addressed to Philip Morris Vice President for

Corporate Research and Development, Dr. Helmut Wakeham, in which Dr. Hausermann reported

that he had, following consultation with Alex Holtzman, Esq., in-house counsel at Philip Morris,

decided not to submit for presentation a paper entitled "Cigarette Consumption Related to

Cigarette 'Strength.'" Dr. Hausermann reported that Mr. Holtzman felt "that this paper should not

be presented, because it might be used as an argument for tar-and-nicotine delivery indication on

the pack and in ads."

21. Racketeering Act No. 21: On or about April 30, 1970, defendants PHILIP



by the United States mails to newspapers and news outlets. This press release falsely stated that




11

the American Cancer Society had refused to release experimental data underlying the Auerbach/

Hammond "smoking beagles" study.

22. Racketeering Act No. 22: On or about July 22, 1970, defendants REYNOLDS,

PHILIP MORRIS, BROWN & WILLIAMSON, AMERICAN, LIGGETT, and LORILLARD did

knowingly cause to be sent and delivered by the United States mails, and defendant COUNCIL

FOR TOBACCO RESEARCH thereafter received, a letter from H.H. Ramm, Esq., General

Counsel for Reynolds, addressed to Dr. Robert C. Hockett, Associate Scientific Director, CTR,

110 E. 59th Street, New York, New York. The letter states that "counsel representing Philip

Morris, Brown & Williamson, American Brands, Liggett & Myers and Lorillard which companies

together with Reynolds participate in Special Projects have advised that if the Scientific Advisory

Board does not approve this project the same can be treated as an approved Special Project."



defendant TOBACCO INSTITUTE, did knowingly cause to be placed in The Washington Post, a

daily newspaper, an advertisement entitled "The question about smoking and health is still a

question," which newspaper was then sent and delivered by the United States mails to subscribers

and others. In this advertisement, the Tobacco Institute discredited the causal link between

smoking and disease, stated that "in the interest of absolute objectivity" defendants "ha[ve]

supported totally independent research efforts with completely non-restrictive funding," and

deliberately created the false impression that all research results have been freely published.

24. Racketeering Act No. 24: On or about May 25, 1971, defendants PHILIP





12



statements indicating that "many eminent scientists" believe that "the question of smoking and

health is still very much a question."

25. Racketeering Act No. 25: On or about July 1, 1971, defendant COUNCIL FOR

TOBACCO RESEARCH did knowingly caused to be sent and delivered by the United States

mails a letter from CTR Associate Scientific Director Robert C. Hockett, to Reynolds Vice

President and General Counsel Henry H. Ramm, Esq., in which Hockett endorsed and passed

along to Ramm a suggestion from two employees of Philip Morris that CTR sponsor a scientific

conference on the "benefits" of smoking, in the wake of a private conference on the effects of

nicotine and smoking on the central nervous system. Dr. Hockett also requested that the

Committee of General Counsel guarantee the financing of the conference.

26. Racketeering Act No. 26: On or about August 20, 1971, defendant

REYNOLDS did knowingly cause to be sent and delivered by the United States mails, and

defendant PHILIP MORRIS did receive, a letter addressed to Joseph F. Cullman, III, Chairman of

the Board, Philip Morris Inc., 100 Park Avenue, New York, New York 10017, from Alexander

H. Galloway, Chairman, R.J. Reynolds Industries, Inc., Winston-Salem, North Carolina,

discussing defendants' joint position with respect to smoking and health research.








13

statements suggesting that smoking is not harmful to pregnant women or their babies and

indicating that many doctors and scientists believe that "the question of smoking and health is an

open one."

28. Racketeering Act No. 28: On or about December 22, 1971, defendant PHILIP

MORRIS did knowingly cause to be sent and delivered by the United States mails, and defendants

LIGGETT, LORILLARD, REYNOLDS, and BROWN & WILLIAMSON did thereafter receive,

copies of a memorandum separately addressed to Liggett employee Dr. W.W. Bates, Reynolds

employee Dr. Murray Senkus, Lorillard employee Dr. Alexander W. Spears, and Brown &

Williamson employee Dr. Iver W. Hughes, from Philip Morris employee Dr. Helmut Wakeham,

describing a research proposal of Drs. Auerbach and Hammond concerning the effects of smoking

on health, indicating that the National Cancer Institute's likely funding of the research "is a matter

of considerable concern to the tobacco industry," and discussing defendants' plan to have lawyers

and scientists meet with [the National Cancer Institute ("NCI")] to discourage NCI from funding

the research.

29. Racketeering Act No. 29: On or about February 1, 1972, defendants PHILIP



by the United States mails to newspapers and news outlets. This press release contained the

statement that "[t]he cigarette industry is as vitally concerned or more so than any other group in

determining whether cigarette smoking causes human disease, whether there is some ingredient as

found in cigarette smoke that can be shown to be responsible, and if so, what it is," and that




14

"despite this effort the answers to the critical questions about smoking and health are still

unknown."

30. Racketeering Act No. 30: On or about May 19, 1972, defendant BROWN &

WILLIAMSON did knowingly cause to be sent by the United States mails, and defendant

BRITISH-AMERICAN TOBACCO COMPANY (predecessor to BAT INVESTMENTS)

thereafter received, a letter addressed to A.D. McCormick, Esq., BAT Co., P.O. Box 482,

7 Millbank, London SW1P 3JE, England, from Addison Yeaman, Esq., General Counsel, Brown

& Williamson, in which Yeaman provided comments on a statement BAT Co. proposed to make

in response to a statement anticipated from a British government minister. Yeaman referred to a

cablegram sent to him by McCormick on May 17, 1972, and to a telephone conversation in which

McCormick and Yeaman had participated on May 18, 1972. Yeaman commented that BAT Co.’s

proposed statement concerning the causal relationship between cigarette smoking and disease "is

somewhat less affirmative in tone than would be welcome on this side." He gave his approval to

alternative versions that described the controversy on this issue. Finally, Yeaman stated in a

postscript, "In the penultimate sentence of the B.A.T. draft statement would you object to

changing the word 'habit' to 'practice?'"




to be sent and delivered by the United States mails letters separately addressed to Thomas F.

Ahrensfeld, Esq., Philip Morris; DeBaun Bryant, Esq., Brown & Williamson; Frederick P. Haas,

Esq., Liggett; Cyril F. Hetsko, Esq., American; Henry C. Roemer, Esq., Reynolds, and Arthur J.




15

Stevens, Esq., Lorillard, from Donald K. Hoel, Esq., Shook, Hardy & Bacon, 915 Grand

Avenue, Kansas City, Missouri. The letter recommends approval to fund research by Dr. Richard

J. Hickey as a CTR Special Project for two years, beginning September 1973, and cites Hickey's

efforts to show that air pollution is primarily responsible for many chronic diseases attributed to

smoking.

32. Racketeering Act No. 32: On or about November 26, 1973, defendant BROWN

& WILLIAMSON did knowingly cause to be sent and delivered by the United States mails a

letter from DeBaun Bryant, Esq., counsel to Brown & Williamson, addressed to Donald K. Hoel,

Esq., Shook, Hardy & Bacon, 915 Grand Avenue, Kansas City, Missouri. The letter conveys

Brown & Williamson's approval to fund research by Dr. Richard J. Hickey as a CTR Special

Project, beginning September 1973, while noting that "[a]s is usual our support is contingent

upon the participation in this project by the other companies."




by the United States mails to newspapers and news outlets. This press release attacked the 1964

U. S. Surgeon General's Report on smoking and health and dismissed scientific research linking

smoking to lung cancer, emphysema, and low birth weight in babies born to women who smoked

during pregnancy.







16

by the United States mails to newspapers and news outlets. This press release contained the

statement that "domestic tobacco companies . . . have committed some $50 million to help

support researchers who are seeking the truth."

35. Racketeering Act No. 35: In or about September 1975, defendants PHILIP




statements noting that, as early as 1963, the Tobacco Institute had issued statements denying that

the Cigarette Companies targeted youth smokers. The press release also noted that in July 1969,

the Chairman of the Tobacco Institute, Joseph F. Cullman, III, testified before a Senate

Commerce subcommittee that the Cigarette Companies intended to avoid advertising representing

cigarette smoking as essential to social prominence, success, or sexual attraction or depicting

smokers engaged in sports or other activities requiring exceptional stamina or conditioning.

36. Racketeering Act No. 36: During 1975, the exact dates being unknown,

defendant REYNOLDS caused to be placed in various print media, including Newsweek, a

weekly magazine, an advertisement for Vantage cigarettes, which magazine was then sent and

delivered by the United States mails to subscribers and others. This text included the language,

"If you're like a lot of smokers these days, it probably isn't smoking that you want to give up. It's

some of that 'tar' and nicotine you've been hearing about."


defendant LORILLARD caused to be placed in various print media, including Family Circle

magazine, an advertisement for True cigarettes, which magazine was then sent and delivered by




17

the United States mails to subscribers and others. This advertisement depicted a young woman

and contained text stating, "I thought about all I'd read and said to myself, either quit or smoke

True. I smoke True."





Ahrensfeld, Esq., Philip Morris, Joseph Greer, Esq., Liggett, Cyril F. Hetsko, Esq., American,

Ernest Pepples, Esq., Brown & Williamson, Henry C. Roemer, Esq., Reynolds, and Arthur J.

Stevens, Esq., Lorillard, from Donald K. Hoel, Esq., Shook, Hardy & Bacon, Mercantile Bank

Tower, 1101 Walnut, Kansas City, Missouri. The letter recommends funding Dr. Richard J.

Hickey as a CTR Special Project during 1977, noting a report of Dr. Hickey that states, "Our

findings for lung cancer appear to raise doubt concerning claims . . . that cigarette smoking is the

primary cause of lung cancer, particularly in males."


defendant REYNOLDS caused to be placed in various print media an advertisement for Vantage

cigarettes, which newspapers and magazines were then sent and delivered by the United States

mails to subscribers and others. The advertisement included text stating, "Vantage cuts down

substantially on the 'tar' and nicotine you may have become concerned about."

40. Racketeering Act No. 40: On or about January 13, 1977, defendant PHILIP

MORRIS did knowingly cause to be sent and delivered by the United States mails a letter from

Alexander Holtzman, Esq., counsel to Philip Morris addressed to Donald K. Hoel, Esq., Shook,




18

Hardy & Bacon, Mercantile Bank Tower, 1101 Walnut, Kansas City, Missouri, approving Philip

Morris' participation in a grant to fund Dr. Richard J. Hickey's CTR Special Project during 1977.

41. Racketeering Act No. 41: On or about March 31, 1977, defendant PHILIP

MORRIS did knowingly cause to be sent and delivered by the United States mails a letter

addressed to: Dr. Max Hausermann, Philip Morris Europe S.A., P.O. Box 11, 2003 Neuchatel,

Switzerland, from Robert B. Seligman, Vice President for Research and Development, suggesting

that the recipient comply with company policy of avoiding direct mail contact with Philip Morris'

Cologne, Germany research facility by sending materials to a "dummy" mail address.





statements suggesting that the contribution of smoking to disease was still an "open question" and

that tobacco smoke does not harm nonsmokers.





statements that defendants had spent 75 million dollars on research over 20 years to learn whether

smoking is harmful but that "the case against cigarettes is not satisfactorily demonstrated."






19



Ahrensfeld, Esq., Philip Morris; Max Crohn, Esq., Reynolds; Joseph Greer, Esq., Liggett; Arnold

Henson, Esq., American; Ernest Pepples, Esq., Brown & Williamson; Arthur J. Stevens, Esq.,

Lorillard; and William Shinn, Esq., Shook, Hardy & Bacon, Kansas City, Missouri, from CTR

counsel Edwin J. Jacob, Jacob & Medinger, New York, New York. The memorandum described

a proposal to research the relationship between stress and cardiac disorder, and stated, "I have

discussed this with Bill Shinn, who agrees with me that this study is well worth doing and that we

should recommend it to you for approval, financing to be handled through Special Account #4."

45. Racketeering Act No. 45: On or about November 27, 1979, defendant BROWN


letter from Ernest Pepples, Esq., Brown & Williamson Vice President and General Counsel,

addressed to CTR counsel Edwin J. Jacob, Esq., Jacob & Medinger, 1270 Avenue of the

Americas, New York, New York 10020, regarding a proposal to fund a study on the relationship

between stress and cardiac disorder, and agreeing that the study should be financed through

Special Account #4.


defendants PHILIP MORRIS, REYNOLDS, BROWN & WILLIAMSON, LORILLARD, and

AMERICAN, through defendant TOBACCO INSTITUTE, did knowingly publish a document

entitled "Fact or Fancy?" and caused copies of said document to be sent and delivered by the

United States mails to newspapers and news outlets. This publication contained statements




20

asserting that smoking does not contribute to low birth weight in babies and suggesting that

cigarette smoking is not harmful to women.


defendant PHILIP MORRIS caused to be placed in various national magazines an advertisement

for Merit cigarettes entitled "Best Move Yet," which magazines were then sent and delivered by

the United States mails to subscribers and others. The advertisement stated that Merit's "ability to

satisfy over long periods of time could be the most important evidence to date that MERIT

science has produced what it claims: The first real alternative for high tar smokers."


defendant PHILIP MORRIS caused to be placed in various national magazines an advertisement

for Merit cigarettes entitled "Merit Taste Eases Low Tar Decision," which magazines were then

sent and delivered by the United States mails to subscribers and others. The advertisement stated

that Merit's "ability to satisfy over long periods of time could be the most important evidence to

date that MERIT is what it claims to be: The first real alternative for high tar smokers."





statements that members of the Tobacco Institute had a "long-standing policy" of discouraging

smoking by children and suggested that smoking is a free choice when done by adults.

50. Racketeering Act No. 50: On or about November 9, 1981, defendant BRITISH-

AMERICAN TOBACCO COMPANY (predecessor to BAT INVESTMENTS) did knowingly




21

cause a letter to be delivered by the United States mails, and defendant BROWN &

WILLIAMSON did thereafter receive, a letter addressed to Mr. J. Kendrick Wells III, Esq.,

Brown & Williamson, 1600 West Hill Street, P.O. Box 35090, Louisville, Kentucky 40232, and

signed by Sarah Mash, Secretary to M.J. Leach, BAT Co. The letter referenced an enclosed

"copy of the Parliamentary Brief in order that you can see how the B & W amendments have been

incorporated into the text," and sought Wells' approval of the revised document. Brown &

Williamson's amendments intended to ensure that the Brief did not contain anything that could be

construed as an admission regarding the health effects of smoking.

51. Racketeering Act No. 51: On or about December 17, 1981, defendant

BRITISH-AMERICAN TOBACCO COMPANY (predecessor to BAT INVESTMENTS) did

knowingly cause to be delivered by the United States mails, and defendant BROWN &

WILLIAMSON did thereafter receive, a letter addressed to J. Kendrick Wells III, Esq., Brown &

Williamson, 1600 West Hill Street, P.O. Box 35090, Louisville, Kentucky 40232, and copied to

Don Hoel, Esq., Shook, Hardy & Bacon, Kansas City, Missouri, from M.J. Leach, BAT Co. The

letter enclosed, for review by Wells and Ernest Pepples, another Brown & Williamson attorney, a

draft "UK Parliamentary Brief" in which BAT Co.'s position on smoking and health incorporates

"open controversy" language urged by Brown & Williamson.

52. Racketeering Act No. 52: On or about February 12, 1982, defendant BROWN


letter from Ernest Pepples, Esq., Brown & Williamson General Counsel, addressed to Patrick M.

Sirridge, Esq., Shook, Hardy & Bacon, 20th Floor, Mercantile Tower, 1101 Walnut, Kansas City,




22

Missouri. The letter concurs in the recommendation to renew an annual grant to Dr. Arthur Furst

to be paid from Special Fund 4.

53. Racketeering Act No. 53: On or about April 7, 1982, defendant BRITISH-


cause to be delivered by the United States mails, and defendant BROWN & WILLIAMSON did

thereafter receive, a letter addressed to W.L. Telling, Esq., Brown & Williamson International

Tobacco, 1600 West Hill Street, Louisville, Kentucky 40232, from G.O. Brooks, BAT Co. The

letter replied to a request from Telling for a report on a Smoker Compensation Study that

examined how a cigarette smoker's method of smoking alters tar and nicotine delivery, and

enclosed "a paper from one of our recent Product Knowledge Seminars [entitled "Human

Smoking Behaviour"] which contains a summary of the work and a number of the tables from the

report."

54. Racketeering Act No. 54: On or about April 8, 1982, defendant BRITISH-



thereafter receive, a letter addressed to J. Kendrick Wells III, Esq., Corporate Counsel, Brown &

Williamson, 1600 West Hill Street, Louisville, Kentucky 40232, from L.C.F. Blackman, BAT

Co., in which Blackman informed Wells that "[w]e have acted on the various points you have

made" regarding a BAT Co. position paper relating to smoking and health.

55. Racketeering Act No. 55: On or about April 14, 1982, defendant BAT

INDUSTRIES (predecessor to BAT P.L.C.) did knowingly cause to be delivered by the United

States mails, and defendant BROWN & WILLIAMSON did thereafter receive, a letter addressed




23

to Dr. I.W. Hughes, Brown & Williamson, 1600 West Hill Street, P.O. Box 35090, Louisville,

Kentucky 40232, from T.J. Walker, BAT Industries, Windsor House, 50 Victoria Street, London

SW1H ONL, England. The letter referenced materials regarding the "BAT Board Guidelines" on

public affairs matters, and referred to enclosed "secret" papers entitled "Assumptions and

Strategies of the Smoking Issues."





statements disputing the addictiveness of cigarette smoking.

57. Racketeering Act No. 57: On or about July 20, 1983, defendant BRITISH-



thereafter receive, a letter addressed to K. Wells, Esq., Brown & Williamson, 1600 West Hill

Street, P.O. Box 35090, Louisville, Kentucky 40202, from Miss A. Johnson, BAT Co. The

mailing included "the T.I.'s Australian booklet on the Waxman Hearings" and a note that Johnson

had written "to Public Affairs Department about the way in which they can use Dr. Colby's article

and the Waxman Hearings' summary in relation to the overseas companies." Johnson also

informed Wells that BAT Co. intended to make the smoking and health "controversy" a "central

issue" in future presentations to members of the British Parliament.

58. Racketeering Act No. 58: On or about July 27, 1983, defendant PHILIP

MORRIS, did receive from the United States mails a letter addressed to Frederic S. Newman,




24

Esq., Philip Morris International, 120 Park Avenue, New York, New York 10017, from Patrick

M. Sirridge, Esq., Shook, Hardy & Bacon, Kansas City, Missouri, enclosing a memorandum

summarizing research on the addictive features of nicotine conducted by Philip Morris and

recommending suppression of such research.

59. Racketeering Act No. 59: On or about September 9, 1983, defendant BAT

INDUSTRIES (predecessor to BAT P.L.C.) did knowingly cause to be delivered by the United

States mails, and defendant PHILIP MORRIS did thereafter receive, a letter from P. Sheehy,

Chairman of BAT Industries, addressed to George Weissman, Philip Morris, Inc., 120 Park

Avenue, New York, New York, 10017. The letter discussed an advertisement of Philip Morris'

Holland affiliate, and stated: "I find it incomprehensible that Philip Morris would weigh so heavily

the short-term commercial advantage from deprecating a competitor's brand while weighing so

lightly the long-term adverse impact from an on-going anti-smoking programme. . . . In doing so,

Philip Morris . . . makes a mockery of Industry co-operation on smoking and health issues. . . ."

60. Racketeering Act No. 60: On or about January 23, 1984, defendant BRITISH-



thereafter receive, a letter addressed to Mr. E.E. Kohnhorst, Brown & Williamson, P.O. Box

35090, Louisville, Kentucky 40232, from C.I. Ayres, Group Research & Development Centre,

BAT Co., Southampton, England, in which Ayres discussed and sought Kohnhorst's comments

concerning an upcoming conference on nicotine to be held in Southampton on June 6-8, 1984.

Ayres acknowledged the existence of articles in the scientific literature linking nicotine with

various diseases and predicted that the Cigarette Companies would be "under pressure to reduce




25

the delivery of nicotine. My translation is that, in the future, we have to evolve ways and means

of ensuring that smaller amounts of nicotine continue to give a satisfactory 'reward' to the

smoker."

61. Racketeering Act No. 61: In or about April 1984, the exact date being unknown,

defendant REYNOLDS did knowingly cause to be placed in numerous publications nationwide,

including U.S. News and World Report, a weekly magazine, an advertisement entitled "We don't

advertise to children," which magazine was then sent and delivered by the United States mails to

subscribers and others. This advertisement contained the statement "we don't want young people

to smoke," and further stated, "Kids don't pay attention to cigarette ads, and that's exactly as it

should be."

62. Racketeering Act No. 62: In or about July 1984, the exact dates being unknown,

defendant REYNOLDS did knowingly cause to be sent and delivered by the United States mails

letters from Reynolds' employee Ann Griffin, addressed to various children who wrote to

Reynolds. In the letter, Reynolds claimed to be engaged in an effort to determine the harmful

effects of smoking for the benefit of smokers, promised to support disinterested research into

smoking and health, and claimed that research had not revealed any "conclusive" evidence linking

smoking to disease.

63. Racketeering Act No. 63: On or about August 28, 1984, defendant BROWN &

WILLIAMSON did knowingly cause to be sent and delivered by the United States mails, and

defendant BRITISH-AMERICAN TOBACCO CO., LTD. (predecessor to BAT

INVESTMENTS) did thereafter receive, a letter addressed to Mr. Ray Pritchard, Deputy

Chairman, BAT Co., P.O. Box 482, Westminster House, 7 Millbank, London, England, from




26

Ernest Pepples, Esq., Senior Vice President and General Counsel of Brown & Williamson,

enlisting the recipient's help in suppressing a BAT employee's conclusions regarding the

addictiveness of nicotine because the conclusion contradicted the position taken by Brown &

Williamson in ongoing litigation.


defendant REYNOLDS did knowingly cause to be placed in daily newspapers an advertisement

entitled "Can we have an open debate about smoking?" which newspapers were then sent and

delivered by the United States mails to subscribers and others. In this advertisement Reynolds

claimed that "studies which conclude that smoking causes disease have regularly ignored

significant evidence to the contrary," that this "significant evidence" comes from research

"completely independent of the tobacco industry," and that "reasonable people" would consider

the link between smoking and disease to be an "open controversy."


defendant REYNOLDS did knowingly cause to be placed in numerous newspapers and magazines

nationwide, including The New York Times, a daily newspaper, an advertisement entitled

"Smoking and health: Some facts you've never heard about," which newspapers and magazines

were then sent and delivered by the United States mails to subscribers and others. This

advertisement contained the statement, "You hear a lot these days about reports that link smoking

to certain diseases. This evidence has led many scientists and other people to conclude that

smoking causes these diseases. But there is significant evidence on the other side of this issue. It

is regularly ignored by the critics of smoking. And you rarely hear about it in the public media.

But, it has helped persuade many scientists that the case against smoking is far from closed."




27

Further, the advertisement contained the statement, "No one wants to know the real answers

more than R.J. Reynolds. That is why we are providing major funding for scientific research. The

funds are given at arms length to independent scientists who are free to publish whatever they

find. We don't know where such research may lead. But this much we can promise: when we

find the answers, you'll hear about it."




to be sent and delivered by the United States mails letters addressed separately to Alexander

Holtzman, Esq., Philip Morris; Wayne W. Juchatz, Esq., Reynolds; Josiah Murray III, Esq.,

Liggett; Ernest Pepples, Esq., Brown & Williamson; Paul Randour, Esq., American; and Arthur J.

Stevens, Esq., Lorillard, from Donald K. Hoel, Esq., Shook, Hardy & Bacon, Mercantile Bank

Tower, 1101 Walnut, Kansas City, Missouri. The letter recommends funding the work of Dr.

Theodor Sterling for the years 1986-1988 as a CTR Special Project.





Holtzman, Esq., Philip Morris; Wayne W. Juchatz, Esq., Reynolds; Josiah S. Murray III, Esq.,

Liggett; Ernest Pepples, Esq, Brown & Williamson; Paul A. Randour, Esq., American; and Arthur

J. Stevens, Esq., Lorillard, from Patrick M. Sirridge, Esq., Shook, Hardy & Bacon, 1101 Walnut,




28

Kansas City, Missouri, counsel to CTR. The letter advised the Cigarette Companies to continue

funding through CTR research by a "Special Fund" scientist.

68. Racketeering Act No. 68: On or about March 11, 1986, defendant REYNOLDS

did knowingly cause to be sent and delivered by the United States mails a letter from Reynolds

counsel Wayne W. Juchatz, Esq., and addressed to Patrick M. Sirridge, Esq., Shook, Hardy &

Bacon, 1101 Walnut, Kansas City, Missouri, counsel to CTR, in which Reynolds approved

payment through CTR to a scientist conducting "Special Fund" research.

69. Racketeering Act No. 69: On or about March 13, 1986, defendant PHILIP

MORRIS COMPANIES did knowingly cause to be sent and delivered by the United States mails

a letter from Philip Morris Companies employee Helen Frustace addressed to Donald K. Hoel,

Esq., Shook, Hardy & Bacon, Mercantile Bank Tower, 1101 Walnut, Kansas City, Missouri,

indicating approval of request to support Dr. Theodore Sterling's research project "provided it is

also approved by four other companies."





Holtzman, Esq., Philip Morris; Wayne W. Juchatz, Esq., Reynolds; Josiah S. Murray III, Liggett;

Ernest Pepples, Esq, Brown & Williamson; Paul A. Randour, Esq., American; and Arthur J.

Stevens, Esq., Lorillard, from Donald K. Hoel, Esq., Shook, Hardy & Bacon, 1101 Walnut,

Kansas City, Missouri, counsel to CTR. The letter advised the Cigarette Companies to continue

funding through CTR research by a "Special Project" scientist.




29

71. Racketeering Act No. 71: On or about April 23, 1986, defendant PHILIP


a letter from Eric A. Taussig, Esq., Assistant General Counsel, Philip Morris Companies,

addressed to Dr. Paul C. Mele, 3205 Whispering Pines Drive, Silver Spring, Maryland. The letter

alleged that Dr. Mele had violated a confidentiality agreement with Philip Morris and warned that

"[i]n the future, you are expected to comply" with the agreement.




addressed to Dr. Victor J. DeNoble, 5603 Fox Run Drive, Plainsboro, New Jersey. The letter

alleged that Dr. DeNoble had violated a confidentiality agreement with Philip Morris and warned

that "[i]n the future, you are expected to comply" with the agreement.

73. Racketeering Act No. 73: On or about September 4, 1986, defendants PHILIP




Holtzman, Esq., Philip Morris; Wayne W. Juchatz, Esq., Reynolds; Josiah S. Murray III, Liggett;

Ernest Pepples, Esq, Brown & Williamson; Paul A. Randour, Esq., American; and Arthur J.

Stevens, Esq., Lorillard, from Patrick M. Sirridge, Esq., Shook, Hardy & Bacon, 1101 Walnut,

Kansas City, Missouri, advising the companies to continue funding research by a former "Special

Project" scientist through the "Shook, Hardy & Bacon Special Account."




30




addressed to Dr. Paul C. Mele, 3205 Whispering Pines Drive, Silver Spring, Maryland. The letter

alleged that Dr. Mele and Dr. DeNoble had violated their respective confidentiality agreements

with Philip Morris and stated that "The Company cannot tolerate this kind of conduct. . . . Any

further breach of your agreement will result in action being taken."




addressed to Dr. Victor J. DeNoble, 5603 Fox Run Drive, Plainsboro, New Jersey. The letter

alleged that Dr. DeNoble and Dr. Mele had violated their respective confidentiality agreements

with Philip Morris and stated that "The Company cannot tolerate this kind of conduct. . . . Any

further breach of your agreement will result in action being taken."

76. Racketeering Act No. 76: From about April 1, 1988, through about June 30,

1988, defendant REYNOLDS caused an advertisement for Camel cigarettes to be placed in

various print media, including the "Sporting News and other Jumbo Jr. Size Magazines," which

magazines were then sent and delivered by the United States mails to subscribers and others. This

advertisement was captioned "Get On Track With Camel's 75th Birthday!" and depicted the Joe

Camel character in a Formula One-type automobile racing suit, opening a bottle of champagne,

with racing cars whizzing by in the background.




31




to be sent and delivered by the United States mails letters separately addressed to Alexander

Holtzman, Esq., Philip Morris; Wayne W. Juchatz, Esq., Reynolds; Josiah Murray III, Esq.,

Liggett; Ernest Pepples, Esq., Brown & Williamson; Paul Randour, Esq., American; and Arthur J.

Stevens, Esq., Lorillard, from Bernard V. O'Neill, Jr., Esq., Shook, Hardy & Bacon, One Kansas

City Place, 1200 Main Street, Kansas City, Missouri. The letter recommended funding Dr. Alvan

Feinstein's work in clinical epidemiology as a CTR Special Project for two years.



a letter from Philip Morris Companies employee Helen Frustace addressed to Bernard V. O'Neill,

Jr., Esq., Shook, Hardy & Bacon, One Kansas City Place, 1200 Main Street, Kansas City,

Missouri, indicating approval Dr. Rodger L. Bick's request for a one-year extension of the funding

for his CTR Special Project.











32

a letter from Philip Morris Companies employee Helen Frustace addressed to Donald K. Hoel,

Esq., Shook, Hardy & Bacon, One Kansas City Place, 1200 Main Street, Kansas City, Missouri

64105. The letter indicated the approval of Alexander Holtzman, Esq., Philip Morris Companies,

to renew Dr. Carl Seltzer's CTR Special Project funding.






82. Racketeering Act No. 82: On or about August 18, 1988, defendant REYNOLDS

did knowingly cause to be sent and delivered by the United States mails a letter from Reynolds

employee Jo F. Spach addressed to Mr. Anthony A. Christina, 815 188th Street, Court E,

Spanaway, WA 98387. The letter denied any causal link between smoking and disease.


defendant REYNOLDS caused a multi-page advertisement for Camel cigarettes to be placed in

various print media, including Sports Illustrated, which magazines were then sent and delivered by

the United States mails to subscribers and others. The second page of the advertisement, which

was captioned, "Some have it. Most don't," stated, "You can have it free!" and contained a

coupon for a free pack of Camels. The advertisement depicted Joe Camel in the foreground, with

a beautiful woman sitting on the hood of a convertible automobile in the background.


defendant REYNOLDS caused advertisements for Camel cigarettes, to be placed in various print




33

media, including magazines, which magazines were then sent and delivered by the United States

mails to subscribers and others. The advertisements were part of Program No. 900162, which

involved "buy one, get one free coupons" and included the following advertisements:

a. An advertisement with the words "Bored? Lonely? Restless? What you need

is . . . ." This advertisement featured the face of a beautiful woman gazing at the reader.

b. An advertisement captioned "Camel Smooth Moves." One such advertisement

offered "Smooth Move #325 - Foolproof Dating Advice," and "Smooth Move #334 - How to

impress someone at the beach." The "Foolproof dating advice" concluded with "[a]lways break

the ice by offering her a Camel." The "advice" concerning the beach facetiously suggested that

the reader "[r]un into the water, grab someone and drag her back to the shore, as if you've saved

her from drowning. The more she screams, the better" and "[a]lways have plenty of Camels ready

when the beach party begins."

c. An advertisement captioned "Smooth Move #437 - How to get a FREE pack even

if you don't like to redeem coupons."

85. Racketeering Act No. 85: On or about January 11, 1990, defendant

REYNOLDS did knowingly cause to be sent and delivered by the United States mails a letter

addressed to Principal, Willow Ridge School, Amherst, New York, from Jo F. Sprach, Manager,

Public Relations Department, Reynolds, claiming that defendants, in a sincere attempt to

determine what harmful effects, if any, smoking might have on human health, established CTR,

claiming that scientists do not know the causes of the chronic diseases reported to be associated

with smoking, and stating that Reynolds intends to continue to support scientific research in a




34

continuing search for answers. The letter asked the recipient to pass this information along to her

students.

86. Racketeering Act No. 86: On or about March 5, 1990, defendant REYNOLDS

did knowingly cause to be sent and delivered by the United States mails a letter addressed to

Mark Green, New York City Commissioner of Consumer Affairs, from James W. Johnston,

Chairman and CEO of Reynolds. In response to a letter sent by Green to Louis V. Gerstner, Jr.,

Chairman and CEO of RJR Nabisco (predecessor to RJR Tobacco Holdings), in which Green had

complained about the design of the "Joe Camel" advertising campaign in such a manner as to

appeal to youths, Johnston stated that it "has long been an R.J. Reynolds policy not to induce

youths to smoke," further stating that, as CEO of Reynolds, "I have reinforced this policy," and "I

see no basis to conclude that R.J. Reynolds has conducted itself in an unethical, illegal or

misleading manner."





statements suggesting that Cigarette Companies actively discourage smoking by young people.

88. Racketeering Act No. 88: On or about August 31, 1990, defendants PHILIP



to be sent and delivered by the United States mails letters addressed separately to Wayne W.

Juchatz, Esq., Reynolds; Josiah S. Murray III, Esq., Liggett; Ernest Pepples, Esq, Brown &




35

Williamson; Paul A. Randour, Esq., American; Arthur J. Stevens, Esq., Lorillard; Charles R. Wall,

Esq., Philip Morris Companies, from Patrick M. Sirridge, Esq., Shook, Hardy & Bacon, 1200

Main Street, Kansas City, Missouri 64105, advising that the Companies fund research to be

conducted by a scientist who generated favorable results for defendants.

89. Racketeering Act No. 89: On or about September 18, 1990, defendant


addressed to Joanna Brown, from Joan F. Cockerham of the Reynolds Public Relations

Department. Responding to concerns expressed by Ms. Brown about the "Joe Camel" ad

campaign appealing to youth, the letter stated, "Our intention with this campaign, as with all of

our advertising, is to appeal only to adult smokers. We would not have launched the current

Camel campaign if we thought its appeal was to anyone other than this group."

90. Racketeering Act No. 90: On or about October 2, 1990, defendant

AMERICAN did knowingly cause to be sent and delivered by the United States mails a letter

addressed to Patrick M. Sirridge, Esq., Shook, Hardy & Bacon, 1200 Main Street, Kansas City,

Missouri 64105, from Paul A. Randour, Esq., American Vice President and General Counsel,

approving payment to a "Special Project" researcher.



defendant TOBACCO INSTITUTE, did knowingly cause a press release entitled "Major New

Initiatives to Discourage Youth Smoking Announced" to be sent and delivered by the United

States mails to newspapers and news outlets. This press release contained statements suggesting

that defendants had a "longstanding policy" of discouraging and preventing smoking by youth.




36

92. Racketeering Act No. 92: On or about June 4, 1991, defendant PHILIP


a letter from Philip Morris Companies' Charles R. Wall, Esq., Vice President and Associate

General Counsel, in New York, to: Philippa J. Casingena, Esq., British American Tobacco

Company Ltd., England; John Evans, Esq., Ashurst Morris Crisp, England; Marion Funck, Esq.,

Reemtsma Cigaretten Fabriken GmbH, Germany; Alan D. Porter, Esq., Imperial Tobacco

Limited, England; and James W. Seddon, Esq., Rothmans International Limited, in which Mr.

Wall enclosed "a brief statement and a somewhat longer statement discussing the 'risk factor'

language" relating defendants' position on the health effects of smoking.




by the United States mails addressed to newspapers and news outlets. This press release

contained statements suggesting that the majority of smokers in the United States are of legal age

when they begin smoking and that defendants have discouraged youth smoking.

94. Racketeering Act No. 94: On or about January 28, 1992, defendant


addressed to James Harrison, President of the Vermont Retail Grocers Association, from Yancey

W. Ford, Jr., Executive Vice President for Sales of Reynolds, stating "R.J. Reynolds Tobacco Co.

does not want youth to smoke" and denying in substance that the "Joe Camel" advertising

campaign was directed at youth.




37



a letter from Charles R. Wall, Esq., Vice President and Associate General Counsel, Philip Morris

Companies, addressed to Bernard O'Neill, Esq., Shook, Hardy & Bacon, 1200 Main Street,

Kansas City, Missouri. The letter accompanied a check representing Philip Morris' contribution

to the research efforts of Theodor D. Sterling.

96. Racketeering Act No. 96: On or about August 28, 1992, defendant REYNOLDS

did knowingly cause to be sent and delivered by the United States mails a letter addressed to Dr.

Francis A. Neelon, Editor of the North Carolina Medical Journal, purporting to be from Dr.

Robert G. Fletcher, Medical Director of Reynolds, but bearing a handwritten notation on the copy

retained by Reynolds stating that it was "written by SWM for Dr. Fletcher," complaining about an

article in the North Carolina Medical Journal, and stating about the author of the article, "He

claims the tobacco industry spends huge amounts of money promoting its products to youth. This

is blatantly false. None of Reynolds Tobacco's product advertising or promotions are directed

toward anyone under the legal age to smoke."


defendant REYNOLDS caused an advertisement captioned "Camel Lights" to be placed in

various print media, including Sports Illustrated, a magazine, which magazines were then sent and

delivered by the United States mails to subscribers and others. The advertisement depicted Joe

Camel wearing sunglasses, a tee shirt, and blue jeans, with a pack of cigarettes rolled up in his

sleeve and a lit cigarette hanging from his mouth, and casually leaning against a convertible

automobile.




38



defendant COUNCIL FOR TOBACCO RESEARCH, did knowingly cause to be sent and

delivered by the United States mails letters addressed separately to Wayne W. Juchatz, Esq.,

Reynolds; Ernest Pepples, Esq., Brown & Williamson; Gilbert L. Klemann, II, Esq., American;

Arthur J. Stevens, Esq., Lorillard; and Charles R. Wall, Esq., Philip Morris Companies, from

Bernard V. O'Neill, Jr., Esq., Shook, Hardy & Bacon, 1200 Main Street, Kansas City, Missouri

64105, advising that the Cigarette Companies continue to fund research to be conducted by a

scientist who generated favorable results for defendants and seeking financial contributions in

proportion to each Cigarette Company's "market share" to support such research.

99. Racketeering Act No. 99: On or about November 12, 1993, defendant


addressed to Mr. Mark E. Smith, 26582 Mocine Avenue, Hayward, California 94544, from

Reynolds employee Catherine Clinton. The letter denied the existence of any proof that smoking

causes lung cancer, heart disease, or emphysema, and asserted that "a cause and effect

relationship between smoking and disease has not been established."

100. Racketeering Act No. 100: In or about December 1994, the exact date being

unknown, defendant PHILIP MORRIS did knowingly cause a press release to be sent and

delivered by the United States mails to newspapers and news outlets. This press release stated

that "Philip Morris is taking aggressive steps to keep cigarettes out of the hands of young people"

and that the company sought to eliminate access to cigarettes by minors.




39

101. Racketeering Act No. 101: On or about October 31, 1996, defendant BAT

INDUSTRIES (predecessor to BAT P.L.C.) did knowingly cause to be transmitted in interstate

commerce by means of the mails comments for publication in the Wall Street Journal, which

newspaper was then sent and delivered by the United States mails to subscribers and others. The

Chief Executive of BAT Industries, Martin Broughton, denied charges that BAT Industries,

including its Brown & Williamson subsidiary, concealed research linking smoking and disease. He

stated: "We haven't concealed, we do not conceal and we will never conceal. We have no internal

research which proves that smoking causes lung cancer or other diseases or, indeed, that smoking

is addictive."


defendant REYNOLDS caused multi-page advertisements captioned "Take a Rockin' Road Trip"

and "Go ahead, it's on me," to be placed in various print media, including magazines which were

then sent and delivered by the United States mails to subscribers and others. The advertisements

depicted Joe Camel and offered gift certificates in the amount of $25 to purchase tickets "to just

about any Ticketmaster event," in exchange for 100 Camel Cash C-Notes.

All in violation of Title 18, United States Code, Sections 1341, and 2.

RACKETEERING ACTS RELATING TO WIRE FRAUD

103. Racketeering Act No. 103: On or about July 3, 1963, defendant BROWN &

WILLIAMSON did knowingly cause to be sent by cable, and BRITISH-AMERICAN

TOBACCO COMPANY (predecessor to BAT INVESTMENTS) received, a message from

Addison Yeaman, Esq., Brown & Williamson General Counsel, to A.D. McCormick, Esq., BAT

Co., in London, England, with copies to Messrs. Finch, Wade, and Griffith, reporting that W.T.




40

Hoyt, Executive Director of the TIRC had agreed to withhold a Battelle report from TIRC

members or the Scientific Advisory Board, and further agreed that submitting certain information

to the Surgeon General would be "undesirable."

104. Racketeering Act No. 104: On or about July 22, 1970, defendant LORILLARD

did knowingly cause to be sent by telegram, and defendant REYNOLDS did receive, a message

from Arthur J. Stevens, Esq., Lorillard General Counsel, to Henry Ramm, Esq., Reynolds Vice

President and General Counsel, transmitting Lorillard's agreement to participate in a CTR Special

Project that involved sponsoring a conference on the benefits of smoking.

105. Racketeering Act No. 105: On or about January 3, 1971, defendant PHILIP

MORRIS did knowingly cause to be transmitted on the nationally televised CBS program Face

the Nation, air date January 3, 1971, statements before a live television and radio audience by

Joseph Cullman III, President and CEO of Philip Morris, that misrepresented Philip Morris'

funding of independent research and denied that cigarettes are hazardous or pose a hazard to

pregnant women or their infants.

106. Racketeering Act No. 106: On or about September 16, 1976, defendants

BROWN & WILLIAMSON did knowingly cause to be transmitted, and BRITISH-AMERICAN

TOBACCO COMPANY (predecessor to BAT INVESTMENTS) did receive, a letter cable

addressed to G.C. Hargrove, BAT Co., London, England, from Ernest Pepples, Esq., Brown &

Williamson, counseling BAT to maintain the same position in England as Brown & Williamson

maintained in America that the use of tobacco is not unduly dangerous.

107. Racketeering Act No. 107: On or about February 25, 1981, defendant

REYNOLDS did knowingly cause to be sent by telex a message from Reynolds' employee Frank




41

Colby addressed to Wilfried Dembach, Cologne, Germany, discussing the disciplining of a

company employee who admitted publicly that smoking plays a significant role in causing cancer.

108. Racketeering Act No. 108: On or about October 26, 1983, defendants BAT

INDUSTRIES (predecessor to BAT P.L.C.)and PHILIP MORRIS did knowingly cause to be

transmitted a telephone conversation between BAT Industries employee Eric Alfred Albert Bruell,

Esq., and Philip Morris Vice President Hugh Cullman, in which the participants agreed to

continue the Cigarette Companies' internal agreement not to compete with one another on issues

relating to smoking and health.


MORRIS did knowingly cause to be transmitted the testimony of the President and Chief

Executive Officer of Philip Morris, William I. Campbell, which was presented at a nationally

televised hearing of the House Subcommittee on Health and the Environment. During this

hearing, Mr. Campbell denied that nicotine is addictive, denied that Philip Morris research

establishes that smoking is addictive, and denied that Philip Morris manipulates the amount of

nicotine contained in cigarettes.

110. Racketeering Act No. 110: On or about April 14, 1994, defendant REYNOLDS

did knowingly cause to be transmitted the testimony of the Chairman and Chief Executive Officer

of Reynolds, James Johnston, which was presented at a nationally televised hearing of the House

Subcommittee on Health and the Environment. During this hearing, Mr. Johnston denied that

nicotine is addictive and denied that Reynolds manipulates the amount of nicotine contained in

cigarettes.




42

111. Racketeering Act No. 111: On or about April 14, 1994, defendant

LORILLARD did knowingly cause to be transmitted the testimony of the Chief Executive Officer

of Lorillard, Andrew H. Tisch, which was presented at a nationally televised hearing of the House

Subcommittee on Health and the Environment. During this hearing, Mr. Tisch denied that

Lorillard manipulates the amount of nicotine contained in cigarettes.

112. Racketeering Act No. 112: On or about April 14, 1994, defendant LIGGETT

did knowingly cause to be transmitted the testimony of the Chairman and Chief Executive Officer

of Liggett, Edward A. Horrigan, Jr., which was presented at a nationally televised hearing of the

House Subcommittee on Health and the Environment. During this hearing, Mr. Horrigan denied

that Liggett manipulates the amount of nicotine contained in cigarettes.

113. Racketeering Act No. 113: On or about April 14, 1994, defendant AMERICAN

did knowingly cause to be transmitted the testimony of the Chief Executive Officer of American,

Donald S. Johnston, which was presented at a nationally televised hearing of the House

Subcommittee on Health and the Environment. During this hearing, Mr. Johnston denied that

American manipulates the amount of nicotine contained in cigarettes.


MORRIS did knowingly cause to be transmitted a telefax letter addressed to The Honorable

Henry Waxman, Chairman, Subcommittee on Health and the Environment, Committee on Energy

and Commerce, 2415 Rayburn House Office Building, Washington, D.C. 20515-6118, from Dr.

Cathy Ellis, Director of Research, Philip Morris. The letter denied that nicotine causes addiction,

based on a definition of addiction overwhelmingly rejected by public and mental health




43

professionals: "intoxication, pharmacological tolerance, and physical dependence in a manner that

would impair the smokers' ability to exercise a free choice to continue or to quit smoking."

115. Racketeering Act No. 115: On or about April 27, 1995, defendant BROWN &

WILLIAMSON did transmit and cause to be transmitted a telephone call placed by Brown &

Williamson employee Melanie Gnadinger to Brown & Williamson Japan employee Hiromi Mikami

in furtherance of defendants' public assertions that smoking does not cause disease.


defendant BROWN & WILLIAMSON did knowingly cause to be posted on the Brown &

Williamson Internet web site a document entitled "Hot Topics: Smoking and Health Issues."

Although Brown & Williamson recognized "that, by some definitions, including that of the

Surgeon General in 1988, cigarette smoking would be classified as addictive," the company

stated:

Brown & Williamson believes that the relevant issue should not be

how or whether one chooses to define cigarette smoking as

addictive based on an analysis of all definitions available. Rather,

the issue should be whether consumers are aware that smoking may be difficult to quit (which they are) and whether there is anything in

cigarette smoke that impairs smokers from reaching and

implementing a decision to quit (which we believe there is not).

All in violation of Title 18, United States Code, Sections 1343 and 2.




Case No. 14-56140




v.







Exhibit 2





DISTRICT OF NEW JERSEY

________________________________________ xIN RE: INSURANCE BROKERAGEANTITRUST LITIGATION

APPLIES TO ALL COMMERCIALINSURANCE BROKERAGE ACTIONS

:::::::

MDL No. 1663

Civil No. 04-5184 (GEB)

Hon. Garrett E. Brown, Jr.

JURY TRIAL DEMANDED

________________________________________ x

SECOND CONSOLIDATED AMENDED

COMMERCIAL CLASS ACTION COMPLAINT

* * REDACTED VERSION * *

Case 2:04-cv-05184-CCC-JAD Document 1240 Filed 06/29/07 Page 1 of 213 PageID: 33971Case: 14-56140 10/22/2014 ID: 9287316 DktEntry: 12 Page: 143 of 605



TABLE OF CONTENTS

1) INTRODUCTION. ..............................................................................................................1

2) JURISDICTION AND VENUE ..........................................................................................1

3) PARTIES ............................................................................................................................2

1 Plaintiffs...................................................................................................................2

2 Defendants ...............................................................................................................9

a) Broker Defendants .......................................................................................9

b) Insurer Defendants .....................................................................................12

A. STATEMENT OF FACTS .......................................................................................................18

1) The Antitrust Claims .............................................................................................18

a) Overview of the Antitrust Claims..............................................................18

b) The Commercial Brokerage and Insurance Markets in theUnited States ..............................................................................................20

c) The Rise of Contingent Commissions and Their Role inthe Customer Allocation Schemes Alleged Herein ...................................23

d) Overview of the Conspiracies....................................................................26

e) Operation of the Broker Centered Conspiracies ........................................30

(1) The Marsh Broker-Centered Conspiracy .......................................30

(a) Participants in the Conspiracy ...........................................30

(b) Operation of the Conspiracy ............................................31

(i) The Participants in the MarshBroker-Centered ConspiracyAgreed that the Bulk of Marsh’sCustomers would be Allocated tothe Conspiring Insurers..........................................32

i




(ii) The Participants in the MarshBroker-Centered ConspiracyAgreed not to Compete for eachothers’ Customers ..................................................35

(iii) Marsh and Its Preferred CarriersConspired to Protect EachOther’s Incumbent Business ThroughBid-Rigging and Other Overt Acts ........................37

(iv) Marsh and Its Preferred CarriersAgreed that In Return for ContingentCommission Payments, The InsurerWould Be Guaranteed Access to aSpecific Amount of Premium Volume ..................42

(v) The Insurer Defendants Understoodtheir Role in the Conspiracy and WereDisciplined if they Did Not Go Along...................44

(vi) Communications Among theParticipants in the Marsh Broker-Centered Conspiracy FacilitatedBy Marsh Furthered the Conspiracy......................45

(vii) The Co-Conspirators benefited fromThe Operation of the Conspiracy...........................48

(2) The AON Broker-Centered Conspiracy.........................................49


(b) Operation of the Conspiracy ..............................................49

(i) The Participants in the Aon Broker-Centered Conspiracy Agreed that theBulk of Aon’s Book of BusinessWould Be Allocated to Aon’sStrategic Partners in Exchange forContingent Commission Payments........................50

(ii) The Insurer Participants Agreed toRefrain from Competing for EachOthers’ Customers and Expected Aonto Protect their Renewal Businessfrom Competition...................................................53

ii




(iii) The Participants Agreed that in Return

for their Contingent CommissionPayments, They Would Be GuaranteedAccess to a Minimum Amount of

Premium Volume...................................................54

(iv) Aon Monitored and Enforced theTerms of the Conspiracy........................................58

(v) Communications Among the Participantsin the Aon Broker-Centered Conspiracy,Facilitated by Aon, Made the ConspiracyPlausible.................................................................58

(vi) The Co-Conspirators Benefited from the

Operation of the Conspiracy ..................................60

(3) The Wells Fargo/Acordia Broker-Centered Conspiracy................60



(i) The Participants in the Wells Fargo/AcordiaBroker-Centered Conspiracy Agreed that aSubstantial Portion of its Customers would be Allocated to the Conspiring Insurers.................61

(ii) The Conspiring Insurers Agreed not toCompete With Each Other for the WellsFargo/Acordia Business.........................................64

(iii) The Insurer Defendants Knew EachOthers’ Roles in the Conspiracy ............................65

(iv) The Co-Conspirators Benefited fromThe Wells Fargo/Acordia Conspiracy ...................67

(4) The HRH Broker-Centered Conspiracy.........................................68



iii




(i) The Participants in the HRH Broker-Centered Conspiracy Agreed that aLarge Portion of HRH’s CustomersWould be Allocated to the ConspiringInsurers...................................................................69

(ii) The Three Conspiring Insurers Agreednot to Compete with Each Other forthe HRH Business..................................................70

(iii) The Insurer Defendants Knew EachOthers’ Role in the Conspiracy..............................72

(iv) The Co-Conspirators BenefitedFrom the Operation of the Conspiracy...................74

(5) The Willis Broker-Centered Conspiracy .......................................75



(i) The Participants in the Willis Broker-Centered Conspiracy Agreed that aSubstantial Portion of its Customerswould be Allocated to the ConspiringInsurers...................................................................76

(ii) The Conspiring Insurers Agreed notto Compete With Each Other for theWillis Business.......................................................81

(iii) Willis and its Co-Conspirators Agreedthat in Return for Contingent Commissions,the Insurers Would be Guaranteed Accessto Premium Volume...............................................82

(iv) Insurers Understood Their Role AndWere Disciplined By Willis If They Did Not Participate .......................................................85

(v) Communications among the Participantsin the Willis Broker-Centered Conspiracywere Facilitated by Willis ......................................85

iv




(vi) The Co-Conspirators Benefited from theWillis Conspiracy...................................................86

(6) The Gallagher Broker-Centered Conspiracy .................................88



(i) The Participants in the GallagherBroker-Centered Conspiracy Agreedthat the Bulk of Gallagher’s Customerswould be Allocated to the ConspiringInsurers...................................................................89

(ii) The Participants in the Gallagher

Broker-Centered Conspiracy Agreednot to Compete for each other’s Customers...........90

(iii) Communications Among the ParticipantsIn the Gallagher Broker-CenteredConspiracy Facilitated By GallagherFurthered the Conspiracy.......................................93

(iv) The Co-Conspirators benefited fromthe Operation of the Conspiracy ............................94

f) The Global Conspiracy ..............................................................................94

g) The Conspiracies Raised Premium Levels To All MembersOf The Class ..............................................................................................99

2) The RICO Claims .................................................................................................100

a) Overview of the RICO Claims.................................................................100

b) The Broker Defendants’ Duties, Fiduciary Status and Representationsto Their Clients ........................................................................................101

c) Defendants’ Fraudulent Scheme..............................................................105

(1) Defendants’ Active Concealment Practices..................................108

(a) The Broker Defendants and Insurer DefendantsAgreed to Keep Their Contingency CommissionArrangements Secret........................................................109

v




(b) Defendants Fail to Disclose That The Cost of

Contingent Commissions Was Built Into the Priceof Premiums.....................................................................120

(c) The Broker Defendants’ Concerted Actions toPrevent Meaningful Disclosure of TheirContingent Commission Arrangements IsBuilt Into the Price of Premiums .....................................123

(d) Recent Regulatory Investigations RevealThe Misleading Nature of Defendants’Representations and Disclosure Practices........................133

d) Racketeering Allegations .........................................................................142

(1) Enterprise .....................................................................................143

(2) Alternative Enterprise Allegations...............................................146

(a) The CIAB Enterprise .......................................................146

(3) Predicate Acts ..............................................................................152

e) Conspiracy Allegations............................................................................155

f) Injury .......................................................................................................157

3) FRAUDULENT CONCEALMENT ...................................................................158

4) CLASS ACTION ALLEGATIONS....................................................................158

COUNT I - Violation of Section 1 of the Sherman Act By theMarsh Broker-Centered Class Against the MarshBroker-Centered Defendants ...................................................................................161

COUNT II - Violation of Section 1 of the Sherman Act By theMarsh Broker-Centered Class Against the MarshBroker-Centered Excess Casualty Defendants .......................................................162

COUNT III - Violation of Section 1 of the Sherman Act By theAon Broker-Centered Class Against the AonBroker-Centered Defendants .................................................................................163

vi




COUNT IV - Violation of Section 1 of the Sherman Act By theWells Fargo/Acordia Broker-Centered Class Againstthe Wells Fargo/Acordia Broker-Centered Defendants........................................164

COUNT V - Violation of Section 1 of the Sherman Act

By the Gallagher Broker-Centered Class Againstthe Gallagher Broker-Centered Defendants............................................................165

COUNT VI - Violation of Section 1 of the Sherman ActBy the HRH Broker-Centered Class Againstthe HRH Broker-Centered Defendants .................................................................166

COUNT VII - Violation of Section 1 of the Sherman ActBy the Willis Broker-Centered Class Againstthe Willis Broker-Centered Defendants...............................................................166

COUNT VIII - Violation of Section 1 of the Sherman ActAgainst All Defendants.......................................................................................167

COUNT IX - Violation of 18 U.S.C. § 1962(c) AgainstDefendants Associated with the Marsh Enterprise ................................................168

COUNT X - Violation of 18 U.S.C. § 1962(c) AgainstDefendants Associated with the Aon Enterprise ....................................................169

COUNT XI - Violation of 18 U.S.C. § 1962(c) AgainstDefendants Associated with the Willis Enterprise.................................................170

COUNT XII - Violation of 18 U.S.C. § 1962(c) AgainstDefendants Associated with the Gallagher Enterprise.........................................171

COUNT XIII - Violation of 18 U.S.C. § 1962(c) AgainstDefendants Associated with the Wells Fargo/Acordia Enterprise......................172

COUNT XIV - Violation of 18 U.S.C. § 1962(c) AgainstDefendants Associated with the HRH Enterprise...............................................173

COUNT XV - Violation of 18 U.S.C. § 1962(d) AgainstDefendants Associated with the Marsh Enterprise..............................................174

COUNT XVI - Violation of 18 U.S.C. § 1962(d) AgainstDefendants Associated with the Aon Enterprise ...............................................175

COUNT XVII - Violation of 18 U.S.C. § 1962(d) AgainstDefendants Associated with the Willis Enterprise............................................175

vii




COUNT XVIII - Violation of 18 U.S.C. § 1962(d) AgainstDefendants Associated with the Gallagher Enterprise.....................................176

COUNT XIX - Violation of 18 U.S.C. § 1962(d) AgainstDefendants Associated with the Wells Fargo/Acordia Enterprise......................177

COUNT XX - Violation of 18 U.S.C. § 1962(d) AgainstDefendants Associated with the HRH Enterprise................................................178

COUNT XXI - Violation of 18 U.S.C. § 1962(d) AgainstAll Broker Defendants .......................................................................................179

COUNT XXII - Violation of 18 U.S.C. § 1962(c)Against All Defendants.....................................................................................179

COUNT XXIII - Violation of 18 U.S.C. § 1962(d)

Against All Defendants....................................................................................180

COUNT XXIV - State Law Antitrust..........................................................................................181

COUNT XXV - Breach of Fiduciary Duty Against the Broker Defendants ...............................186

COUNT XXVI - Aiding and Abetting Breach of Fiduciary DutyAgainst the Insurer Defendants........................................................................187

COUNT XXVII - Unjust Enrichment Against the Broker and Insurer Defendants....................188

viii




Plaintiffs, pursuant to the Order of the Court dated April 5, 2007, by and through their

undersigned attorneys, allege upon their own knowledge, or where there is no personal

knowledge, upon investigation of counsel or information and belief:

1) INTRODUCTION

1. Plaintiffs, individually and on behalf of the classes defined below, hereby bring the

following claims arising under the Sherman Act, the Racketeering Influenced and Corrupt

Organizations Act (“RICO”), the antitrust laws of various states, and state common law.

2) JURISDICTION AND VENUE

2. This Court has jurisdiction over the subject matter of this action pursuant to 18

U.S.C. §§1961, 1962 and 1964, 28 U.S.C. §§1331, 1332 and 1367, and 15 U.S.C. §15. This

Court has personal jurisdiction over the defendants pursuant to 18 U.S.C. §§1965(b) and (d).

This Court has supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. §1367.

3. Venue is proper in this district pursuant to 18 U.S.C. §1965(a), 28 U.S.C. §1391(b),

§12 of the Clayton Act, 15 U.S.C. §22, and 28 U.S.C. §1391 because some of the Defendants are

found, do business or transact business within this district, and conduct the interstate trade and

commerce described below in substantial part within this district.

4. The trade and interstate commerce relevant to this action is the purchase and sale of

insurance policies and related services.

5. During all or part of the period in which the events described in this Complaint

occurred, each of the defendants sold insurance and related products and services and/or

provided advice regarding the procurement or renewal of insurance or claims administration

relating thereto to plaintiffs and other members of the classes in a continuous and uninterrupted

flow of interstate commerce.

1




6. The activities of defendants and their co-conspirators, as described herein, were

within the flow of, and had a substantial effect on, interstate commerce.

3) PARTIES

a)

Plaintiffs

7. Plaintiff OptiCare Health Systems, Inc. (“OptiCare”) is a corporation incorporated

under the laws of Delaware and has its principal place of business in Waterbury, Connecticut.

OptiCare is an integrated eye care services company that, among other things, provides managed

vision and professional eye care products and services. At all material times herein, OptiCare

was a party to agreements with defendant Marsh USA Inc. (Connecticut) (“Marsh Connecticut”)

and Hilb Rogal & Hobbs Company (“HRH”) for the provision of insurance brokerage services

covering a variety of insurance needs and risks. Under these agreements, Marsh USA Inc.

(Connecticut) placed insurance coverage on OptiCare’s behalf with a number of insurance

companies, including (1) Hartford Fire Insurance Company (a subsidiary of The Hartford

Financial Services Group, Inc. [“Hartford”]) ( “Hartford Fire”), (2) Twin City Fire Insurance Co.

(a subsidiary of Hartford.) ( Twin City”), (3) American International Specialty Lines Insurance

Co. (a subsidiary of American International Group, Inc.[“AIG”]) ( “American Specialty”), (4)

Lexington Insurance Company (a subsidiary of AIG ) (“Lexington”), (5) Travelers Indemnity

Company (“Travelers Indemnity”) a subsidiary of St. Paul Travelers Cos., now known as The

Travelers [“Travelers’]) (“Travelers Indemnity”), and (6) Federal Insurance Co. (a subsidiary of

Chubb Corp. [“Chubb”]) (“Federal Insurance”).

8. Plaintiff Comcar Industries, Inc. (“Comcar”) is a corporation incorporated under the

laws of Florida and has its principal place of business in Auburndale, Florida. Comcar is a

trucking company that, among other things, hauls commodities throughout the United States. At

all material times herein, Comcar was a party to agreements with defendant Marsh USA, Inc.

2




(“Marsh USA”) for the provision of insurance brokerage services covering a variety of insurance

needs and risks. Under these agreements, Marsh USA placed insurance coverage on Comcar’s

behalf with a number of insurance companies, including: (1) American Alternative Insurance

Corporation (a unit of American Re Corporation Group) (“American Alternative”),

(2) Birmingham Fire Insurance Company of Pennsylvania (a subsidiary of AIG) (“Birmingham

Fire”), (3) Lexington , (4) American Guarantee & Liability Insurance Co. (a subsidiary of Zurich

American Insurance Co.[“Zurich”]) (”American Guarantee”), (5) American Home Assurance

Company (a subsidiary of AIG) (“American Home”), (6) National Union Fire Insurance

Company of Pittsburgh, Pa. (a subsidiary of AIG) (“National Union Pittsburgh”), (7) Insurance

Co. of the State of Pennsylvania (a subsidiary of AIG) (“Insurance of Pennsylvania”), and (8)

Twin City.

9. Plaintiff Sunburst Hospitality Corporation (“Sunburst”), at all material times herein,

was a party to agreements with Marsh USA , Aon Risk Services, Inc. of Maryland (“Aon Risk

Maryland”), and Willis of New York, Inc. (formerly Willis Corroon Corp. of New York and

hereafter “ Willis New York”) for the provision of insurance brokerage services covering a

variety of insurance needs and risks. Under these agreements, Marsh USA placed insurance

coverage with a number of insurance companies, including (1) Lexington, (2) Crum & Forster (a

subsidiary of Crum & Forster Holdings Corp. (“Crum & Forster Holdings”), (3) Travelers, (4)

Zurich, (5) St. Paul Fire & Marine Insurance Co. (a subsidiary of Travelers) (“ St. Paul Fire”),

(6) Hartford, and (7) Westchester Surplus Lines Insurance Co. (a subsidiary of ACE

Ltd.[“ACE”]) (“Westchester Surplus”). Aon Risk Maryland also placed insurance coverage with

a number of insurance companies, including: (1) (a) Wausau Insurance Companies; (b) Wausau

Underwriters Insurance Company; and (c) Employers Insurance of Wausau (all subsidiaries

3




and/or affiliates of Liberty Mutual Holding Company, Inc. (“Liberty Mutual Holdings”), (2) Gulf

Insurance Co. (a subsidiary of Travelers) (“Gulf”), (3) Travelers, and (4) National Union Fire

Ins. Co. (a subsidiary of AIG) (“National Union”). Willis New York also placed insurance

coverage with a number of insurance companies, including (1) National Union, and (2) St. Paul

Fire.

10. Plaintiff Robert Mulcahy (“Mulcahy”), at all material times herein was an

independent contractor and a party to agreements with Arthur J. Gallagher & Co. (“AJG”),

through his employer Vestax Securities Corp., for the provision of insurance brokerage services

covering a variety of insurance needs. Under these agreements, AJG placed insurance coverage

with a number of insurance companies, including National Union Pittsburgh.

11. Plaintiff Golden Gate Bridge, Highway and Transportation District (“Golden Gate”)

is a multi-county political subdivision of the State of California. It operates the Golden Gate

Bridge and two public transit systems: The Golden Gate Transit bus system and the Golden Gate

Ferry. At all material times herein, Golden Gate was a party to agreements with Marsh Risk &

Insurance Services, a division of Marsh, Inc. (“Marsh Risk”) for the provision of insurance

brokerage services covering a variety of insurance needs. Under these agreements, Marsh Risk

placed insurance coverage on Golden Gates’s behalf with a number of insurance companies,

including (1) American Specialty , (2) Illinois Union Insurance Co. (a subsidiary of ACE)

(“Illinois Union”), (3) Indemnity Insurance Co. of North America (a subsidiary of ACE)

(“Indemnity Ins.”), (4) Steadfast Insurance Co. (a subsidiary of Zurich (“Steadfast”),

(5) National Union Pittsburgh, (6) Lexington, (7) American Home, (8) Westchester Surplus,

(9) Fidelity & Deposit Company of Maryland (a subsidiary of Zurich) (“Fidelity & Deposit”),

(10) Hartford Steam Boiler Inspection and Insurance Co. (a subsidiary of AIG (“Hartford

4




Steam”), (11) United States Fire Insurance Co. (a subsidiary of Crum & Forster Holdings (“US

Fire”), (12) Pacific Insurance Co., Ltd. (a subsidiary of Hartford) (“Pacific Ins.”), (13) Mt.

Hawley Insurance Co. (a subsidiary of RLI Corp. [“RLI”]) (“Mt. Hawley”), (14) The Continental

Insurance Co. (a subsidiary of CNA Financial Corp. [“CNA”]) (“Continental Ins.”), (15) Zurich,

(16) Empire Fire & Marine Insurance Co. (a subsidiary of Zurich) (“Empire Fire”), and (17) St.

Paul Mercury Insurance Co. (a subsidiary of Travelers (“St. Paul Mercury”).

12. Plaintiff Glenn Singer (“Singer”) at all material times herein was a party to

agreements with Marsh USA for the provision of insurance brokerage services covering a variety

of insurance needs and risks. Under these agreements, Marsh USA placed insurance coverage on

Singer’s behalf with a number of insurance companies, including, among others: (1) American

Home, (2) American International Insurance Company (a subsidiary of AIG) (“American

International”), (3) Insurance of Pennsylvania (AIG, (4) AIU Insurance Company (a subsidiary

of AIG), (“AIU”) (5) Lexington and (6) Chubb. .

13. Plaintiff Redwood Oil Company (“Redwood”), at all material times herein, was a

party to agreements with Gallagher Hefferman Insurance Brokers, a division of AJG, for the

provision of insurance brokerage services. Under these agreements, AJG placed insurance

coverage on Redwood’s behalf with a number of insurance companies, including (1) Commerce

and Industry Insurance Co. (a subsidiary of AIG) (“Commerce and Industry”), and (2) New

Hampshire Insurance Company (a subsidiary of AIG) (“NH Insurance”).

14. Plaintiff The Omni Group of Companies (“Omni”) is an affiliation of businesses

with its principal place of business in Phoenix, Arizona. For purposes of this Complaint, Omni

includes its affiliated companies, namely Dominion Pacific Commercial, L.L.C., a construction

company offering consultation, cost analysis, construction drawing supervision, design/build and

5




turnkey construction for ground-up commercial buildings and commercial tenant improvements.

Omni is a full service real estate firm that also provides assistance to institutions turning around

troubled properties for leasing or sale. Omni was a party to agreements with Acordia, Inc.

(“Acordia”) for the provision of insurance brokerage services covering a variety of insurance

needs. Under these agreements, Acordia placed insurance coverage on Omni’s behalf with a

number of insurance companies, including (1) Fireman’s Fund Insurance Company (a subsidiary

of Allianz AG) (“Fireman’s Fund”), (2) RLI Insurance Company (a subsidiary of RLI), and (3)

Mt. Hawley.

15.

Plaintiff Bayou Steel Corporation (“Bayou”), at all material times herein, was a

party to agreements with Aon Risk Services Inc. of Louisiana (“Aon Risk Louisiana”), Aon Risk

Services of Texas, Inc. (“Aon Risk Texas”) and Marsh USA, for the provision of insurance

brokerage services covering a variety of insurance needs. Under these agreements, Aon Risk

Louisiana and/or Aon Risk Texas placed insurance coverage on Bayou’s behalf with a number of

insurance companies, including: (1) ACE USA, Inc. (a subsidiary of ACE ) (“ACE USA”),

(2) American Guarantee, (3) American Specialty, (4) Executive Risk Indemnity Inc. (a

subsidiary of Chubb) (“Executive Risk”), (5) Federal Insurance (6) Gulf), (7) National Union

Fire Insurance Co. of Louisiana (a subsidiary of AIG) (“National Union Louisiana”), (8) Nutmeg

Insurance Co. (a subsidiary of Hartford) (“Nutmeg Ins.”), (9) St. Paul Fire, (10) Greenwich

Insurance Co. (a subsidiary of XL Capital Ltd. [“XL]) (“Greenwich Ins.”), and (11) Indian

Harbor Insurance Co. (a subsidiary of XL) (“Indian Harbor”). Also, Marsh USA placed

insurance coverage on Bayou’s behalf with a number of insurance companies, including:

(1) ACE American Insurance Co. (a subsidiary of ACE) (“Ace American”), (2) ACE USA,

(3) American Guarantee, (4) Commerce and Industry Co., (5) Executive Risk, (6) Federal

6




Insurance, (7) Gulf, (8) Lexington, (9) National Union Pittsburgh, (10) National Union

Louisiana, (11) St. Paul Fire, (12) Twin City, (13) Wausau Underwriters Insurance Company and

Employers Insurance of Wausau, and (14) Indian Harbor.

16. Plaintiff Clear Lam Packaging, Inc. (“Clear Lam”), at all material times herein was

a party to agreements with Arthur J. Gallagher Risk Management Services, Inc. (AJG Risk”), a

subsidiary of AJG (“AJG Risk”), for the provision of insurance brokerage services covering a

variety of insurance needs. Under these agreements, AJG Risk placed insurance coverage on

Clear Lam’s behalf with a number of insurance companies, including: (1) Travelers Casualty &

Surety Company of America (a subsidiary of Travelers) (“Travelers Casualty”), (2) National

Surety Corp. (a subsidiary Fireman’s Fund) (“National Surety”), (3) Twin City, (4) Zurich , and

(5) Liberty Mutual Fire Insurance Company (a subsidiary of Liberty Mutual Holding) (“Liberty

Mutual Fire”).

17. Plaintiff Cellect, LLC (“Cellect”), at all material times herein, was a party to

agreements with Marsh USA for the provision of insurance brokerage services covering a variety

of insurance needs. Under these agreements, Marsh placed insurance coverage on Cellect’s

behalf with a number of insurance companies, including, among others: (1) AIG, (2) Travelers,

and (3) Zurich.

18. Plaintiff The Enclave, LLC (“Enclave”), at all material times herein, was party to

agreements with USI Insurance Services of Florida, Inc., d/b/a/ USI Florida (“USI”) for the

provision of insurance brokerage services covering a variety of insurance needs. Under these

agreements, USI placed insurance coverage on Enclave’s behalf with a number of insurance

companies, including Empire Indemnity Insurance Co. (a subsidiary of Zurich) (“Empire

Indemnity”).

7




19. Plaintiff Gateway Club Apartments, Ltd. (“Gateway”), at all material times herein,

was party to agreements with USI for the provision of insurance brokerage services covering a

variety of insurance needs. Under these agreements, USI placed insurance coverage on

Gateway’s behalf with a number of insurance companies, including (1) Federal Insurance,

(2) Lexington, (3) Gulf., (4) Continental Casualty Co. (a subsidiary of CNA) (Continental

Casualty”), (5) Athena Assurance Company (a subsidiary of Travelers (“Athena Assurance”),

(6) American Guarantee, (7) Vigilant Insurance Co. (a subsidiary of Chubb) (“Vigilant Ins.”),

and (8) Mt. Hawley.

20.

Plaintiff Michigan Multi-King Inc. (“Michigan Multi-King”), at all material times

herein, was a party to agreements with Aon Risk Services, Inc. of Michigan (“Aon Risk

Michigan”) for the provision of insurance brokerage services covering a variety of insurance

needs and risks. Under these agreements, Aon Risk Michigan placed insurance coverage on

Michigan Multi-King’s behalf with a number of insurance companies, including: (1) Travelers

Casualty & Surety Company of America (a subsidiary of Travelers) (“Travelers Casualty”),

(2) St. Paul Fire, and (3) Federal Insurance.

21. Plaintiff City of Stamford (“Stamford”) is a municipal corporation incorporated

under the laws of the State of Connecticut. At all material times herein, Stamford was a party to

agreements with defendant Marsh USA., and/or Marsh McLennan, Inc., (collectively in this

paragraph “Marsh”) for the provision of insurance brokerage services covering a variety of

insurance needs and risks. Under these agreements, Marsh placed insurance coverage on

Stamford’s behalf with a number of insurance companies, including, among others:

(1) American International Marine Agency of NY (a division of AIG), (2) Hartford Fire, (3) The

8




Hartford Fidelity and Bonding (a subsidiary of Hartford) (“Hartford Fidelity”), (4) Lexington,

(5) St Paul Fire, (6) Travelers Casualty, (7) Westchester Surplus, and (8) Zurich.

22. Plaintiff Belmont Holdings Corporation (“Belmont”), or a predecessor, affiliated

company R.P.G. Holding Inc., at all material times herein, was a party to agreements with Willis

Group Holdings Limited for the provision of insurance brokerage services covering a variety of

insurance needs and risks. Under these agreements, Willis Group Holdings Limited (“Willis

Group”) placed insurance coverage on Belmont’s behalf with a number of insurance companies,

including (1) National Union Pittsburg , (2) American Home (3) Insurance of Pennsylvania, (4)

Birmingham Fire (5) Illinois National Insurance Company (a subsidiary of AIG) (“Illinois

National”), (6) National Union Louisiana, and (7) Westchester Fire Insurance Company (a

subsidiary of ACE) (“Westchester Fire”).

23. Plaintiff Tri-State Container Corporation (“Tri-State”) is a manufacturer of

corrugated cartons located at 1440 Bridgewater Road, Bensalem, Pennsylvania. Hilb, Rogal,

Hamilton Co. of Philadelphia (now HRH) provided insurance brokerage services for Tri-State to

cover a variety of needs. On Tri-State’s behalf, HRH placed insurance with a number of

insurance companies, including: (1) American Insurance Company (a subsidiary of Fireman’s

Fund) (2) Executive Risk; and (3) Federal Insurance.

b) Defendants

1 Broker Defendants

24.

Defendant Marsh & McLennan Companies, Inc. (“Marsh & McLennan”) is a

corporation incorporated under the laws of Delaware with corporate headquarters in New York,

New York. Marsh & McLennan is a global corporation and the parent of various subsidiaries

9




that provide clients with analysis, advice and transactional services in connection with the

procurement and servicing of insurance, as well as investment management and consulting.

25. Marsh & McLennan’s subsidiaries and related companies that are defendants herein

are Marsh Inc., Marsh USA, Marsh Connecticut and Seabury & Smith, Inc. (“Seabury &

Smith”). A description of each of these entities is set forth in Exhibit A. Defendants Marsh &

McLennan, Marsh Inc., Marsh USA, Marsh Connecticut and Seabury & Smith shall be referred

to collectively herein as “Marsh.”

26. Defendant Aon Corporation (“Aon Corp.”) is a corporation incorporated under the

laws of Delaware and has its corporate headquarters in Chicago, Illinois. Aon Corp. is a global

corporation and the parent of various subsidiaries that provide clients with risk and insurance

brokerage services, consulting, and insurance underwriting.

27. Aon Corp.’s subsidiaries and related companies that are defendants herein are Aon

Broker Services, Inc. (“Aon Broker”), Aon Risk Services Companies, Inc. (“Aon Risk”), Aon

Risk Services Inc. U.S. (“Aon Risk U.S.”), Aon Risk Maryland, Aon Risk Louisiana, Aon Risk

Texas, Aon Risk Michigan, Aon Group, Inc. (“Aon Group”), Aon Services Group, Inc. (“Aon

Services”) and Affinity Insurance Services, Inc. (“Affinity”). A description of each of these

entities is set forth in Exhibit A. Defendants Aon Corp., Aon Broker, Aon Risk, Aon Risk U.S.,

Aon Risk Maryland, Aon Risk Louisiana, Aon Risk Texas, Aon Risk Michigan, Aon Group,

Aon Services and Affinity shall be referred to collectively herein as “Aon.”

28. Defendant Willis Group is a corporation incorporated under the laws of Bermuda

with its corporate headquarters in London, England. Willis Group is a global corporation and the

parent of various subsidiaries that provide clients with risk and insurance brokerage services,

10




consulting, and insurance underwriting. Willis Group is the third largest global brokerage firm

in the world.

29. Willis Group’s subsidiaries and related companies that are defendants herein are

Willis Group Limited (“Willis Ltd.”), Willis North America, Inc. (“Willis NA”) and Willis New

York. A description of each of these entities is set forth in Exhibit A. Defendants Willis Group,

Willis Ltd., Willis NA and Willis New York shall be referred to collectively herein as “Willis.”

30. Defendant AJG (sometimes referred to herein as “Gallagher”) is a corporation

incorporated under the laws of Delaware with its corporate headquarters in Itasca, Illinois.

Gallagher provides customers with risk management and insurance brokerage services.

Gallagher is the fourth largest global insurance broker by 2003 revenue, providing customers

with risk management and insurance brokerage services worldwide.

31. AJG and its subsidiary and related company Arthur J. Gallagher Risk Management

Service, Inc. (“Gallagher Risk”) are defendants herein. A description of Gallagher Risk is set

forth in Exhibit A.

32.

Defendants Gallagher and Gallagher Risk shall be referred to collectively herein as

“Gallagher.”

33. Gallagher and certain of the Plaintiffs entered into a Stipulation of Settlement

Between Class Plaintiffs and Arthur J. Gallagher Co. Defendants on December 29, 2006 (the

“Gallagher Settlement Agreement”). The Gallagher Settlement Agreement, as amended, received

preliminary approval from the Court on April 13, 2007 and is pending final approval. If the

Gallagher Settlement Agreement is approved by the Court and becomes final, Gallagher will be

dismissed as defendants from this Complaint.

11




34. Defendant Wells Fargo & Company (“Wells Fargo”) is a corporation incorporated

under the laws of Delaware with its corporate headquarters in San Francisco, California. Wells

Fargo is the parent company of Wells Fargo Insurance Services, Inc., formerly known as

Acordia. Wells Fargo provides customers with risk management and insurance brokerage

services through two separate insurance operations: (i) Wells Fargo Insurance Services, and

(ii) Acordia (now known as Wells Fargo Insurance Services, Inc.), a Wells Fargo subsidiary.

Collectively, Wells Fargo Insurance and Wells Fargo/Acordia (defined in the next paragraph)

comprise the fifth largest broker in the United States, garnering $800.5 million revenues in 2003.

35.

Wells Fargo’s subsidiary and related company that is a Defendant herein is Acordia,

Inc., now known as Wells Fargo Insurance Services, Inc. (“Wells Fargo/Acordia”). A

description of Wells Fargo/Acordia is set forth in Exhibit A. Defendants Wells Fargo and Wells

Fargo/Acordia shall be referred to collectively as “Wells Fargo.”

36. Defendant HRH (sometimes referred to herein as “Hilb”) is a corporation

incorporated under the laws of Virginia with its corporate headquarters in Glen Allen, Virginia.

HRH provides customers with risk management and insurance brokerage services.

2 Insurer Defendants

37. Defendant AIG is a corporation incorporated under the laws of Delaware with its

corporate headquarters in New York, New York. AIG and its related companies are the largest

underwriters of commercial and industrial insurance in the United States.

38. AIG subsidiaries and related companies that are defendants herein are Lexington,

American Specialty, Birmingham Fire , American Home , National Union Pittsburgh, National

Union Louisiana, American International, Insurance of Pennsylvania, AIU, Commerce

Insurance, NH Insurance, Hartford Steam, Illinois National, and American General Corporation

12




(“American General”). A description of each of these entities is set forth in Exhibit A. Unless

otherwise stated, defendants AIG, Lexington, Birmingham Fire, American Home, National

Union Pittsburgh, National Union Louisiana, American International, AIU, Commerce

Insurance, NH Insurance, Hartford Steam, Illinois National and American General shall be

referred to collectively as “AIG.”

39. Defendant ACE is a corporation incorporated under the laws of the Cayman Islands

with its corporate headquarters in Hamilton, Bermuda. ACE owns ACE INA Holdings, Inc.

(“ACE INA Holdings”) and Ace Group Holdings, Inc. (“ACE Group Holdings”). As described

by ACE itself, the “ACE Group of Companies is one of the world’s largest providers of

insurance and reinsurance.”

40. ACE’s subsidiaries and related companies that are defendants herein are ACE INA

Holdings, ACE USA, ACE American Insurance Company (“ACE American”), Westchester

Surplus, Illinois Union, Indemnity Insurance Company of North America (“Indemnity Ins.”),

ACE Group Holdings, Inc. (“ACE Group Holdings”), ACE US Holdings, Inc. (“ACE US

Holdings”), Westchester Fire, INA Corporation (“INA Corp.”), INA Financial Corporation

(“INA Financial”), INA Holdings Corporation (“INA Holdings”), ACE Property and Casualty

Insurance Company (“ACE Property and Casualty”) and Pacific Employers Insurance Company

(“Pacific Employers”). A description of each of these entities is set forth in Exhibit A. Unless

otherwise stated, defendants ACE, ACE INA Holdings, ACE USA, ACE American, Westchester

Surplus, Illinois Union Indemnity Ins., ACE Group Holdings, ACE US Holdings, Westchester

Fire, INA Corp., INA Financial, INA Holdings, ACE Property and Casualty and Pacific

Employers shall be referred to collectively herein as “ACE.”

13




41. Defendant Hartford is one of the largest investment and insurance companies in the

United States. Hartford is a corporation incorporated under the laws of Delaware with its

corporate headquarters in Hartford, Connecticut. Hartford represents that it “is a leading

provider of investment products, life insurance and group and employee benefits; automobile and

homeowners’ products; and business insurance.”

42. Hartford’s subsidiaries and related companies that are defendants herein are

Hartford Fire, Twin City, Pacific, Nutmeg Ins. and Hartford Fidelity. A description of each of

these entities is set forth in Exhibit A. Unless otherwise stated, defendants Hartford, Hartford

Fire, Twin City, Pacific Ins., Nutmeg Ins. and Hartford Fidelity shall be referred to collectively

as “Hartford.”

43. Defendant Travelers is a corporation incorporated under the laws of Minnesota with

its corporate headquarters in St. Paul, Minnesota. Travelers was formed from a 2004 merger

between Travelers Property Casualty Corp. (“TPC”) and The St. Paul Companies, Inc. The

merger created the second largest commercial insurance company in the United Sates offering a

variety of property and casualty insurance products through its various subsidiaries. Travelers

describes itself as “a leading provider of property casualty insurance and surety products and of

risk management services to a wide variety of business and organizations and to individuals”

whose products are distributed through “independent insurance agents and brokers.”

44. Travelers’ subsidiaries and related companies that are defendants herein are St. Paul

Fire Gulf, St. Paul Mercury, Travelers Casualty, Travelers Indemnity, Athena Assurance, and

TPC. A description of each of these entities is set forth in Exhibit A. Unless otherwise stated,

defendants Travelers, St. Paul Fire, Gulf., St. Paul Mercury, Travelers Casualty, Travelers

Indemnity, Athena Assurance and TPC shall be referred to collectively herein as “Travelers.”

14




45. Defendant Zurich Financial Services Group (“Zurich Financial”) is a corporation

incorporated under the laws of Switzerland with its corporate headquarters in Zurich,

Switzerland.

46. Zurich Financial’s subsidiaries and related companies that are defendants herein are

Zurich, Steadfast, Fidelity & Deposit, Empire Fire, American Guarantee, Empire Indemnity and

Assurance Company of America (“Assurance Co.”). A description of each of these entities is set

forth in Exhibit A. Unless otherwise stated, defendants Zurich Financial, Zurich , Steadfast,

Fidelity & Deposit, Empire Fire, American Guarantee, Empire Indemnity and Assurance Co.

shall be referred to collectively herein as “Zurich.”

47. Zurich and certain of the plaintiffs entered into a Stipulation of Settlement, dated

July 29, 2006 (the “Zurich Settlement Agreement”). The Zurich Settlement Agreement, as

amended, received preliminary approval from the Court on November 8, 2006 and final approval

from the Court February 16, 2007. If the Zurich Settlement Agreement becomes final, Zurich

will be dismissed as defendants from this Complaint.

48.

Defendant Chubb is a corporation incorporated under the laws of New Jersey with

its headquarters in Warren, New Jersey. Chubb is one of the ten largest property and casualty

insurance providers in the United States. Chubb provides its insurances lines through a family of

insurance subsidiaries known informally as the “Chubb Group of Insurance Companies.”

49. Chubb’s subsidiaries and related companies that are defendants herein are Federal

Insurance, Executive Risk, Vigilant Insurance, and Chubb and Son. A description of each of

these entities is set forth in Exhibit A. Unless otherwise stated, defendants Chubb, Federal

Insurance, Executive Risk and Vigilant Ins. shall be referred to collectively herein as “Chubb.”

15




50. Defendant Crum & Forster Holdings is a corporation incorporated under the laws of

Delaware with its corporate headquarters in Morristown, New Jersey. Crum & Forster Holdings

represents that it is “a national property and casualty insurance group providing a broad range of

standard and specialty insurance products.”

51. Crum & Forster Holdings and its subsidiary and related company, United States

Fire Insurance Company (“US Fire”), are defendants herein. A description of each of these

entities is set forth in Exhibit A. Defendants Crum & Forster Holdings and US Fire shall be

referred to collectively herein as “Crum & Forster.”

52.

Defendant Fireman’s Fund is incorporated under the laws of California, with

headquarters in Novato, California. Fireman’s Fund operates as an underwriter of property and

casualty insurance.

53. Fireman’s Fund’s subsidiaries and related companies that are Defendants herein are

Chicago Insurance Co. and National Surety Corp. Unless otherwise stated, defendants Fireman’s

Fund, Chicago Ins. and National Surety shall be referred collectively herein as “Fireman’s

Fund.”

54. Defendant XL is a corporation incorporated under the laws of the Cayman Islands

with its corporate headquarters in Hamilton, Bermuda. XL is a provider of insurance and

reinsurance services.

55. XL’s subsidiaries and related companies that are defendants herein are Greenwich

Ins., Indian Harbor, XL America and XL Insurance America. A description of each of these

entities is set forth in Exhibit A. Unless otherwise stated herein, Defendants XL, Greenwich Ins.,

Indian Harbor, XL America and XL Insurance America shall be referred to collectively herein as

“XL Capital” or “XL.”

16




56. Defendant CNA is a corporation incorporated under the laws of Delaware with its

headquarters in Chicago, Illinois. CNA is an insurance holding company whose primary

subsidiaries consist of property and casualty insurance companies.

57. CNA’s subsidiaries and related companies that are Defendants herein are

Continental Insurance, American Casualty Co. of Reading, PA (“American Casualty”) and

Continental Casualty. A description of each of these entities is set forth in Exhibit A. Unless

otherwise stated, defendants CNA, Continental Insurance, American Casualty and Continental

Casualty shall be referred to collectively herein as “CNA.”

58.

Defendant Munich Reinsurance Co. (“Munich Re”) is a provider of reinsurance,

primary insurance and asset management services. Munich Re is a German corporation with

headquarters in Munich, Germany. Munich Re’s shares are traded on several German stock

exchanges.

59. Munich Re’s subsidiaries and related companies that are defendants herein are

American Re Corporation, now known as Munich Re America Corporation, (“American Re”),

Munich-American Risk Partners, Inc. (“Munich-American”), American Re-Insurance Co., now

known as Munich Reinsurance America, Inc., (“American Re-Insurance”) and American

Alternative. A description of each of these entities is set forth in Exhibit A. Defendants Munich

Re, American Re, American Re-Insurance, American Alternative and Munich-American, shall

be referred to collectively herein as “Munich.”

60. Defendant Liberty Mutual Holding is a corporation incorporated under the laws of

Massachusetts, with headquarters in Boston, Massachusetts. Liberty Mutual Holding operates as

a mutual holding company structure, owned by its policyholders, and includes three principal

insurance companies in the group – Liberty Mutual Insurance Company (“Liberty Mutual Ins.”),

17




Liberty Mutual Fire Insurance Company (“Liberty Mutual Fire”), and Employers Insurance

Company of Wausau – each of which are stock insurance companies under the ownership of

Liberty Mutual Holding.

61. Liberty Mutual Holding’s subsidiaries and related companies that are defendants

herein are Liberty Mutual Ins., Liberty Mutual Fire, Wausau Insurance Companies, Wausau

Underwriters Insurance Company, Employers Insurance of Wausau, Employers Insurance

Company of Wausau, Wausau Business Insurance Company and Wausau General Insurance

Company. A description of each of these entities is set forth in Exhibit A. Unless otherwise

stated, these defendants shall be referred to collectively herein as “Liberty Mutual.”

62. Defendant AXIS Capital Holdings Limited (“AXIS Capital”) is a corporation

incorporated under the laws of Bermuda. It provides specialty insurance and treaty reinsurance

on a global basis through operating subsidiaries and branch networks. It is the indirect parent of

AXIS U.S. Subsidiaries and is subject to the insurance holding company laws of Connecticut,

New York and Illinois.

63.

AXIS Capital’s subsidiaries and related companies that are defendants herein are

AXIS Specialty Insurance Company (“AXIS Specialty”) and AXIS Surplus Insurance Company

(“AXIS Surplus”). A description of each of these entities is set forth in Exhibit A. AXIS

Capital, AXIS Specialty and AXIS Surplus are referred to herein as “AXIS.”

A. STATEMENT OF FACTS

1) The Antitrust Claims

a) Overview of the Antitrust Claims

64.

The defendants named above (the “Defendants”) engaged in a series of unlawful

horizontal conspiracies, the purpose and effect of which were to reduce or eliminate competition

among members of the various conspiracies described herein, by among other things, allocating

18




customers to and among members of the conspiracies and protecting those conspirators from

competition for those customers’ business. Defendants’ customer allocation agreements and

other schemes were naked restraints of trade in violation of section 1 of the Sherman Act.

65. Defendants organized and operated their unlawful horizontal schemes through six

“Broker-Centered” conspiracies, in each of which a Broker Defendant coordinated a horizontal

agreement among rival Insurer Defendants. The Defendants also organized and operated a

“Global” conspiracy in which the Broker Defendants agreed horizontally not to compete for each

others’ customers by disclosing the existence and adverse premium price impact of their rivals’

Broker-Centered schemes.

66. The purpose and effect of each unlawful Broker-Centered scheme was to illegally

reduce or even eliminate competition for Plaintiffs’ business that would otherwise have existed

among the conspiring insurers in a way that enabled the conspiring Brokers and Insurers to

secure and then share in resulting supra-competitive profits. The method by which the horizontal

conspirators minimized competition for customers and created and shared resulting supra-

competitive profits was twofold. First, in exchange for the payment by the insurer co-

conspirators of special commissions (known as contingent commissions), the participants in each

Broker-Centered Conspiracy agreed with each other that the Broker would allocate the bulk of its

customers’ business to the conspiring insurers. By this process – called “carrier consolidation” --

the Brokers thus protected the conspiring Insurers from having to compete with hundreds of

other non-conspiring insurers, which were deprived access to most of the Broker’s customers.

67. As a second step in Defendants’ unlawful scheme, the participants in each Broker-

Centered Conspiracy agreed to reduce or eliminate competition among the conspiring insurers

themselves as to that secured book of business. Specifically, the Insurer Defendants agreed

19




horizontally with each other not to compete for each other’s existing customers and the Broker

Defendants facilitated that agreement through methods such as bid-rigging, “last looks” and

other incumbent protection devices. Moreover, the illegal customer allocation schemes also

included horizontal agreements among the conspiring Insurers that the Insurers would be

guaranteed access to minimum amounts of the Broker Defendants’ book of business, and that the

Broker Defendants would protect the conspiring insurers from competition for that business.

68. These horizontal agreements reduced or eliminated competition among the

conspiring insurers for both new and renewal business controlled by the conspiring brokers.

Freed from the costs and constraints of ordinary competition, the insurers were able to charge

higher premiums and achieve supra-competitive profits. For their roles in orchestrating the

scheme, and in delivering “competition-free” business to their respective insurer co-conspirators,

brokers were kicked-back a portion of the insurers’ supra-competitive profits in the form of

contingent commissions.

69. The Broker-Centered and Global agreements described herein are naked restraints

among horizontal competitors with the purpose and effect of raising prices and/or reducing

output in order to increase profits. The agreements among the Broker and Insurer Defendants to

allocate business to the conspiring insurers, and the Broker Defendants’ conduct to protect its co-

conspirators from competition for that business, deprived insurance customers – the Plaintiff

classes herein – from the prices they would have been able to obtain in a truly competitive

marketplace.

b) The Commercial Brokerage and Insurance Markets in the United

States

70.

“Commercial” insurance consists of roughly two dozen lines of insurance policies

that cover a variety of commercial property and casualty risks. Commercial insurance includes

20




general property and casualty, workers compensation, products liability, surety, boiler and

machinery, directors and officers’ liability, professional malpractice, and commercial auto, fire,

and marine policies, among others. The top ten lines account for approximately 85% of the

commercial premium written in the United States.

71. Although the precise policy terms will vary depending on the type of covered event,

the fundamental nature of the contract between the insured and insurer is the same: the insured

pays a premium to transfer the risk defined in the policy to the insurer in the expectation that the

insurer will make payment if the covered loss occurs. Due in part to the fungibility of risk, the

pricing of different types of commercial insurance is closely aligned, such that a catastrophic

event like a flood will typically raise premiums not just for the directly affected lines of coverage

but for other product lines as well.

72. While insurance contracts are executed between the insured and the insurer,

insurance brokers serve a critical intermediary function in the commercial insurance

marketplace, matching their clients – insurance purchasers – with sellers, the insurers. The

Broker Defendants were retained by members of the class to act as expert advisors in the

procurement of insurance for their clients, and they were duty bound to obtain the best coverage

at the lowest price. Standard brokerage contracts and other communications sent by the Broker

Defendants to their clients provide that the broker will solely represent the client’s interest in

selecting and negotiating the terms of insurance polices. The services brokers provide include

analyzing the client’s risk, assessing the type of insurance needed, comparing and interpreting

policies and, importantly, providing unbiased, sound and accurate advice regarding the insurance

marketplace and the insurers they recommend.

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73. The extreme reliance commercial insureds place on their brokers has resulted in an

extraordinary level of longevity in broker/client relationships, with the same broker placing

business for the same clients year after year. This quality of “stickiness” is natural to the

broker’s consultative role and stems in part from the fact that it costs clients money to change

brokers. The close bond between broker and client gives brokers tremendous influence, and

often decisive control, over the placement of their clients’ insurance business. Given the high

degree of financial investment and trust placed in their broker, clients will rarely if ever seek

quotes from insurers other than those recommended by the broker.

74.

The Broker Defendants dominate the commercial insurance brokerage sector in the

United States. The top four firms (Defendants Marsh, Aon, Willis and Gallagher) alone account

for 55% of commercial brokerage revenue nationwide. Those Defendants, together with Broker

Defendants Wells Fargo/Acordia and HRH, account for 60.3% of commercial brokerage revenue

nationwide.

75. Concentration of the brokerage business arose in part from a long series of

acquisitions by which the largest firms bought up their competitors. Of the top twenty U.S.

commercial brokers in 1989, fourteen were acquired by either Marsh or Aon. Between 1997 and

2003, Gallagher and HRH consumed 59 and 28 North American competitors, respectively.

These consolidations have resulted in a small, highly concentrated group of powerful brokerage

firms, each representing thousands of dedicated clients. In part because of their size, each of

these brokers is able to place virtually any line of commercial coverage.

76. The segment of commercial insurers is considerably less concentrated than

commercial brokers. The insurers are therefore largely dependent on the largest brokers to

assure access to business. Despite the somewhat fragmented nature of the insurance

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underwriting industry, the Insurer Defendants’ market shares have remained remarkably stable.

The eight largest Insurer Defendant Groups1 wrote between 38.4% and 40.4% of the total

commercial written premium every year from 1999 through 2003. The Insurer Defendants in

this case wrote over $65 billion in collective net premium in 2003.

c) The Rise of Contingent Commissions and Their Role in the Customer

Allocation Schemes Alleged Herein

77. Historically brokers were paid in the form of “standard commissions,” which were

usually a fixed 3% to 20% of the written premium, depending on the product line, and averaged

about 10% across all commercial product lines. Over time, “contingent commission”

arrangements were implemented whereby brokers often gave up some percentage of their

standard commission in exchange for bonuses the insurers paid largely based on the profitability

of the business the broker placed. Typically, these profit-driven contingent commission

agreements set target “loss ratio” thresholds that were a function of the dollars of claims paid by

the insurer compared to the premium dollars received. If the insurer achieved, for example, a

loss ratio of less than 65% in a given year on its policies with insureds that were placed by the

broker, the insurer would pay the broker a contingent commission at year end of an additional

1% to 2% above the broker’s fixed standard commission. If the target loss ratio was not

achieved for the policy year, the broker would receive only its standard commissions.

78. Eventually, by the late 1990s these profit-driven contingent commission agreements

were supplemented or replaced by contingent commission arrangements that were based in large

measure on the sheer volume of premiums placed or renewed with the insurers rather than solely

1 Commercial insurance lines are written by “Property & Casualty” companies, which arefrequently organized as affiliated entities in separate states or offering different lines of insurance but controlled by a single parent company. Affiliated insurers are recognized in the industry as asingle “Group” and are tracked collectively by their Group identification numbers

23




on profitability. Under these agreements, insurers paid extraordinarily lucrative contingent

commissions – as high as 8% or more above the brokers’ standard commissions – in exchange

for the brokers’ deliverance of specified volumes of their clients’ business. For example, if the

contingent commission agreement provided for a broker to meet a $10,000,000 threshold in

premium volume (meaning the broker would have to deliver customers to the insured who

collectively purchased policies costing that amount), a broker that would earn only a 10%

standard commission by delivering $9,000,000 in business could instead earn 18% in total

commissions if it delivered $10,000,000. Thus, a broker that would earn $900,000 on a

$9,000,000 book of business (plus perhaps another point or two if the book was profitable) could

now earn double that amount − $1,800,000 − in commissions for delivering a $10,000,000 book,

regardless of profitability.

79. The volume-driven contingent commission agreements that arose in the mid-1990s

also sometimes contained what were known as “retention” or “persistency” thresholds for

renewal business. These components of commission agreements established dollar volume

thresholds consisting of the percentage of premium that the insurer’s existing customers renewed

from the prior year. In most cases, however, to qualify for the renewal volume contingent

commissions the brokers also had to meet “rate change” thresholds, which meant the brokers

were required to deliver the policy renewals at premium rates that were favorable to the prior

year’s (i.e., without significant discounting). The higher the renewal year premium compared to

the prior year, the larger the contingent commission to which the broker became entitled. Thus,

if a broker had clients coming up for renewal with $10,000,000 in business and the insurer could

redeliver those clients at a $10,000,000 or $11,000,000 premium level the broker would be paid

24




a persistency contingent commission, but if the broker only delivered $9,000,000 of the eligible

renewal business it would receive no payment beyond its standard commission.

80. The rise of these primarily volume-driven contingent commission agreements

coincided with the advent of the customer allocation schemes and other restraints of trade

described herein and served as a facilitating mechanism for the schemes. The extraordinarily

lucrative volume-based contingent agreements provided the motive – greed – that incentivized

the Brokers to ignore their duty to find for their clients the best policies at the best price and,

instead, to allocate large volumes of their customers’ premium dollars to the few Insurers who

agreed to pay the largest contingent commissions. The lure of additional profit that these

contingent commission agreements promised also incentivised the Brokers to take steps to

minimize or eliminate competition for the business slotted for a particular Insurer, thus ensuring

that the premium-delivery thresholds required to trigger the contingent payments were met. The

Insurers, on their part, accepted the arrangement as it freed them from the normal rigors of

competition and allowed them to charge supra-competitive prices.

81.

Between 1998 and 2004 – when the market allocation schemes were abruptly halted

by the investigations of New York Attorney General Eliot Spitzer and various other state

attorneys general – the Insurer Defendants paid, and the Broker Defendants received ever

increasing amounts of contingent commissions. From 1998 to 2004, the Broker Defendants in

this case (excluding Defendant Gallagher) received nearly 1.9 billion dollars in contingent

commissions from insurers, nearly 70% of which were paid by the Insurer Defendants herein. In

2003 alone, the last full year where contingent commissions were collected, the Broker

Defendants in this case collected more than half a billion dollars in contingent commission

25




payments from insurers, more than 70% of which were paid by the Insurer Defendants in this

case.

82. In sum, the broker consolidations of the 1980s and 1990s combined with the advent

of volume-driven contingent commission agreements gave rise to a market structure conducive

to the operation of the Broker-Centered Conspiracies alleged herein. Brokerage is an essential

mechanism for the Insurer Defendants to access commercial customers and premiums, and the

Broker Defendants controlled sufficient premium volume to effectively coordinate a market

allocation scheme. Conversely, the fragmented nature of the insurance underwriting industry

made the insurers dependant upon the major brokers for a flow of premium volume. Thus,

industry conditions and circumstances were ripe for both the Broker and Insurer Defendants to

conspire to divvy up the Brokers’ customers and premiums in a manner that maximized the

conspirators’ profits at the expense of their customers, the Classes herein.

d) Overview of the Conspiracies

83. Beginning in the mid-to late 1990s, each of the Broker Defendants undertook a

dramatic change in their method of doing business. Instead of shopping their clients’ business to

30 or 40 different insurance companies or more, each began to form so-called “strategic

partnerships” with certain insurance companies, to which it would then allocate the bulk of its

business.

84. By this process, known as “market consolidation”2 or “carrier consolidation,” the

Broker Defendants determined that by delivering their business to a relatively small number of

“strategic partners” they could extract increased payments from those insurers in exchange for

the resulting stabilization of market share and reduced pressure on the Insurers to compete based

2 The word “market” is commonly used by industry participants as a synonym for “insurer.”

26




upon price. They also determined that the historical practice of paying contingent commissions

would provide a convenient vehicle to extract this added compensation from insurers.

85. The strategic partnerships thus formed by the Broker Defendants grew into classic

“hub and spoke” conspiracies, with the Broker Defendants, acting as the “hub,” coordinating an

illegal horizontal agreement among its Insurer Defendant “spokes.” In each of these Broker-

Centered “hub and spoke” conspiracies, the Broker and Insurer Defendants all agreed with one

another (a) that those insurers outside of the Broker-Centered Conspiracy would be excluded

from accessing the bulk of the Broker’s customers, and (b) that competition among the Insurers

within each Broker-Centered Conspiracy would be minimized or eliminated. As detailed below,

the Defendants in this case formed six Broker-Centered Conspiracies lead by the following

brokers: Marsh, Aon, HRH, Willis, Gallagher and Wells Fargo/Acordia.

86. Insurers were invited to be among a Broker Defendant’s strategic partners, and

therefore a member of a Broker-Centered Conspiracy, when they entered into lucrative

contingent commission arrangements with the brokers and agreed to make contingent

commission payments in return for access to the broker’s book of business. In return for the

payment of these contingent commissions and their elevation to “preferred status,” the Insurer

Defendants agreed with the Broker Defendants and with each other insurer in the conspiracy that

they would receive access to a guaranteed flow of premium volume, as well as protection of their

own business from competition from other insurers both within and outside of the preferred

group.

87. Within each Broker-Centered Conspiracy, the participants agreed that the bulk of

the business controlled by the broker, as much as 70-85%, would be divided among the

“strategic partner” insurers in the conspiracy. The method by which premium volume was

27




allocated among the participants in each Broker-Centered Conspiracy was loosely determined by

the structure and content of the contingent commission agreements executed by the parties.

These agreements required the payment of additional contingent commissions to the broker,

based on the achievement of business thresholds measured by premium volume. Many

contingent commission agreements also rewarded Brokers for “persistency” i.e., retention of

renewal business by an insurer. Because of the importance of renewal business (which was, on

average, more than 70% of each Broker Defendants’ book of business), the insurers in each

Broker-Centered Conspiracy agreed with each other that each of them would be allowed to retain

those customers whose policies they wished to renew, and each expected and received from the

Brokers protection from competition from other Insurers for that business.

88. The participants in each Broker-Centered Conspiracy engaged in a variety of

anticompetitive and exclusionary practices designed to carry out the aims of the conspiracy. For

instance, as detailed below, in order to maximize their receipt of contingent commissions and

deliver the premium volume expected by their “partners,” the Broker Defendants agreed with

their insurer conspirators to “shift” or “roll” entire blocks of business to preferred insurers

without the benefit of any competitive bidding. In addition, Broker Defendants shielded their

insurer partners from normal competition by agreeing not to bid renewals competitively, or by

limiting the circumstances under which renewals could be marketed. Broker Defendants also

routinely promised to provide competitive advantages to Insurer partners, by disclosing other

carriers’ bids, providing first or last looks, and other methods.

89. Insurer Defendants, on their part expected an unfair competitive advantage and

protection from competition as a result of their arrangements with their Broker partners.

Moreover, each insurer in each Broker-Centered Conspiracy was aware that each of the other

28




insurer members of the conspiracy was also receiving access to a guaranteed flow of premium

volume and protection from competition in return for its contingent payments. Each insurer

conspirator, moreover, accepted and agreed to engage in the Broker-Centered business allocation

scheme based on, and because, each of the other Insurer Defendants had also agreed to

participate in the scheme. In this way, the Broker Defendants orchestrated a horizontal

agreement among rival Insurers not to compete for each others’ customers.

90. Defendants’ horizontal agreements to allocate premium volume among the insurer

co-conspirators and not to compete for each other’s renewal business, was successful. Over

time, an increasing percentage of each Broker Defendants’ business was concentrated in the

hands of the Insurer Defendants. Moreover, the Broker Defendants’ renewal rates with

Defendant Insurers were consistently higher than their renewal rates with non-Defendant

insurers.

91. The facts alleged below illustrate how a conspiracy among all of the participants in

each Broker-Centered Conspiracy was plausible. In each Broker-Centered Conspiracy, the

brokers facilitated an exchange of information among the participants in the conspiracy so that

each conspiracy could operate. Each of the Broker Defendants coordinated the dissemination of

information to and among the insurer conspirators about, among other things: who the other

strategic partner insurers were; details of the contingent commission arrangements that other

insurer partners had with the Broker Defendants; the amount of contingent commissions paid by

other insurer partners; and the amount of premium volume delivered or expected to be delivered

to other insurer partners.

92. In addition to the “hub and spoke” Broker-Centered Conspiracies described herein,

each of the Broker Defendant “hubs” participated (with the complicity of the Insurer Defendants)

29




in a broader, common horizontal anticompetitive agreement. Specifically, in this Global

Conspiracy, each Broker Defendant agreed not to compete with the other Broker Defendants by

disclosing any competing broker's contingent commission arrangements, or the consequent

premium price impact of those arrangements, in an effort to win those other brokers’ customers'

business. That is, the Broker Defendants expressly or tacitly agreed horizontally among

themselves not to disclose their contingent commission agreements and resulting supra-

competitive premiums to rival brokers' customers. The Broker Defendants made this unlawful

horizontal agreement to further a common, mutual goal of maintaining their independent

anticompetitive schemes and not having their supra-competitive profits undermined by a

competing broker’s truthful price disclosures or advertising.

93. The Broker Defendants’ agreement not to disclose their excessive contingent

commission agreements and resulting profits was a naked horizontal restraint of informational

output that directly affected the price of insurance, and therefore violated the antitrust laws.

94. The Defendants’ customers, the Classes herein, were damaged in their business or

property by Defendants’ anticompetitive horizontal agreement.

e) Operation of the Broker-Centered Conspiracies

(1) The Marsh Broker-Centered Conspiracy

(a) Participants in the Conspiracy

95. During the Class Period, from January 1, 1998 through December 31, 2004,

participants in the Marsh Broker-Centered Conspiracy have included Marsh and Insurer

Defendants AIG, ACE, CNA, Chubb, Crum & Forster, Hartford, Liberty Mutual, Travelers,

Zurich, Fireman’s Fund, Munich, XL and Axis. (“the Marsh Broker-Centered Defendants”).

30




(b) Operation of the Conspiracy

96. Marsh allocated its customer base to and among its conspiring insurers in two steps.

First, Marsh and each of its co-conspirators agreed, and Marsh’s conspiring insurers horizontally

agreed among themselves, that Marsh would “consolidate” its business by directing as much as

80-95% of its commercial business to its “preferred carriers,” co-conspirators AIG, ACE, CNA,

Chubb, Crum & Forster, Hartford, Liberty Mutual, Travelers, Zurich, Fireman’s Fund, Munich,

XL and Axis, thereby eliminating hundreds of other insurers from competing equally with the

conspiring Insurers for a substantial portion of Marsh’s business. As a second step in

Defendants’ unlawful scheme, Marsh and each of its conspirators agreed, and Marsh’s co-

conspiring insurers horizontally agreed, to reduce or eliminate competition among the conspiring

insurers themselves as to that secured book of business. The key aspect of these defendants’

agreement in this regard was that each conspiring insurer would be permitted to keep its own

incumbent business, and that Marsh would protect that business from competition, using a

variety of incumbent protection devices, including the solicitation of false bids. As described

below, Marsh and its insurer co-conspirators each understood and agreed that incumbent

protection was a necessary element in its scheme to allocate Marsh’s premium volume in the

manner calculated to achieve the highest profits, both for Marsh and its co-conspirator insurers.

Because, on average, more than ___ of Marsh’s premium volume was renewal business, the co-

conspirators “incumbent protection racket” effectively reduced or eliminated competition for the

bulk of Marsh’s business.

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(i) The Participants in the Marsh Broker-Centered

Conspiracy Agreed that the Bulk of Marsh’s

Customers would be Allocated to the Conspiring

Insurers

97. In the early to mid 1990s, in an effort to maximize its contingent commission

revenue and increase its profits, Marsh agreed with certain carriers that it was going to place the

bulk of its business with a limited number of “preferred” or “partner” insurers. Carriers were

selected to be a “preferred market” or a “market partner” as it was sometimes called, when they

agreed to pay Marsh contingent commissions based primarily on the volume of the business

steered to the carriers. Marsh referred to the contingent commission agreements as placement

service agreements or “PSA’s.”

98. As part of this consolidation effort, in the early to mid 1990’s, Marsh created and

developed a special division designed to bring the marketing of its insurance brokerage services

under one centralized department -- the Global Broking Division (“Global Broking”). Global

Broking concentrated the marketing and negotiating power of all Marsh regional and local

brokers into a single set of offices headquartered in New York City. __________

______________________________________________________________________________

___________________________________________________ With the establishment of

Global Broking, the responsibility for negotiating PSA’s was put into the hands of a small group

of people who were then in the position to control insurance placement so as to maximize

Marsh’s contingent revenue. As Bill Gilman, Executive Marketing Director at Global Broking

Excess Casualty, explained:

If we had control over the business then we could make the insurance companiesgive us lucrative placement service agreements we would have the ability toreward them or take the business way. We had control over whether or not theygot the business.

99. Global Broking handled more than half of the insurance placements for Marsh,

32




including excess casualty, healthcare, FINPRO, environmental, property and middle market.

Each of these lines of business was headed by a managing director. Global Broking Excess

Casualty, for example, was run by a Global Excess Casualty Placement Leader and was

organized by Global Broking Coordinators (“GBC’s”) and by placement teams (also referred to

as Local Broking Coordinators) (“LBC’s”). The GBC’s held senior level, leadership roles within

Global Broking and were responsible for groups of regional offices. The GBC’s coordinated the

insurance program for the client including the development of the “broking plan” which set forth

the name of the incumbent carrier as well as the insurance companies to approach for protective

quotes.

100. LBC’s were dedicated to Marsh’s “preferred markets,” that is, those carriers with

which Marsh had its most lucrative contingent commission agreements. LBC’s dealt directly

with the underwriters of the preferred markets and would not allow Marsh’s Client Advisors

(CA’s) to communicate directly with the carrier. In fact, an underwriter quoting “directly” to a

Marsh client advisor interfered with the operation of the conspiracy because it prevented Global

Broking from ensuring “that the incumbent who hits a target and provides the coverages

requested is protected.”

101. Marsh Global Broking closely monitored and controlled the placement of premium

with its preferred carriers. Its Middle Market division, for example, grouped its preferred

insurers into three tiers, classified as A, B and C tiers, based on how much they were paying in

contingent commissions. Tiers A and B were the more preferred markets to which the bulk of

premium was allocated. In fact, a Marsh internal document entitled “Rules of Engagement”

states: ________________________________________________________________________

______________________________________________________________________________

33




____________

102. To further its effort to allocate premium to its Tier A and B insurers, Marsh Global

Broking Middle Market created “Tiering Reports” as a tool to monitor premium placements with

its preferred carriers. According to a 2003 Marsh Tiering Report “the purpose of this exercise

was two fold: _________________________________________________________________

______________________________________________________________________ All of

the participants in the Marsh Broker-Centered Conspiracy enjoyed either Tier A or Tier B status

at various times during the class period.

103.

Success at Marsh Global Broking was defined as placing as much premium as

possible with partner markets. Global Broking employees were required to evaluate themselves

in documents entitled “Balanced Scorecard.” Many of these self-evaluations included the

employees’ success in moving business to Marsh’s partner markets. For example, the self

evaluation for ________________ (former GBC in Global Broking Excess Casualty) described

that he “direct[ed] business to partner markets that respond to our marketing philosophy.”

Similarly, the self evaluation for _____________ (former LBC in Global Broking Excess

Casualty) described how she “[s]upported key partner markets AIG & Zurich, [and] actively

directed business to ‘new’ partner markets, e.g., ACE (Holman), St. Paul (Turner & Lend

Lease).”

104. Because of these efforts, Marsh was successful in allocating the bulk of its premium

volume to its preferred carriers. By 1999, Marsh had consolidated 80%-85% of the premium

paid within its top 12 markets. The concentration of premium volume in its preferred markets

continued throughout the Class Period (as defined below), as insurers paid higher and higher

contingent commissions for a guaranteed flow of premium. Furthermore, Marsh’s reports on its

34




annual contingent commissions from 1999 to 2003 show that its contingent commission income

from national commercial PSA’s grew from __________ in 1996 to ___________ in 1999 to

__________ in 2003.

(ii) The Participants in the Marsh Broker-Centered

Conspiracy Agreed not to Compete for each

Other’s Customers

105. A central element of the agreement among the participants in the Marsh Broker-

Centered Conspiracy was that each insurer would be permitted to keep its incumbent business,

and that Marsh would protect that business from competition, both from insurers inside and

outside of the arrangement. Marsh facilitated this horizontal agreement among its insurer co-

conspirators with a variety of devices designed to protect its co-conspirators’ incumbent status,

including the solicitation of collusive, protective quotes. As described below, Marsh and its co-

conspirators understood and agreed that incumbent protection was a necessary element in its

scheme to allocate its premium volume in the manner calculated to achieve the highest profits,

both for itself and its co-conspirators. As an employee of Munich ruefully observed "the

incumbent protection racket works great when you're the one being protected. Conversely, when

you're on the outside looking in, it creates a barrier to entry on new accounts."

106. Numerous employees of Marsh acknowledged Marsh’s objective to protect its co-

conspirators incumbent business. For example, Kathryn Winter acknowledged that Marsh

protected the incumbent insurers’ renewal business if they hit a target price set by Marsh. As

Ms. Winter stated: “if the incumbent markets meet their target price and does [sic] the coverage

we want, [Marsh Global Broking] will protect them and make sure they get the business.”

107. The insurer partners were aware of and agreed horizontally to participate in the

incumbent protection scheme. An email between employees at Zurich, bearing the subject

35




“Protection,” demonstrates this complicity: “We need and expect to be protected on our

renewals just like AIG is protected on theirs.” The email further states:

The only solution I see if we can not get protection against the AWAC’s and

ACE’s of the world who have not been there for MMGB in the past when neededfavors, is to go after AIG leads which we are very prepared to do. If we can notget proper protection, we will go hard after AIG leads that we feel you are protecting. We will no longer provide you with protective quotes for AIG butwill put out quotes that you will be forced to release, just like you tell me you areforced to release AWAC and ACE quotes.

I do not think we are asking for the moon. We just want the same protectiongiven to AIG and MMGB is definitely not doing that for Zurich now.

108. A former ACE employee also acknowledged that Marsh’s system of protecting the

incumbent allowed insurer carriers, like ACE, to obtain last looks on placements and avoid real

competition. According to this former ACE employee, “Marsh [Global Broking] preferred

incumbents to remain on placements, so . . . if you were the incumbent on the game plan, you

would get last shot,” meaning that the incumbent would be “protect[ed] from competition.”

109. According to this former employee, ACE understood that Marsh would protect the

incumbent of an excess casualty risk by not sending submissions on that risk “out to

competition,” or by getting “quotes from other carriers that would support the incumbent as

being the best price.” ACE indicated its willingness to accept these terms from Marsh and

provided losing quotes, so long as “the Ace renewals with Marsh will equally be ‘protected.’”

110. CNA acknowledged the benefits of incumbent protection, including the receipt of

“last looks.” In describing CNA’s relationship with Marsh, a CNA employee stated “we have a

preferred relationship with Marsh. Our results with a $90 million GWP increase attest to this.

This frequently results in ‘last look’ pre-notification of terms and conditions and selected new

business submissions.”

36




111. Axis was well aware of how Marsh’s incumbent protection system worked after

being informed by Bill Gilman that “he [Gilman] could keep business with incumbents by

allocating the business among underwriters if he could get renewals without an outside

competitive presence.”

112. A former AIG underwriter, Karen Radke, who pled guilty to a scheme to defraud in

connection with the regulatory action against AIG, stated that Bill Gilman told her about the

“Marsh system” and that it was very important that she “not compete for other business” in order

to retain her business when her accounts were up for renewal.

113.

Chubb similarly agreed to eliminate competition by conspiring with Marsh and the

other preferred insurers. In an April 1998 “Joint To Do List” from a meeting between Chubb

and Marsh, Chubb notes that Marsh and Chubb branches “will meet on the top 5-7 renewals for

each branch (beginning with May renewals) to discuss pricing and strategy to retain the accounts

without marketing them.”

(iii) Marsh and Its Preferred Carriers Conspired to

Protect Each Other’s Incumbent Business

Through Bid-Rigging and Other Overt Acts

114. As detailed in the Revised Particularized Statement, on numerous occasions, insurer

conspirators in the Marsh Broker-Centered Conspiracy provided alternative quotes at Marsh’s

request to protect the incumbent status of a rival insurer or to support the placement of the

business with another conspiring insurer. The conspiring insurers engaged in this conduct in

furtherance of a common scheme to allocate Marsh’s customers to the incumbent Insurer, and

protect those Insurers from having to compete for this business. Because, on average, more than

__ of Marsh’s premium volume was renewal business, the co-conspirators “incumbent protection

racket” effectively reduced or eliminated competition for the bulk of Marsh’s business.

37




115. Kathryn Winter admitted that “the primary goal of th[e] scheme was to maximize

Marsh’s profits by controlling the market, and protecting incumbent insurance carriers when

their business was up for renewal.” In fact, Ms. Winter stated that the agreement among Marsh

and its preferred insurers to protect the incumbent required the conspiring Insurers to

“artificially” provide “quotes . . . that were non-competitive.”

116. Marsh’s preferred insurers colluded with Marsh to supply these losing quotes so

that they would be protected from competition when their own business was up for renewal.

These non-competitive fictitious quotes were also known as, “alternative quotes,” ”B Quotes,”

“B’s,” “phony quotes,” “false quotes,” “fake quotes” “protective quotes,” “throwaway quotes,”

“bullshit quotes” and “backup quotes.”

117. These quotes were often part of the “broking plans” that the GBC’s prepared when

an account was up for renewal. The broking plans assigned the business to a specific insurer at a

target price and outlined the coverage. The broking plans also included instructions as to which

preferred Insurers would be asked to provide alternative quotes. If the incumbent Insurer hit the

“target”, it would get the business and then the LBC’s would solicit “alternative”, “B” or non-

competitive quotes from other members of the conspiracy.

118. It was rare for a broking plan to request a competitive quote from a non-incumbent

insurer. Rather, the “alternative” carrier was directed as to what quote to provide, invariably a

non-competitive quote designed to make the incumbent’s quote look attractive. If the non-

incumbent Insurers did not comply with the broking plan and provided a competitive quote,

Marsh harshly retaliated. As Bill Gilman stated:

Important to give alternative market the expiring and target. Thus, if analternative quotes below then they have made a conscious decision to quote belowthe market and pull the market down. If that happens, then (according to Bill)

we will put this guy in open competition on every acct. and CRUCIFY him.

38




Further, we must make sure incumbent keeps this (or another market) and

NOT give it to the alternative and reward them.

119. AIG, for example, provided protective quotes when requested, knowing it would be

shielded from normal competition when its business was up for renewal. AIG employee Karen

Radke stated that she provided protective quotes when the broking plan called for it “[t]o show,

to pretend to show competition where there is none.” Radke was told by Bill Gilman that AIG

should provide protective quotes so that AIG would not face competition on its own renewals.

120. In exchange for providing losing quotes, AIG, as promised, was protected on its

own renewals by other members of the conspiracy. For instance, ACE was asked by Marsh to

submit a fictitious quote so that AIG would not lose an account: “We were more competitive

than AIG in price and terms. [Marsh] requested we increase premium to $1.1M to be less

competitive, so AIG does not lose the business.” ACE complied.

121. As detailed in the Revised Particularized Statement, other insurer co-conspirators

submitted “accommodation quotes” in order to protect the business of a rival carrier and receive

similar protection on their own business. For example, on three occasions in late 2001, Munich

provided quotes that were intentionally higher than the quotes submitted by AIG, in order to

protect AIG’s incumbent status on the accounts.

122. Liberty Mutual also provided protective quotes when the broking plan called for it.

According to Kevin M. Bott, an Assistant Vice President Underwriter in the excess casualty

division at Liberty Mutual, Marsh brokers asked Mr. Bott “to submit protective quotes on certain

pieces of business where Marsh had predetermined which insurance carrier would win the bid.”

Mr. Bott “understood that such quotes were intended to allow Marsh to maintain its control of

the market and to protect the incumbent.” Additionally, Mr. Bott “understood that Liberty

benefited from this scheme; when Liberty submitted a ‘B quote’ on the lead layer of insurance,

39




Marsh often allowed Liberty either to renew its place on the excess layer or to gain new

business.” In furtherance of the scheme, Liberty Mutual provided losing quotes at Marsh’s

request.

123. Travelers submitted a “B quote” in order to protect the business of XL in the

Schmidt Baking account. Its cooperation paid off when its own renewal was protected despite a

significant rate increase. In order to convince its client that the increase was justified, Marsh

reached out to Zurich and ACE to provide higher non-competitive bids. As a Marsh executive

wrote to Zurich:

I need a protective quote.

Please email me indicating you would need a 2mm per occurrence, and make your premium for [the layer] unattractive, St. Paul is the incumbent and they offered[the layer for] $351,000 . . .

124. XL, on its part, not only received protection of its incumbent status, but provided

such protections as well. The head of XL’s U.S. Excess Casualty Unit, Diane Amodeo,

described her unit’s working relationship with Marsh as follows: “We [XL Excess Casualty] are

generally cooperative in providing ‘backup’ quotes to protect incumbents when required to do

so.” Indeed, XL was repeatedly asked by Marsh to provide “B quotes” to support the proposed

insurer in the broking plan and often did. For example, in connection with the State Farm

account on which the incumbent AIG had hit the target, Marsh requested and received a losing

quote from XL.

125. Chubb also participated in the scheme by providing protective quotes in return for

protection of its own status. When asked for a “bullshit” quote to support the AIG lead, Chubb

complied with an uncompetitive number and the business was retained by AIG. Chubb also

accommodated Marsh and an incumbent rival by declining to bid when asked to do so. Joshua

40




Bewlay emailed Kathy Drake, LBC team leader for Chubb on February 27, 2001: “Need Chubb

to say no thank you on a lead basis and excess basis.” Chubb responded just a few hours later

with a declination and the client ended up purchasing its primary layer of insurance with AIG. In

return for its cooperation, Chubb was often protected when its business was up for renewal.

Chubb won the renewal in the Basic American account after Marsh asked Liberty Mutual and

Zurich to provide B quotes. Additionally, Chubb was rewarded with a protective quote from XL,

which supported that Chubb’s “pricing is comparable to the market.”

126. Fireman’s Fund was asked for protective quotes in return for protection of its own

status. When requested to assist in the protection of an incumbent Insurer, Fireman’s Fund

provided a “declination” to the LBC, allowing the incumbent to retain the business. When its

own accounts were up for renewal, Fireman’s Fund was in turn protected with B quotes from

AIG, ACE, Liberty Mutual and Zurich, among others.

127. Axis has admitted that it provided protective quotes to Marsh. In a letter to the

Connecticut Insurance Department dated January 14, 2005, Axis stated that Axis employees

submitted quotes that were “higher than one or more quotes that may have been, or were

anticipated to be submitted on the same account by another insurance company,” and that the

underwriters who submitted the quotes knew they “would not be chose[n] for the primary layer

of coverage on that account.”

128. Marsh also invited other members of the conspiracy to collude. For example, on at

least two occasions, in 2001 and 2002, Marsh requested false quotes from CNA. Specifically

Marsh requested CNA to provide a quote which is “reasonably competitive, but will not be a

winner” and listed the quotes provided by ACE and Zurich.

41




(iv) Marsh and Its Preferred Carriers Agreed that In

Return for Contingent Commission Payments,

The Insurer Participants Would Be Guaranteed

Access to a Specific Amount of Premium Volume

129. The customer allocation scheme included agreements among the conspiring insurers

that they would be guaranteed access to a specific amount of Marsh’s business. Indeed, Marsh

made explicit premium commitments to its preferred insurers, promising, for example, to give

ACE $100M in excess casualty business for 2003 and $175M in excess casualty business in

2004.

130. The amount of premium promised to each conspiring insurer was determined by the

premium threshold levels negotiated in the PSA’s between Marsh and its partners. Indeed, more

than 80% of Marsh’s PSA agreements established a volume floor for contingent commission

payments, with the consequence thatt Marsh would receive no payment at all unless it placed a

minimum volume of premium with that particular insurer. These volume threshold

commitments reflected a tacit agreement among the conspiring parties that Marsh was

guaranteeing the delivery of a specified minimum amount of premium volume. For example,

when Marsh and Zurich negotiated its PSA for excess casualty in 2003, Zurich expected to be

delivered premium volume sufficient to meet the negotiated threshold. It also understood that

the premium volume delivered to Marsh’s other preferred insurers for Marsh’s excess casualty

business would be based upon the premium thresholds set forth in those agreements.

131. To meet the premium threshold levels promised in the agreements, Marsh steered

business, with little or no competition, to its insurer co-conspirators. As one Global Broking

Manager said: “Some PSAs are better than others. Shortly we will tier our market and I will give

you clear direction on who we are steering business to and who we are steering business from.”

132. For example, as described more fully in the Revised Particularized Statement:

42




• Marsh steered business to Chubb as one of its preferred carriers, in order to

trigger a PSA payment: “As [Marsh has] stated before, they are anxious toundertake ‘Operation Switzerland’…their term for moving [Zurich] businessto us.”

•

Marsh steered business to Crum & Forster, in order “to break through the$50m threshold.”

• Marsh steered business to Liberty Mutual, and protected Liberty from havingto compete for it: “See what coaching and/or pricing info we can get fromMarsh before releasing our quote. They are supposedly going to try and steer

the business our way.”

• Marsh steered business to Travelers, because “St. Paul recently did big favors

for Marsh.” Marsh also stated that Travelers should be put in broking plansfor any new business so that they could be awarded the business “if they meet

the target.”

• Marsh steered business to XL. Kathryn Winter was advised to direct new business to XL by the end of 2002 in return for favors that XL had provided toMarsh. Ms. Winter’s notes from a Monday morning meeting held on November 25, 2002 state that XL should be given four new leads on new business and put in the broking plans so that they can get the accounts if theymeet the target prices.

• Marsh steered business to Axis in order “to get over 40mm bar” and asked itsemployees to make “bigger push.”

• Marsh steered business to Hartford because Hartford was at ___ growth andMarsh would “get an extra point on all business above ____.”

133. To meet the promised volume thresholds, the preferred insurers expected and

received competitive advantages and protection from competition. The conspiring insurers’

expectations in this regard are illustrated in an email written by Liberty Mutual’s Patrick

O’Connor: “again DEMAND, that marsh gives [Liberty Mutual] property the consideration and

preference we mutually and formally agreed to via the psa agreement.” Liberty also made clear

that with its PSA, it “expect[s] preferential treatment in return.”

134. Fireman’s Fund also expected greater business in return for its PSA with Marsh.

The “Bottom Line” is that “Marsh Brokers should only be sending us business (Primary and

43




Excess) that are within our appetite – and that we should also be awarded our fair share of that

business.”

(v) The Insurer Defendants Understood their Role

in the Conspiracy and Were Disciplined if theyDid Not Go Along

135. As in all effective conspiracies, participants who did not play ball were disciplined.

Marsh’s message was loud and clear that if an insurer did not have a PSA with Marsh, it would

not receive any business and would not be protected from competition.

136. Chubb learned as much in 1999, when it refused to pay Marsh the contingent

commissions it sought. As a result, Chubb was informed that it was “no longer a preferred

market” and that “all Chubb renewals will be marketed with the implication that the book will be

depopulated.” When Chubb business was subsequently moved, Chubb was advised that it was

being “punished.”

137. Marsh used the situation with Chubb as a threat to other insurers, promising ACE

and Fireman’s Fund similar treatment if they did not stay in line. CNA also recognized that

defiance would be punished: “Marsh is saying that they are not happy with this agreement for

open brokerage and is already threatening to not place business with us. If we cannot work out

an agreement with Marsh, they likely would reduce their writing.”

138. Liberty Mutual also learned that it was “not on marsh’s ‘preferred partner list’

because of [its] refusal to do a psa in 2002,” and that Marsh was steering business away from

Liberty. When Liberty Mutual “lost a renewal account after matching terms/conditions

requested by the broker,” it questioned Marsh as to why, to which Marsh responded, “no PSA.”

Liberty was so unhappy with its “dismal” 2002 results that it agreed to a PSA with Marsh for

44




2003. As soon as Liberty confirmed its intention to proceed with a 2003 PSA, Marsh made clear

that Liberty Mutual was again a market Marsh would use.

139. Likewise, XL knew that a PSA was a “prerequisite” for doing business with Marsh

and that PSA payments determined the level of business that XL could expect from Marsh. One

XL executive stated: “We know they [Marsh] will move even more business away from XL

unless we provide them some incentive to continue.”

140. As AIG observed: “Because we incent Marsh to write more business through us

through a PSA, we expect to get more business as compensation levels are based on growth

thresholds.”

(vi) Communications Among the Participants in the

Marsh Broker-Centered Conspiracy Facilitated

By Marsh Furthered the Conspiracy

141. Marsh shared information with its preferred insurers in order to ensure that the

conspiracy would operate successfully. In particular, Marsh told its preferred insurers who the

other conspiring insurers were; details of the contingent commission arrangements that the other

insurers had with Marsh; the amount of contingent commissions paid by other insurers; and the

amount of premium volume delivered or expected to be delivered to other partner insurers.

142. The conspiring insurers were aware, for instance, not only what tier or level they

were on, but which other insurers shared their status. For example, a September 1997 internal

Chubb memo shows that Chubb discussed with Marsh: “who the top ten carriers are, the nature

of the placement agreement they have with them, the names of the carriers they expect to close

out in 98…and a review of how their other major carriers are handling the roll in.”

143. Details of competitor’s PSA’s were freely shared among the co-conspirators.

Marsh told ACE that Marsh would be “candid and absolutely honest about where [ACE’s] PSA

45




stands relative to similar partners in terms of both %'s and growth thresholds.” The conspiring

Insurers also had access to the proprietary information of their rivals, including “key

components” of PSA’s, and a comparison of payouts based on a uniform set of premium and

expense factors.

144. Documents in Crum & Forster’s possession also show that it had access to

competitor’s proprietary information. A 1999 email entitled “PSAs – The Competition” includes

comparative information on the key components of PSA’s offered by seven of Crum & Forster’s

competitors, and a comparison of payouts of twelve competitors based on a uniform set of

premium and expense factors.

145. Global Broking also told Munich the details of how much the other preferred

insurers paid in contingent commissions, advising Munich of the terms of AIG’s and other

insurer’s PSA’s. In fact, the insurer conspirators communicated with one another about the

terms of their PSA arrangements with Marsh. A Munich employee wrote: “AIG does it this way

and I spoke with ACE and they do something similar.” Indeed, the exchange of this type of

information permitted the conspirators to monitor not only what their co-conspirators were

paying for their premium volume, but also, what they were receiving in return.

146. Marsh provided Liberty Mutual confidential information about the business of other

carriers, including how Liberty Mutual’s hit ratios (sales/proposals) compared to those of other

carriers. Marsh also advised Liberty Mutual it “is one of [Marsh’s] top 9 preferred markets; that

it is “ranked about 5th; but “other than AIG, there’s a very small % difference … that separates

the 2nd - 6th ranked carriers.”

147. Marsh also shared detailed information with its conspiring Insurers regarding

upcoming renewals. This information was detailed in charts, entitled “Account Logs” or

46




“Account Assignments” and contained information regarding proposed game plans on accounts,

whether the Insurer would be needed to provide non-competitive quotes and other information

regarding the other preferred Insurers.

148. For example, on June 16, 2003, Greg Doherty, Marsh’s LBC for ACE, sent an

email to underwriters at Liberty Mutual and ACE, among others, attaching a chart entitled

“Doherty Account Assignments.” The chart included information concerning the accounts

where ACE or Liberty Mutual will provide alternative quotes. The chart also included the terms

of the incumbent Insurer’s lead quote.

149.

Mr. Doherty sent similar account logs to ACE and/or Liberty Mutual on other

occasions. On each occasion, the account log outlined proposed game plans for a number of

accounts and detailed whether ACE would be providing “B” quotes on certain renewals.

150. Marsh also disclosed to the conspiring insurers information about the amount of

premium Marsh delivered to other conspiring insurers. ACE for example was aware that AIG

was “Marsh’s clear number one market” for excess casualty (with about $800M in premiums)

and that Zurich premium was about $200M. Marsh likewise told AIG that ACE wrote “just

under $200M in excess casualty business.”

151. Marsh facilitated the exchange of information about co-conspirator status by

sponsoring meetings that its preferred insurers attended. Frequent meetings at the annual CIAB

conference at The Greenbrier also afforded Marsh the opportunity to share information about its

arrangements with its preferred carriers and to compare notes on the terms and profitability of

the various contingent commission arrangements. There, Marsh routinely held both private

meetings with carriers as well as meetings with groups of carriers.

47




152. In addition to facilitating the exchange of information at The Greenbriar, Marsh and

its most senior executives exchanged information with the executives of its preferred Insurers

about the status of the other preferred insurers, at meetings that were referred to as “Executive

Partnership Meetings.” These meetings provided a forum for review and discussion concerning

the status of the relationship and to comment on the quality of the PSA agreements. In

preparation for these meetings, Marsh compiled briefing materials for its attendees which

included, inter alia, a list of PSAs with the carrier, the quality of the PSA as compared to other

Marsh preferred carriers, and information regarding how to meet thresholds in the PSAs.

(vii)

The Co-Conspirators benefited from theOperation of the Conspiracy

153. Both Marsh and its conspiring insurers profited handsomely from their

anticompetitive arrangement. Marsh saw its contingent commission revenue for Global Broking

skyrocket from _________ in 1992 to __________ in 1999. In 2001, Global Broking’s

contingent commission revenue reached ____________ and by 2003, Global Broking’s

contingent commission revenue reached _______.

154. Marsh’s insurer co-conspirators saw their gross written premium skyrocket as well.

As Liberty Mutual acknowledged, “I do believe [that] our PSA played a role in seeing our book

of business nearly double with Marsh from 1999 to 2002.” In fact, Liberty Mutual’s book of

business with Marsh grew by 73% from 2000 to 2002, while paying $1.45 million in contingent

commissions which was a “small price for $80M in additional revenue!”

155.

Travelers characterized its success with Marsh in 2002 and 2003 as “dramatic” as

its book of business with Marsh increased almost 900%, growing from __________ in 2001 to

______ in 2002 to ______________ in 2003. Likewise, ACE’s gross written premium with

Marsh grew from $3.95 million in the first half of 2002 to over $34 million in the same period in

48




2003, an 860% increase; Crum & Forster’s gross written premium with Marsh more than

quadrupled from 2000 to 2004, from $35 million to over $170 million; and Fireman’s Fund’s

gross written premium grew from $142,000 in 1997 to $2.6 million in 2001.

156. The Marsh Broker-Centered Defendants understood that it was the clients who paid

the price for this increase in the profitability of the conspirators. As one Marsh manager wrote to

an insurer complaining about the size of the commissions: “In answer to your question ‘does

Marsh understand that the PSA is an expense load to the premium’, their answer is absolutely.

And ever [sic] other market has to cope with the same expense load components as part of their

overall premium ‘equation.’”

(2) The Aon Broker-Centered Conspiracy



participants in the Aon Broker-Centered Conspiracy have included Aon and its Insurer

Defendants ACE, AIG, AXIS, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford, Liberty

Mutual, Travelers, XL and Zurich (the “Aon Broker-Centered Defendants”).


158. Aon allocated its customer base to and among its conspiring insurers in two steps.

First, Aon and each of its co-conspirators agreed, and each of the conspiring insurers horizontally

agreed, that Aon would “consolidate” its business by directing the bulk of its premium volume to

its “strategic partner” co-conspirators, thereby eliminating hundreds of other insurers from

competing equally with the conspiring insurers for the majority of Aon’s business. As a second

step, the Insurers members of the Aon Broker-Centered Conspiracy all agreed with Aon, and

agreed horizontally among themselves, to reduce or eliminate competition for that secured

49




business among the conspiring insurers. One aspect of the conspirators’ agreement was that each

conspiring insurer would be able to keep its own incumbent business, and that Aon would protect

that business from competition by using a variety of incumbent protection devices. Because

more than half of Aon’s premium volume was renewal business, the Insurer Defendants’

agreements not to compete for each other’s customers, in return for protection of their own

business from competition, effectively reduced or eliminated competition for the bulk of the

insurance placed by Aon on behalf of Aon’s clients.

(i) The Participants in the Aon Broker-Centered

Conspiracy Agreed that the Bulk of Aon’s Bookof Business Would Be Allocated to Aon’s

Strategic Partners in Exchange for Contingent

Commission Payments

159. Beginning at a time unknown, but certainly by the late 1990s, Aon saw an

opportunity to maximize its contingent commission revenue by placing the majority of its

business with a small number of “strategic” or “premiere” partners with whom it had its most

lucrative contingent commission arrangements. In return for their contingent commission

payments, these “strategic partners” were allocated a guaranteed flow of premium dollars and

were protected from competition from those outside of the arrangement. The insurer co-

conspirators were kept abreast of the terms of the agreements that other members had with Aon,

and shared competitive information that would have been economically irrational to share in the

absence of a conspiracy.

160.

Aon’s consolidation efforts were extensive and well coordinated, and were overseen

at the highest levels of the company. Aon’s two top executives, Patrick Ryan (the founder,

chairman of the board and then-CEO) and Michael O’Halleran (the chief operating officer), were

50




both focused on the consolidation of markets and movement of business to Aon’s conspiring

Insurers.

161. Its efforts in this regard were communicated to its Insurer co-conspirators. A

Chubb document from 1997 notes:

Aon Group, has formed a new subsidiary, Aon Enterprise Insurance Services, Inc.into which it will consolidate more than $300 million in gross premiums to AonGroup’s smaller accounts. This business will be served by four carriers: Chubb,Kemper Insurance, Wausau Insurance Company (a division of Liberty) andVirginia Surety (an Aon subsidiary)…. [W]e were selected as one of the four partners in the new venture.

Aon not only identified the four partner insurers to Chubb, but also allocated a substantial

premium volume to Chubb. The Chubb document continues:

Our participation in Aon Enterprise will result in more than $70 million of new premiums to Chubb in the short term as Aon Group consolidates its book.

Prior to this consolidation the business was written by over 1000 carriers.

162. To carry out its agreement with its conspiring Insurers to consolidate its business

with them and allocate business among them, Aon concentrated control over national contingent

commission agreements in the hands of a small group of executives known as the Syndication

Group. The Syndication Group’s mandate was to “drive further market consolidation to achieve

. . . improve revenue management . . . [and] greater market leverage.”

163. In keeping with the mandate of Aon’s Syndication Group, Aon executive Bruce

O’Neil, directed Aon’s senior executives to “urge marketing departments to use the ‘Big 10’

carriers” so that Aon could “receive the largest commission possible.” These Aon senior

executives were also instructed “to consolidate business with Strategic Partners and move away

from some of the smaller lines we use.” Joseph Lombardo, a senior executive with Aon Risk

Services (“ARS”), wrote that “[w]e absolutely, undoubtedly, without question, should not be

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doing business with the number of markets that we currently do.” Lombardo estimated that Aon

would be able to “knock off about 20 carriers” in the course of its consolidation effort.

164. In 2000, Aon named as its strategic partners AIG, Royal, Travelers, Hartford,

Zurich, Chubb, Kemper and CNA. A chart from June of 2001 shows that Aon was tracking its

national agreements with ten “Strategic Partners”: CNA, Chubb, Fireman’s Fund, Hartford,

Kemper, Liberty Mutual (through Wausau), Royal, Travelers, and Zurich. Nearly two years later

Aon’s core cast of strategic partners looked quite similar, and included ACE Bermuda, CNA,

Chubb, Hartford, Liberty Mutual, Traveler’s, XL/ELU and Zurich.

165.

Senior ARS executive Tom Rodell explained the plan of consolidation and

allocation succinctly: “Our vision is that for each product/industry, we would have a relatively

small number of selected strategic partners where we would place the majority of our business,

and we would have appropriate PEF [a form of contingent commission] Agreements.”

166. Consolidation continued until the end of the relevant time period. When AXIS

wanted to increase its revenue related to smaller, mid-size business, it learned that Aon had

allocated those clients to AIG, Chubb and Travelers. An AXIS internal memorandum from 2004

reported that Aon was “considering adding additional partners” in connection with this business.

While AXIS had “stated [its] interest in participating as a preferred market…Aon has not

concluded their internal conversations as to whether they will be adding markets or not.”

Eventually, because Aon concluded that AXIS had one of the best PSAs, they were granted entry

to the conspiracy and included in Aon’s list of “top ten” carriers.

167. The 2004 ARS business plan confirms that the conspirators’ market consolidation

efforts continued into 2004: “Our Leading Carriers have been condensed into seven carriers,

down from nine, where we enjoy National Professional Enhancement Fund [PEF] Agreements

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with a defined placement strategy. These carriers are Chubb, Hartford, Travelers, St. Paul, CNA,

Liberty Mutual and Zurich. Our strategy in middle market is to create a condensed group of

markets that can handle 80-90 percent of our business obtaining cost efficiencies in dealing in

this market segment.”

(ii) The Insurer Participants Agreed to Refrain from

Competing for Each Other’s Customers and

Expected Aon to Protect their Renewal Business

from Competition

168. The Insurer co-conspirators knew of and understood their role in the conspiracy.

Each was a “strategic partner” of Aon during the relevant time period and each received the

guaranteed premium allocation and the protection from competition that status afforded. Each

Insurer co-conspirator agreed to refrain from competing for other Insurer’s incumbent business

and each expected Aon to protect that renewal status.

169. One of the mechanisms for allocating premium that was agreed upon by Aon and its

conspiring insurers was very simple: protection of incumbent business. Members of the Aon

Broker-Centered Conspiracy understood and agreed that when one of their accounts was due for

renewal, Aon would take steps to keep that account with the incumbent insurer. Aon

accomplished this by failing to seek competitive bids, giving the incumbent a “last look” on the

account, and/or providing other anticompetitive information and advantages.

170. Aon employees oversaw the incumbent protection aspect of the conspiracy. For

example, Rhonda Rayha wrote to Carol Spurlock about an “incident” where Travelers “brought

to my attention that we are not protecting our incumbent, premiere markets.” The email went on

to note that “[i]n addition to our Syndication colleagues I have communicated to the Region our

commitment to our ‘premier-market’ relationships.”

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(iii) The Participants Agreed that in Return for their

Contingent Commission Payments, They Would

Be Guaranteed Access to a Minimum Amount of

Premium Volume

171.

The insurer co-conspirators also agreed that access to new business would be

protected from competition, and that they would be allocated a guaranteed level of both types of

business. As an employee of Chubb noted, “Chubb is Aon’s preferred market for all new

business. We will get first look and be guided as to how we stack up against the

competition…he has steered several new lines our way.”

172. ACE understood the competitive advantages of being a strategic partner, noting that

“high front end commissions” were necessary to “focus” Aon’s brokers on providing “value” to

ACE in the form of placements. According to a memo, Aon’s National Property Practice leader

met with ACE and “re-committed to increase submissions to ACE.”

173. Aon regularly tracked the premium levels directed to its insurer co-conspirators in

order to allocate business in accordance with the thresholds embodied in the contingent

commission agreements. For example, ARS employees corresponded about the progress of

allocating the agreed level of premium to Zurich: “Attached is a spreadsheet showing our

production results as of Dec. 17th. Aon’s net premium now stands at slightly more than $82.5

million. Getting very close to the next threshold now. Only $7.5 million to go.”

174. Steering business to conspiring insurers was a well-accepted and important element

of the agreements among Aon and its co-conspirators. In August 2000, Bruce O’Neil wrote to

Patrick Ryan and Michael O’Halleran:

Suggest we use Atlantic Mutual and CGU to “payoff” Chubb to secure$4,300,000 agreement or 1% override (see May 18, 2000 agreement) for ourentire Chubb ARS book.

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In other words, Aon would transfer business from carriers who were not conspiring insurers in

order allocate premium in the agreed-upon amounts.

175. As ARS entered into agreements to allocate business in place with various

conspiring insurers, it disseminated internally a mandate to deliver on promises that were made

to steer business to those insurers. Carol Spurlock wrote to a colleague: “Going forward, we are

going to push Zurich. I just today negotiated our incentive so that we will get paid next year.”

176. The effort to allocate business according to the agreements between the co-

conspirators continued. After a 2003 conference call about the status of production to various

strategic partners, Spurlock noted: “St. Paul does not have a last look on Kemper business. We

own the business, preference is to place with Chubb when we can. . . . Need to continue to

replace Royal business with partner carrier. Working on a National deal with C&F. Mainly to

receive payment on what we have with them. Not necessarily to push business there. Need to

push Hartford and Wausau on that business.”

177. ARS also provided financial incentives to employees who steered placements to the

insurer co-conspirators. Needle told one insurer that “[i]nsurer incentives are a key factor in the

property bonus pool.” This message was reiterated by Needle’s subordinates. As Carol

Spurlock explained to an insurance company executive:

Let me further confirm our ability to effect [sic] placement behaviors. . . This is ameasurable, compensated item that each syndicator is financially motivated todrive.

178. Aon and its strategic partners often agreed to allocate business based another form

of contingent compensation: reinsurance brokerage fees. Aon’s reinsurance brokerage affiliates,

known generally as Aon Re, charged hefty brokerage fees to retail insurers when those retail

insurers used Aon to place their own reinsurance programs. Aon’s strategic partners often

55




agreed to use Aon Re to purchase their own reinsurance (and thus to pay Aon Re’s high

brokerage fees) in exchange for an allotment of business from Aon’s retail brokerage affiliates.

179. In the fall of 2000, for example, Aon allotted retail business to AIG in exchange for

AIG’s agreement to use Aon Re. AIG had indicated that it was considering handling in-house a

particular reinsurance program called CCA, but the parties instead agreed that AIG would gave

the business to Aon Re – and pay Aon Re approximately $750,000 in brokerage fees -- in

exchange Aon steering $10 million in new retail business to AIG. An Aon executive explained:

In return for a commitment of $10,000,000 in new gross premium from ARS US,AIG has agreed to appoint Aon Re for an additional 2.5% placement of the CCA

program, which [AIG] has indicated is worth $750,000 in commission for AonRe.

180. The practice of steering retail business to strategic partners in exchange for

brokerage fees to Aon Re became so common within the Aon broker-centered conspiracy that

the conspirators began memorializing those arrangements in a variety of contracts known

informally as “clawbacks.”

181. Many of these clawbacks shared a similar pattern. Aon Re would offer to discount

its reinsurance brokerage commissions to the strategic partner. To help Aon Re recover the

compensation lost by the discount, Aon Re and its strategic partner would agree to a “clawback,”

allowing Aon Re to reduce or eliminate the reinsurance brokerage discounts by steering an

allocated amount of retail insurance business to the insurer.

182. Significantly, these “clawback” arrangements remained subject to confidentiality

agreements and, as a result, Aon’s retail clients were not informed that Aon steered, or had

incentives to steer, business to selected insurers to recoup the discounts Aon Re offered to these

insurers on the brokerage reinsurance account.

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183. Liberty Mutual gave its reinsurance brokerage contract to Aon Re in 2000. In 2002

and 2003, the parties agreed to a clawback arrangement. Aon agreed to steer retail insurance

premiums to Liberty Mutual in exchange for keeping Aon Re as its property reinsurance broker.

Moreover, Aon agreed to reduce the brokerage commission but negotiated a provision that

allowed it to recapture the discount if Aon met specified targets based on the volume or

premiums for Liberty Mutual on its retail insurance business (i.e., clawback).

184. By 2003, even the relative newcomer to the conspiracy, AXIS, had a clawback in

place with Aon.

185.

Aon allocated premiums to its conspiring insurers in a number of other ways. In at

least two instances, Aon’s willingness to place its own interests and that of its co-conspirators

ahead of its clients led it to manipulate the bidding process and cause insurers to submit higher

bids than the insurer otherwise would have tendered.

186. In the first instance, Aon sought to help Zurich recoup funds Zurich had expended

on the Pearlstine Distributors account. Aon’s opportunity to reimburse Zurich came at the

expense of Fieldstone Investment Corp., which had retained ARS. Shortly after Zurich’s initial

bid was submitted, ARS told Zurich it could raise its quote without losing the bid. Zurich won

the account after raising its quote by nearly $45,000.

187. After the account was bound with Zurich, Aon explained what had occurred:

We came back to [Zurich] and allowed [it] to increase [its] initial WC quote toapprox. same as expiring, $283,532. We allowed Zurich to get more money onthis. . . . This is an example of AON letting Zurich have more rate and premiumwhen we could have held them at a cheaper price.

A later Aon internal email noted that the inflated bid not only settled the Pearlstine debt to

Zurich but helped Aon get closer to achieving payout on its contingent commission goal.

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188. In the second instance, Aon encouraged Zurich to raise its bid on coverage for

Pitcairn Properties, Inc. from the mid-60s to just over $90,000. Zurich provided a formal quote

to ARS of $92,497. Although Zurich still had the lowest quote, ARS advised Pitcairn to reject

Zurich and take a higher AIG quote of $99,519. ARS justified the recommendation by telling

Pitcairn that Zurich had refused to cover certain disposal sites, even though Zurich had agreed

orally to cover the sites.

(iv) Aon Monitored and Enforced the Terms of the

Conspiracy

189. During the Class Period, Aon monitored the conspiracy by cutting off premium

volume supply to insurers that did not live up to their end of the bargain. As one ARS executive

informed an insurer that had not yet signed a contingent commission agreement:

We have been operating on the good faith that this [contingent commissionagreement] would be mutually agreed quickly after our meeting here in NY.Based on the fact that we are almost halfway through the year, I will be advisingour people in the field that we in fact don’t have a [contingent commissionagreement] with [Industrial Risk].

190. Aon denied premium flow to carriers who would not cooperate with the aims of the

conspiracy. Munich was told that contingent commission agreements were critical to receiving

any business from Aon: “As they have previously, Aon re-emphasized that all business will be

placed through the newly formed Syndication unit. For a market to see any new or renewal

business we must have PSA in place.”

(v) Communications Among the Participants in the

Aon Broker-Centered Conspiracy, Facilitated by

Aon, Made the Conspiracy Plausible

191. The insurer co-conspirators were aware of their status with Aon, were advised of

the status of other conspiring insurers, and all agreed to the corresponding allocation of business

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to and among them. Fireman’s Fund was aware of the terms that Chubb, Travelers and Liberty

Mutual had agreed to with Aon.

192. Aon provided Chubb their carrier Contract Checklist, noting that “most of our

strategic partner carriers were interested” in the list. Aon also provided Chubb with copies of its

agreements with its other preferred partners. Competitive information also flowed to Aon. Aon

knew the terms of Chubb’s deal with Marsh and suggested to Chubb: “Alternatively, you could

give us the Marsh deal.”

193. Aon’s top executives passed information about compensation agreements between

the conspiring insurers. An email from XL’s top executive, who wrote to Michael O’Halleran

and referenced their discussions about compensation agreements with other insurers, stated:

“Mike this is in line with our discussions and agreements with other carriers.”

194. In another email exchange, Carol Spurlock made it clear to Liberty Mutual which

other insurers had access to Aon’s business and why. Liberty Mutual asked, “Is this an exclusive

offer to Wausau or is this out with every carrier?” Spurlock responded with the identities of

some of Aon’s other conspiring insurers, saying: “We have had discussion with Chubb and

Hartford. Chubb has picked up some of the business, not allot [sic] of movement . . . We went

to them because our agreement is more favorable. . . . . We are having preliminary conversations

with CNA and St. Paul.”

195. Aon’s information-sharing role is clear in an email regarding AIG: “PEF is in draft

form and Ken has agreed in principle to our terms. . . .They should be falling all over you guys

to reward your placement and encourage you to continue to place business with them. You can

also mention that all their competitors pay us 12 to 13 points on placement.”

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196. The sharing of detailed competitive information is set forth in a Crum & Forster

report respecting a visit with Aon. Aon informed Crum & Forster that its contingency agreement

was “average within the industry” and that Hartford, Royal and Chubb had better plans. The

report notes that Aon “will share competitor . . . plan information with us (we met off-site).”

(vi) The Co-Conspirators Benefited from the

Operation of the Conspiracy

197. Liberty Mutual recognized the positive impact of the conspiracy on its bottom line,

forwarding the latest Liberty Mutual/Aon contingent commission agreement with the note “we

would like to execute, announce and get it into play quickly so as to start impacting results.”

198. Aon knew that the concentration of premium in the preferred partners would make

money for Aon: "[O]ur arrangement with CNA will be quite lucrative to ARS, therefore we

need to carefully yet aggressively be certain all casualty syndicators understand this is a

preferred market."

199. Aon’s partnership with XL was profitable for both companies. By 2002 Bob

Needle reported that “with XL America, we grew 82% from $121 million in 2001 to $220

million for 2002.” As a result, Aon’s “XL override for 2002 was $7 million[.]”

200. Indeed, payments from the individual insurer co-conspirators, on an annual basis,

were substantial. For example, in 2004 alone, each of Aon’s strategic partners paid more than a

million dollars in contingent commissions to Aon, with Chubb and AIG each topping $6 million

dollars, and Travelers exceeding a whopping $10 million dollars.

(3)

The Wells Fargo/Acordia Broker-Centered Conspiracy


201.

During the period from January 1, 1998 through December 31, 2004, participants in

the Wells Fargo/Acordia Broker-Centered Conspiracy included Wells Fargo/Acordia and Insurer

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Defendants Chubb, Travelers, Hartford, CNA and Fireman’s Fund (“The Wells Fargo/Acordia

Broker-Centered Defendants”).


202.

Wells Fargo/Acordia allocated its customer base to and among its conspiring

insurers in two steps. First, Wells Fargo/Acordia and each of its co-conspirators agreed, and the

conspiring insurers agreed among themselves, that Wells Fargo/Acordia would “consolidate” its

business by directing a significant portion of its business to Chubb, Travelers, Hartford, CNA

and Fireman’s Fund, thereby eliminating hundreds of other insurers from competing equally with

the five conspiring insurers for virtually 100% of its small business customers and a substantial

portion of Wells Fargo/Acordia’s total commercial customers. Second, Wells Fargo/Acordia and

its conspiring insurers agreed that each of these five insurers would be allocated specific business

for which they would not have to compete among themselves.

(i) The Participants in the Wells Fargo/Acordia

Broker-Centered Conspiracy Agreed that a

Substantial Portion of their Customers would be

Allocated to the Conspiring Insurers

203. Beginning in 1997, Wells Fargo/Acordia embarked on a plan to maximize its

contingent commission revenue by placing a substantial portion of its business with a small

number of “partner” insurance carriers with whom it had contingent commission agreements. As

early as October 1997, top Wells Fargo/Acordia executives met with counterparts at Chubb for a

“Chubb – Acordia Partnering Workshop” at which they indicated that Wells Fargo/Acordia was

in the process of “consolidating its business with carriers, preferring to place the majority of its

business with a small number of carriers.”

204. In early March 1998, Wells Fargo/Acordia hired Charles Ruoff “to drive their

initiative of consolidating their middle to [small] business markets” on a nationwide basis. By

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the following January, Wells Fargo/Acordia had _________________ to which it would

primarily seek to allocate business in 1999.

205. On March 15, 1999, Mr. Ruoff wrote an email titled “Millennium Agency System

Partnership” noting that because the five insurers had agreed to pay Wells Fargo/Acordia purely

volume-based overrides on gross written premium placed with them over the next three years,

“they need[ed] to be given priority in our marketing plans.”

206. By mid-1999, Wells Fargo/Acordia implemented a “Millennium Partnership

Program” in order to “leverage [its] major [insurer] relationships.” Wells Fargo/Acordia

expected this program to generate millions of dollars from “Preferred Market Partners” over the

next three years. The program was designed to consolidate business with a small number of

conspiring insurers by giving them “the inside track for future business development.”

207. From 1999 to the end of 2001, “Millennium Partner” insurers paid Wells

Fargo/Acordia a __ override on total gross written premium, plus “growth incentives” of __ to

_____ for “new business allocated to them and ___ to ___ for total “national growth” in overall

premium delivered. Chubb, Travelers and Hartford became Millennium Partners in 1999, and

CNA became one in 2000. Each of these insurer co-conspirators entered into additional

contingent commission deals with Wells Fargo/Acordia in 2003 through 2004. Fireman’s Fund

became a “Key Partner” of Wells Fargo/Acordia and paid Wells Fargo/Acordia substantial

contingent commissions during the Class Period.

208. Wells Fargo/Acordia allocated the very significant segment of its business

consisting of small commercial clients virtually entirely to two Insurer Defendants – Hartford

and Travelers. Both Hartford and Travelers knew of the allocation and acquiesced in the

arrangement. An August 1999 Hartford document indicates that only it and “Travelers will be a

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mkt [market]” and that “other carriers [will] not [be] in direct competition.”

209. Hartford reported that “Acordia has made a decision that _____________________

will be moved with ‘implied consent ’ to partner carrier[s] with customer centers. We will work

with Tom Hite [of Acordia] to facilitate the movement of business to The Hartford.”

210. Materials exchanged between Wells Fargo/Acordia and Hartford noted that the

parties would work together to __________________________________________________

_______________________________________________________ The parties agreed that

they would __________________________________________________________________

________________________________________________.

211. Wells Fargo/Acordia shared its consolidation plan with its other strategic partners.

A Travelers executive, for instance, wrote to Mr. Ruoff to confirm that that “[b]y the middle of

October [1999], each Acordia agency location will provide Acordia, Inc. a business plan

outlining their strategy to achieve growth with the Millennium Partners.”

212. The insurer co-conspirators agreed to pay significant contingent commissions to

Wells Fargo/Acordia in order to receive their premium allocations. Travelers, for example,

advanced Wells Fargo/Acordia ____ in early 2000, ______ in 2001, and _______ in 2002,

giving Wells Fargo/Acordia a strong incentive to steer business to Travelers so that it could

avoid repaying these advances, i.e., to “incent the proper national and local commitment to the

program.” Wells Fargo/Acordia responded by making certain that Travelers business with Wells

Fargo/Acordia increased.

213. The participants in the Wells Fargo/Acordia Broker-Centered Conspiracy explicitly

recognized the conspiracy’s anticompetitive effects, because Wells Fargo/Acordia was moving

its customers’ business to the Millennium Partners even if those insurers did not offer

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competitive products. An October 2001 Wells Fargo/Acordia report noted: “We’re probably

about 30-40% into our book roll [in the Columbus, Ohio office] since we’re finding it hard to

convert multi-year policies with other carriers to either Travelers or Hartford. They are just not

competitive. However, as these policies fully expire, they will be moved .”

214. Acordia’s Pittsburgh office noted that it “has been a big supporter of the Hartford

over the past several years . . . [and] supported their efforts to grow key accounts (and other

areas) when their pricing was greater than market , … and we supported their position on

increased pricing during late 1998 and early 1999 (way earlier that [sic] our other markets) when

the market was still extremely soft.”

215. In January 2000, Hartford and Wells Fargo/Acordia agreed at a partnership meeting

that Wells Fargo/Acordia would participate in “selling higher increases then [sic] needed.”

216. The Wells Fargo/Acordia conspiracy to consolidate and allocate business with and

to its Millennium Partner insurers, in exchange for sharing in the insurers supra-competitive

profits by way of increased contingent commissions, continued from 1999 through 2004.

(ii)

The Conspiring Insurers Agreed not to Compete

With Each Other for the Wells Fargo/Acordia

Business

217. In addition to agreeing that Wells Fargo/Acordia would allocate new customers and

premium volume to Chubb, Hartford, CNA, Travelers and Fireman’s Fund, Wells Fargo/Acordia

and its co-conspirators agreed that the conspiring insurers would not compete for each others’

customers.

218. Wells Fargo/Acordia and the conspiring insurers’ efforts, made with the full

knowledge of all participants, included engaging in initiatives to “migrate business” and to

accomplish “book rolls” – mass transfers of business based on their contingent commission

deals. Documents detail Wells Fargo/Acordia’s agreement with Hartford and Travelers to

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prevent “extensive quoting between both of us” and to facilitate the “split of accounts or books”

between them.

219. Hartford noted that it “will vie for all business under $2000 per account in

commission revenue” with primarily only one other insurer, Travelers, and that those two

insurers would not competitively bid for the business but, instead, select which customer

accounts to take on “first look” basis: “Our primary competitor will be the Travelers for this

business. FIRST COME FIRST SERVE would be an appropriate description here.”

220. Further, Wells Fargo/Acordia agreed not to expose ___ or more of those protected

accounts to outside competition. For example, in 2001, Wells Fargo/Acordia and Travelers

expressly “agree[d] that no more than___ of Travelers renewals will be marketed unless at the

sole direction of the client .”

221. Wells Fargo/Acordia gave its Millennium Partners that were exposed to any outside

competition at all both a first and last opportunity to secure certain pieces of business. In

February 2001, Chubb noted that “[w]e are a preferred market at Wells Fargo/Acordia NY and

we get first shot (and last look) at their business.”

(iii) The Insurers Defendants Knew Each Other’s

Role in the Conspiracy

222. Wells Fargo/Acordia’s Millennium Partners knew of each others’ involvement, and

each clearly understood and agreed horizontally that they had entered into these arrangements

with Wells Fargo/Acordia to purchase volumes of business for which they would not have to

compete with one another or with non-conspiring insurers.

223. On or about June 3, 1999, Wells Fargo/Acordia wrote to Hartford and stated that

they needed to “balance” their negotiations “to the understandings with other markets,” meaning

Wells Fargo/Acordia’s other Millennium Partners. “It is very important to us that we treat all of

65




our Millennium market partners fairly” because “[b]usiness initiatives have begun with other

partners.”

224. In August 1999, Wells Fargo/Acordia sent a detailed memorandum titled

“Millennium Agency System Partnership” to Wells Fargo/Acordia’s “National P/C

[Property/Casualty] Marketing Committee,” with copies to each conspiring insurer – Chubb,

CNA, Hartford, Travelers and Fireman’s Fund – among other potential “Partners.” The purpose

of the memorandum was to make certain that each understood its role, Wells Fargo/Acordia’s

role, and the role of the other partner carriers in the conspiracy, and agreed to the same. The

memo stated, among other things, that “a number of our national insurance company markets”

had “readily agreed to what we called the Millennium Partnership” by which those insurers

“offered supplement incentives to the Millennium override” and that, Wells Fargo/Acordia was

“concentrating on the . . . initiatives put forward by [its] ‘priority’ markets to the exclusivity of

all other markets.”

225. Wells Fargo/Acordia and its conspiring insurers, moreover, agreed to meet and

communicate with each about their conspiracy under the guise of a purported project to launch a

technological “quoting system” platform for use by its Millennium Partners. CNA suggested

calling a “technical interface meeting with all participating carriers,” which a Wells

Fargo/Acordia memorandum exposed was a ruse. The memo’s author stated that as to CNA,

“[I] don’t think technology is the issue here but they volunteered to set up a ‘strawman’ scenario

for multiple market [i.e., Insurer-to-Insurer] discussions.”

226. Wells Fargo/Acordia and its conspiring insurers agreed and understood that they

would be subject to discipline in the form of losing business if they did not cooperate in the

conspiracy. When CNA and Fireman’s Fund initially hesitated to join the conspiracy, Wells

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Fargo/Acordia wrote to its sales staff that “that CNA and Fireman’s Fund have declined to

support our financial plan without profitability stipulations. We are therefore not inclined to

support any business growth with them at the determent [sic] to our Priority Millennium Partners

noted above. Please be guided accordingly in the future business plans within your region.”

After this message was communicated to CNA and Fireman’s Fund, CNA became a Millennium

Partner, and Fireman’s Fund became a “Key Partner.”

(iv) The Co-Conspirators Benefited from the Wells

Fargo/Acordia Conspiracy

227. Wells Fargo/Acordia and its co-conspirators enjoyed substantial profits as a result

of their anticompetitive conspiracy. The Millennium Partners project generated nearly ____

_______ in added revenue for Wells Fargo/Acordia, nearly 10% of which was from Travelers, in

the first eighteen months “with little, if any, associated expense.”

228. In the small business segment, Acordia realized “roughly ___ in commission

income, including ‘kickers,’ from this line.”

229. In 1999, Wells Fargo/Acordia received _______ in contingent commissions from

the Millennium Partnership, and a total of __________ in contingent commissions.

230. In 2000, Wells Fargo/Acordia received ______ in Millennium national overrides

from Chubb; _______ from CNA; ______ from Hartford; and ________ from Travelers alone,

totaling ______ in Millennium Partner overrides. Wells Fargo/Acordia also received an

additional ________ in other contingent commissions from those insurers.

231.

Those four Millennium Partners, together with Fireman’s Fund, paid Wells

Fargo/Acordia _________ in contingent commissions in 2001 and ________ in 2002.

232. Wells Fargo/Acordia’s contingent commissions from its five conspiring insurers

grew to ________ in 2003, and to _________ in 2004.

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233. Wells Fargo/Acordia’s Millennium Partner Markets also “grew exceptionally well”

from 1999 to 2001, and “outperformed [Wells Fargo/Acordia’s] other markets.”

234. In 2002, Wells Fargo/Acordia delivered the following premium to its “priority

markets”: Chubb - ___________; Travelers - ___________; Travelers - _________; CNA -

________; and Hartford - _____________.

235. The conspiring insurers increased their profits by charging increased premiums to

the Wells Fargo/Acordia clients they were allocated. In mid-2001, Chubb reported that its

Millennium Partnership with Wells Fargo/Acordia had resulted in “two very good years in 1999

and 2000” in which Chubb enjoyed a premium “rate increase of ______ on the entire book of

business.”

(4) The HRH Broker-Centered Conspiracy


236. During the period from January 1, 1998 through December 31, 2004, the

participants in the HRH Broker-Centered Conspiracy included HRH and Insurer Defendants

CNA, Hartford and Travelers. (“The HRH Broker-Centered Defendants”)


237. HRH allocated its customer base to and among its conspiring insurers in two steps.

First, HRH and each of its co-conspirators agreed, and the conspiring insurers agreed

horizontally among themselves, that HRH would “consolidate” its business by directing a

significant portion of its business to Hartford, CNA and Travelers, thereby eliminating hundreds

of other insurers from competing equally with the three conspiring insurers for virtually 100% of

its small business customers and at least 35% of HRH’s total commercial customers. Second,

HRH and each of its conspiring insurers agreed, and the conspiring insurers agreed horizontally,

that each of the three insurers would be allocated specific business for which they would not

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have to compete among themselves.

(i) The Participants in the HRH Broker-Centered

Conspiracy Agreed that a Large Portion of

HRH’s Customers would be Allocated to the

Conspiring Insurers

238. In or about late December 1996, HRH decided to consolidate the number of carriers

with which it did business and to increase its profits by transferring, moving and otherwise

directing and allocating large portions of its clients’ business to a few “partner” carriers that

would pay HRH large contingent commissions. By August 5, 1997, HRH’s Board of Directors

decided to implement this plan, which it expected to double company-wide profit in three to five

years. HRH achieved and exceeded that profit target.

239. HRH initially consolidated the segment of its business consisting of small

commercial clients generating less than $1,000 in annual commission revenue, which HRH

called “Select Commercial” accounts. Instead of attempting to find its Select Commercial clients

the best policies at the best prices from among the dozens of insurers that had previously been

serving those clients, HRH decided to “de-market” those accounts from their current carriers and

to allocate them instead to Hartford, Travelers and CNA. Each of those insurers agreed with

HRH and among each other that in exchange for this business they would pay HRH contingent

commissions of up to ______ above HRH’s customary standard commissions.

240. By mid-1998, HRH’s Select Commercial initiative was expanded to include its

“Middle-Market” clients, which were the larger accounts that comprised the rest of HRH’s

commercial business customer base. HRH formed a “Carrier Consolidation Task Force” to

negotiate with prospective insurer “partners” in connection with virtually all of HRH’s property

and casualty lines. HRH’s “Carrier Consolidation Initiative” was focused on HRH’s plan to

allocate a large percentage of its commercial business to a few insurers rather than the hundreds

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of insurers with which HRH’s field offices had historically conducted business.

241. HRH’s Carrier Consolidation Task Force met with several Insurer Defendants,

including Hartford, CNA, Travelers, Fireman’s Fund, Chubb and AIG, to discuss potential

“partnerships” and by national contingent commission agreements. Among other things, these

discussions centered on the concept of a consortium of carriers that would “quota share” the

majority of the existing HRH customers and receive the bulk of its new business.

242. By mid-1998, HRH reached arrangements to consolidate much of its business with

Hartford, Travelers and CNA, which became known as the “Big 3,” in exchange for enhanced

contingent compensation. The number of carriers to which HRH allocated its business was

discussed among and agreed to by the three chosen insurers. During its negotiations, HRH

expressed its preference for four partner carriers but only selected three, a number that Travelers

in particular preferred.

243. HRH’s CEO memorialized HRH’s national allocation scheme with Hartford,

Travelers and CNA in a July 1998 memorandum, which, inter alia, directed HRH employees to

move “business to these partners in an aggressive, orderly and disciplined manner, and in a fairly

short time frame.”

244. By moving existing books of business that had previously been placed with other

insurers, HRH planned to increase its total business volume with its three co-conspirators from

$150,000,000 to $300,000,000. Given the contingent commission payments that Hartford, CNA

and Travelers agreed to pay, HRH expected to realize $12,000,000 in additional profits over 18

months simply by rolling other carriers’ books of business to its “Big 3” conspirators.

(ii) The Three Conspiring Insurers Agreed not to

Compete with Each Other for the HRH Business

245. In addition to agreeing that HRH would allocate new customers and premium

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volume to Hartford, CNA and Travelers, HRH and its co-conspirators agreed to ensure that each

of the allocated customers who sought to renew their policies remained customers of the

previously designated conspiring insurer. In November 1998, the head of HRH’s Carrier

Consolidation Task Force instructed HRH’s nationwide field offices “to avoid situations where

we move accounts from one of our three partners to another,” and that “[n]o select customer

business currently written by C.N.A. or the Travelers is to be moved to the Hartford.” This

communication was sent to, and circulated within Travelers and, on information and belief, to

Hartford and CNA as well.

246.

Hartford and the other conspiring insurers knew which business was allocated to

each partner. Hartford understood it was positioned to be the “lead market on Select Customer

business” and that it had been allocated “all accounts generating ______ of revenue and below,”

with “the only exceptions to this rule [being] accounts generating between __________________

_________________________________________.

247. HRH’s protection of its Big 3 Partners was embodied in its internal procedural

manuals, which made clear that there were preferred market partners for Select Commercial

business and that no customers placed with one of those insurers could later be moved without

the local Agency President’s consent.

248. HRH allocated premium volume to its conspiring insurers even if it caused an

increase of its customers’ insurance premiums. HRH’s 1998 Select Commercial Operations

Procedures Manual instructed HRH’s employees to allocate to Hartford all customers whose

prior year premiums were below _____ even if Hartford more than doubled the premium. To

illustrate, the Manual explained: “For example: a policy is currently written through another

carrier at _____ and Hartford’s minimum premium is ____. The increase here is much higher

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than _____ but Hartford will go ahead and issue the policy because it is subject to their minimum

premium and falls below _____.” HRH also allocated to Hartford any other select customer if

Hartford’s quote was “within ____ of the expiring premium for the total account.” HRH’s

employees were not permitted to “request a cancellation from [Hartford] if one part [i.e., one

policy][ of an account [wa]s more than ____ higher than expiring.”

249. HRH provided financial incentives to its employees, at all levels, to move business

to its Big 3 co-conspirators. In August 1998, HRH established an incentive bonus pool to be

generated for each year based on the volume of new net business placed with HRH’s Big 3

Partners. At least 50% of the 1998 bonus pool was to be paid to employees who had “a direct

impact on moving business to the preferred carriers.” Agency presidents were eligible for a

maximum of 50% of the bonus pool remaining. HRH implemented similar incentive plans every

year between 1999 and 2004.

(iii) The Insurer Defendants Knew Each Other’s

Role in the Conspiracy

250. HRH’s conspiring insurers knew of each others’ involvement, and each clearly

understood and agreed that they had entered into these arrangements with HRH to purchase

volumes of business for which they would not have to compete with one another or with non-

conspiring carriers.

251. A Travelers representative stated in July 1998 that “HRH will limit participation

[for the commercial lines business] to a maximum of 3 national carriers with ‘similar’

programs.” The representative continued: “[t]hese terms and conditions assume a similarity of

intent with the strategic partners.”

252. Travelers also knew that “the main thrust of HRH’s small business strategy is to

reduce the number of partners to three – Hartford, CNA and Travelers” and that “[t]he financial

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program encourages HRH to consolidate a significant amount of this business with the Travelers

and the other partners.” Travelers also reported that “[t]o ensure a level playing field, each

carrier agreed to the same financial program.”

253. When the arrangement was changed to include additional commercial lines, the

conspiring insurers were aware of this as well. A September 1, 1998 Travelers memorandum

noted that the HRH “deal” had expanded from HRH’s Select Commercial customers to include

additional commercial lines, and it unambiguously set forth a conspiratorial plan for HRH to

allocate “______ of [its] national commercial property casualty” customers – representing

___________ in premium – to Travelers, Hartford and CNA in exchange for contingent

commission overrides.

254. The Travelers memorandum also noted that HRH’s corporate office intended to

ensure compliance with the conspirators’ program, and that “[f]ail safe systems are being

designed to monitor individual [HRH employees’] performance to the plan complete with action

steps to correct any volume movement concerns.”

255.

Hartford communicated to its Regional Vice Presidents in September 1998 a similar

understanding of the conspiracy with HRH and the other two insurer conspirators to its Regional

Vice Presidents in September 1998, announcing that Hartford had “been selected as one of three

National partner Carriers in conjunction with HRH Insurance’s new strategic direction for

Commercial . . . business,” and that the agreement provided for an “enhanced Incentive Bonus”

in “exchange for a significant premium commitment over the next several years.”

256. Hartford acknowledged that HRH would “[f]ocus on the movement of business to

their trading partners . . . immediately,” and that “[a]n Implementation Task Force consisting of

four senior managers … has been formed to corporately manage this process.”

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257. CNA was fully aware that it was one of three carriers selected by HRH pursuant to

its national “consolidation program.” CNA knew that HRH was allocating competition-free

premium volume to its conspiring insurers, CNA, Hartford and Travelers, in exchange for

contingent commissions. CNA knew that it would be penalized by HRH for non-compliance

with the conspiracy in that HRH would move CNA business to Hartford and Travelers if CNA

did not pay HRH the agreed upon contingent commissions. In April 2002, a CNA officer wrote:

“They [HRH] expressed that our changing anything, or requiring anything other than simply

paying the 3.5% on the volume (assuming growth) will expressly jeopardize our relationship . . .

, and that this would create a situation where their retail leaders would likely move some of the

CNA business.”

258. Other Insurer Defendants were also familiar with HRH’s arrangements with its

strategic partners. Defendant Chubb met with HRH to confirm its understanding from the

marketplace that HRH had, in fact, entered into strategic partnerships wherein they would

allocate premium volume to their partners in exchange for enhanced compensation.

(iv)

The Co-Conspirators Benefited From the


259. HRH profited from its diversion of clients to its carrier co-conspirators. An internal

HRH document indicates that between 1997 and 2004, HRH benefited from its participation in

the conspiracy and received approximately $188,738,000 in contingent commissions from its co-

conspirators. From 1998 through 2000, the Big 3 conspiracy produced approximately

$7,500,000 in annual contingent commission overrides for HRH; $27.7 million in 2001-2003

alone. As HRH’s President advised HRH’s field office presidents, HRH’s receipt of contingent

commission overrides was pure profit for the company: “These monies went straight to the

bottom line and are a primary driver in our financial success.”

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260. HRH’s conspiring insurers similarly profited from their participation in the

conspiracy. Not only did these insurers achieve the desired growth through increased premium

volumes, they were able to drive profit improvement through price increases. Hartford, for

example achieved ____ growth across all commercial lines with HRH during the first 11 months

of 2002. Growth in HRH’s Select Commercial accounts increased by ____ with Hartford over

the same period. While achieving this growth, and paying the accompanying increasing

contingent commissions to HRH, Hartford was simultaneously driving profit improvement by

executing on its own strategy to not renew unprofitable accounts and to increase prices charged

to consolidated accounts Hartford wished to maintain.

261. On information and belief, CNA and Travelers also reaped substantially increased

revenues and profits from their participation in the conspiracy.

(5) The Willis Broker-Centered Conspiracy


262. During period from January 1, 1998 through December 31, 2004, participants in the

Willis Broker-Centered Conspiracy included Willis and Insurer Defendants Travelers, Chubb,

The Hartford, Zurich, AIG, CNA, Liberty Mutual, Ace, Axis, Crum & Forster, and Fireman’s

Fund. (The “Willis Broker-Centered Conspiracy”).


263. During the relevant time period Willis was the third largest insurance broker in the

United States.

264. Willis allocated its customer base to and among its conspiring insurers in two steps.

First, Willis and each of its co-conspirators agreed, and the conspiring insurers agreed

horizontally among themselves, that Willis would “consolidate” its business by directing a

significant portion of its commercial business to Travelers, Chubb, The Hartford, Zurich, AIG,

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CNA, Liberty Mutual, Ace, Crum & Forster, Fireman’s Fund and Axis, thereby eliminating other

insurers from competing equally with the conspiring insurers for a substantial portion of Willis’

business. Second, Willis and each of its co-conspirators agreed, and the conspiring insurers

horizontally agreed among themselves, to reduce or eliminate competition among the conspiring

insurers through the allocation of specific business for which they would not have to compete

among themselves.

265. One aspect of the conspiracy was the agreement that each conspiring insurer would

keep its own incumbent business, and that Willis would protect that business from competition

by using a variety of incumbent protection devices.

(i) The Participants in the Willis Broker-Centered

Conspiracy Agreed that a Substantial Portion of

their Customers would be Allocated to the

Conspiring Insurers

266. Starting in 1996, Willis began consolidating its insurer markets from 1700 carriers

to fewer than 20. By 2001, Willis had devised a plan to align itself with a select few “key”

carriers who would enter into agreements that would yield “improved commissions” and

“improved contingents and overrides.” These key carriers would benefit from the placement of

Willis’ business once they agreed to pay Willis contingent commissions or otherwise provide

increased revenue to Willis.

267. Beginning in early 2003, Willis furthered its efforts to consolidate the carriers it

used to maximize its contingent commission income by creating a department called the Global

Markets - Carrier Relationship/Marketing Department (“Willis Global Markets”). The stated

purpose of the Willis Global Markets was to “maximize group revenue” by maximizing

commissions and contingent commissions.

268. Willis Global Markets maximized revenue by steering customers to its co-

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conspirators regardless of the interests of clients. Willis Global Markets “require[d] premium

flows to be restructured to focus on Partner Markets and to de-emphasize non-Partner Markets.”

269. James Drinkwater, Managing Director of Willis Global Markets described how

Willis would partner with insurers who were willing to support it in return for steering business

to the partner insurer:

[Market] leverage can only be maximized by “Partnering” with a select number ofcarriers who share our vision, want to work with, and support the Group.Focusing on our ‘partner’ markets will require the management of our premiumflows and the overall relationship.

270. As stated by Willis’ Marketing Manager for its Portland, Oregon office, “the whole

marketing concept was originally predicated on the fact that we would limit our markets to some

strategic markets where we would place 80% of our business.”

271. Willis Global Markets used Regional Marketing Officers (“RMOs”), responsible for

each of Willis’s regions, to communicate its corporate-wide mandate to concentrate business

with specified market partners. John Pearson, Chief Marketing Officer of Willis North America,

reminded RMOs not to “forget the advantages of placing as much business as possible with the

carriers we have negotiated special deals with, as you look for ways to maximize revenues the

last few months of this year and into 2004.”

272. Michael Mann, the RMO at Willis Global Markets for the Midwest, wrote in a

February 23, 2004 email: “Remember – It’s all about increasing commission percentages

(always ask for more), driving business to our Partner Markets and utilizing Group Resources.

The RMOs will set expectations on an office by office basis and follow-up for results.”

273. Willis directed the majority of its business to the co-conspirators. Willis Global

Markets exercised control over the “negotiation, collection and management of contingents in

North America” and prohibited any region or local office of Willis to enter into any contingent

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commission agreement without specific approval by Mr. Drinkwater.

274. The purpose of this control was to ensure “uniformity” and to “maximize premium

volume flow to key carriers with most attractive contingent income agreements.” Additionally,

Willis employees were instructed to “monitor key renewal accounts” of the co-conspirators “and

deliver Marketing resources where necessary to increase renewal retention percentages.”

275. CNA and Zurich assisted Fireman’s Fund in maintaining its insurance coverage to

ABM Industries’ airport parking facilities. In March 2001, Willis client, ABM Industries, was

required to obtain three bids for insurance to cover ABM’s new parking contract with Detroit

Metro Airport, but Willis had previously placed an omnibus Fireman’s Fund policy covering all

of the ABM’s other airport parking facility contracts. To enable Fireman’s Fund to maintain

coverage over this omnibus policy for the Detroit Metro parking facility, CNA and Zurich agreed

to the request of Russell Kiernan of Willis’ San Francisco office to submit bids with the

understanding that they would not result in a placement. Willis provided them with the premium

breakdown they needed to quote in order to be assured of losing the bid.

276.

At a Greenbrier meeting with Zurich on October 13, 2003, it was reported that

Zurich experienced a 50-60% growth rate from Willis in 2003, principally driven by exposure,

rather than rate.

277. Willis agreed to shift blocks of premium to Hartford. This “share shift” plan

involved the _____________________________________________________________ The

objectives of the share shift plan included: _________________________________________

_________________________________________

278. The share shift plan included a “prospecting process” with Willis offices in San

Francisco, Bethesda, Radnor, Hunt Valley and Charlotte. Hartford representatives were allowed

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to meet with Willis representatives of these offices to select the most profitable accounts for

placement with Hartford in order to double the written premium placed with Hartford.

279. Hartford described how Willis and Hartford would work together to allocate

customers:

______________________________________________________ ______________________________________________________ ______________________________________________________

______________________________________________________ ______________________________________________________ _____________

______________________________________________________ ________________________________________________

______________________________________________________ ______________________

______________________________________________________ _____________________________________.

280. On December 11, 2003, Hartford sent out a memo to all Hartford field offices

stating, in part:

A second key piece of the plan which we are now working on with Willis is ________________________________________________________. We willscore leads and distribute back to you and Willis for follow up. The jointcommitment is for Willis to ___________________________________________

__________________________________________________________________ __________________________.

281. Willis also furnished Hartford with their entire account list for the ________

______________________ companies with the understanding that “the joint commitment is for

Willis to give Hartford _________________________.”

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282. Willis provided Liberty Mutual with information on potential clients to give it an

“unfair advantage” in client placements. Willis provided Liberty Mutual with an account listing

of prospective accounts. Liberty Mutual managers could “directly contact Willis RMOs and

proactively ask for the specific accounts.” In response to a request from Fred Frey of Liberty

Mutual, a Willis RMO stated that he would check to determine if it was a “real opportunity” for

Liberty Mutual to acquire the placement and, if so, would “make sure you have solid

information, and an unfair advantage.”

283. Willis provided Chubb with a list of clients for Chubb to review so Chubb could

choose the accounts it wanted.

As stated in a June 30, 1997 letter from Barbara Marshall, Chubb

Senior Underwriter, to Willis, “Per our discussion of June 12, we have reviewed the business

consolidation listing provided to us by Willis Corroon [Willis’ predecessor]….We would like to

pursue $7,950,545 of the list provided to us. This comprises approximately 78% of the

$10,000,000 book consolidation effort.”

284. ACE was provided with the opportunity to choose client business and developed a

“target list.” Kudret Oztap, head of Ace Global Energy, stated that Willis had placed with Ace

“almost all of the WILLIS accounts in our target list in USA.”

285. In return for Hartford Steam entering into a contingent commission agreement,

Willis personnel were “mandated to place all [boiler and machinery] with” HSB.

286. In 2003 Willis provided a list of Royal accounts to John Echemendia of Crum &

Forster and he informed James Drinkwater and John Pearson in which accounts Crum & Forster

was interested.

Drinkwater then informed Willis employees to “ensure that C&F is shown the

accounts listed and they are given the best opportunity of writing the account.” As a result of

these actions, the contingent income received by Willis from C&F increased three-fold from

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$76,422 in 2002 to $228,553 in 2003.

287. Willis had a share shift plan with Travelers.

288. Willis gave Fireman’s Fund “last looks” on accounts. On or around June 14, 2001,

Willis provided Fireman's Fund three last looks on an account for ___________. According to

an internal Fireman’s Fund report documenting the telephone conversation between Fireman’s

Fund and Willis: “Willis came back and provided competitive information on AIG, Hartford and

Royal (who quoted) at the direction of insured.”

289. In August 2002 Zurich requested that it be afforded a “last look on all renewal and

new business,” that Willis “pre-qualify accounts” representing new business, and proposed a

joint Willis/Zurich Business Plan that provided for 90 percent “renewal retention ratio.”

(ii) The Conspiring Insurers Agreed not to Compete

With Each Other for the Willis Business

290. Within Willis Global Markets, Carrier Advocates were responsible for overseeing

and managing the relationship between Willis and their assigned “Partner Markets,” i.e.,

conspiring Insurers Carrier Advocates also worked to protect incumbent conspiring insurers

from competition so that Willis would have the greatest leverage with which to increase the

contingent commissions it was receiving from its co-conspirators.

291. The Carrier Advocate assigned to Hartford listed several Hartford accounts up for

renewal and asked the RMOs to “make sure that [those] renewals are put to be cleanly with

Hartford.”

292.

The conspiracy protected an incumbent co-conspirator on a renewal even when the

client could have obtained a less expensive product. In order to meet its retention contingency

goals, Willis “went the extra mile to make sure that the incumbent, Chubb, retained [an]

account” even though Willis had “obtain[ed] more favorable pricing from other carriers.”

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293. Incumbent protection was important to the insurer co-conspirators. Travelers

provided for a contingent payment to Willis if it achieved _____ premium retention. ACE stated

that renewal retention with Willis was “critical for the PSA.” Willis agreed with Zurich to

protect Zurich’s incumbent business. Zurich’s August 2002 proposed Joint

Willis/Zurich/Business Plan provided for _______ “renewal retention ratio.” A 2004 e-mail to

Zurich from Drinkwater confirmed that incumbent protection was a part of their arrangement.

294. With respect to Liberty Mutual, Mr. Drinkwater instructed Willis’ RMOs to “make

sure that we protect the position and revenue that we have generated” and to “make sure that you

know what you have renewing and manage the renewal process.”

(iii) Willis and its Co-Conspirators Agreed that in

Return for Contingent Commissions, the

Insurers Would be Guaranteed Access to

Premium Volume

295. In addition to incumbency protection, Willis guaranteed its co-conspirators access

to new premium as well.

296. In the fall of 1999 Willis directed that “business for the remainder of this year [will]

be focused on 3 strategic partners: CNA, Hartford and St. Paul.”

297. When Willis Global Markets was created in 2003, one of its purposes was to make

sure that “premium flows” were managed so that premium was steered to conspiring insurers that

had agreed to pay contingent commissions.

298. As part of Willis’ 2003 $2.5 Million Revenue Strategy Willis instructed its people

to give “special attention” to Chubb, along with Travelers, Liberty Mutual, Hartford and Crum &

Forster “due to special agreements.”

299. Willis agreed to try and “[d]ouble Hartford’s P&C volume with Willis” by

_____________________________________________________________________________

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______________.”

300. Axis knew that the payment of contingents was the quid-pro-quo for premium flow

from Willis. In late 2002, just prior to launching operations in the U.S. market, Axis planned its

strategy. The Retail Property Business Plan (revised 11/02) for Axis Specialty Insurance

Company stated, “[W]e will need to consider a profit sharing agreement with Marsh, and

potentially other national brokers, as a price of entry into the marketplace.” According to plan,

Axis entered into an agreement with Willis in 2003.

301. In June 2003, Mr. Drinkwater directed Willis to send business to Axis and provided

his internal directives to Jack Gressier, CEO and President of Axis Global Insurance.

302. In late 2003, Mr. Drinkwater stated that Willis Global Markets had to show that it

was profitable for an insurer to be a Partner Market. In particular, Mr. Drinkwater explained that

in return for Crum & Forster entering into a new contingent commission incentive agreement,

Willis had to “move business” to Crum & Forster. On August 29, 2003, Pearson sent an email to

Mr. Drinkwater and a Willis distribution list announcing the “NEW Crum & Forster / Willis

Incentive Agreement.” Pearson directed the recipients to “review [their] renewal book of

business and pipeline of new opportunities for clients and prospects meeting C&F’s guidelines.”

He further stated: “C&F is serious about growing with Willis. We must demonstrate our ability

to bring significant opportunities to C&F before year end.”

303. According to a September 2003 Willis email:

We all have some ability to direct premium to certain markets and there is a greatdeal of potential income to be made from the PSAs. Those of us who can direct premium need some “direction”. . . . This way we will funnel premium to carrierswith PSAs and achieve greater numbers of thresholds than we would with an“unfocused” approach. Look forward [to] . . . some direction to help us achieveincome goals without having to produce one cent of new biz.

304. In an October 21, 2003 letter from Pearson to Willis CMOs, Office CEOs and

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Marketing Heads regarding Willis’ “growing relationship” with Hartford, he stated: “As a

strategic partner, Hartford has shown a willingness to help Willis generate new-new business

towards meeting our objective of _____ in new business in 2004. Consistent with this, we are

working with them to provide access to our prospect pipeline.”

305. In December 2003, Willis asked ACE for a $500,000 advance on Willis’ expected

2004 contingent commissions and represented that if ACE paid the advance, Willis would

“guarantee” significant new premium for 2004.

306. Wausau, a division of Liberty Mutual (“Wausau”), entered into a “sweetener”

agreement to pay additional contingent commission in return for Willis delivering added

premium during the fourth quarter of 2003. The Willis Carrier Advocate for the Wausau account

instructed the RMOs that they “really need to make a push and reach the $4M goal.” Michael

Mann noted that they would “only need to generate an additional $1,250,000 in new business

premium to Wausau in order to hit the 1% contingency on the book of business” and that

meeting this goal would be a “slam dunk” “[c]onsidering that there are 7 offices in the Midwest

Region with business that Wausau can write.”

307. On April 4, 2004, Mr. Drinkwater explained that as a “reward” for entering into a

contingent commission agreement with Willis, an insurer would be provided with “access” to

Willis’ clients, among other benefits, that together added up to “an unfair competitive

advantage.”

308. In May 2004, Mark Butler, Liberty Mutual’s Executive Vice President, Sales and

Service Department, National Markets, wrote:

I don’t believe in PSA’s but they are a fact of life. With that said, we set theexpectations with regards to new business, retention, growth that WE must havefor our business, not theirs. Each represent [sic] the majority of our market. Isimply want a bigger piece of what they already have. They deliver, we pay.

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They don’t deliver, we don’t.

(iv) Insurers Understood Their Role and were

Disciplined by Willis if they Did Not Participate

309. The insurer co-conspirators knew that failure to participate in the conspiracy would

result in disfavor and would lead to the elimination or severe reduction of business from Willis.

310. In December 2003, William Curcio, President of the Ace Risk Management

reported that Mario Vitale, then CEO of Willis, told him that to meet a Willis income deficiency

in 2003, he needed $500,000, and that Vitale was going “to approach a couple of ‘partner

markets’ that he would then ‘guarantee’ significant new business growth into ’04. Those who

did not choose to help him as a partner now would not be designated as a ‘favored’ market.”

(v) Communications among the Participants in the

Willis Broker-Centered Conspiracy were

Facilitated by Willis

311. The insurer co-conspirators were aware of each other’s participation in the

conspiracy. In many instances Willis shared details of one conspiring insurer’s agreements with

other insurer co-conspirators.

312. Willis shared information with Chubb regarding its contingent commission plans

with Royal, Hartford and Travelers.

313. Willis advised Travelers in December 2003 that it would be on an “equal footing”

with Chubb and Hartford with respect to its contingent commission agreement.

314. Hartford knew that CNA was a “Top Carrier” and “key market” for Willis.

315. Willis gave Crum & Forster information concerning other insurer co-conspirators’

renewal retentions.

316. In December 2003, Michael Mann, informed Liberty Mutual that Willis would “be

able to deliver results for our key Partner Markets on an unprecedented basis.”

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(vi) The Co-Conspirators Benefited from the Willis

Conspiracy

317. Both Willis and its co-conspirators benefited from participating in the conspiracy.

318. In April 4, 2004, Mr. Drinkwater explained how an insurer would benefit from

having a PSA agreement with Willis:

Underwriters [insurers] need to realise [sic] that our PSA’s are a reward forservices that we provide to carriers such as carrier advocacy . . . CarrierAdvocacy includes transparency into our organisation [sic] and our book, accessto our leadership and our clients, an unfair competitive advantage as well as other benefits that partnerships bring. While the downside of not partnering with us isimpossible to calculate I think that Hartford, Axis, Ace, St. Paul would alladvocate the value and the positive effect that it has on our business. (emphasisadded).

319. Chubb recognized that its participation would result in “the movement of approx.

$20 million of existing Willis business from current markets to Chubb over the next 12 to 18

months.” In order to receive these benefits Chubb agreed that “[s]tandard commissions will stay

in place though we will pay a consolidation fee, some form of profit sharing…and a new

incentive.” Chubb agreed to pay an additional 5-10% incentive override to Willis, depending on

the volume of premium written.

320. Chubb was consistently one of Willis’ top 5 carriers in terms of premium written

and contingent commissions for 2002 through 2004.

321. Willis planned to direct even more business to Axis in 2004 in exchange for

contingent commissions and reinsurance opportunities.

322. Willis did not meet the threshold for receiving contingent income from CNA in

2003. Patricia Corrigan Johnston, the Willis Carrier Advocate responsible for CNA informed

Mr. Drinkwater and others at Willis that “CNA is paying us $141,500 [as contingent commission

income for 2003] which we are technically not owed. I think these payments of good faith need

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to be remembered. We frequently discuss ‘partner markets’ and ‘markets stepping up’. [sic]

CNA is clearly putting their money where their mouth is in making a commitment to Willis.”

This information was subsequently communicated to CNA by Johnston: “I feel strongly (and

have conveyed my feeling to anyone who will listen!) that CNA is supporting Willis in a partner

market fashion. We, in turn, will support CNA and drive growth through our retail offices.”

323. Emails between Suzanne Douglas of Willis and CNA in January 2004 noted that for

the Large Property operation, CNA's writings with Willis grew 60% in 2003 over 2002. Willis

earned approximately $185,000 in contingent payout for 2003. In early 2004, Willis entered into

a new contingent agreement with CNA. The proposed deal for 2004 was a 5% contingent for all

business over the highest threshold which had been met in 2003. Michael Mann indicated that

Willis should consider pushing CNA aggressively in the field because Willis would receive 5%

on every dollar placed with CNA over the threshold.

324. Willis had a “significant global business relationship with Ace as a Partner Market

on a retail, wholesale and reinsurance basis.” “Willis North America retail grew at a 49% rate

with ACE USA in 2003.”

325. In addition to the contingent commission agreements Willis had with Hartford

Steam, AIG agreed to use Willis Re as its reinsurance broker, and listed Willis Re as an

approved direct reinsurer for AIG underwriters to use. In January 2002, AIG entered into a PSA

with Willis Re providing contingent payments to Willis Re on its placements of reinsurance for

AIG. For 2002, AIG placed a total of $255,489,580 in premium with Willis Re, and a

comparable amount for 2003.

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(6) The Gallagher Broker-Centered Conspiracy


326.

During the Class Period from January 1, 1998 to December 31, 2004, participants in

the Gallagher Broker-Centered Conspiracy included Gallagher and Insurer Defendants Chubb,

Hartford, Travelers, AIG, CNA, Fireman’s Fund and Crum & Forster. (the “Gallagher Broker-

Centered Defendants).


327. Gallagher allocated its customer base to and among its conspiring insurers in two

steps. First, Gallagher and each of its co-conspirators agreed, and the conspiring insurers agreed

horizontally among themselves, that Gallagher would “consolidate” its business, allocating it to

“preferred carriers,” co-conspirators ___________________________________________

_________, thereby eliminating other insurers from competing equally with the conspiring

insurers for a substantial portion of Gallagher’s business. As a second step in the unlawful

scheme, the conspiring insurers agreed, both with Gallagher and horizontally among themselves,

to reduce or eliminate competition among the conspiring insurers as to that secured book of

business. An aspect of the agreement in this regard was that each insurer would be permitted to

keep its own incumbent business, and that Gallagher would protect that business from

competition using various incumbent protection devices, such as last look agreements. Gallagher

and its co-conspirators understood and agreed that incumbent protection was a necessary element

in its scheme to allocate its premium volume in the manner calculated to achieve the highest

profits, both for itself and itself co-conspirators.

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(i) The Participants in the Gallagher Broker-

Centered Conspiracy Agreed that the Bulk of

Gallagher’s Customers would be Allocated to the

Conspiring Insurers

328. Gallagher’s effort to consolidate its business with its partners in the conspiracy

began at least as early as September of 1996, after Gallagher determined that by leveraging its

relationships with certain insurers, it could maximize its commission revenue. Gallagher

identified its preferred insurers, often referred to as “partner markets,” and created plans pursuant

to which Gallagher would steer business to these insurers and away from other insurers. Insurers

were selected to be a “partner market” when they agreed to pay Gallagher contingent

commissions based primarily on the volume of the business steered to the insurers.

329. Gallagher’s consolidation effort was to “maximize commission income, achieve

leverage in the market place and control the relationship with the underwriter.” To implement

this plan, Gallagher approached certain insurers and insisted on a commission/override and/or

incentive agreements. Likewise, Gallagher employees were told that “every effort must be made

to place business with our preferred carriers.” The details of the contingent commission

agreements were shared with Gallagher’s sales managers so that all understood the financial

benefits of placing business with these conspiring insurers.

330. Gallagher successfully moved placements of insurance to its conspiring insurers

and reduced the volume of business placed with non-conspiring insurers. This was achieved by

reinforcing the need to place business with the co-conspirators at, among other methods,

Gallagher monthly Market Strategy Meetings, during which all renewals were discussed and

business was targeted to be moved to Gallagher’s conspiring insurers.

331. Gallagher took steps to ensure that all branch offices focused on placing business

only with its conspiring insurers. Gallagher’s senior management directed its branch managers

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to create a “market consolidation plan” by which each office was directed to specify how it

intended to grow with specific conspiring insurers and to determine whether the business of any

particular carriers should be shifted to the conspiring insurers.

332. As part of Gallagher’s plan to increase and maximize contingent commission

profits pursuant to the conspiracy, in 2001, Gallagher’s corporate officers instructed Gallagher’s

employees to place business with Gallagher’s conspiring insurers. In 2001, the Gallagher sales

force was told that Gallagher had “special bonus agreements in place with markets like _______

___________________ and “so that additional revenues can be earned…[p]lease do whatever

you can in your respective divisions to support our ‘partner’ markets and any bonus plans.”

333. In 2003, Gallagher continued to direct the regional and branch managers to steer

business to conspiring insurers. Gallagher’s sales force was advised to pump premium volume

into “strategic partner markets” for 2003 contingent income calculation. Gallagher identified __

______________________________________ as having the most lucrative financial incentives

for placing business.

334.

Because of these efforts, Gallagher was successful in allocating the bulk of its

premium volume to its conspiring insurers. The concentration of premium volume with its

conspiring insurers continued throughout the Class Period, as the Insurer Defendants paid ever

increasing contingent commissions for a guaranteed flow of premium.

(ii) The Participants in the Gallagher Broker-

Centered Conspiracy Agreed not to Compete for

each other’s Customers

335. A central element of the agreement among the participants in the Gallagher

Broker-Centered Conspiracy was that each insurer would be permitted to keep its incumbent

business, and that Gallagher would protect that business from competition, both from insurers

inside and outside of the arrangement. Gallagher facilitated this agreement with a variety of

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devices designed to protect its co-conspirators’ incumbent status, including the solicitation of

accommodation quotes.

336. Participants in the Gallagher Broker-Centered Conspiracy provided alternative

quotes at Gallagher’s request to protect the incumbent status of a conspiring insurer or to support

the placement of the business with a conspiring insurer. An example of this conduct occurred

when AIG assisted Gallagher in protecting the renewal business of a rival carrier. In June 2004,

a Gallagher employee summed up this effort as follows::

[W]e will submit to: ACE (Lou Caparelli) and AIG (Brad Smith) with theunderstanding that we are approaching AIG only to block Shepard Reilly here.

ACE should come up with a real quote and per our conference call with Lou, theyhave been very competitive with Travelers lately. Definitely want to do what wecan to retain with St. Paul Travelers.

337. Gallagher protected its co-conspirators’ incumbent status with a variety of other

devices such as “first look,” “rights of first refusal” and “last look” agreements. By virtue of

these agreements, conspiring insurers were able to review the other bids of other carriers and bid

to retain the business without having to provide their best, most competitive prices. Gallagher

recognized that the significant amount of contingent commissions it could earn from Chubb

warranted giving Chubb a “first opportunity” on business and a “last shot” before business went

to another insurer

338. Once an insurer qualified as a strategic partner, it was standard operating procedure

to direct insurance placements to those conspiring insurers and insulate them from competition.

A December 1998 “Partner Market” meeting with Chubb, Gallagher explained to Chubb that as a

partner market, “Team Gallagher becomes locked in and competitors become locked out.”

339. Gallagher, in implementing its market consolidation, pushed or steered business to

its conspiring insurers and insulated them from outside competition.

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340. In November 2003, to ensure the receipt of extra commissions from AIG, Gallagher

placed a client’s insurance with AIG for a premium of ________ when the insurance could have

been placed with a competitor for ______________.

341. In November 2002, a Gallagher executive urged that insurers be steered to Crum &

Forster in order to get an incentive payment. Gallagher was ________ short of qualifying for a

full incentive commission. He directed Gallagher personnel to jointly address the renewal of all

existing Crum & Forster business and to provide Crum & Forster with new opportunities as well.

342. Similarly, Gallagher steered business to Hartford. In 1997, Gallagher received

__________ from Hartford for 1996 business, which Gallagher acknowledged was received as a

result of pushing new business to Hartford. Gallagher management stated: “We have got to try

and stabilize our book with Hartford, or better, grow it. …We cannot afford to lose that kind of

revenue.”

343. Similar efforts were made with regard to strategic partner Travelers. In July 1998,

Gallagher CEO J. Patrick Gallagher announced a new National Incentive Agreement with

Travelers for that year and advised all Gallagher employees to “do all we can to crank up the

production into St. Paul.”

344. Gallagher steered business to Chubb in April 1997 based upon new override

agreements with them. In June 1997, Gallagher recognized that the significant amount of

contingent commissions it could earn from Chubb warranted giving Chubb a “first opportunity”

on business and a “last shot” before business went to another insurer.

345. To assure that Gallagher would continue to steer placements to it, in 2003, CNA

paid an incentive payment to Gallagher pursuant to their National Incentive Agreements even

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though Gallagher failed to meet the thresholds for payment, because, as CNA recognized, failing

to pay would strain the parties’ relationships.

(iii) Communications Among the Participants in the

Gallagher Broker-Centered ConspiracyFacilitated By Gallagher Furthered the

Conspiracy.

346. Gallagher shared information with its conspiring insurers in order to ensure that the

conspiracy would operate successfully.

347. In June 1997, Hartford met with Gallagher to discuss “the potential identification of

markets for consolidation” in exchange for __________________________________________

____________________________. A part of those discussions were the financial incentives that

would best motivate Gallagher to drive business to Hartford.

348. In December 1998, Gallagher held a “Partner Market” meeting with Chubb at

which Gallagher dictated its “Partner Market Requirements.” Those requirements included

having a “mutual commitment to grow,” “mutual commitment to change the rules,” “maximum

commission,” and “top overrides/incentives.”

349. Gallagher made the conspiring insurers aware of the quid pro quo for becoming and

remaining a “Partner Market”: to reap the benefits of more placements, insurers would have to

provide Gallagher with substantial contingent commission income.

350. Gallagher shared the identity of its partner carriers with other partner carriers,

which served to diminish competition as each partner carrier became aware that it would not

have to compete with said carriers.

351. Gallagher also exchanged the terms of its contingent commission agreements with

its conspiring insurers. Gallagher gave Hartford data on its agreements with fellow co-

conspirators: Chubb, Travelers and CNA.

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(iv) The Co-Conspirators benefited from the


352. Both Gallagher and its conspiring insurers profited from their anticompetitive

arrangement. Gallagher’s anticompetitive agreements with its conspiring insurers resulted in

growth in contingent commissions at the expense of its clients’ best interests. From 1997 to

1998, Gallagher received _______ more in incentive commissions due to placing more business

with its partner markets - Chubb, Hartford, Fireman’s Fund, and CNA. From 2002 to 2004,

Gallagher earned over ________ in contingent commissions from its conspiring insurers.

f) The Global Conspiracy

353.

In addition to the “hub and spoke” Broker-Centered conspiracies described above,

each of the Defendant Broker “hubs” participated (with the complicity of the Insurer Defendants)

in a broader, common horizontal anticompetitive scheme.

354. Specifically, while engaging in their separate “hub and spoke” schemes to create

supra-competitive premiums and contingent commissions, each of the Broker “hubs”

simultaneously agreed horizontally not to compete with each other by disclosing any competing

broker's contingent commission arrangements, or the consequent premium price impact of those

arrangements, in an effort to win those brokers’ customers' business.

355. Through a variety of industry-wide contingent commissions studies and from

communicating with each other, each Broker Defendant knew that the other Broker Defendants

had “consolidated” their markets and allocated business to insurers in exchange for contingent

commissions. From the same sources and from information received from their conspiring

insurers, each Broker Defendant also knew generally the percentages of the contingent

commissions each other Broker Defendants were receiving and the resulting supra-competitive

premiums the brokers’ customers were paying. The Broker Defendants all also knew that

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exposing another broker’s contingent commission arrangements to the other broker’s customers

would lead to retaliation, thereby threatening the first broker’s own contingent commission

scheme and supra-competitive profits.

356. Therefore, the Broker Defendants expressly or tacitly agreed among themselves not

to disclose the existence of the contingent commission agreements and resulting supra-

competitive premiums to rival brokers’ customers. The Broker Defendants reached this

horizontal anticompetitive agreement in order to further a common, mutual goal of maintaining

their independent anticompetitive schemes and not having their supra-competitive profits

undermined by truthful price disclosures or advertising.

357. It would be economically irrational absent a conspiracy for any Broker Defendant

not to disclose that a customer's existing broker is scheming with the customer's insurers in a

way that causes the customer to pay supra-competitive premiums. Because of customers' natural

“stickiness” and loyalty to their brokers, an economically rational broker in a truly competitive

environment would maximize its opportunity to increase market share by telling its rivals’

otherwise loyal customers that they are paying too much for their insurance. That the Defendant

Brokers uniformly did not do so can only be explained by the existence of a horizontal

conspiracy not to compete by making such truthful price related disclosures.

358. The Broker Defendants’ agreement not to disclose their excessive contingent

commission agreements and resulting profits was a naked horizontal restraint of informational

output that directly affected the price of insurance. As such, the Broker Defendants’ agreement

not to disclose or advertise truthful pricing information and to limit consumer information about

price, violated the antitrust laws.

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359. The Insurer Defendants also agreed, both with their respective Broker Defendant

“hubs” and horizontally with each other, not to disclose the Broker-Centered Conspiracies and

resulting supra-competitive premiums to the brokers’ customers. Hence the Insurer Defendants

likewise violated the antitrust laws by participating in the Global Conspiracy.

360. Defendants had ample motive to enter into the horizontal conspiracy. They were

obtaining supra-competitive profits from operating their independent Broker-Centered

Conspiracies that they wanted to protect. Prices for services in competitive markets are a

function of the marginal cost of providing those services. But the contingent commission-related

profits the Broker Defendants were receiving (and the supra-competitive premium prices the

Insurer Defendants were consequently charging), were well above the brokers’ marginal costs.

As a prominent insurance industry analyst confirmed in a 2004 report on contingent

commissions: “when we have pushed back in an attempt to determine the size and source of

offsetting expenses [for such commissions], no significant, valid offsets were presented.… We

are hard-pressed to describe any material cost associated with these revenues .” Hugh Warns et

al., Insurance-Non-Life: Contingents May Be Smaller, But More Prominent in 2004, US Equity

Research J.P. Morgan Sec., Inc. (Jan. 13, 2004) (emphases added).

361. Defendants, moreover, knew full well that disclosure of their supra-competitive

profits to the brokers’ customers would lead to decreased income. While it is commonsense that

a consumer that is advised it is paying above-market prices will demand a price reduction, the

Broker Defendants commissioned a survey to estimate the price impact such disclosure would

have. In the wake of the Regulatory Investigations the Defendants, through the Council of

Insurance Agents and Brokers (“CIAB”), engaged an industry consultant to gauge the expected

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effects of “compensation transparency” and related issues. Based upon extensive interviews of

broker and insurer executives, the study concluded that:

The consensus of opinion within the insurance brokerage business is that

compensation will decline if a transition occurs from an undisclosed commission basis to a disclosed commission or fee basis. … compensation will decline if

disclosed and believe reductions will generally fall 5% to 25%.

362. The Broker Defendants’ decision to consolidate their markets and drive business to

a few insurers that paid high contingent commissions was a departure from their past methods of

doing business. Each Broker Defendant engaged in this consolidation of business to their insurer

co-conspirators at the same time and for the same purpose, that is, to increase their leverage and

their contingent commission revenues. Not one Broker Defendant deviated from that course of

conduct. In each Broker-Centered Conspiracy, as described above, the Broker Defendants,

together with the Insurer Defendants, engaged in the same types of anticompetitive and

exclusionary practices, all designed to protect the conspiring Insurer Defendants from having to

compete with non-conspiring insurers and with each other for the Broker’s customers. The

Broker-Centered schemes were very successful and yielded enormous profits. The Broker and

Insurer Defendants were thus heavily invested in their Broker-Centered schemes during the Class

Period and did not want to risk losing their resulting profits by disclosing their schemes to each

others’ customers. Therefore they agreed horizontally not to do so.

363. The existence of the Defendants’ agreement not to disclose their anticompetitive

contingent commission arrangements and supra-competitive profits to their customers is well

documented. As described below, Broker Defendants agreed with their conspiring insurers that

the terms of the contingent commission arrangements they had entered into would not be

disclosed to their customers. Defendants, in fact, incorporated standardized confidentiality

clauses in their contingent commission agreements prohibiting such disclosure.

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364. Moreover, as detailed below, Defendants’ membership in the CIAB afforded them

many opportunities to exchange information and allowed Defendants to adopt collective policies

towards nondisclosure of rival brokers’ contingent commissions.

365. In sum, during the Class Period, significant information asymmetry existed in the

insurance market between the buyers of insurance, on the one hand, and the Defendant Brokers

and insurers, on the other, concerning the comparative price and quality of insurance products.

This asymmetry of information as to relative price and quality rendered the insurance market

susceptible to collusion, and it facilitated the Broker and Insurer Defendants’ ability to charge

supra-competitive prices, because their customers, the consumers of insurance, tended not to

know if the insurers recommended by their Brokers were offering a competitive price.

366. Once the insureds committed to a broker the cost of switching brokers was high,

leading to the “stickiness” of broker-client relationships and great reliance by insureds on

brokers that characterized the commercial insurance brokering industry.

367. The Defendants exploited both the asymmetry of information and their customers’

loyalty to erect an industry structured around Broker-Centered “hub and spoke” conspiracies that

enabled the Defendants to reap huge supra-competitive profits. Broker Defendants and their co-

conspiring Insurer Defendants agreed horizontally to not disclose their contingent commission-

driven schemes to their customers in order to protect those profits.

368. The Defendants’ customers, the Global Class (described below), were accordingly

damaged in their business or property by Defendants’ anticompetitive horizontal agreement not

to compete for each others’ customers by disclosing or advertising the supra-competitive nature

of their co-conspirators prices.

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g) The Conspiracies Raised Premium Levels To All Members Of The

Class.

369. The anticompetitive schemes described above had the purpose and effect of

reducing competition and raising the insurance premiums paid by all members of the classes

370. Through a process known as “premium buildup” the contingent commissions paid

by insurers to the Broker Defendants (nearly 2 billion dollars since 1998), were built into the

rates used by insurers to derive premiums charged to Plaintiffs and the Classes. “Premium

buildup” refers to the process, well-known in actuarial science, of combining expenses, an

insurer’s expected losses (claims), and a reasonable profit, into a formula that results in the

creation of a “rate.” That rate is in turn used to derive premium.

371. Contingent commissions, which are a type of budgeted “acquisition expense” or

“variable expense” incurred by insurers, are included in each insurer’s ratemaking formulas and

are consequently “built” into every commercial premium for commercial insurance products.

insurers annually budget the amount of expected contingent commission payments and recoup a

pre-determined percentage of this total annual budget in the rates utilized to price every

commercial insurance premium. The expense factor used to load the cost of contingent

commissions into the rate-making formula is a standard factor across all lines of insurance

Defendants’ practices increased premium levels for all commercial insurance without regard to

whether a contingent commission was collected with respect to any specific policy.

372. Defendants recognized that the contingent commissions paid by insurers, were built

into the premiums charged to members of the classes. Marsh recognized as much when it said to

a complaining insurer that it understood that “the PSA was an expense load to premium, “and

that “ever[y] other [insurer] has to cope with the same expense load component as part of their

overall premium equation.”

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2) The RICO Claims

a) Overview of the RICO Claims

373. In addition to the antitrust violations alleged above, Defendants have also engaged

in a series of fraudulent schemes whereby they have made material misrepresentations and

omissions regarding: (i) the nature of the services provided by the Broker Defendants and the

conflicts of interest that exist between the Broker Defendants and their clients; (ii) the financial

relationships and agreements between the Broker Defendants and their strategic partner Insurer

Defendants that impact the basis upon which insurance placements and renewals are made; and

(iii) the kickbacks paid by the Insurer Defendants to the Broker Defendants in exchange for

having business allocated to them and having competition reduced, which result in increased

premiums.

374. In order to prevent Plaintiffs and members of the Class from discovering the

foregoing, and lulling them into believing that the Broker Defendants were acting in their best

interests, Defendants took the following steps: (i) the Broker Defendants agreed with their

strategic partner Insurer Defendants that the details of the terms of their contingent commission

agreements would be kept confidential and took steps to ensure that they were kept secret from

their clients; (ii) the Insurer Defendants built the cost of the kickbacks they paid to the Broker

Defendants into the premiums they charged their clients, without disclosing that the premiums

were inflated by these amounts; and (iii) the Broker Defendants issued vague and misleading

statements regarding the compensation they received from the Insurer Defendants which were

designed to create the illusion of transparency, while concealing their true relationships with the

Insurer Defendants and the amounts they were being paid by them.

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375. Defendants have carried out their schemes through six separate Broker-Centered

Enterprises, as described further below, each consisting of a Broker Defendant and those Insurer

Defendants with which it has entered into a strategic partnership. Defendants in each of these

enterprises have participated in the enterprise’s affairs through a pattern of racketeering activity

consisting of multiple acts of mail and wire fraud.3

376. The Broker Defendants have conspired with one another to implement substantially

similar disclosures regarding their contingent commission arrangements with the Insurer

Defendants and/or to take steps to prevent any of the Broker Defendants from having to make

meaningful disclosures of these arrangements to their clients. The Broker Defendants have been

able to carry out this conspiracy through their membership in the CIAB, which has allowed them

to speak with one voice to create the perception that “full disclosure” was the industry standard,

when, in fact, it was not.

377. As a result of the foregoing, Plaintiffs and members of the classes have been injured

by having paid more for the insurance they procured through the Broker Defendants than they

otherwise would have. Defendants’ conduct constitutes actionable violations of 18 U.S.C. §§

1962(c) and 1962(d).

b) The Broker Defendants’ Duties, Fiduciary Status and Representations

to Their Clients

378. The Broker Defendants hold themselves out as providing, and do in fact provide,

insurance brokerage services for businesses, individuals, public entities, associations,

professional services organizations, private clients and many others. As alleged above, the

Broker Defendants are leaders in the commercial insurance brokerage industry and their business

comprises the overwhelming majority of the insurance brokerage market in the U.S.

3 Alternatively, Plaintiffs allege that Defendants carried out their scheme through the CIAB-Enterprise described below.

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379. As also alleged above, the Broker Defendants broker a wide range of commercial

insurance lines, including traditional property-liability insurance, business entity liability

insurance, casualty insurance in a multitude of forms, workers compensation, surplus, fidelity

and surety, which their customers purchase. The Broker Defendants counsel their clients

concerning the complex and specialized insurance they are purchasing.

380. The services that the Broker Defendants provide to their clients include, inter alia,

analysis of risk and insurance options, procurement and renewal of insurance, interpretation of

insurance policies, monitoring the insurance industry on the client’s behalf, keeping clients

informed as to developments in the insurance marketplace, and assisting clients with the filing

and processing of claims against the policies they place.

381. The Broker Defendants are retained by their clients, including Plaintiffs and

members of the classes, for the sole purpose of acting on behalf of and providing the clients with

unbiased advice concerning the type, amount and level of insurance needed, as well as to provide

sound and accurate advice regarding the insurance companies they recommend.

382.

The Broker Defendants serve as common law fiduciaries to their clients, and

therefore owe their clients, including Plaintiffs and other members of the classes: (i) a duty of

loyalty to act in the best interests of their clients and to always put their clients’ interests ahead of

their own; (ii) a duty of full and fair disclosure and complete candor in connection with any

insurance-related products purchased by clients or services rendered by Broker Defendants,

including the duty to disclose the source and amounts of all income they receive in or as a result

of any transaction involving their clients; (iii) a duty of care in connection with any insurance-

related products purchased by their clients or services rendered by Broker Defendants; (iv) a duty

to provide impartial advice in connection with any insurance-related products purchased by their

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clients or services rendered by Broker Defendants; (v) a duty to use their best business judgment

in connection with any insurance-related products or services purchased by their clients – in

other words to find the best coverage at the lowest price; and, (vi) a duty of good faith and fair

dealing.

383. The Broker Defendants represent themselves to their clients as being committed to

acting in their clients’ best interests and encourage their clients to rely on their purported

knowledge, independence and unbiased expertise in procuring insurance coverage. Such

representations are made through broker service agreements and engagement letters, requests for

proposals, letters to customers, invoices, advertisements, brochures, and other marketing and

promotional materials, including information on internet websites, disseminated in interstate

commerce, including through the United States mails and interstate wires.

384. As set forth in further detail in the Second Amended RICO Case Statement (the

“RICO Case Statement”), in these materials, the Broker Defendants represent that they will:

(i) solely represent the interests of their clients in transactions with insurers; (ii) act on behalf of

their clients in the selection and placement of insurance and the negotiation of terms; (iii) act on

behalf of their clients in connection with the filing and processing of claims; and (iv) act as the

exclusive insurance broker for their clients. The Broker Defendants represent that they are

highly skilled and independent insurance brokerage experts and possess the special knowledge

and expertise necessary to interpret and understand the complex and sophisticated business and

personal risks faced by their clients and to determine which corresponding insurance products,

services and insurance companies best fit their clients’ needs.

385. As set forth in further detail in the RICO Case Statement, the Broker Defendants’

representations have been couched in phrases such as “serve our clients’ needs,” “negotiate on

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the Client’s behalf with insurers,” “best efforts to place insurance on behalf of the client,” “act as

your representative to the world insurance market,” and “we are you representative…and

although we are licensed agents of various insurance companies with whom we have contracts it

is our basic responsibility and obligation to be your advocate, your representative.”

386. Following the commencement of an action against Marsh by the New York State

Attorney General, Marsh, Aon, Willis, and Gallagher each acknowledged and reaffirmed their

duty to act on behalf of their clients.

387. On October 20, 2004, Aon sent a letter to its clients signed by Aon’s CEO, in which

he stated that Aon’s employees were expected to “strive for the best terms for the client using the

highest ethical standards” and are “expected to put our clients first, to focus on what is best for

you.”

388. Two days later, on October 22, 2004, Willis sent a letter to its clients signed by

Willis’s CEO in which he reaffirmed that Willis “represent[s] you and conduct[s] business in

your best interest utilizing global resources.”

389.

On October 29, 2004, Marsh sent a letter to its clients signed by its CEO in which

he reaffirmed both Marsh’s commitment to “execute transactions in your best interest” and

Marsh’s “principle of transparency and disclosing our sources of income.”

390. On November 3, 2004, Gallagher sent a letter to its clients signed by its CEO in

which he stated that Gallagher served as its clients’ “advocates in the marketplace” and that

Gallagher’s “employees understand that clients come first at Gallagher.”

391. Acordia sent communications to its clients reaffirming its obligations and duties.

Acordia sent a document to its clients in which it emphasized its commitment to doing what “is

right for the customers,” which includes “[p]roviding [its] customers with full disclosure on the

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revenue, including contingent commissions we earn at the beginning of our relationship and at

the time of policy renewal” and “[m]aking insurance placements in the best interest of [its]

customers.”

392. HRH reaffirmed its obligations to its clients through materials it has sent to them in

which it has stated “[w]e advocate our clients [sic] needs and desires first and foremost” and that

“our recommendations are driven by your needs, not our own.”

393. As a result of the nature of the relationship between the Broker Defendants and their

clients, the Broker Defendants had a duty to disclose any conflicts of interest they had in

providing services to their clients as well as any material information that might impact their

ability to act in their clients’ best interests. This duty to disclose further arises out of both: (i)

the Broker Defendants’ fiduciary status; and (ii) the representations made by the Broker

Defendants.

c) Defendants’ Fraudulent Scheme

394. In direct contravention of the Broker Defendants’ representations, fiduciary duties

and disclosure obligations, Defendants have engaged in a scheme whereby the Broker

Defendants would allocate business to a limited number of partner Insurer Defendants in

exchange for kickbacks in the form of contingent commissions and/or other payments which

were factored into the premiums paid by Plaintiffs and Class Members.

395. Specifically, as set forth in further detail in the Revised Particularized Statement,

each of the Broker Defendants, in conjunction with certain of the Insurer Defendants with which

they had entered into strategic partnerships, engaged in steering and other practices in order to

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maximize the volume of insurance placed with the Insurer Defendants and maximize the volume

of renewal business placed with the Insurer Defendants.4

396. Specifically, as set forth in further detail above and in the Revised Particularized

Statement, Defendants engaged in the following conduct:

• Each Broker Defendant significantly consolidated the number of carriers to which itwould market its clients’ business.

• Each Broker Defendant then entered into “strategic partnerships” with a limited numberof Insurer Defendants to which the Broker Defendant agreed to steer the bulk of its business.

• Insurer Defendants would be given access to a guaranteed flow of premium volume from

the Broker Defendants with which they had partnered, as well as protection from normalcompetition from both inside and outside of the strategic partnerships for renewal of eachof the insurer’s own business.

• To accomplish this, Defendants engaged in a number of practices specifically set forth in

the Revised Particularized Statements including “book rolls,” agreements not to bidrenewals competitively, limiting the marketing of renewals, disclosing other carriers’ bidsand other actions designed to maximize the volume of insurance placed with the InsurerDefendants and maximize the volume of renewal business placed with the InsurerDefendants.

397.

In exchange for being given these unfair competitive advantages, the Insurer

Defendants agreed to pay kickbacks to the Broker Defendant with which they had partnered in

the form of contingent commissions.

398. None of the communications mailed or faxed to any Plaintiff from a Broker

Defendant disclosed any of the foregoing conduct. Rather, as set forth herein and in the RICO

Case Statement, Defendants have made material misrepresentations and omissions, designed to

knowingly misled and deceive their clients, including Plaintiffs and members of the Class, into

4 As alleged above, this conduct constituted a market allocation scheme in violation of theantitrust laws. However, even if the antitrust laws had not been violated, this conduct wascontrary to the Broker Defendants’ representations and fiduciary obligations and gives rise toactionable claims of mail and wire fraud.

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believing that they provide independent, unbiased and expert brokerage services tailored to the

needs of their clients.

399. Defendants concealed the following material matters from insurance purchasers

who unknowingly paid for the kickbacks through higher premiums:

• that the Broker Defendants were not acting in the best interest of their clients but were instead acting on behalf of the Insurer Defendants and in furtheranceof their own financial interests;

• the true nature of the association and agreements between the BrokerDefendants and the Insurer Defendants;

• the conflict of interest inherent in the agreements between the BrokerDefendants and Insurer Defendants;

• the Broker Defendants’ consolidation of their insurance markets to a fewselect strategic partners;

• the Broker Defendants’ steering of insurance placements to the InsurerDefendants;

• that the Broker Defendants were protecting their strategic partner InsurerDefendants from competition, and in the case of Marsh, that it engaged inrigging of bids with AIG, ACE, Chubb, XL, Munich/Am Re, Liberty Mutual,Travelers, Fireman’s Fund and Zurich;

• that the Insurer Defendants kicked back a substantial portion of their increased profits to the Broker Defendants in the form of contingent commissions andother forms of compensation; and

• that the Insurer Defendants factor the kickbacks paid to the Broker Defendantsinto the cost of Plaintiffs’ and Class Members’ insurance, resulting in injury toPlaintiffs’ and Class Members’ business and property.

400. Misrepresentation of the Brokers Defendants’ allegiance as well as concealment of

their relationships with, and allocation of business to, the Insurer Defendants was necessary to

encourage retention of the brokers, to conceal the scheme, to lull clients, including Plaintiffs and

Class Members, into a false sense of security and to assure payment of the excess premiums.

Likewise, inclusion of the excess amount of premium resulting from Defendants’ scheme in

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invoices forwarded to each Plaintiff without explanation or a separate accounting for the excess

premium was necessary to conceal the scheme and to assure payment of the entire invoice

amount.

401. As a result of the conduct alleged herein, Plaintiffs and members of the Class have

paid insurance premiums in excess of what they would have paid had Broker Defendants acted in

accordance with their fiduciary and other duties, and their representations to their clients.

(1) Defendants’ Active Concealment Practices

402. Defendants understood that full disclosure of the amount and significance of

contingent compensation arrangements between the Broker Defendants and the Insurer

Defendants would result in insurance buyers becoming aware of the existence of the conflicts of

interest created by the true relationships between the brokers and their strategic partner carriers,

which would result in their scheme unraveling. In order to prevent detection, Defendants

engaged in the following practices: (i) the Broker Defendants agreed with their strategic partner

carriers that the terms of contingent commission agreements would be kept secret from clients

and included confidentiality clauses in many of the contingent commission agreements

prohibiting such disclosure; (ii) the Insurer Defendants built the cost of contingent commission

payments into the premiums charged to insurance purchasers, and agreed that they would not

disclose that the premiums were inflated to include the kickbacks; and (iii) the Broker

Defendants mutually agreed to act in concert to thwart detection of the significance of the

contingent commissions and their resulting unlawful practices by, among other things, adopting

substantially similar vague and incomplete disclosure (or non-disclosure) policies regarding

contingent compensation matters and by publicly responding with one voice through the Council

of Insurance Agents and Brokers (the “CIAB” of the “Council”) regarding these issues.

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403. These practices furthered Defendants’ improper scheme by concealing material

information regarding the significance and impact of the contingent commission payments to the

placement process, while creating the appearance of transparency and allowing Defendants to

maintain their illicit and improper gains from their conspiracy.

(a) The Broker Defendants and Insurer Defendants Agreed

to Keep Their Contingency Commission Arrangements

Secret

404. As an initial matter, each Broker Defendant agreed with its strategic partner carriers

that the terms of the contingent commission arrangements that they had entered into would not

be disclosed to their customers. In this regard, the Broker Defendants made clear to their

strategic partners that they would not disclose the details of any of their contingent commission

agreements to their clients, while the Insurer Defendants uniformly took the position that they

were not obligated to make any disclosures to their policyholders regarding contingent

commission payments.

405. In furtherance of these understandings, Defendants incorporated standardized

confidentiality clauses in their contingent commission agreements that prevented the terms of the

agreements from being disclosed to third parties, including purchasers of insurance (even though

Defendants would share information with one another regarding these agreements).

406. The following are typical examples of confidentiality clauses included in the

contingent commission agreements between Broker Defendants and their strategic partner

Insurer Defendants:

• A 1997 contingent commission agreement between Aon and Chubb providingthat, “[t]he terms of this agreement are confidential and shall not be disclosed by either party except as may be required by law.”

• A 1998 Commission Override Agreement between HRH and Travelers providing that: “All terms and conditions of this Agreement, including any

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communications between Travelers and HRH that led to the formation of thisAgreement shall be kept confidential by HRH as against third parties, unlessdisclosure is required pursuant to process of law. Disclosing or usingaforementioned information for any purpose beyond the scope of thisAgreement is expressly forbidden without Travelers prior written consent.”

• A 1999 PSA agreement between Marsh and Hartford providing that: “The

terms of this Agreement are confidential and shall not be disclosed by either party except as may be required by law.”

• A 2000 PSA between Gallagher and Chubb providing that: “The terms of thisAgreement are confidential and shall not be disclosed by either party except asmay be required by law.”

• A 2000 PSA agreement between Marsh and Liberty providing that, “[t]heterms of this Agreement are confidential and shall not be disclosed by either party except as may be required by law.”

• A 2001 PSA between Aon and Crum & Forster providing that the partiesagree “to maintain the confidentiality of the existence and terms of thisAgreement.”

• A 2001 PSA between Marsh and Crum & Forster providing that, “[e]ach ofthe parties shall . . . (ii) maintain the confidentiality of the existence and termsof this Agreement,” and a 2003 agreement providing that, “[t]he terms of thisAgreement are confidential and shall not be disclosed by either party except asmay be required by law and to a party’s respective legal and accountingadvisers.”

• A 2001 Insurance Placement Compensation Agreement between Aon and

CNA, and in a 2003 PSA between Marsh and CNA, both providing that:“[t]he terms of this Agreement are confidential and shall not be disclosed byeither party except as may be required by law.”

• A 2001 and a 2003 PSA between Marsh and Fireman’s Fund providing that,“[t]he terms of this Agreement are confidential and shall not be disclosed byeither party except as maybe required by law.”

• A 2002 PSA between Willis and Ace providing that, “[t]he terms of this

agreement are confidential and shall not be disclosed by either party except asmay be required by law” and a 2003 agreement between Willis and Ace providing that, “[th]e terms of this Agreement are confidential and may not be disclosed to any person or organization, except as required by law.”

• A 2002 PSA between Marsh and AIG providing that, “[t]he terms of thisAgreement are confidential and shall not be disclosed by either party except asmay be required by law.”

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• A 2002 Incentive Compensation Agreement between Acordia and Travelers

providing that, “[t]he terms of this agreement are confidential and shall not bedisclosed by either party except as may be required by law.”

• A 2003 agreement between Aon and Axis providing that, “[t]he terms of this

Agreement are confidential and shall not be disclosed by either party except asmay be required by law.”

407. As demonstrated by the foregoing examples, the use of standardized confidentiality

clauses in contingent commission agreements between the Broker Defendants and the Insurer

Defendants was widespread and grew throughout the Class Period. For example, in June 2003,

Marsh Global Broking Inc. disseminated instructions that the following language was mandatory

in all contingent commission agreements: “Confidentiality: The terms of this Agreement are

confidential and shall not be disclosed by either party except as may be required by law and to a

party’s respective legal and accounting advisers.”

408. The Broker Defendants relied on the confidentiality clauses as a reason why they

could not disclose any information regarding the contingent commission arrangements with their

strategic partner Insurer Defendants. Demonstrating that this is the case, following

investigations commenced by regulators in 2004 into broker compensation practices, Aon had to

send out requests to its partner carriers to get their permission just to disclose the existence of

contingent commission agreements to its customers. In responding to inquiries from several

carriers as to what information it would be disclosing, Aon made clear that it was only intending

to state that a contingent commission agreement existed with particular insurers, without

volunteering any details about the agreements.

409. The Insurer Defendants likewise instituted policies that prevented insurance

purchasers from being properly informed as to the details of their relationships with the Broker

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Defendants, taking the position that they would not disclose information regarding contingent

commission arrangements. For example, an internal Chubb memorandum states:

We do not advise producer’s regarding disclosure of Chubb’s contingent

arrangements to insureds – we consider that to be an agency/customer issue thatwe are not party to [emphasis in original].

410. An internal Liberty Mutual email dated August 2004 written in the wake of the

regulatory investigations going on at that time illustrates the Insurer Defendants’ intent to

withhold this information from insurance purchasers:

I suggest you show as little knowledge of these agreements as possible. You suredon’t want to be subpoenaed.

The issue is really between brokers and their clients. The agreements are between us and brokers and are proprietary. We would not release the details to any customer. They are not party to the contract. [emphasis added].

411. In some instances, the carriers went so far as to include clauses requiring that the

brokers indemnify them in the event that they were sued as a result of the failure to disclose their

contingent commission arrangements. For example, following the August 25, 1998 enactment of

New York Insurance Department Circular Letter No. 22 concerning the disclosure of

compensation terms, in addition to a confidentiality clause, Travelers included a provision in its

PSAs that made it the broker’s responsibility to comply with the Letter’s disclosure requirement.

Other Insurer Defendants included similar clauses in addition to the confidentiality clauses in the

contingent commission agreements that they entered into with the Broker Defendants.

412. Regardless of whether a confidentiality clause was included in a particular

agreement, the Broker Defendants and Insurer Defendants took steps internally to assure that the

details of their contingent commission arrangements were not disclosed.

413.

For example, Marsh’s policy of misleading clients about the payment and receipt of

contingent commissions came to light in the guilty plea of a former Marsh managing director,

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Joshua M. Bewlay, who pled guilty to a felony charge of scheming to defraud on February 14,

2005. Mr. Bewlay’s testimony revealed that Marsh established a procedure or a “protocol”

intended to “discourage the client from obtaining an answer” on how Marsh received

compensation from insurance companies. Mr. Bewlay’s testimony states the following, in

relevant part:

Finally, during my employment, I was made aware of a Marsh protocol designedto prevent Marsh’s clients from obtaining accurate information concerning theamount of placement service or PSA or MSA revenue Marsh earned from carrierswith respect to a particular client in addition to any fee or commission paid. The protocol required multiple layers of inquiry to discourage the client from obtaining an answer. Also that all inquiries be channeled through a single Marsh

employee who directed the answer to the inquiry. [Emphasis added.]

Finally, the percentage or ratio that Marsh used when it responded to a client’sinquiry concerning placement service or PSA or MSA revenue significantlyunderstated the amount of PSA or MSA revenue earned with respect to a particular client. In my department, Global Brokerage and Excess Casualtysignificantly understated the amount of PSA or MSA revenue earned by Marshwith respect to a particular client.

When I was told that a client inquired as to the amount of PSA revenue Marshearned from an insurance carrier, I responded that the Marsh employee followMarsh’s protocol, including that the client only speak to the Marsh employee

designated to respond to such inquiries. [People of the State of New York v. Joshua Bewlay, Plea Testimony (Feb. 15, 2005) at p. 11-12.]”

414. Mr. Bewlay similarly admitted in his plea agreement that he made misleading

statements about the amount of compensation Marsh received from insurers. Mr. Bewlay’s plea

agreement states, in relevant part: “From in and before 1999 through 2004, Mr. Bewlay engaged

in a scheme constituting a systematic ongoing course of conduct with intent to defraud ten or

more persons and to obtain property, namely insurance premiums, commissions and fees, from

ten or more persons, to wit, clients of Marsh, by false and fraudulent pretenses, representations

and promises, to wit, misleading statements about the amount of compensation Marsh derived

from insurance carriers, and so obtained property from one or more such person, in that Mr.

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Bewlay referred client inquiries for disclosure of such compensation to a designated Marsh

employee, knowing that said employee would provide misleading information concerning

Marsh’s compensation to the clients. [Emphasis added.] [Joshua Bewlay Plea Agreement

(filed Feb. 14, 2005) at ¶5.]”

415. An internal Marsh document entitled “PSA Primer” dated July 1999 further

describes Marsh’s misleading policies on disclosing the amounts received from contingent

commission agreements. Under the heading “PSA General Discussion” the document states:

“There is no necessity to divulge the particulars of any PSA either to clients or other

individuals within Marsh Inc. who are not involved in either their negotiation or ongoing

administration. In fact, doing so would constitute a breach of the confidentially clause contained

in the agreement between us and the carrier. Requests for disclosure by clients or other parties

will be referred to the appropriate U.S. Region Head for review and disposition.” (Emphasis

added).

416. Even when a client attempted to understand the compensation practices at issue,

Marsh intentionally failed to disclose the substance of its contingent commission arrangements

or that such agreements were the basis for Marsh’s scheme to allocate customers to Marsh’s

partners or preferred markets. The following internal Marsh email dated January 31, 2002,

exemplifies the response given when clients inquired as to compensation related to PSAs: “As a

matter of corporate policy, Marsh does not make available any specific information relating to

Placement Service Agreements. This includes information relating to any revenue earned or

other details on a contract or market specific basis. These two party agreements contain

confidentiality clauses which prohibit either party from disclosing any details as to the operation

of such PSA’s.”

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417. Consistent with its corporate policy on disclosure, Marsh sent the following

response to another client inquiry regarding Marsh’s PSA’s: “Chris has asked me to respond to

your questions regarding PSA disclosure to the client. As a matter of corporate policy, we don’t

provide any details on PSA formulas or confirm which product lines are covered. All of the

PSA’s contain confidentiality clauses which legally prohibit the disclosure of any details of these

contracts by either the carrier or Marsh. In accordance with our 1999 agreement with RIMS,

Marsh will advise which of the markets participating on a clients risk we have PSA’s in force

(but not by product line).”

418.

The other Broker Defendants took similar steps to prevent information regarding its

contingent commission arrangements from being disclosed. For example, when an Aon client

asked for details of revenues derived from contingent commissions, overrides, bonuses or similar

types of third party arrangements, Eric Anderson of Aon stated: “we do not disclose the national

amounts we received. As I am sure you can understand, that is extremely confidential

information. Other major brokers will not disclose their figures (this had played out many

times). If his concern is that we are not steering business to insurers to maximize our income, we

can certainly address that this is absolutely not the case.”

419. In an email to AON, Axis employee Dennis Reding wrote, “There will be no

general communication of this agreement within our companies or outside.” Similarly, an email

from Axis employee Marshall Turner in February, 2004, stated, “Please delete all references to

the 2003 AON incentive. This is confidential information not to be share beyond Dennis, you

and me.”

420. HRH likewise adopted a national firm-wide policy prohibiting disclosure of its

agreements with its partner carriers and assured its partners that it would not to disclose their

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contingent commission arrangements. In connection with HRH’s carrier “Consolidation

Initiative” designed to “leverage” HRH’s ability to allocate business in exchange for contingent

commission payments, a Travelers senior vice president wrote to an HRH executive, stating:

Travelers & HRH agree terms and conditions will be handled withABSOLUTE CONFIDENTIALITY . . . . These terms and conditions assumea similarity of intent with the strategic partners [emphasis in original].

421. The Assurance of Discontinuance that Travelers recently entered into with the

Attorneys General of New York, Connecticut and Illinois further states that once HRH’s

agreements with its strategic partners were in place, “HRH began systematically to identify

customers whose business could be switched to Travelers and the other selected insurers,” yet

kept telling its clients that it was in their “best interest” to move to one of the “Big 3” carriers

while “ never disclos[ing] its own financial motives for the switch.” (emphasis added).

422. HRH’s non-disclosure policy is illustrated in an email exchange between Carolyn

Jones, SVP, CFO and Treasurer of HRH, and Ned Kirklin of HRH/Kirklin & Co., LLC,

regarding concerns raised by Ernst & Young about the necessity of disclosing a financial

relationship between HRH and an underwriter that was receiving placements from HRH. Mr.

Kirklin unequivocally states that “ there is no obligation to divulge this information just like

HRH has no obligation to divulge its profit sharing arrangements with carriers.” (Emphasis

added).

423. Willis also ensured that the details of its contingent commission arrangements were

kept secret. Internally, Willis bolstered its ability to maintain the secrecy of this information by

limiting access to the details of these arrangements to a restricted group of employees within the

company. In this regard, according to a Willis Senior Vice President responsible for global

market carrier advocacy, only approximately 20 employees within the company’s entire global

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organization were permitted to access these details via the company’s intra-net system – and only

five employees within the company’s Global Markets North America Group had the ability to

access this information. Thus, Willis’s marketing teams were only provided with enough details

concerning the company’s contingent commission arrangements for them to understand where

placements should be allocated. As explained by an Executive Vice President who worked on

the development of the company’s “Marketing Desktop”:

[W]e would publish limited details about our contingents to our marketing teams(so that they understand the raison d’etre of preferred carriers) but the full details of deals would only be available to senior management. [emphasis added]

424.

Indeed, even following the onset of regulatory investigations of broker

compensation practices, Willis continued to refuse to disclose specific information regarding its

contingent commissions, even in response to specific inquiries. For example, on April 7, 2004, a

Willis employee sent an email to James Drinkwater, managing director of Willis Global Markets

North America, requesting guidance on how to fulfill the company’s obligation under a fee

agreement to disclose contingencies attributable to a client’s placements. In response, Mr.

Drinkwater stated as follows:

All that I can tell you at this time is that we are negotiating contingent agreementswith some of these carriers and there would be no [ ] way for us to estimate any contingent payment at this time, or at a later date that are attributable to this specific insured. Contingent agreements are not reflective of individual accounts they are reflective of services that we provide insurers for our overall work on a book of business. [emphasis added]

425. Gallagher similarly instituted polices that prevented its clients from obtaining

accurate or detailed information regarding its contingent commission arrangements. Gallagher

likewise continued to adhere to these policies even after the regulatory investigations into broker

compensation practices began in 2004.

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426. For example, in May 2004, Gallagher received an inquiry from a client requesting

confirmation that Gallagher was not accepting contingent payments on its business. In making

the inquiry, the client stated: “It is clear that by accepting such fees, brokers would be in a

conflict of interest situation when recommending insurance programs and structures.” In

response, Craig M. Van der Voort, Gallagher’s Vice President of Market Resources, instructed

that the client be assured that “there is no conflict of interest when serving our client” resulting

from Gallagher’s contingent commission arrangements. Mr. Van der Voort further instructed

that the following response be given:

Nothing in the calculation formula is account specific and since overallunderwriting profitability is measured, the poor loss experience of clients caneasily offset or reduce any potential bonus payment. With all of the variouscomponents that are measured, it would be extremely difficult [to] determinewhat, if any, a specific client’s placement might have yielded to the total calculation. [emphasis added]

427. Wells Fargo/Acordia issued internal instructions that the details of its partnership

arrangements be kept confidential, at the same time that it provided its managers with enough

information to ensure that they maximized revenue from steering. An October 8, 1999, email

from Charles Ruoff, Acordia’s Senior Vice President and Chief Marketing Officer, authorizes

that certain information regarding Acordia’s “Millennium Partnership Agreements” could be sent

to some of the company’s regional managing directors, with a copy to the company’s Corporate

Planning Committee, for the purpose of “maximiz[ing] the incentive payments.” The email

concludes with the reminder: “ confidential issue important as it could void our agreement if

disclosed outside Acordia.” [emphasis added].

428. The confidential nature of the contingent commission agreements were to be

maintained at all costs and those who violated the confidentiality of the agreements were

confronted with threats and dealt with harshly. In early May of 2003, a Marsh Global Broking

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employee learned that a Global Broking PSA was leaked from a front-line Munich Am-Re

(“MARP”) employee to a Marsh local office employee. Marsh chastised the MARP

management. After finding out about this unauthorized discussion of the PSA, Mark Manzi of

MGB wrote to the head of MARP GRM, saying that “[t]his is appalling and unacceptable!” He

noted that the same thing happened last year, and asked what “Munich will do to rectify this very

embarrassing situation.” The head of MARP’s Global Risk Management unit, John Schumacher,

immediately responded to Marsh and acknowledged the violation of their agreement: “We

acknowledge that this was inappropriate behavior and will do the necessary to eliminate all

documentation, electronic or otherwise, that references or otherwise alludes to the PSA. I

apologize for the consternation that this has caused within the Marsh organization.”

429. Shortly thereafter, Schumacher sent out an email to his employees stating that the

PSAs “have confidentiality provisions which we must abide by. Although we have broadly

communicated certain information to ensure that we price appropriately, we cannot make any

reference to this to anyone.” The head of the Public and Non-Profit unit of MARP sent an email

to his employees, stating, “[q]uotes we provide to any production source should not reference

any applicable PSA percentage we included in our pricing. Furthermore, PSAs are never to be

discussed with retail producers or clients.”

430. The importance of maintaining the secrecy of the contingent commission payments

is further evidenced in an email from Acordia when one of its clients inadvertently learned from

AIG that Acordia was to receive an _______ commission. In response to such inadvertent

disclosure, Mark Dougherty wrote to Scott Isaacson, Acordia, Inc.’s Chief Marketing Officer:

“HOWEVER, I would like to point out that AIG sent the raw feed to the client – IT STATES

THE COMMISSION! The client has already called and is complaining about the _______

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commission on our end. We are now negotiating that and it looks like we are going to net this

out and figure something in the fee range of ______. I am not a greedy-guts - but if AIG did this

to Marsh, Willis or AON I can only imagine what that conversation would be like.”

431. As a result of these established policies and practices, Defendants were able to

conceal the true nature and scope of their contingent commission arrangements and their

strategic partnerships that resulted in the customer allocation scheme and conspiracy alleged.

(b) Defendants Failed to Disclose That The Cost of

Contingent Commissions Was Built Into the Price of

Premiums

432.

The Insurer Defendants built the cost of the contingent commission payments that

they made to the Broker Defendants into the premiums that they charged for the insurance they

provided. As a result, the premiums Plaintiffs and Class Members paid were inflated in order to

cover these costs. Nevertheless, in their binders and invoices, the Insurer Defendants failed to

disclose that the cost of contingent commission payments was imbedded into the premiums. The

Broker Defendants failed to disclose this to their clients as well. In fact, the Broker Defendants

would misleadingly take the position that contingent commissions were not attributable to any

particular client’s insurance placements.

433. Both the Broker Defendants and the Insurer Defendants knew that the cost of

contingent commissions was included in the premiums that Plaintiffs and members of the Class

were charged. For example, in a November 11, 1994, letter from a Willis executive to a Chubb

executive states: “Imbedded in your rating structure is an expense allowance for contingency

payments. Its [sic] probably some sort of average across Chubb’s book of business, based on

historical experience.”

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434. This letter is consistent with other internal documents and the testimony of

witnesses indicating that the cost of contingent commission payments is built into the premiums

charged to insurance purchasers.

435. Nevertheless, the Broker Defendants and Insurer Defendants took steps to make

sure that no information referencing the impact of contingent commissions on premiums was

provided to insurance purchasers, and any inadvertent reference to such information in materials

provided to insurance purchasers would be quickly eradicated.

436. For example, a May 15, 2003, email sent from Craig Smiddy, a Vice President of

Munich Reinsurance, to all AMRE – PNP Managers contained the following directive: “Please

discuss with your team; Quotes we provide to any production source should not reference any

applicable PSA percentage we included in our pricing. Furthermore, PSA’s are never to be

discussed with retail producers or clients.” (Emphasis added). As this email indicates, AMRE

senior management clearly understood that PSA’s increased the price of premiums, and that this

information could not be disclosed to consumers, including Plaintiffs and other Class Members.

437.

Similarly, in 2004, a “high level representative” of Marsh complained to the Chief

Underwriting Officer of ACE WestChester’s Proper unit, about the disclosure in WestChester’s

quotes and binders of its PSA with Marsh. The chief underwriting officer promptly advised the

head of the Property unit, and other management that their underwriters should “immediately

refrain” from disclosing anything other than the percentage commission, and that referencing the

Marsh PSA “is highly unacceptable.”

438. _______________________________________________________________

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________________________________________________

_________________________________________________________________

_________________________________________________________________

__________________________

__________________________________________________________________

__________________________________________________________________

___________________________________________________________________

_____________________

_________________________________________________

439. Defendants understood that their failure to disclose the relationship between

contingent commissions and premiums was deceiving to insurance purchasers. A draft letter that

AIG prepared in 1998 to send to its insureds stated that: “[W]e agree with the New York

Insurance Department that failure to disclose how much we pay your broker is withholding

critical information from you who ultimately pays for this compensation through its higher

insurance premiums.” (Emphasis added). The draft letter went on to commit, among other

things, to: “[d]isclose to our New York insureds prior to their purchase of a new or renewal

policy, the total compensation we are paying their broker, including contingent compensation

arrangements or payments to the brokers’ ‘affiliate’ organizations” and “[i]nclude as a factor in

the establishment of our premium rates, all fees paid to your broker.”

440. This letter was never sent to AIG’s insureds and the “critical information” referred

to in the letter regarding how much the brokers are paid and how contingent commissions impact

premiums was never disclosed.

441. Although this draft letter was prepared by AIG, its reasoning applies equally to all

Defendants and illustrates how they understood the manner in which they were deceiving their

clients.

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(c) The Broker Defendants’ Concerted Actions to Prevent

Meaningful Disclosure of Their Contingent Commission

Arrangements is Built into the Price of Premiums

442. The Broker Defendants mutually agreed to issue substantially similar incomplete

and materially false and misleading disclosure statements regarding contingency compensation

arrangements as well as other public statements, made through “CIAB”, in order to create the

illusion that the Broker Defendants’ were acting in their clients’ best-interests and were

operating in an open and transparent manner.

443. In this regard, as described herein, during the mid-1990s, concerns were raised on

several occasions over whether the large brokers, including the Broker Defendants, might be able

to exploit their increasing market power at the expense of insurance purchasers. The Broker

Defendants understood that these types of concerns could result in efforts by the insurance

buying public and/or regulators to demand actual and complete disclosure of the manner in

which the Broker Defendants were compensated by the Insurer Defendants. The Broker

Defendants knew that it would be necessary to effectively fend off any such efforts, and CIAB

served as a ready conduit employed by the Broker Defendants to accomplish this task.

444. For example, following concerns being raised over broker compensation issues in

1998, the Broker Defendants, operating through CIAB, determined that they needed to adopt a

consistent position statement that would avoid insurance regulatory scrutiny and prevent any

action that would result in meaningful disclosure to the Broker Defendants’ customers.

445. Specifically, stating in an internal CIAB document that, “[u]nfortunately, this

debate [over broker compensation disclosure issues] is not likely to go away anytime soon,” the

CIAB determined that it needed to adopt a position statement that was intended to stave off any

meaningful regulatory disclosure requirements and reassure insurance purchasers that their

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brokers were acting in their best interests. This statement began by stating that: “Council

members [including all of the Broker Defendants] are committed to acting in their client’s best

interest by providing products and services that meet the clients’ needs and desires.” The

statement then went on to discuss the purported “value” that contingent commission agreements

have on a “broker’s ability to access markets in the clients’ interest.” The position statement also

recommended that brokers should disclose that they “may have compensation arrangements with

some insurance carriers and give clients the opportunity to discuss the matter further if they have

questions or concerns.” (emphasis added).

446.

The CIAB position statement was made available for review and editing by its

members before being finally approved by CIAB’s Executive Committee, which included

executives from Marsh, Aon, and HRH. These Executive Committee members were also all

officers of CIAB. Additionally, an executive of Willis was a member of CIAB’s Industry

Affairs Committee, which initially made the recommendation to issue a position statement.

Further, one or more representatives of all of the Broker Defendants, or their predecessors, were

on CIAB’s Board of Directors at the time the CIAB position statement was issued.

447. The position statement was intended to create the impression with both regulators

and clients that CIAB was effectively addressing the issue of compensation disclosure so there

would be no need for any regulation on this issue.

448. Indeed, the CIAB position statement was issued following the New York State

Insurance Department’s issuance of Circular Letter 22, which imposed certain obligations on

brokers to disclose certain compensation information. CIAB’s true intent to prevent meaningful

disclosure of compensation arrangements is reflected in the following statements contained in its

internal meeting notes: “The Council is working with other interested trades to arrange a

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meeting with the New York Insurance Department. At the meeting, we will state opposition to

the Letter because it is too broad and without sufficient legal justification. We will seek to have

them rescind it and discuss a voluntary program of appropriate disclosure.” (Emphasis

added).

449. Although CIAB was unsuccessful in its efforts to get Circular Letter 22 rescinded, it

has consistently instructed its members that the letter “imposes additional obligations, which are

not enforceable,” that the letter “should be narrowly construed,” and that disclosure that a broker

“may” have contingent commission agreements with some carriers is all the brokers needed to

say to comply with Circular Letter 22 or any other regulatory obligation.

450. The Broker Defendants have worked with CIAB to create the public impression that

“full disclosure” is the industry standard. Illustrating this point, CIAB prepared an internal

document entitled, “Suggested Talking Point for CIAB Members if Questioned on Contingency

Fees,” which was intended to help its members, including the Broker Defendants, deal with

concern raised over broker compensation practices following the complaint filed by the New

York Attorney General against March in October 2004. This document stresses that CIAB has

operated under a disclosure policy “that has been on the books since 1998” and that, “[l]ong

before contingency fees became an issue in the media, The Council and its members were

reviewing disclosure policies to make sure that there was no question about where we stand.”

451. Similarly, in a 1998 presentation before the Risk Insurance Management Society

(“RIMS”), Roger Egan, a Managing Director at Marsh stated that Marsh “recognize[d] a duty to

disclose” and described Marsh’s policy to be one of “full disclosure.” Similarly, Aon has

described itself as “a full disclosure Insurance Broker.”

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452. Nevertheless, the Broker Defendants have either completely failed to provide any

disclosures regarding their contingent commission arrangements or issued substantially similar

purported “disclosure” statements modeled after the CIAB’s position statement that were in and

of themselves misleading and allowed Defendants to conceal their conspiratorial scheme. Over

the course of the Class Period, the Broker Defendants have included these statements in

numerous communications with clients such as invoices and agreements and other documents.

For example, Marsh began incorporating the following language in materials disseminated to its

clients:

Marsh USA and its affiliated companies (“Marsh”) may have agreements withinsurers providing the coverage which is the object of this invoice pursuant towhich Marsh may derive compensation contingent upon such factors as the size,growth, and/or overall profitability of an entire book of business placed by Marshwith such insurers. Such contingent compensation would be in addition to anyother compensation Marsh may receive such as retail, excess and surplus linesand wholesale brokerage fees or commissions, administrative fees, etc. At yourrequest, Marsh will provide additional information. [Emphasis added].

453. Similarly, Aon adopted the following official policy, which failed to disclose

sufficiently the impact of the contingent commission agreements, stating:

Aon is committed to acting in its clients’ best interests by providing products andservices designed to meet clients’ risk financing and risk management objectives.It has been a long-standing practice in the insurance industry for carriers to havecompensation arrangements with brokers, like Aon, who bring added value to thedistribution system through their performance, expertise and efficiency. We believe that such arrangements serve to enhance the brokers’ ability to accessinsurance markets in their clients’ interests. . . . We believe that openness andhonesty in our business relationships is a tenet to which Aon abides and, to thatend, Aon notifies it clients in its service fee arrangements, its invoices, its websiteand other publications that it may have compensation arrangements with some

insurance carriers, offers its clients the opportunity to discuss these mattersfurther, and will, where applicable and available, provide its clients withinformation concerning compensation earned from such arrangements.[Emphasis added].

454. In accordance with this policy, Aon began including the following language in its

invoices and service agreements:

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In certain circumstances, one or more of these subsidiaries may also receivecompensation in the following forms: commissions or fees paid as reinsurance brokerage or captive management companies for placement or managementreinsurance of a client’s risk; commissions paid to excess and surplus lines brokerages; commission paid to managing general agent to whom a risk has been

referred for placement; contingent commissions paid by an insurer based onaggregate loss experience; overrides paid by an insurer/reinsurer based on service performed and the volume of business placed with the insurer/reinsurer; fees paidfor premium financing; and feed paid for performance of technical or otherservices. [Emphasis added].

455. Willis likewise began including the following similar language in communications

with it clients:

In addition to the commissions received by us from Insurers for placement of yourinsurance coverages, other parties, such as excess and surplus lines brokers,wholesale brokers, reinsurance intermediaries, underwriting managers and similar parties (some of which may be owned in whole or in part by our corporate parentsor affiliates), may earn and retain usual and customary commissions for their rolein providing insurance products or services to you under their separate contractswith insurers or reinsurers. Additionally, it is possible that we, or our corporate parents or affiliates, may receive contingent payments or allowances fromInsurers based on factors which are not client-specific, such as the size or performance of an overall book of business produced with an insurer by us, ourcorporate parents or affiliates. Upon written request, we will provide informationregarding the compensation received by us or by our corporate parents oraffiliates. [Emphasis added]

456. Gallagher also began using the following similar language in its communications

with its clients:

Gallagher from time to time enters into arrangements with certain insurancecarriers or those carriers’ reinsurers providing for compensation, in addition tocommissions, to be paid by such carriers or reinsurers to Gallagher or its affiliates based on, among other things, the volume of premium and/or underwriting profitability of the insurance coverages written through Gallagher by such carriersor reinsurers. In addition, Gallagher and its affiliates provide management and

other services to, and receives compensation for those services from, certainreinsurers that reinsure insurance coverages written through Gallagher by otherinsurance carriers. The insurance coverages you purchase through Gallagher might be issued by an insurance carrier or reinsured by a reinsurer that has such arelationship with Gallagher or its affiliates. [Emphasis added].

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457. Wells Fargo/Acordia likewise began to use the following similar language in its

communications with its clients:

[Acordia] may have agreements with insurers providing the insurance coverage

which is placed by Acordia pursuant to contingent agreements which may resultin compensation. These agreements are based upon such factors as the size,growth, and/or overall profitability of total business placed by Acordia with suchinsurers. Such contingent compensation is considered an industry standard andwould be in addition to any other compensation Acordia may receive such asretail and wholesale brokerage fees or commissions, administrative fees, etc.”

458. The foregoing disclosures were modeled after the CIAB position statement in order

to create the impression of transparency, by stating that the brokers “may” have contingent

commission agreements that might result in some additional revenue, while failing to disclose

any information regarding the strategic partnerships that the Broker Defendants had entered into

with the Insurer Defendants or the significance of these partnerships and the contingent

payments arrangements had on the insurance placement process and the premiums charged.

Moreover, regardless of the extent to which the Broker Defendants incorporated these statements

in their own communications with their clients, the CIAB’s campaign, which included the

position statement and other similar statements, successfully prevented the Broker Defendants

from having to make any meaningful disclosure for years.

459. Indeed, CIAB has routinely provided the Broker Defendants the opportunity to

discuss and reach agreement on joint action in response to regulatory investigations and

regarding disclosure issues in order to conceal Defendants’ scheme and for furtherance of

Defendants’ fraud. For example, in 2003, CIAB reiterated in an internal email that its position

statement was “a generic disclosure that we think works and that should not cause too much

consternation.” Similarly, a 2003 email sent by CIAB’s General Counsel discusses revising a

policy paper to eliminate a provision because it “could be read to require more contractual

disclosure of the payment mechanism, which is exactly what we don’t really want to get into.”

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460. More recently, the Council adopted “crisis communication plans . . . to respond to

issues raised by the Spitzer Investigation.” CIAB members have held joint meetings with other

insurance trade associations to consider the “industry-wide responses” to the investigations.

CIAB has also issued statements to create the impression that is members were already making

full disclosure of all compensation related matters

461. For example, in response to a regulator inquiry regarding contingency commissions,

CIAB provided assurance that “they really have no impact on the amount insureds pay for

coverage.” In a news release, Defendants through CIAB, assured the public that “disclosure is

the industry standard” but also confirmed that they are acting in the client’s best interest in the

insurance marketplace:

A broker is charged with finding the best risk coverage solutions for his or hercommercial customers. It is incumbent upon brokers to research the market fullyand present a range of options, then work with their customers to find thecoverage that meets their needs, both in terms of cost and scope….The best broker for a given customer or group of customers is the who one has arelationship with the carriers that have the products that serve those customers best.

462.

For years the Broker Defendants, operating through CIAB, have consistently

discussed and opposed any efforts to require meaningful disclosure of contingent commission

arrangements and successfully fended off any regulatory action through the use of misleading

and vague statements.

463. These type of statements issued by CIAB, as well as its position statements, which

many of the Broker Defendants’ echoed in their direct communications to their clients, were in

and of themselves materially false and misleading in that they failed to disclose the scheme

described above, including the true nature of the arrangements between the Broker Defendants

and their strategic carrier partners, and attempted to lull insurance purchasers into believing that

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the brokers were acting in their best interests and that contingent commission agreements

furthered this purpose.

464. An internal February 2004 Marsh email illustrates how Defendants acted to create

the appearance of disclosure through the use of statements modeled after the CIAB position

statement, which withheld material information and mislead insurance purchasers. This email

states:

The monthly Statements and the Client Engagement agreement both refer to adocument called “Our Business Practices and Principles” which is available onour Website and is normally sent with the Client Engagement Agreement, whichrefers to us receiving PSR’s but in a masterfully opaque way. [emphasis added.]

465. A series of emails among several Marsh employees underscores how the

standardized disclosure position put forth by CIAB and adopted by the Broker Defendants was

designed to mislead insurance purchasers. In this exchange, Allison Muller, a Marsh employee,

acknowledges that the substantial revenue brokers such as Marsh receive in the form of

contingent commissions is not disclosed: “ It’s not a matter of client’s [sic] knowing about

PSAs, it’s about how much $$ we make on them & don’t disclose.” [emphasis added.]

Responding to a statement by Marsh executive Edward Keane, who was subsequently indicted,

that “pretty much every Broker has a PSA,” Ms. Muller further explained: “The issue is not that

we disclose the PSAs, but that we give clients such a shady answer when we do ‘Well, between

$-$$ we make $$, but there’s no way to know where you fall ….’ . . . If we actually disclose the

real amounts to our clients & factor that into our total fee, I wouldn’t be worried … but, we

don’t.” (Emphasis added). Ms. Muller concluded by stating that although Marsh benefited from

its receipt of contingent commissions, “no one should be shocked when they bight [sic] us in the

ass.” Although these conclusions were written by employees of Marsh, Ms. Muller’s

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explanation regarding Marsh’s “shady” disclosures apply equally to the misleading nature of the

disclosures involving the other Broker Defendants as well.

466. An internal AIG document which was attached to a 2002 PSA between AIG and

Marsh, further illustrates the misleading nature of Defendants’ limited disclosures regarding

contingent commission information. This document states, in relevant part, as follows:

However, the Client Service Agreement language does not adequately disclose toinsureds the compensation paid by the insurer to the broker. The disclosure isinadequate because:

1. it “discloses” only referencing the agreements in the negative –i.e., what commissions are not for purposes of the commissionoffset;

2. it refers to the PSA monies as fees that the broker “may” receive, rather than as fees actually received ; and

3. most importantly, it makes no attempt to describe or quantify the agreements or calculations themselves.

In order for the disclosure to be adequate:

1. The insurer should provide to the broker, with the insurer’squote letter, a good faith estimate of the amount of total

compensation to be paid to the broker by the insurer in connection with the quote.

2. The broker is obligated to disclose to the insured , at the time ofdelivery of the quote letter, (a) the broker’s estimate of such total compensation and (b) a detailed and complete description of the all compensation agreements (whether commission at inception or contingent compensation based on such factors as size, growthand/or profitability of an entire book of business, or otherwise), between the broker and the insurer, including any formulas andcalculations involved.

3. The disclosure must be sufficiently detailed so that an insured isable to understand it fully. While it may not be possible to predictexactly the amount of compensation that will be payable, the broker must estimate the amount based on past history andreasonable assumptions.

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4. The disclosure should be prominent and free standing and not part of some other documentation. The broker should deliver thedisclosure document with the insurer’s quote letter.

5. In addition to the disclosures set forth above, the broker mustsend a prominent disclosure notice to each insured at the time ofactual calculation, stating the exact amount of compensationattributed to each insured. [Emphasis added throughout].

467. The foregoing letter demonstrates that Defendants understood the kind of

information that was necessary to be provided to insurance purchasers, such as Plaintiffs and

members of the Class, in order for their disclosures to be adequate. Nevertheless, Defendants

failed to make such disclosures and instead took steps to keep this information concealed as

described above.

468. It is only following the recent regulatory investigations involving the Broker

Defendants, which have lead to criminal indictments as well as a number of regulatory

settlements, that the misleading nature of the Broker Defendants’ purported “disclosures” have

come to light. For example, in explaining why it had agreed with Marsh in 1999 that a

disclosure protocol (which was substantially the same as CIAB’s position statement), was

adequate, RIMS recently stated:

The [1999 statement] was an appropriate response to this issue given theinformation we were provided at that time. We were told that contingency fees comprised only a fraction of the overall revenue earned by brokers, and in noway influenced its work on behalf of their clients. Years later, however, the reality of these arrangements came to light. [Emphasis added].

469.

Marsh’s counsel, Davis Polk & Wardwell (“Davis Polk”), retained to represent it in

connection with regulatory investigations commenced by New York State in 2004, concluded

that the information that Marsh was disclosing pursuant to its 1999 agreement with RIMS was

misleading. In this regard, Davis Polk concludes that:

Marsh Inc. complied with the terms of the RIMS agreement; nonetheless, giventhe manner in which the calculations were performed pursuant to the protocol, the

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amounts conveyed to clients could be viewed by certain clients as inaccurate or misleading [emphasis added].

470. Defendants were able to conceal their scheme for years as a result of their

agreement to keep their contingent commission arrangements secret and engage in a public

relations campaign designed to create the appearance of transparency. In the absence of proper

disclosure of the contingent commissions, Plaintiffs and members of the classes were prevented

from discovering the true nature of the relationships between the Broker Defendants and the

Insurer Defendants and relied, to their detriment, on Broker Defendants’ representations that they

were providing independent expertise and representing their clients’ interests in accordance with

their contractual, fiduciary and other duties as alleged above. Plaintiffs and members of the

classes also justifiably relied upon Defendants’ representations in connection with the insurance

policies they purchased.

(d) Recent Regulatory Investigations Reveal The

Misleading Nature of Defendants’ Representations and

Disclosure Practices

471. Commencing in 2004, a large number of state attorneys general and state regulators

began conducting investigations concerning the Broker Defendants’ compensation practices and

relationships with the Insurer Defendants. As a result of these investigations, settlement

agreements or assurances of discontinuances have been entered into by various Attorneys

General, including New York, Connecticut, Illinois, Pennsylvania and Minnesota, with the

following Broker Defendants: Marsh, Aon, Willis, Gallagher, and HRH, and the following

Insurer Defendants: Travelers, Chubb, Ace, AIG, and Zurich. These settlement agreements or

assurances of discontinuance included various restrictions on receiving contingent compensation

from insurers under certain circumstances and mandated, among other things, that the settling

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defendants provide meaningful disclosures regarding forms of compensation paid by insurers to

the brokers which were not previously made.

472. Even after these governmental and regulatory investigations got underway,

however, a number of Defendants continued to issue materially false and misleading statements

regarding their compensation practices and/or continued to fail to disclose these practices.

473. Following the investigations of various state attorneys generals of the insurance

industry in 2004, Marsh continued to fail to adequately disclose contingent commission

Agreements. In 2004, Marsh posted a “Frequently Asked Questions” page regarding MSAs on

its website (which it has subsequently removed), stating that it had no conflicts with clients

because of the MSAs:

Our guiding principle is to consider our clients’ best interests in all placements.We are our clients’ advocate and represent clients in our negotiations. We don’trepresent the markets. We work closely with clients on the design of their risktransfer program to address the complexity of decisions that have to be taken intoaccount, such as market financial strength, a market’s expertise in the line ofcoverage needed, its claims-paying history, clients’ service requirements, breadthof coverage, pricing, and other terms and conditions. We also work with insurers,and part of what an insurer pays us for is an iterative planning andcommunications process that allows the insurer to create more competitive proposals for our clients, which of course benefits those clients. In all cases,clients retain the final decision on the market chosen to handle its business.

474. As Marsh’s subsequent settlement conceded, however, among other things, Marsh

did not act in its clients’ best interests, did not advocate fairly on their behalf, and failed to

provide clients with the information needed to make informed placement decisions.

475. When the New York Attorney General began investigating the insurance industry in

2004, Aon’s CEO, Patrick G. Ryan, was reported as being “not fazed” by the investigations and

as being “very comfortable” with the conduct of Aon’s employees. In an SEC Form 8-K filed on

December 6, 2004, Ryan backtracked, however, claiming he was misquoted on the first point and

that he had been wrong on the second. As part of Aon’s settlement with various State Attorneys

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General, Ryan was ultimately compelled to issue a public apology for the misdeeds of the

company.

476. Those misdeeds included false postings on Aon’s use of CSUs on its website in

2004. Aon misleadingly stated that CSUs are compensation for valuable services performed:

“Aon performs activities and provides services of value to insurers, including providing access to

its substantial distribution networks, pre- and post-placement technical services, sharing of Aon’s

knowledge and expertise as an industry leader, policy design and review, research and

development, risk analysis, claims management, administration and other underwriting-related

activities. Providing these services ultimately benefits our clients, the insurance markets and

Aon.”

477. Gallagher also continued to issue similar false statements after the regulatory

investigations had begun. For example, on October 19, 2004, J. Patrick Gallagher, Jr. issued a

memorandum to all employees distinguishing its conduct from Marsh’s. The memorandum

explained:

Gallagher’s business model is structured to enable our producers and accountmanagers to put the interests of our clients first. This is reinforced in thefollowing ways: - Our Mission Statement states that Gallagher succeeds by placing the needs of our clients first. - We have professional standards in placethat govern how we interact with our clients and the insurance companies. Thesestandards are reviewed and updated often and we audit our compliance with thosestandards frequently. - The Gallagher Code of Conduct requires that we conductourselves professionally and ethically. - And, the Gallagher Way spreads the wordabout our Shared Values – it is our culture to operate under the highest moral andethical behavior. We spend considerable time and energy conveying to ouremployees that we must do the right thing for our clients, even if it means less profits for Gallagher.

478. This statement was belied by Gallagher’s Stipulation and Consent Order with the

Illinois State Attorney General and Illinois Department of Insurance on May 18, 2005, which

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disclosed that Gallagher systematically allocated clients to insurers who paid it the largest

kickbacks.

479. As a result of the governmental investigations into broker compensation practices,

several Defendants including, inter alia, Marsh, Aon, Gallagher, Willis, Liberty Mutual, AIG

and ACE have discontinued the use of contingent commission agreements and instituted other

reforms designed to avoid conflicts of interests in the brokerage industry. For example, as part

of its settlement with the New York State Attorney General, Marsh agreed to a prohibition of

receiving contingent compensation from insurance carriers. Marsh also agreed to provide clients

with a comprehensive disclosure of all forms of compensation received from insurers and to

adopt and implement company-wide, written standards of conduct for the placement of

insurance.

480. Similarly, in March 2005, Aon entered into a settlement agreement with the

Attorneys General of New York, Connecticut, and Illinois, which was modeled after the

agreement previously entered into with Marsh. In connection with the settlement, Aon agreed,

among other things to: (i) eliminate contingent commissions; (ii) implement company-wide

written standards of conduct regarding compensation from insurers; (iii) accept one payment

only for an insurance contract at the time of placement, and (v) fully disclose its payments to and

receive approval for these payments from its customers.

481. In the wake of the regulatory investigations, a number of Defendants have admitted

that they failed to disclose or failed to sufficiently disclose their contingent commission

arrangements and preferred partnership agreements to insureds and/or took actions to provide

disclosure.

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482. On April 19, 2004, after having received letters from the New York State Insurance

Department on March 3, 2004 and March 26, 2004, HRH finally agreed to disclose the existence

of incentive compensation agreements to its insureds prior to the purchase of insurance.

483. Additionally, the settlement agreement that HRH entered into with Connecticut

Attorney General Richard Blumenthal on August 31, 2005 required HRH to, among other things,

cease accepting or requesting contingent compensation in connection with its brokerage business

and make mandatory disclosure of any compensation attributable to a client when placing,

renewing, consulting on, or servicing that client’s insurance policy.

484.

The settlement agreement that Gallagher entered into with the Illinois Attorney

General and Illinois Department of Financial and Professional Regulation (“IDFPR”), Division

of Insurance in 2005 required Gallagher to, among other things, no longer accept or request any

contingent compensation and implement company-wide written standards regarding

compensation from insurers.

485. Among other things, the Assurance of Voluntary Compliance that Gallagher entered

into states that “for many years Gallagher entered into contingent commission agreements with

several favored insurance companies” and therefore “allowed its revenue interest to potentially

conflict with those of its clients because it received these commission only if it placed sufficient

business with the favored insurers.” The document provides a specific example in which

Gallagher falsely assured its clients that no such conflict existed in connection with its receipt of

expense subsidies in connection with AIG (in lieu of actual contingent payments):

While Gallagher was instructing its managers that the AIG subsidiaries requiredthe managers to “make sure” AIG received a share of Gallagher business,Gallagher told at least one of its clients that AIG created no incentives forGallagher to commit business to AIG. On May 26, 2004, a Vice-President in theBrokerage Services Division advised a client that AIG has “no need to offerincentives to anyone. Historically they never have incentivized anyone to do

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business with their firm and it is a philosophy and model they continue toincorporate in todays [sic] marketplace.” Gallagher AoVC, ¶ 27.

486. As part of the settlement, Gallagher assured its clients that it would never allow its

own financial interests to conflict with its client’s interests through a written statement published

in a document entitled “Client Commitment.” Gallagher AVC, ¶ 3-5.

487. The settlement agreement that Willis entered into with New York Attorney General

and New York Department of Insurance, which was modeled after earlier agreements with

Marsh and Aon, required Willis to, among other things, (i) no longer accept contingent

commissions and only accept one payment for an insurance contract at the time of placement;

this payment will be fully disclosed to and approved by its customers; and (ii) implement written

standards of conduct, and train relevant employees in such subjects as business ethics,

professional obligations, conflicts of interest, anti-trust and trade practices compliance, and

record keeping.

488. The settlement agreement that ACE entered into with the Attorneys General of

Illinois, New York and Connecticut in April 2006 required ACE to, among other things, sharply

curtail its use of “contingent commissions,” and to stop paying contingent commissions on

excess casualty insurance placements through 2008 and provide new disclosures about ranges of

compensation paid to brokers and agents by insurance products on either a website or a toll-free

telephone number and to make insureds aware of this by sending them a notice with their

policies.

489.

In January 2006, AIG entered into a settlement agreement with the New York State

Attorney General and New York State Department of Insurance pursuant to which AIG agreed,

among other things: (i) to sharply curtail its use of contingent commissions, and to stop paying

contingent commissions on excess casualty insurance placements through 2008; and (ii) to

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provide new disclosures about ranges of compensation paid to brokers and agents by insurance

products on either a website or a toll-free telephone number and to make insureds aware of this

by sending them a notice with their policies.

490. Similarly, the settlement agreement that Chubb entered into with the Attorneys

General of Illinois, New York, and Connecticut in December 2006 required Chubb to forgo all

contingent commissions and to undertake the same remedial measures related to disclosure as

was required by ACE. The Assurance of Discontinuance that Chubb entered into in connection

with this specifically stated that: “Since at least the mid-1990s, Chubb and other insurers have

paid hundreds of millions of dollars in undisclosed ‘contingent commissions’ to the world’s

largest insurance brokers and agents.” Chubb AoD, ¶ 1 (emphasis added).

491. The Assurance of Voluntary Compliance that Travelers entered into in connection

with its settlement with the Attorneys General of New York, Connecticut and Illinois in July

2006 acknowledged that:

St. Paul and Travelers entered into a number of undisclosed contingent commission agreements (also known as “override” agreements) with Producers,such as Marsh, Aon, Willis, HRH, Gallagher, and Acordia. As a result of thesearrangements, the Producers steered insurance policies to St. Paul and Travelersto give them new business and to keep retention levels (that is the percentage ofcustomers who elect to keep their insurer when a policy comes up for renewal) ofexisting St. Paul and Travelers policies above certain benchmarks. Producers purported to offer unbiased recommendations to their clients about the selection of insurers when, in many cases, the Producers’ recommendations were biased in favor of insurers who paid contingent commission. Travelers AoD, ¶ 3.

492. As part of the settlement, Travelers agreed to sharply curtail its use of “contingent

commissions,” and to pay no contingent commissions on excess casualty insurance placements

through 2008. Travelers also agreed to provide new disclosures concerning the ranges of

compensation paid to brokers and agents on a special web site.

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493. In 2005, following the investigations, Crum & Foster abandoned the use of

confidentially provisions in its contingent commission agreements and included language

requiring that the broker fully disclose to prospective and current insureds “the amount of

compensation Producer will or may receive for placing business with [Crum & Forster].”

494. Additionally, numerous Defendants have made statements acknowledging that the

contingent commission agreements between brokers and insurers created a conflict of interest.

495. For example, following the filing of the New York Attorney General Complaint

against Marsh, ACE posted a response to the following question by the National Association of

Insurance Commissioners’ “NAIC” inquiry into contingent commissions:

Q: What additional requirements or safeguards should be in place to prohibita producer from placing its own financial or other interests ahead of itscustomer’s interests in an insurance transaction?

A: Ban on contingent commissions, brokers should be required to electcompensation from the insured or insurer; not both; all standard commissionshould be disclosed by broker and should be included on the copy of the policydelivered to the insured.

496. A letter from Paul Mattera, Senior Vice President of Liberty Mutual, to NAIC

Commissioner M. Diane Koken, dated March 9, 2005 regarding contingent commission

illustrates how inadequate and misleading disclosures regarding the use of contingent

commissions have created conflicts of interests in the insurance brokerage industry. The letter

states the following, in relevant part:

Liberty Mutual believes that the cornerstone of good regulation and sound business practice is transparency in insurance transactions. Our customers

deserve to know whether the producer they are working with represents them orus. All parties must be clear as to “who represents whom.” Thus, we support theapplication of disclosure requirements to agents and brokers. The integrity of theentire transaction flows from a clear understanding of whose interests arerepresented by the producer.

…

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Prohibition of Broker Contingent Commissions

While appropriate broker disclosure is in the customer’s interest – and westrongly support it – disclosure alone is not enough. Brokers can be conflictedwhen they receive payment from both buyers and sellers. In fact, the concernsthat give rise to the “best available insurer” requirements, discussed above, areameliorated when contingent commissions are out of the buying and sellingequation.

Liberty Mutual believes broker “contingent commissions” are inappropriate andshould be prohibited. Brokers should be compensated only by a fee paid by thecustomer or by standard commission paid by the insurer as a percentage of thetotal cost of the policy purchased. While there is nothing inherently wrong withcontingent commissions, PSAs and MSAs, when brokers are paid in a manner thatcan lead to a misalignment of broker interests, the value of contingentcommissions is outweighed by the need to assure an open, unconflicted market.In these circumstances, disclosure alone is not an adequate remedy.

497. In fact, following the regulatory investigations some Defendants have gone so far as

to state that the receipt or payment of contingent commissions is inherently wrong. For example,

Joe Plumeri, the CEO of Willis, who previously had been an active proponent of his company’s

expanding use of contingent commissions, stated in an April 2005 speech to RIMS as follows:

For too long, this business has been about the placement only – what I’ve come tocall manufacturing. Under this model, getting the placement at the right price and

the right coverage is all that matters. But this approach leads to thecommoditization of insurance, and I don’t think anyone in this room would equateinsurance to soy beans.

This approach also invites the perception of conflict that comes with contingentcommissions; that’s inconsistent with the principle of client advocacy andtherefore is unacceptable.

It must be 100% clear who the broker is working for. That means a broker canonly be paid by one party in any transaction.

It’s time we step up to a higher standard. Contingents should be abolishedthroughout the industry. Carriers shouldn’t pay them. Brokers shouldn’t acceptthem.

If anyone says, “But we’re an agent (rather than a broker): surely we can getcontingents based on the profitability of the carrier’s book?” To them I say,“That’s fine, just make it 100% clear – up front - that you are acting for thecarrier, and not the client.”

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Some times when you are up against it, you have to get creative.

Faced with the loss of contingent commissions, the sight of the gallows shouldfocus our minds. Brokers should focus less on finding a way to simply replacethe lost revenue and more on what is really important – having the integrity towork harder to deliver creative solutions and bring real value. Anybody thinkthat’s a big idea?

And, if contingents create the appearance of a conflict for some brokers, theycreate that appearance for every broker. Why is my cholesterol bad but for theothers it is good? It doesn’t matter whether the broker is global, regional or local – based in the U.S., London, or anywhere around the world. It’s time to say“enough.”

Contingent commissions. Over. Done. Finished.

d) Racketeering Allegations

498. Plaintiffs, Class Members and Defendants are “persons” within the meaning of 18

U.S.C. § 1961(3).

499. Each Defendant has participated in the conduct of one or more of the alleged

association-in-fact enterprise’s affairs through a pattern of racketeering activity involving a

scheme to defraud Plaintiffs and Class Members in violation of Section 1962(c), as described in

detail below.

500. Each Defendant has violated federal laws including mail and wire fraud, 18 U.S.C.

§§ 1341 and 1343 by utilizing or causing the use of the United States postal service, commercial

interstate carrier, wire or other interstate electronic media in furtherance of their fraudulent

scheme.

501. These predicate acts of mail and wire fraud were related, had a similar purpose,

involved the same or similar participants and method of commission, had similar results and

impacted similar victims, including Plaintiffs and members of the Class. The predicate acts of

racketeering activity were related to each other in furtherance of the scheme described above and

in the Revised Particularized Statements, amount to and pose a threat of continuing racketeering

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activity and therefore constitute a pattern of racketeering through which Defendants have

violated 18 U.S.C. § 1962(c).

(1) Enterprise

502. Six association-in-fact, broker-centered enterprises exist:

a. Marsh and ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund,Hartford, Liberty Mutual, Munich, Travelers, XL, and Zurich, hereinafter referred toas the Marsh Enterprise. The Marsh Enterprise is an ongoing organization which hasexisted continuously since at least the mid to late 1990’s. The Defendants associatedwith the Marsh Enterprise are referred to herein collectively as the “Marsh EnterpriseDefendants.”

b. Aon and ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford,Liberty Mutual, Travelers, XL, and Zurich, hereinafter referred to as the AonEnterprise. The Aon Enterprise is an ongoing organization which has existedcontinuously since at least the mid to late 1990’s. The Defendants associated with theAon Enterprise are referred to herein collectively as the “Aon Enterprise Defendants.”

c. Willis and ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund,Hartford, Liberty Mutual, Travelers, and Zurich , hereinafter referred to as the WillisEnterprise. The Willis Enterprise is an ongoing organization which has existedcontinuously since at least the mid to late 1990’s. The Defendants associated with theWillis Enterprise are referred to herein collectively as the “Willis EnterpriseDefendants.”

d. Gallagher and AIG, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford, andTravelers, hereinafter referred to as the Gallagher Enterprise. The GallagherEnterprise is an ongoing organization which has existed continuously since at leastthe mid to late 1990’s. The Defendants associated with the Gallagher Enterprise arereferred to herein collectively as the “Gallagher Enterprise Defendants.”

e. Wells Fargo/Acordia and Chubb, CNA, Fireman’s Fund, Hartford, and Travelers,hereinafter referred to as the Wells Fargo/Acordia Enterprise. The WellsFargo/Acordia Enterprise is an ongoing organization which has existed continuouslysince at least the mid to late 1990’s. The Defendants associated with the WellsFargo/Acordia Enterprise will be referred to herein collectively as the “Wells

Fargo/Acordia Enterprise Defendants.”

f. HRH and CNA, Hartford, and Travelers, hereinafter referred to as the HRHEnterprise. The HRH Enterprise is an ongoing organization which has existedcontinuously since at least the mid to late 1990’s. The Defendants associated with theHRH Enterprise will be referred to herein collectively as the “HRH EnterpriseDefendants.”

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503. The purpose of each Enterprise is: (1) to make money through the creation of a

defined and limited group of insurance carriers to which the broker defendant steers the

insurance business of Class Members with limited or no competition in exchange for sharing

increased profits and (2) to conceal this scheme from customers.

504. The structure for decision-making within each enterprise includes the following:

(1) one or more broker executives who have responsibility and authority for interfacing with the

insurers to determine compensation, to plan for the steering or retention of business, and to

monitor and direct that business be retained or steered to insurer members of the enterprise; (2)

broker account executives who implement direction regarding the retention or steering of

business; (3) one or more executives at each insurer who have the responsibility and authority to

plan with the broker, to monitor the placement of business and to determine compensation for the

steering or retention of business; (4) an employee or employees of the insurer who monitor(s)

and reports placement volume to insurer executives as well as the broker; (5) an employee or

employees of the broker who keeps track of reports received from the insurers regarding

placement volume; (6) an employee or employees who implement decisions regarding the

placement of business; and (7) an employee or employee who factor(s) the cost of the kickbacks

into the insurance premiums paid by Plaintiffs and Class Members. In addition, the broker

assumes primary responsibility for concealment of the scheme with support and assistance from

the insurer members of the enterprise.

505. Each Broker Defendant and the Insurer Defendants identified above are associated

with, participate in and control the affairs of the broker-centered enterprise identified above.

506. The Broker Defendants have participated in the operation or management of each

Enterprise in at least the following ways:

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a. consolidation of the broker’s insurance markets;

b. reaching agreement with the Insurer Defendants with whom the BrokerDefendant is associated regarding amount of contingent commissions to be paid to the Broker and the level of business to be steered to each InsurerDefendant;

c. the monitoring of current and new business;

d. determining whether a partner carrier is to retain current business and theinsurer partner to whom new business is to be steered;

e. steering of business to preferred partners;

f. collection of inflated premiums; and

g. coordinating concealment of the scheme.

507. The Insurer Defendants have participated in the operation or management of each


a. reaching agreement with the Broker Defendants with whom the InsurerDefendant is associated regarding amount of contingent commissions to be paid to the Broker and the level of business to be steered to each InsurerDefendant;

b. monitoring and reporting of business levels;

c.

computation of premium levels to encompass contingent commissions;

d. payment of kickbacks; and

e. coordinating concealment of the scheme.

508. These Defendants have conducted or participated in the conduct of the affairs of the

enterprise through a pattern of racketeering activity. While these Defendants participate in and

are members of the Enterprises, they have an existence separate and distinct from the Enterprise.

509. Each Enterprise oversees, coordinates and facilitates the commission of numerous

predicate offenses.

510. The enterprises are separate and distinct from the pattern of racketeering activity.

The members of each Enterprise share a common purpose and each Enterprise is continuing and

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has a structure for decision-making and for oversight, coordination and facilitation of the

predicate offenses. The pattern of racketeering activity includes numerous acts of mail and wire

fraud in furtherance of a fraudulent scheme whereby the Broker steers business to the insurer

members in exchange for kickbacks in the form of contingent commissions and/or other

payments.

511. Each Enterprise operates on a nation-wide basis and utilizes interstate

communications including United States mail and wire across state lines. The activities of the

enterprises are national in scope, affecting most of the commercial insurance market in the

United States. The enterprises have a substantial impact upon the economy and upon interstate

commerce.

(2) Alternative Enterprise Allegations

(a) The CIAB Enterprise

512. Alternatively, Plaintiffs allege that CIAB is a legal entity which constitutes a RICO

enterprise referred to herein as the “CIAB Enterprise.”

513.

Defendants were able to devise and implement their scheme through their

participation in the CIAB Enterprise. According to the Council, its members place 80 percent of

the country’s commercial insurance premiums. The Council “represents the largest, most

profitable of all commercial insurance agencies and brokerage firms.” “The Council’s primary

audience is CEOs and their management teams.” The Council “partner[s]” with its members and

provides “not only vital intelligence on current market conditions and trends, but also solutions

to the next challenge before the need arises.” CIAB provides Defendants with numerous

opportunities to communicate, meet, use vital intelligence on market conditions that is shared

with its partner members, and reach agreement on how they will address challenges in the

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marketplace, such as the competition that had created the soft market from the mid-1980s well

into the 1990s.

514. The CIAB Enterprise has a structure for decision-making that includes an Executive

Committee, Board of Directors and various other committees and decision-making structures as

well as the Council of Insurance Company Executives.

515. Defendants are associated with, participate in and control the affairs of the CIAB

Enterprise.

516. Since 1994, every Broker Defendant has been represented on the CIAB Board of

Directors and at least the following have served on the Executive Committee: Aon, Arthur J.

Gallagher, HRH, and Marsh.

517. The Insurance Leadership Forum at The Greenbrier is the joint annual conference of

CIAB and The Council of Insurance Company Executives (“CICE”), a standing committee of

CIAB. The Leadership Forum is an annual meeting that connects all the leaders of the

commercial insurance marketplace – the CEOs of the top insurance carriers and the leading

executives from the top one percent of agencies and brokerages. Every Insurer Defendant has

been represented at the Leadership Forum. Only insurers who are members of the CICE are

permitted to attend the Commercial Leadership Forum. CICE is comprised of “more than 65 of

the top commercial insurers. Collectively, CICE members are responsible for writing more than

three-quarters of the national’s commercial business insurance premiums.” CICE “members

include most of the large multi-line commercial insurance and employee benefits companies.”

“Membership is extended to an applicant’s entire corporate economic family – all primary,

reinsurance, subsidiary and/or other underwriting operations…belong as one member of CICE.”

The Council of Employee Benefits Executives is likewise a standing committee of CIAB and

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membership is necessary for attendance at the Benefits Insurance Leadership Forum. At least

the following Insurer Defendants have “sponsored” CIAB, the Insurance Leadership Forum at

the Greenbrier and other CIAB activities: ACE, AIG, Chubb, CNA Fireman’s Fund, Liberty

Mutual, Travelers and Zurich.

518. CIAB provides the Broker Defendants a forum to discuss and reach agreement with

each other and with the Insurer Defendants regarding, among other things, compensation

arrangements and other aspects of their relationships, what each wants and needs from the

relationship, the market and market conditions, consolidation and disclosure. An internal 1998

CIAB document notes that CIAB members want “dollars; access; recognition; alliances” and

insurance carriers want “premiums; access; creativity; innovation, marketing.”

519. CIAB hosts “Executive Forums” where members “can brainstorm and share ideas

about business opportunities and challenges.” The Executive Forums allow members the

opportunity to “discuss common problems and solutions.” In 2000, when “[m]embers discussed

the issue of possible conflicts in sharing information with competitors” they “agreed that anyone

who does not participate fully should be asked to leave the sessions.”

520. CIAB also conducts “Executive Liaison Roundtable” meetings – “private, off-the-

record conversations” between insurance company “brethren” and select members of CIAB to

discuss “critical issues.” At least the following Broker Defendants have served on the Executive

Liaison Committee: Aon, Acordia, Gallagher, HRH, Marsh, and Willis. At a minimum, the

following Insurer Defendants have participated in the Roundtable discussions: ACE, AIG,

American Re-Insurance Company, Chubb, CNA, Fireman’s Fund, Hartford, Kemper, Travelers,

XL, Zurich. Issues discussed at Executive Liaison Roundtable meetings at least during the

timeframe from 1996 to 2001 have included “industry consolidation,” “contingency contracts,”

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“agent/company relationships,” “how the relationships were changing due to downsizing and

consolidations throughout the industry,” “distribution and the impact of aggregations of business

on membership and suppliers of product.” CIAB also facilitates “teleconference access to carrier

CEOs as well as forums for in-depth discussion of critical issues.”

521. As alleged above, CIAB has also provided Defendants the opportunity to discuss

and reach agreement on joint action in response to the regulatory investigations and regarding

disclosure issues. The Defendants, through CIAB, have developed “a set of resource tools for

client service engagement letters and disclosures” for use by members.

522.

CIAB has been a ready conduit for concealment of Defendants’ scheme and for

furtherance of Defendants’ fraud. CIAB provides Defendants with numerous opportunities to

communicate, meet, use vital intelligence on market conditions that is shared with its partner

members, and reach agreement on how they will address challenges in the marketplace, such as

the competition that had created the soft market from the mid-1980s well into the 1990s.

523. When faced with a soft market, these partners used vital intelligence gained through

communications and meetings facilitated by CIAB and otherwise, including information about

decreased profits and demand to devise a scheme using strategic partnerships – where each

Broker restricted the insurers who obtained the vast majority of the Broker’s book of business,

and each insurer then shared the increased profits that resulted from reduced competition with

the Broker through increased contingent commissions – to replace competition. The partners

operating through the CIAB Enterprise reached consensus on how they would change the market

and regarding non-disclosure.

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524. The purpose of the CIAB Enterprise is to further the interests of larger brokers

generally and to further the Defendants’ scheme specifically including implementation and

concealment of the scheme.

525. The Broker Defendants have participated in the operation or management of the

CIAB Enterprise in the at least the following ways:

a. through the positions held in CIAB by the Broker Defendants’ employees andofficers including board memberships, committee memberships and otherinfluential positions and as a result of the power the Broker Defendantsenjoyed in CIAB as a consequence of their size and market share;

b. by developing methods for concealment of the fraudulent scheme;

c. by submitting false or misleading information to customers;

d. by consolidating markets and steering business to strategic insurance partners;

e. by bid rigging; and

f. by sharing information relating to such matters as market conditions, placements and payments.

526.

The Insurer Defendants have participated in the operation or management of the


a. through their position in CICE, their sponsorship of CIAB, their attendance atthe Insurance Leadership Forum at The Greenbrier and as a result of theirimportance to CIAB and CIAB’s members


c. by kicking back profits to the Broker Defendants;

d. by submitting false or misleading information to customers or to brokers forsubmission to customers;

e. by providing or withholding quotes as directed by Broker Defendants;

f. by sharing information relating to such matters as market conditions, placements and payments.

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527. Defendants have conducted or participated in the conduct of the affairs of the CIAB

Enterprise through a pattern of racketeering activity.

528. While the Defendants participate in and are members of the CIAB Enterprise, they

have an existence separate and distinct from the Enterprise.

529. Defendants have been enabled to commit the predicate offenses solely by virtue of

their position in the CIAB enterprise or involvement in or control over the affairs of the CIAB

Enterprise. Defendants were able to devise, implement and conceal their scheme through CIAB.

Concealment as well as controlled and coordinated representations and disclosures, which were

crucial to the success of the scheme, could not have occurred absent the coordinating mechanism

of CIAB. Defendants not only used CIAB as the vehicle for developing, coordinating,

monitoring and concealing the scheme but also to disseminate misrepresentations in furtherance

of the scheme. Absent the Defendants’ participation in and control of CIAB, the Defendants

would have been unable to perpetrate the fraudulent scheme and the attendant predicate acts.

CIAB provided Defendants the necessary mechanism for decision-making regarding the

fraudulent scheme, regarding concealment of Defendants’ relationships and activities, and

regarding controlled and coordinated representations and disclosures.

530. The CIAB Enterprise is separate and distinct from the pattern of racketeering

activity. However, the predicate offenses are related to the activities of the CIAB Enterprise.

The purpose of the CIAB Enterprise is furtherance of the interest of large brokers generally and

furtherance of the Defendants’ scheme more specifically. Accordingly, the predicate acts taken

in furtherance of the Defendants’ interests and in furtherance of the scheme necessarily relate to

the CIAB Enterprise.

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531. The activities of the CIAB Enterprise are national in scope, affecting much of the

commercial insurance market in the United States. The CIAB Enterprise has a substantial

impact upon the economy and upon interstate commerce.

(3) Predicate Acts

532. Section 1961(1) of the Racketeer Influenced and Corrupt Organizations Act

(“RICO”) provides that “racketeering activity” includes any act indictable under 18 U.S.C.

§1341 or 18 U.S.C. §1343. As set forth herein, Defendants have engaged and continue to engage

in conduct violating each of these laws.

533.

As set forth in detail in the RICO Case Statement, Defendants, in order to carry out

their scheme to defraud or to obtain money by false pretenses, placed in post offices and/or

official depositories of the United Sates Postal Service matters and things to be delivered by the

Postal Service, caused matters and things to be delivered by commercial interstate carriers or

knew that the mail would be used in furtherance of their scheme in violation of 18 U.S.C. §1341.

Matters sent by mail included but were not limited to correspondence, marketing materials,

contracts or agreements between the Broker Defendant and the client, requests for proposals,

policies and policy materials, insurance quotes, contingent commission agreements, insurance

binders, commission schedules, invoices to clients and payments from insurers to brokers.

534. As set forth in detail in the RICO Case Statements, Defendants, in order to carry out

their scheme to defraud or to obtain money by false pretenses, transmitted and received by wire,

matters and things or knew that wire would be used in furtherance of their scheme in violation of

18 U.S.C. §1343. Matters sent by wire included but were not limited to correspondence, emails,

faxes, marketing materials, contracts or agreements between the Broker Defendant and the client,

requests for proposals, policies and policy materials, insurance quotes, contingent commission

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agreements, insurance binders, commission schedules, invoices to clients and payments from

insurers to brokers.

535. Defendants knowingly and intentionally made misrepresentations and concealed

material facts in furtherance of their scheme and for the purpose of deceiving Plaintiffs and Class

Members. As set forth in detail in the RICO Case Statement, the Broker Defendants regularly

disseminated materials by mail and wire wherein they routinely represented that they would act

in the best interests of their clients in providing unbiased advice and assistance in the selection of

insurance products and services relating thereto and that they would act as fiduciaries of their

clients in placing insurance on the best terms possible and at the best price available. They also

represented that they would access the market in placing insurance business. To the extent

Defendants provided any information regarding contingent commission income or regarding the

Broker Defendants’ relationships with the Insurer Defendants the information was materially

false and misleading. In communications with clients, the Broker Defendants either concealed or

failed to disclose, among other things, the following:

•

that the Broker Defendants were not acting in the best interest of their clients but were instead acting on behalf of themselves and the Insurer Defendantswho were associated with the Broker’s enterprise to further their financialinterests at the expense of their clients;

• the true nature of the association and agreements between the Broker

Defendants and the Insurer Defendants associated with the Broker’sEnterprise;

• the Broker Defendants’ consolidation of their insurance markets to a fewselect strategic partners;

• the conflict of interest inherent in the agreements between the BrokerDefendants and its partner insurers;

• the steering of insurance placements from the Broker Defendants to the

Insurer Defendants;

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• that the Broker Defendants were protecting their strategic partner Insurer

Defendants from competition, and in the case of Marsh, that it engaged inrigging of bids with AIG, ACE, Chubb, XL, Munich/Am Re, Liberty Mutual,Travelers, Fireman’s Fund and Zurich;

•

that the Insurer Defendant kick back a substantial portion of their increased profits to the Broker Defendants with whom they are associated in the form ofcontingent commissions, loans, subsidies and payments for “services” as wellas other agreements and tying arrangements that serve the same function; and

• that the kickbacks to the Broker Defendants are factored into the cost ofPlaintiffs and Class Members’ insurance, resulting in injury to Plaintiffs’ andClass Members’ business and property.

536. Defendants either knew or recklessly disregarded the fact that the

misrepresentations and omissions described above were material.

537. Misrepresentation of the Brokers Defendants’ allegiance as well as concealment of

their relationships with, and steering of business to, the Insurer Defendants was necessary to

encourage retention of the brokers, to conceal the scheme, to lull clients, including Plaintiffs and

Class Members, into a false sense of security and to assure payment of the excess premiums.

Likewise, inclusion of the excess amount of premium resulting from Defendants’ scheme in

invoices forwarded to each Plaintiff without explanation or a separate accounting for the excess

premium was necessary to conceal the scheme and to assure payment of the entire invoice

amount.

538. The Defendants’ fraudulent schemes and the conspiracies in furtherance of the

schemes proximately caused the cost of insurance obtained by Plaintiffs and Class Members to

increase because the kickbacks paid to Broker Defendants were included in the price of

insurance paid by Plaintiffs and Class Members. In addition, Plaintiffs and Class Members

reasonably relied on the misrepresentations and omissions in paying higher premiums that

included the kickbacks to Broker Defendants. As a result, Plaintiffs and Class Members have

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been injured in their business or property by Defendants’ fraudulent scheme and overt acts of

mail and wire fraud.

e) Conspiracy Allegations

539. Since at least 1998, Marsh Aon, Willis, Gallagher, Acordia, and HRH, have

conspired to facilitate the scheme being operated through each of the Broker-Centered

Enterprises identified above and to further their common purpose of preventing detection of

these schemes through misrepresentations, concealment and coordinated and controlled

disclosures.

540.

The Broker Defendants conspiracy has been conducted, implemented and facilitated

through the sharing of information among the Broker Defendants and their participation in

CIAB. As alleged above, during the Class Period, each of the Broker Defendants was a member

of CIAB and served on its Board of Directors and/or as officers of CIAB.

541. The purpose and effect of the conspiracy was to prevent Plaintiffs and members of

the Class from becoming aware of the terms and significance of the contingent commission

agreements between Defendants and the conflicts of interest arising out of the Broker

Defendants’ strategic partnerships with the Insurer Defendants, thereby allowing the Broker

Defendants to increase the compensation they received from the Insurer Defendants.

542. The Broker Defendants accomplished this by conspiring with one another to adopt

substantially similar vague and incomplete disclosure (or non-disclosure) policies regarding

contingent compensation matters modeled after CIAB’s 1998 position statement and by

employing CIAB to engage in a public relations campaign designed to create the impression that

“full disclosure” was the industry standard and to oppose any efforts to require meaningful

disclosure of contingent commission arrangements. As described above, through their

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coordinated efforts, the Broker Defendants successfully were able to prevent insurance

purchasers from becoming aware of the true nature of the relationships between the Broker

Defendants and the Insurer Defendants and from obtaining actual and complete disclosure of the

manner in which the Broker Defendants were compensated by the Insurer Defendants.

543. Each Broker Defendant was aware of the general nature of the conspiracy and its

role in facilitating the objectives of the conspiracy. Further, each Broker Defendant has agreed

to the overall objective of the conspiracy.

544. Each Broker Defendant has committed overt acts in furtherance of the alleged

conspiratorial objectives.

545. As a result of the Broker Defendants’ conspiracy, Plaintiffs and other members of

the Class have paid more than they otherwise would have for insurance that they procured

through the Broker Defendants.

The Broker-Centered Conspiracies

546. Additionally, the following broker-centered conspiracies have existed since at least

1998:

• A conspiracy involving Marsh and the Insurer Defendants in the Marsh Broker-Centered Enterprise.

• A conspiracy involving Aon and the Insurer Defendants in the Aon Broker-Centered Enterprise.

• A conspiracy involving Willis and the Insurer Defendants in the Willis Broker-Centered Enterprise.

• A conspiracy involving Gallagher and the Insurer Defendants in the GallagherBroker-Centered Enterprise.

• A conspiracy involving Wells Fargo/Acordia and the Insurer Defendants in theWells Fargo/Acordia Broker-Centered Enterprise.

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• A conspiracy involving HRH and the Insurer Defendants in the HRH Broker-

Centered Enterprise.

547. The purpose and effect of each broker-centered conspiracy was to engage in a

scheme whereby each Broker Defendant would steer business to its strategic partner Insurer

Defendants and protect them from competition in exchange for increased compensation paid to

the Broker Defendant in the form of contingent commissions, and to conceal the existence of the

scheme from the Broker Defendant’s clients.

548. Each Defendant within each broker-centered conspiracy was aware of the general

nature of the conspiracy and its role in facilitating the objectives of the conspiracy. Further, each

Defendant within each broker-centered conspiracy has agreed to the overall objective of the

conspiracy.

549. Each Defendant within each broker-centered conspiracy has committed over acts in

furtherance of the alleged conspiratorial objectives.

550. As a result of the broker-centered conspiracies, Plaintiffs and other members of the

Class have paid more than they otherwise would have for insurance that they procured through

the Broker Defendants.

f) Injury

551. The fraudulent scheme and conspiracy involving each Broker Defendant and its

partner markers and the conspiracy between the Broker Defendants to prevent detection of each

broker’s fraudulent scheme proximately caused the cost of insurance obtained by Plaintiffs and

Class Members to increase because the kickbacks paid to the Broker Defendants were included

in the price of insurance paid by Plaintiffs and Class Members. In addition, Plaintiffs and Class

Members reasonably relied on the Broker Defendants’ representations and the Defendants’

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concealment of the fraudulent scheme in paying higher premiums that included the kickbacks to

the Broker Defendants.

3) FRAUDULENT CONCEALMENT

552. Defendants have affirmatively and fraudulently concealed their unlawful scheme,

course of conduct and conspiracy from Plaintiffs. In fact as part of the conspiracy, Defendants

went to great lengths to create the appearance of a competitive market for insurance coverage,

where no such competitive market existed.

553. Plaintiffs had no knowledge of Defendants’ fraudulent scheme and could not have

discovered that Defendants’ representations were false or that Defendants had concealed

information and materials until shortly before the filing of this Complaint.

554. Accordingly, the statute of limitations has been tolled with respect to any claims

which Plaintiffs have brought as a result of the unlawful and fraudulent conduct alleged herein.

4) CLASS ACTION ALLEGATIONS

555. Plaintiffs bring this action, pursuant to Rule 23 of the federal Rules of Civil

Procedure, on their own behalf and as representatives of the Classes as defined below.

a. Marsh Broker-Centered Class: Plaintiffs Opticare, Bayou, Sunburst,Cellect, the City of Stamford, Comcar, Singer and Golden Gate (the “MarshBroker-Centered Plaintiffs”) bring this action on behalf of all persons orentities who between January 1, 1998 and December 31, 2004 engaged theservices of any one of the Marsh Defendants, or any of their subsidiaries oraffiliates, in connection with the purchase or renewal of insurance from aninsurer (“Marsh Broker-Centered Class”);

b. Aon Broker-Centered Class: Plaintiffs Sunburst, Bayou and Michigan

Multi-King (the “AON Broker-Centered Plaintiffs”) bring this action on behalf of all persons or entities who between January 1, 1998 and December31, 2004 engaged the services of any one of the AON Defendants, or any oftheir subsidiaries or affiliates, in connection with the purchase or renewal ofinsurance from an insurer (“AON Broker-Centered Class”);

c. Wells Fargo/Acordia Broker-Centered Class: Plaintiff Omni (the “WellsFargo/Acordia Broker-Centered Plaintiff”) brings this action on behalf of all

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persons or entities who between January 1, 1998 and December 31, 2004engaged the services of any one of the Wells Fargo/Acordia Defendants, orany of their subsidiaries or affiliates, in connection with the purchase orrenewal of insurance from an insurer (“Wells Fargo/Acordia Broker-CenteredClass”);

d.

HRH Broker-Centered Class: Plaintiff Tri-State (the “HRH Broker-Centered Plaintiff”) brings this action on behalf of all persons or entities who between January 1, 1998 and December 31, 2004 engaged the services of anyone of the HRH Defendants, or any of their subsidiaries or affiliates, inconnection with the purchase or renewal of insurance from an insurer (“HRHBroker-Centered Class”); and

e. Willis Broker-Centered Class: Plaintiffs Sunburst and Belmont (the “Willis

Broker-Centered Plaintiffs”) brings this action on behalf of all persons orentities who between January 1, 1998 and December 31, 2004 engaged theservices of any one of the Willis Defendants, or any of their subsidiaries oraffiliates, in connection with the purchase or renewal of insurance from aninsurer (“Willis Broker-Centered Class”); and

f. Gallagher Broker-Centered Class: Plaintiffs Mulcahy, Redwood and ClearLam (the “Gallagher Broker-Centered Plaintiffs”) bring this action on behalfof all persons or entities who between January 1, 1998 and December 31,2004 engaged the services of any one of the Gallagher Defendants, or any oftheir subsidiaries or affiliates, in connection with the purchase or renewal ofinsurance from an insurer (“Gallagher Broker-Centered Class”);

g. Global Conspiracy Class: All Plaintiffs bring this action on behalf of all

persons or entities who between January 1, 1998 and December 31, 2004engaged the services of any one of the Broker Defendants, or any of theirsubsidiaries or affiliates, in connection with the purchase or renewal ofinsurance or reinsurance from an insurer (“Global Conspiracy Class”).

556. The Marsh Broker-Centered Class, the AON Broker-Centered Class, the Wells

Fargo/Acordia Broker-Centered Class, the Gallagher Broker-Centered Class, the HRH Broker-

Centered Class, the Willis Broker-Centered Class, and the Global Conspiracy Class are referred

to collectively as the “Classes”.

557. The members of the Classes are so numerous that joinder of all Class Members of

the Classes would be impracticable. Due to the nature of the claims asserted herein, Plaintiffs

believe that members of the Classes are located throughout the United States. The exact number

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of Class Members is unknown by Plaintiffs at this time, but Plaintiffs believe that the number of

Class Members is in the millions and their identities can only be discovered through inspection

of Defendants’ records.

558. Plaintiffs’ claims are typical of the other Class Members because Plaintiffs and all

Class Members were damaged by the same wrongful conduct of the defendants alleged herein.

Plaintiffs and all members of the Classes purchased insurance policies at artificial and inflated

prices as a result of the wrongful conduct alleged herein.

559. Plaintiffs will fairly and adequately protect the interests of the Classes. The

interests of the Plaintiffs are coincident with, and not antagonistic to, those of the Classes. In

addition, Plaintiffs are represented by counsel who are experienced and competent in the

prosecution of complex class action antitrust litigation.

560. Questions of law and fact common to the members of the Classes predominate over

questions which may affect only individual members, if any, in that Defendants have acted on

grounds generally applicable to all Class Members. Among the questions of law and fact

common to the Classes are:

ANTITRUST CLAIMS:

• Whether Defendants violated Section 1 of the Sherman Act;

•

Whether Defendants participated in a contract, combination or conspiracy inrestraint of trade as alleged herein;

• Whether Defendants engaged in a scheme to allocate the market; and

• Whether Defendants’ conduct impacted the members of the class and whetherthe prices paid by members of the class were higher than they would have been in the absence of the conduct.

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RICO CLAIMS:

• Whether defendants engaged in a common and cumulative scheme thatcorrupted the marketplace for insurance;

•

Whether defendants were associated with an enterprise; and

• Whether defendants used the mail or wire in executing their fraud.

COMMON LAW CLAIMS

• Whether the conduct of defendants is linked to an injury suffered by ClassMembers;

• Whether defendants breached their fiduciary duty to the Class Members; and

•

Whether defendants were unjustly enriched by the conduct alleged herein.

561. Class action treatment is superior to the alternative, if any, for the fair and efficient

adjudication of the controversy alleged herein. Such treatment will permit a large number of

similarly situated persons to prosecute their common claims in a single forum simultaneously,

efficiently, and without the unnecessary duplication of effort and expense that numerous

individual actions would engender. Class treatment will also permit the adjudication of

relatively small claims by certain Class Members, who could not afford to individually litigate an

antitrust claim against large corporate defendants.

562. Plaintiffs are not aware of any difficulties that are likely to be encountered in the

management of this action that would preclude its maintenance as a class action.

COUNT I

Violation of Section 1 of the Sherman Act

By the Marsh Broker-Centered Class Against the Marsh Broker-Centered Defendants

563. Plaintiffs incorporate herein and make a part hereof, their allegations contained in

paragraphs 64 through 372 above.

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564. The Marsh Broker-Centered Defendants have engaged in unlawful contracts,

combinations or conspiracies in restraint of interstate trade and commerce in violation of section

1 of the Sherman Act, 15 U.S.C. §1.

565. Specifically, the Marsh Broker-Centered Defendants agreed to reduce and/ or

eliminate competition among members of the Marsh Broker-Centered Conspiracy, by among

other things, allocating customers to and among members of the conspiracy and protecting those

conspirators from competition for those customers. The combinations contracts and conspiracies

described above were naked restraints of trade among horizontal competitors, the purpose and

effect of which were to raise prices and/or reduce output in order to increase profits for the co-

conspirators.

566. As a direct and proximate result of the contracts, combinations or conspiracies

alleged in this Complaint, Plaintiffs OptiCare, Comcar, Sunburst, Golden Gate, Singer, Bayou,

Cellect, and Stamford and other members of Marsh Broker-Centered Class were injured in their

business or property in that they paid higher prices than they would have paid in a truly

competitive market.

COUNT II

Violation of Section 1 of the Sherman ActBy the Marsh Broker-Centered Class

Against the Marsh Broker-Centered Excess Casualty Defendants

567. The Marsh Excess Casualty Plaintiffs incorporate herein and make a part hereof,

their allegations contained in paragraphs 64 through 372 above.

568.

This Count is brought by Opticare, Comcar, Sunburst, Golden Gate, Singer, Bayou,

Cellect and Stamford (the “Marsh Excess Casualty Plaintiffs”) on behalf of the Marsh Broker-

Centered Class against the Marsh Broker-Centered Defendants, exclusive of Hartford (the

“Marsh Broker-Centered Excess Casualty Defendants”).

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569. The Marsh Broker-Centered Excess Casualty Defendants have engaged in unlawful

contracts, combinations or conspiracies in restraint of interstate trade and commerce in violation

of Section 1 of the Sherman Act, 15 U.S.C. §1.

570. Specifically, the Marsh Broker-Centered Excess Casualty Defendants agreed to

reduce and/ or eliminate competition among members of the Marsh Broker-Centered Conspiracy,

by among other things, allocating customers to and among members of the conspiracy and

protecting those conspirators from competition for those customers with respect to excess

casualty insurance. The combinations contracts and conspiracies described above were naked

restraints of trade among horizontal competitors, the purpose and effect of which were to raise

prices and/or reduce output in order to increase profits for the co-conspirators.


alleged in this Complaint, the Marsh Excess Casualty Plaintiffs and other members of Marsh

Broker-Centered Class were injured in their business or property in that they paid higher prices

than they would have paid for excess casualty insurance in a truly competitive market.

COUNT III

Violation of Section 1 of the Sherman ActBy the Aon Broker-Centered Class Against the Aon Broker-Centered Defendants



573. The Aon Broker-Centered Defendants have engaged in unlawful contracts,



574. Specifically, the Aon Broker-Centered Defendants agreed to reduce and/ or

eliminate competition among members of the Aon Broker-Centered Conspiracy, by among other

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things, allocating customers to and among members of the conspiracy and protecting those




conspirators.


alleged in this Complaint, Plaintiffs Sunburst, Bayou, and Michigan Multi-King and other

members of Aon Broker-Centered Class were injured in their business or property in that they

paid higher prices than they would have paid in a truly competitive market.

COUNT IV

Violation of Section 1 of the Sherman ActBy the Wells Fargo/Acordia Broker-Centered Class Against the Wells Fargo/Acordia Broker-

Centered Defendants



577. The Wells Fargo/Acordia Broker-Centered Defendants have engaged in unlawful

contracts, combinations or conspiracies in restraint of interstate trade and commerce in violation

of section 1 of the Sherman Act, 15 U.S.C. §1.

578.

Specifically, the Wells Fargo/Acordia Broker-Centered Defendants agreed to

reduce and/ or eliminate competition among members of the Wells Fargo/Acordia Broker-

Centered Conspiracy, by among other things, allocating customers to and among members of the

conspiracy and protecting those conspirators from competition for those customers. The

combinations contracts and conspiracies described above were naked restraints of trade among

horizontal competitors, the purpose and effect of which were to raise prices and/or reduce output

in order to increase profits for the co-conspirators.

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alleged in this Complaint, Plaintiffs Omni and other members of Wells Fargo/Acordia Broker-

Centered Class were injured in their business or property in that they paid higher prices than they

would have paid in a truly competitive market.

COUNT V

Violation of Section 1 of the Sherman ActBy the Gallagher Broker-Centered Class Against the Gallagher Broker-Centered Defendants



581. The Gallagher Broker-Centered Defendants have engaged in unlawful contracts,



582. Specifically, the Gallagher Broker-Centered Defendants agreed to reduce and/ or

eliminate competition among members of the Gallagher Broker-Centered Conspiracy, by among





conspirators.


alleged in this Complaint, Plaintiffs Mulcahy, Redwood, and Clear Lam and other members of

Gallagher Broker-Centered Class were injured in their business or property in that they paid

higher prices than they would have paid in a truly competitive market.

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COUNT VI

Violation of Section 1 of the Sherman ActBy the HRH Broker-Centered Class Against the HRH Broker-Centered Defendants



585. The HRH Broker-Centered Defendants have engaged in unlawful contracts,



586. Specifically, the HRH Broker-Centered Defendants agreed to reduce and/ or

eliminate competition among members of the HRH Broker-Centered Conspiracy, by among





conspirators.

587.

As a direct and proximate result of the contracts, combinations or conspiracies

alleged in this Complaint, Plaintiffs OptiCare and Tri-State and other members of HRH Broker-



COUNT VII

Violation of Section 1 of the Sherman ActBy the Willis Broker-Centered Class Against the Willis Broker-Centered Defendants



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589. The Willis Broker-Centered Defendants have engaged in unlawful contracts,



590. Specifically, the Willis Broker-Centered Defendants agreed to reduce and/ or

eliminate competition among members of the Willis Broker-Centered Conspiracy, by among





conspirators.


alleged in this Complaint, Plaintiffs Sunburst and Belmont and other members of Willis Broker-



COUNT VIII

Violation of Section 1 of the Sherman Act Against All Defendants



593. The Defendants have engaged in unlawful contracts, combinations or conspiracies

in restraint of interstate trade and commerce in violation of section 1 of the Sherman Act, 15

U.S.C. §1.

594. Specifically, the Defendants agreed to reduce and/ or eliminate competition among

members of the Class, by among other things, allocating customers to and among members of

the global conspiracy and protecting those conspirators from competition for those customers.

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The combinations contracts and global conspiracies described above were naked restraints of

trade among horizontal competitors, the purpose and effect of which were to raise prices and/or

reduce output in order to increase profits for the co-conspirators.

595. As a direct and proximate result of the contracts, combinations or global

conspiracies alleged in this Complaint, Plaintiffs and other members of the Class were injured in

their business or property in that they paid higher prices than they would have paid in a truly

competitive market.

COUNT IX

Violation of 18 U.S.C. § 1962(c)

Against Defendants Associated with the Marsh Enterprise

596.

Plaintiffs incorporate herein and make a part hereof, their allegations contained in


597. This cause of action is brought by Plaintiffs Opticare, Bayou, Sunburst, Cellect,

Stamford, Singer, Comcar, Golden Gate and Members of the Marsh Broker-Centered Class

pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. § 1962(c) against Defendants associated

with the Marsh Enterprise (the “Marsh Enterprise Defendants”).

598. As set forth above and in the RICO Case Statement, the Marsh Enterprise

Defendants have conducted or participated in conducting the Marsh Enterprise through a pattern

of racketeering activity.

599. As a direct and proximate result, Plaintiffs Opticare, Bayou, Sunburst, Cellect,

Stamford, Singer, Comcar, Golden Gate and Members of the Marsh Broker-Centered Class have

been injured in their business or property by the predicate acts constituting the pattern of

racketeering activity. Specifically, Plaintiffs Opticare, Bayou, Sunburst, Cellect, Singer,

Comcar, Golden Gate and Members of the Marsh Broker-Centered Class have been injured in

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their business or property by paying more for insurance than they would have absent the Marsh

Enterprise Defendants’ illegal conduct.

600. Accordingly, the Marsh Enterprise Defendants are liable to Plaintiffs Opticare,

Bayou, Sunburst, Cellect, Stamford, Singer, Comcar, Golden Gate and Members of the Marsh

Broker-Centered Class for three times their actual damages as proven at trial, plus interest and

attorneys’ fees.

COUNT X

Violation of 18 U.S.C. § 1962(c)Against Defendants Associated with the Aon Enterprise

601.



602. This cause of action is brought by Plaintiffs Sunburst, Bayou, Michigan Multi-King

and the Members of the Aon Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for

violations of U.S.C. § 1962(c) against Defendants associated with the Aon Enterprise (the “Aon

Enterprise Defendants”).

603.

As set forth above and in the RICO Case Statement, the Aon Enterprise Defendants

have conducted or participated in conducting the Aon Enterprise through a pattern of

racketeering activity.

604. As a direct and proximate result, Plaintiffs Sunburst, Bayou, Michigan Multi-King

and Members of the Aon Broker-Centered Class have been injured in their business or property

by the predicate acts constituting the pattern of racketeering activity. Specifically, Plaintiffs

Sunburst, Bayou, Michigan Multi-King and Members of the Aon Broker-Centered Class have

been injured in their business or property by paying more for insurance than they would have

absent the Aon Enterprise Defendants’ illegal conduct.

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605. Accordingly, the Aon Enterprise Defendants are liable to Plaintiffs Sunburst,

Bayou, Michigan Multi-King and Members of the Aon Broker-Centered Class for three times

their actual damages as proven at trial, plus interest and attorneys’ fees.

COUNT XI Violation of 18 U.S.C. § 1962(c)

Against Defendants Associated with the Willis Enterprise



607. This cause of action is brought by Plaintiffs Belmont, Sunburst and the Members of

the Willis Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. §

1962(c) against Defendants associated with the Willis Enterprise (the “Willis Enterprise

Defendants”).

608. As set forth above and in the RICO Case Statement, the Willis Enterprise

Defendants have conducted or participated in conducting the Willis Enterprise through a pattern


609.

As a direct and proximate result, Plaintiffs Belmont, Sunburst and Members of the

Willis Broker-Centered Class have been injured in their business or property by the predicate

acts constituting the pattern of racketeering activity. Specifically, Plaintiffs Belmont, Sunburst

and Members of the Willis Broker-Centered Class have been injured in their business or property

by paying more for insurance than they would have absent the Willis Enterprise Defendants’

illegal conduct.

610. Accordingly, the Willis Enterprise Defendants are liable to Plaintiffs Belmont,

Sunburst and Members of the Willis Broker-Centered Class for three times their actual damages

as proven at trial, plus interest and attorneys’ fees.

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COUNT XII Violation of 18 U.S.C. § 1962(c)

Against Defendants Associated with the Gallagher Enterprise



612. This cause of action is brought by Plaintiffs Mulcahy, Redwood, Clear Lam and the

Members of the Gallagher Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations

of U.S.C. § 1962(c) against Defendants associated with the Gallagher Enterprise (the “Gallagher


613.

As set forth above and in the RICO Case Statement, the Gallagher Enterprise

Defendants have conducted or participated in conducting the Gallagher Enterprise through a

pattern of racketeering activity.

614. As a direct and proximate result, Plaintiffs Mulcahy, Redwood, Clear Lam and

Members of the Gallagher Broker-Centered Class have been injured in their business or property


Mulcahy, Redwood, Clear Lam and Members of the Gallagher Broker-Centered Class have been

injured in their business or property by paying more for insurance than they would have absent

the Gallagher Enterprise Defendants’ illegal conduct.

615. Accordingly, the Gallagher Enterprise Defendants are liable to Plaintiffs Mulcahy,

Redwood, Clear Lam and Members of the Gallagher Broker-Centered Class for three times their

actual damages as proven at trial, plus interest and attorneys’ fees.

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COUNT XIII Violation of 18 U.S.C. § 1962(c)

Against Defendants Associated with the Wells Fargo/Acordia Enterprise

616.



617. This cause of action is brought by Plaintiff Omni and the Members of the Wells

Fargo/Acordia Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. §

1962(c) against Defendants associated with the Gallagher Enterprise (the “Wells Fargo/Acordia


618. As set forth above and in the RICO Case Statement, the Wells Fargo/Acordia

Enterprise Defendants have conducted or participated in conducting the Wells Fargo/Acordia

Enterprise through a pattern of racketeering activity.

619. As a direct and proximate result, Plaintiff Omni and Members of the Wells

Fargo/Acordia Broker-Centered Class have been injured in their business or property by the

predicate acts constituting the pattern of racketeering activity. Specifically, Plaintiff Omni and

Members of the Wells Fargo/Acordia Broker-Centered Class have been injured in their business

or property by paying more for insurance than they would have absent the Wells Fargo/Acordia


620. Accordingly, the Wells Fargo/Acordia Enterprise Defendants are liable to Plaintiff

Omni and Members of the Wells Fargo/Acordia Broker-Centered Class for three times their


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COUNT XIV Violation of 18 U.S.C. § 1962(c)

Against Defendants Associated with the HRH Enterprise



622. This cause of action is brought by Plaintiffs Tri-State, Opticare and the Members of

the HRH Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. §

1962(c) and against Defendants associated with the HRH Enterprise (the “HRH Enterprise

Defendants”).

623.

As set forth above and in the RICO Case Statement, the HRH Enterprise

Defendants have conducted or participated in conducting the HRH Enterprise through a pattern


624. As a direct and proximate result, Plaintiffs Tri-State, Opticare and Members of the

HRH Broker-Centered Class have been injured in their business or property by the predicate acts

constituting the pattern of racketeering activity. Specifically, Plaintiffs Tri-State, Opticare and

Members of the HRH Broker-Centered Class have been injured in their business or property by

paying more for insurance than they would have absent the HRH Enterprise Defendants’ illegal

conduct.

625. Accordingly, the HRH Enterprise Defendants are liable to Plaintiffs Tri-State,

Opticare and Members of the HRH Broker-Centered Class for three times their actual damages


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COUNT XV Violation of 18 U.S.C. § 1962(d)

Against Defendants Associated with the Marsh Enterprise



627. This cause of action is brought by Plaintiffs Opticare, Bayou, Sunburst, Cellect,

Stamford, Singer, Comcar, Golden Gate and Members of the Marsh Broker-Centered Class

pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. § 1962(d) against Defendants associated

with the Marsh Enterprise (the “Marsh Enterprise Defendants”).

628.

As set forth above and in the RICO Case Statement, the Marsh Enterprise

Defendants have conspired to violate 18 U.S.C. § 1962(c).

629. As a direct and proximate result, Plaintiffs Opticare, Bayou, Sunburst, Cellect,

Stamford, Singer, Comcare, Golden Gate and Members of the Marsh Broker-Centered Class

have been injured in their business or property by the predicate acts constituting the pattern of

racketeering activity. Specifically, Plaintiffs Opticare, Bayou, Sunburst, Cellect, Stamford,

Singer, Comcar, Golden Gate and Members of the Marsh Broker-Centered Class have been


the Marsh Enterprise Defendants’ illegal conduct.

630. Accordingly, the Marsh Enterprise Defendants are liable to Plaintiffs Opticare,

Bayou, Sunburst, Cellect, Stamford, Singer, Comcar, Golden Gate and Members of the Marsh

Broker-Centered Class for three times their actual damages as proven at trial, plus interest and

attorneys’ fees.

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COUNT XVI Violation of 18 U.S.C. § 1962(d)

Against Defendants Associated with the Aon Enterprise



632. This cause of action is brought by Plaintiffs Sunburst, Bayou, Michigan Multi-King

and the Members of the Aon Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for

violations of U.S.C. § 1962(d) against Defendants associated with the Aon Enterprise (the “Aon


633.

As set forth above and in the RICO Case Statement, the Aon Enterprise Defendants

have conspired to violate 18 U.S.C. § 1962(c).

634. As a direct and proximate result, Plaintiffs Sunburst, Bayou, Michigan Multi-King

and Members of the Aon Broker-Centered Class have been injured in their business or property


Sunburst, Bayou, Michigan Multi-King and Members of the Aon Broker-Centered Class have

been injured in their business or property by paying more for insurance than they would have

absent the Aon Enterprise Defendants’ illegal conduct.

635. Accordingly, the Aon Enterprise Defendants are liable to Plaintiffs Sunburst,

Bayou, Michigan Multi-King and Members of the Aon Broker-Centered Class for three times

their actual damages as proven at trial, plus interest and attorneys’ fees.

COUNT XVII Violation of 18 U.S.C. § 1962(d)

Against Defendants Associated with the Willis Enterprise



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637. This cause of action is brought by Plaintiffs Belmont, Sunburst and the Members of

the Willis Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. §

1962(d) against Defendants associated with the Willis Enterprise (the “Willis Enterprise

Defendants”).

638. As set forth above and in the RICO Case Statement, the Willis Enterprise


639. As a direct and proximate result, Plaintiffs Belmont, Sunburst and Members of the

Willis Broker-Centered Class have been injured in their business or property by the predicate

acts constituting the pattern of racketeering activity. Specifically, Plaintiffs Belmont, Sunburst

and Members of the Willis Broker-Centered Class have been injured in their business or property

by paying more for insurance than they would have absent the Willis Enterprise Defendants’

illegal conduct.

640. Accordingly, the Willis Enterprise Defendants are liable to Plaintiffs Belmont,

Sunburst and Members of the Willis Broker-Centered Class for three times their actual damages


COUNT XVIII Violation of 18 U.S.C. § 1962(d)

Against Defendants Associated with the Gallagher Enterprise



642. This cause of action is brought by Plaintiffs Mulcahy, Redwood, Clear Lam and the

Members of the Gallagher Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations

of U.S.C. § 1962(d) against Defendants associated with the Gallagher Enterprise (the “Gallagher


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643. As set forth above and in the RICO Case Statement, the Gallagher Enterprise


644. As a direct and proximate result, Plaintiffs Mulcahy, Redwood, Clear Lam and

Members of the Gallagher Broker-Centered Class have been injured in their business or property


Mulcahy, Redwood, Clear Lam and Members of the Gallagher Broker-Centered Class have been


the Gallagher Enterprise Defendants’ illegal conduct.

645.

Accordingly, the Gallagher Enterprise Defendants are liable to Plaintiffs Mulcahy,

Redwood, Clear Lam and Members of the Gallagher Broker-Centered Class for three times their


COUNT XIX Violation of 18 U.S.C. § 1962(d)

Against Defendants Associated with the Wells Fargo/Acordia Enterprise



647. This cause of action is brought by Plaintiff Omni and the Members of the Wells

Fargo/Acordia Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. §

1962(d) against Defendants associated with the Gallagher Enterprise (the “Wells Fargo/Acordia


648. As set forth above and in the RICO Case Statement, the Wells Fargo/Acordia

Enterprise Defendants have conspired to violate 18 U.S.C. § 1962(c).

649. As a direct and proximate result, Plaintiff Omni and Members of the Wells

Fargo/Acordia Broker-Centered Class have been injured in their business or property by the

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predicate acts constituting the pattern of racketeering activity. Specifically, Plaintiff Omni and

Members of the Wells Fargo/Acordia Broker-Centered Class have been injured in their business

or property by paying more for insurance than they would have absent the Wells Fargo/Acordia


650. Accordingly, the Wells Fargo/Acordia Enterprise Defendants are liable to Plaintiff

Omni and Members of the Wells Fargo/Acordia Broker-Centered Class for three times their


COUNT XX Violation of 18 U.S.C. § 1962(d)

Against Defendants Associated with the HRH Enterprise

651.



652. This cause of action is brought by Plaintiffs Tri-State, Opticare and the Members of

the HRH Broker-Centered Class pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. §

1962(d) against Defendants associated with the HRH Enterprise (the “HRH Enterprise

Defendants”).

653. As set forth above and in the RICO Case Statement, the HRH Enterprise


654. As a direct and proximate result, Plaintiffs Tri-State, Opticare and Members of the

HRH Broker-Centered Class have been injured in their business or property by the predicate acts

constituting the pattern of racketeering activity. Specifically, Plaintiffs Tri-State, Opticare and

Members of the HRH Broker-Centered Class have been injured in their business or property by

paying more for insurance than they would have absent the HRH Enterprise Defendants’ illegal

conduct.

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655. Accordingly, the HRH Enterprise Defendants are liable to Plaintiffs Tri-State,

Opticare and Members of the HRH Broker-Centered Class for three times their actual damages


COUNT XXI Violation of 18 U.S.C. § 1962(d)Against All Broker Defendants



657. This cause of action is brought by Plaintiffs and Members of the Global Class

pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. § 1962(d) against all Broker Defendants.

658. As set forth above and in the RICO Case Statement, the Broker Defendants have

conspired to violate 18 U.S.C. § 1962(c).

659. As a direct and proximate result, Plaintiffs and Members of the Global Class have


racketeering activity. Specifically, Plaintiffs and Members of the Global Class have been injured

in their business or property by paying more for insurance than they would have absent the

Defendants’ illegal conduct.

660. Accordingly, the Broker Defendants are liable to Plaintiffs and Members of the

Global Class for three times their actual damages as proven at trial, plus interest and attorneys’

fees.

COUNT XXII Violation of 18 U.S.C. § 1962(c)

Against All Defendants



179






pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. § 1962(c) against all Defendants.

663. As set forth above and in the RICO Case Statement, the Defendants have conducted

or participated in conducting the CIAB Enterprise through a pattern of racketeering activity.






665. Accordingly, the Defendants are liable to Plaintiffs and Members of the Global

Class for three times their actual damages as proven at trial, plus interest and attorneys’ fees.

COUNT XXIII Violation of 18 U.S.C. § 1962(d)

Against All Defendants




pursuant to 18 U.S.C. § 1964(c) for violations of U.S.C. § 1962(d) against all Defendants.

668. As set forth above and in the RICO Case Statement, the Defendants have conspired

to violate 18 U.S.C. § 1962(c).

669. The conspiracy has been conducted, implemented and facilitated through CIAB.

The purpose and effect of the conspiracy was to prevent Plaintiffs and Members of the Class

from becoming aware of the terms and the significance of the contingent commission agreements

between the Defendants and the conflicts of interest arising out of the Broker Defendants’

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strategic partnerships with the Insurer Defendants, thereby allowing the Broker Defendants to

increase the compensation they received from the Insurer Defendants and the Insurer Defendants

to increase the business they received from the Broker Defendants without competition.

670. Each Defendant was aware of the general nature of the conspiracy and its role in

facilitating the objectives of the conspiracy.

671. Further, each Defendant has agreed to the overall objective of the conspiracy.

672. Each Defendant has committed overt acts in furtherance of the alleged

conspiratorial objectives.

673.

As a result of the Defendants’ conspiracy, Plaintiffs and other Members of the Class

have paid more than they otherwise would have paid for insurance they procured through the

Broker Defendants.






675. Accordingly, the Defendants are liable to Plaintiffs and Members of the Global

Class for three times their actual damages as proven at trial, plus interest and attorneys’ fees.

COUNT XXIV

State Law AntitrustAgainst All Defendants

676. Plaintiffs incorporate herein and make a part hereof, the allegations contained in


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677. By reason of the foregoing, Defendants have entered into agreements in restraint of

trade in violation of Alaska Stat. §§45.50.562 et seq.


trade in violation of Arizona Revised Stat. §§44-1401 et seq.


trade in violation of Arkansas Stat. Ann. §§4-75-309 et seq. and Arkansas Stat. Ann. §§4-75-201

et seq.


trade in violation of Cal. Bus. & Prof. Code §§16700 et seq., §§16720 et seq., and Cal. Bus. &

Prof. Code §§17000 et seq.


trade in violation of Colorado Rev. Stat. §§6-4-101 et seq.


trade in violation of Connecticut Gen. Stat. §§35-26 et seq.

683.

By reason of the foregoing, Defendants have entered into agreements in restraint of

trade in violation of D.C. Code Ann. §§28-4503 et seq.


trade in violation of Delaware Code Ann. tit. 6, §§2103 et seq.


trade in violation of Florida Stat. §§501.201 et seq.


trade in violation of Georgia Code Ann. §§16-10-22 et seq. and Georgia Code Ann. §§13-8-2 et

seq.

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trade in violation of Hawaii Rev. Stat. §§480-1 et seq.


trade in violation of Idaho Code §§48-101 et seq.


trade in violation of 740 Illinois Comp. Stat. §§10/1 et seq.


trade in violation of Indiana Code Ann. §§24-1-2-1 et seq.

691.


trade in violation of Iowa Code §§553.1 et seq.


trade in violation of Kansas Stat. Ann. §§50-101 et seq.


trade in violation of Kentucky Rev. Stat. §§367.175 et seq., and relief can be granted in

accordance with Kentucky Rev. Stat. §446.070.


trade in violation of Louisiana Rev. Stat. §§51:137 et seq.


trade in violation of Maine Rev. Stat. Ann. 10, §§1101 et seq.


trade in violation of Maryland Code Ann. Title 11, §§11-201 et seq.


trade in violation of Massachusetts Ann. Laws ch. 92 §§1 et seq.

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trade in violation of Michigan Comp. Laws. Ann. §§445.773 et seq.


trade in violation of Minnesota Stat. §§325D.52 et seq.


trade in violation of Mississippi Code Ann. §§75-21-1 et seq.


trade in violation of Missouri Stat. Ann. §§416.011 et seq.

702.


trade in violation of Montana Code Ann. §§30-14-101 et seq.


trade in violation of Nebraska Rev. Stat. §§59-801 et seq.


trade in violation of Nev. Rev. Stat. Ann. §§598A et seq.

705.


trade in violation of New Hampshire Rev. Stat. Ann. §§356:1 et seq.


trade in violation of New Jersey Stat. Ann. §§56:9-1 et seq.


trade in violation of New Mexico Stat. Ann. §§57-1-1 et seq.


trade in violation of N.Y. Gen. Bus. Law §340 et seq., and N.Y. Ins. Law § 2316(a).

184






trade in violation of North Carolina Gen. Stat.. §§75-1 et seq.


trade in violation of North Dakota Cent. Code §§51-08.1-01 et seq.


trade in violation of Ohio Rev. Code §§1331.01 et seq.


trade in violation of Oklahoma Stat. tit. 79 §§203(A) et seq.

713.


trade in violation of Oregon Rev. Stat. §§646.705 et seq.


trade in violation of Rhode Island Gen. Laws §§6-36-1 et seq.


trade in violation of South Carolina. Code §§39-3-10 et seq.

716.


trade in violation of South Dakota Codified Laws Ann. §§37-1 et seq.


trade in violation of Texas Bus. & Com. Code §§15.01 et seq.


trade in violation of Utah Code Ann. §§76-10-911 et seq.


trade in violation of Vermont Stat. Ann. 9 §§2453 et seq.

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trade in violation of Virginia Code §§59-1-9.2 et seq.


trade in violation of Washington Rev. Code §§19.86.010 et seq.


trade in violation of West Virginia §§47-18-1 et seq.


trade in violation of Wisconsin Stat. §§133.01 et seq.

724.


trade in violation of Wyoming Stat. §§40-4-101 et seq.

COUNT XXV

Breach of Fiduciary DutyAgainst the Broker Defendants



726.

Each Broker defendant was a fiduciary to its own client Plaintiffs. Because of this,

the Plaintiffs placed confidence and trust in their Brokers, authorized them to exercise

discretionary functions for their benefit, and relied on their superior expertise in risk

management and the procurement of insurance.

727. The Broker Defendants accepted and solicited that confidence and trust as described

above.

728. As fiduciaries of Plaintiffs and members of the Class, the Broker Defendants were

obligated to discharge their duties solely in the interests of their Plaintiff clients, and specifically

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to find the best available coverage at the best price, exercising good faith and fair dealing, full

and fair disclosure, care and loyalty to the interests of their client Plaintiffs.

729. Defendants have breached those duties by acting in their own pecuniary interests in

disregard of the interests of their client Plaintiffs as set forth above.

730. Accordingly, Defendants are liable for breach of fiduciary duty to their client

Plaintiffs, and are liable for the damages suffered by Plaintiffs in an amount to be proved at trial.

Plaintiffs and members of the Class are further entitled to an accounting by Defendants with

respect to all Contingent Commissions, Wholesale Payments and other improper payments

received by Defendants.

COUNT XXVI

Aiding and Abetting Breach of Fiduciary DutyAgainst the Insurer Defendants



732. As alleged above, a fiduciary relationship existed between each Broker and its

Plaintiff clients.

733. The Broker Defendants breached this fiduciary duty by acting in their own

pecuniary interests and in disregard of the interests of their client Plaintiffs as set forth above.

The Insurer Defendants knowingly participated in that breach by, among other things, engaging

in the fraudulent and conspiratorial conduct described above.

734. Plaintiffs have suffered damages proximately caused by the Insurer Defendants’

participation in the Broker Defendants’ breach.

735. Accordingly, the Insurer Defendants are liable to Plaintiffs for damages in an

amount to be proven at trial.

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COUNT XXVII

Unjust EnrichmentAgainst the Broker and Insurer Defendants



737. Defendants have benefited from their unlawful acts by receiving excessive premium

revenue and enormous Contingent Commissions and Wholesale Payments. These payments

have been received by Defendants at Plaintiffs’ expense, under circumstances where it would be

inequitable for Defendants to be permitted to retain the benefit.

738.

Plaintiffs and members of the Class are entitled to the establishment of a

constructive trust consisting of the benefit conferred upon Defendants in the form of their

excessive premium revenue and contingent commission and wholesale payments from which

Plaintiffs and the other Class Members may make claims on a pro rata basis for restitution.

WHEREFORE, Plaintiffs demand judgment against Defendants as follows:

(a) Certification of the Classes pursuant to Rule 23 of the Federal Rules of Civil

Procedure, certifying Plaintiffs as the representatives of the Classes, and designating their

counsel as counsel for the Class;

(b) A declaration that Defendants have committed the violations alleged herein;

(c) On Count I, for violation of Section 1 of the Sherman Act by the Marsh Broker-

Centered Class against the Marsh Broker-Centered Defendants, jointly and severally in an

amount equal to treble the amount of damages suffered by Plaintiffs and members of the Marsh

Broker-Centered Class as proven at trial plus interest and attorneys’ fees and expenses;

(d) On Count II, Violation of Section 1 of the Sherman Act by the Marsh Broker-

Centered Class against the Marsh Broker-Centered Excess Casualty Defendants, jointly and

188





severally in an amount equal to treble the amount of damages suffered by Plaintiffs and members

of the Marsh Broker-Centered Class as proven at trial plus interest and attorneys’ fees and

expenses;

(e) On Count III, for violation of Section 1 of the Sherman Act by the Aon Broker-

Centered Class against the Aon Broker-Centered Defendants, jointly and severally in an amount

equal to treble the amount of damages suffered by Plaintiffs and members of the Aon Broker-

Centered Class Class as proven at trial plus interest and attorneys’ fees and expenses;

(f) On Count IV, for violation of Section 1 of the Sherman Act by the Wells

Fargo/Acordia Broker-Centered Class against the Wells Fargo/Acordia Broker-Centered

Defendants, jointly and severally in an amount equal to treble the amount of damages suffered by

Plaintiffs and members of the Wells Fargo/Acordia Broker-Centered Class as proven at trial plus

interest and attorneys’ fees and expenses;

(g) On Count V, for violation of Section 1 of the Sherman Act by the Gallagher

Broker-Centered Class against the Gallagher Broker-Centered Defendants, jointly and severally

in an amount equal to treble the amount of damages suffered by Plaintiffs and members of the

Gallagher Broker-Centered Class as proven at trial plus interest and attorneys’ fees and

expenses;

(h) On Count VI, for violation of Section 1 of the Sherman Act by the HRH Broker-

Centered Class against the HRH Broker-Centered Defendants, jointly and severally in an amount

equal to treble the amount of damages suffered by Plaintiffs and members of the HRH Broker-

Centered Class as proven at trial plus interest and attorneys’ fees and expenses;

(i) On Count VII, for violation of Section 1 of the Sherman Act by the Willis Broker-

Centered Class against the Willis Broker-Centered Defendants, jointly and severally in an

189





amount equal to treble the amount of damages suffered by Plaintiffs and members of the Willis


(j) On Count VIII, for violation of Section 1 of the Sherman Act by all Plaintiffs

against all Defendants, jointly and severally in an amount equal to treble the amount of damages

suffered by Plaintiffs and members of the Classes as proven at trial plus interest and attorneys’

fees and expenses;

(k) On Count IX, for violation of 18 U.S.C. § 1962(c) by Plaintiffs Opticare, Bayou,

Sunburst, Cellect, City of Stamford, Singer and Golden Gate and members of the Marsh Broker-

Centered Class against Defendants associated with the Marsh Enterprise, jointly and severally in

an amount equal to treble the amount of damages suffered by Plaintiffs and members of the

Marsh Broker-Centered Class as proven at trial plus interest and attorneys’ fees and expenses;

(l) On Count X, for violation of 18 U.S.C. § 1962(c) by Plaintiffs Sunburst, Bayou,

and Michigan Multi-King and members of the Aon Broker-Centered Class against Defendants

associated with the Aon Enterprise, jointly and severally in an amount equal to treble the amount

of damages suffered by Plaintiffs and members of the Aon Broker-Centered Class as proven at

trial plus interest and attorneys’ fees and expenses;

(m) On Count XI, for violation of 18 U.S.C. § 1962(c) by Plaintiff Belmont and

members of the Willis Broker-Centered Class against Defendants associated with the Willis

Enterprise, jointly and severally in an amount equal to treble the amount of damages suffered by

Plaintiffs and members of the Willis Broker-Centered Class as proven at trial plus interest and

attorneys’ fees and expenses;

(n) On Count XII, for violation of 18 U.S.C. § 1962(c) by Plaintiffs Mulcahy,

Redwood and Clear Lam and members of the Gallagher Broker-Centered Class against

190





Defendants associated with the Gallagher Enterprise, jointly and severally in an amount equal to

treble the amount of damages suffered by Plaintiffs and members of the Gallagher Broker-


(o) On Count XIII, for violation of 18 U.S.C. § 1962(c) by Plaintiff Omni and

members of the Wells Fargo/Acordia Broker-Centered Class against Defendants associated with

the Wells Fargo/Acordia Enterprise, jointly and severally in an amount equal to treble the

amount of damages suffered by Plaintiffs and members of the Wells Fargo/Acordia Broker-


(p) On Count XIV, for violation of 18 U.S.C. § 1962(c) by Plaintiff Tri-State and

members of the HRH Broker-Centered Class against Defendants associated with the HRH


Plaintiffs and members of the HRH Broker-Centered Class as proven at trial plus interest and


(q) On Count XV, for violation of 18 U.S.C. § 1962(d) by Plaintiffs Opticare, Bayou,

Sunburst, Cellect, City of Stamford, Singer and Golden Gate and members of the Marsh Broker-

Centered Class against Defendants associated with the Marsh Enterprise, jointly and severally in

an amount equal to treble the amount of damages suffered by Plaintiffs and members of the HRH


(r) On Count XVI, for violation of 18 U.S.C. § 1962(d) by Plaintiffs Sunburst,

Bayou, and Michigan Multi-King and members of the Aon Broker-Centered Class against

Defendants associated with the Aon Enterprise, jointly and severally in an amount equal to treble

the amount of damages suffered by Plaintiffs and members of the Aon Broker-Centered Class as

proven at trial plus interest and attorneys’ fees and expenses;

191





(s) On Count XVII, for violation of 18 U.S.C. § 1962(d) by Plaintiff Belmont and

members of the Willis Broker-Centered Class against Defendants associated with the Willis


Plaintiffs and members of the Willis Broker-Centered Class as proven at trial plus interest and


(t) On Count XVIII, for violation of 18 U.S.C. § 1962(d) by Plaintiffs Mulcahy,

Redwood and Clear Lam and members of the Gallagher Broker-Centered Class against

Defendants associated with the Gallagher Enterprise, jointly and severally in an amount equal to

treble the amount of damages suffered by Plaintiffs and members of the Gallagher Broker-


(u) On Count XIX, for violation of 18 U.S.C. § 1962(d) by Plaintiff Omni and

members of the Wells Fargo/Acordia Broker-Centered Class against Defendants associated with

the Wells Fargo/Acordia Enterprise, jointly and severally in an amount equal to treble the

amount of damages suffered by Plaintiffs and members of the Wells Fargo/Acordia Broker-


(v) On Count XX, for violation of 18 U.S.C. § 1962(d) by Plaintiff Tri-State and

members of the HRH Broker-Centered Class against Defendants associated with the HRH


Plaintiffs and members of the HRH Broker-Centered Class as proven at trial plus interest and


(w) On Count XXI, for violation of 18 U.S.C. § 1962(d) by all Plaintiffs and members

of the Global Class against all Broker Defendants, jointly and severally in an amount equal to

192





treble the amount of damages suffered by Plaintiffs and members of the Global Class as proven

at trial plus interest and attorneys’ fees and expenses;

(x) On Count XXII, for violation of 18 U.S.C. § § 1962(c) by all Plaintiffs and

members of the Global Class against all Defendants, jointly and severally in an amount equal to



(y) On Count XXIII, for violation of 18 U.S.C. § 1962(d) by all Plaintiffs and

members of the Global Class against all Defendants, jointly and severally in an amount equal to



(z) On Count XXIV, for violation of state antitrust laws, jointly and severally in an

amount equal to damages sustained as proven at trial, and for any additional damages, penalties

and other monetary relief provided by applicable law, including treble damages plus interest and


(aa) On Count XXV, for Breach of Fiduciary Duty against the Broker Defendants,

jointly and severally in an amount equal to damages sustained by Plaintiffs and members of the

Class as proven at trial, and for an accounting by Defendants with respect to all Contingent

Commissions, Wholesale Payments and other improper payments received by Defendants;

(bb) On Count XXVI, for Aiding and Abetting a Breach of Fiduciary Duty against the

Insurer Defendants, jointly and severally in an amount equal to damages sustained by Plaintiffs

and members of the Class as proven at trial; and

(cc) On their Count XXVII, Unjust Enrichment against the Broker and Insurer

Defendants, jointly and severally for establishment of a constructive trust consisting of the

193





benefit conferred upon Defendants in the form of their excessive premium revenue and

contingent commission and wholesale payments from which Plaintiffs and the other Class

members may make claims on a pro rata basis for restitution;

(dd) An injunction preventing Defendants from engaging in future anticompetitive and

fraudulent practices;

(ee) Costs of this action, including reasonable attorneys fees and expenses; and

(ff) Any such other and further relief as this Court deems just and proper.

JURY DEMAND

Plaintiffs demand a trial by jury on all claims so triable as a matter of right.

194





Date: May 22, 2007 Respectfully submitted,

CAFFERTY FAUCHER LLP

/s/ Bryan L. Clobes

Bryan L. ClobesEllen MeriwetherMelody ForresterTimothy Fraser 1717 Arch Street, Ste. 3610Philadelphia, PA 19103Tel.: 215-864-2800Fax: 215-864-2810

WHATLEY, DRAKE & KALLAS, LLC

/s/ Edith M. Kallas

Edith M. KallasJoseph P. GuglielmoElizabeth RosenbergLili R. Sabo1540 Broadway, 37th Floor New York, NY 10036Tel.: 212-447-7070Fax: 212-447-7077

Plaintiffs’ Co-Lead Counsel

FOOTE, MEYERS, MIELKE &

FLOWERS

Robert M. Foote28 North First Street, Suite 2Geneva, IL 60134Tel.: 630-232-6333Fax: 845-8982

LEVIN, FISHBEIN, SEDRAN &

BERMAN

Howard J. Sedran510 Walnut Street - Suite 500Philadelphia, PA 19106Tel.: 215-592-1500Fax: 215-592-4663

Plaintiffs’ Executive Committee

195





LITE DEPALMA GREENBERG

& RIVAS, LLC

Allyn Z. LiteBruce D. Greenberg

Michael E. PatunasTwo Gateway Center, 12th Floor Newark, NJ 07102Tel.: 973-623-3000Fax: 973-623-0858

Liaison Counsel for Commercial Insurance

Litigation

BONNETT, FAIRBOURN, FRIEDMAN

& BALINT, P.C.Andrew S. FriedmanElaine A. RyanPatricia N. Hurd2901 N. Central Avenue, Suite 1000Phoenix, AZ 85012Tel.: 602-274-1100Fax: 602-274-1199

Liaison Counsel for Employee-Benefit

Litigation

AUDET & PARTNERS, LLP

William M. Audet221 Main StreetSuite 1460San Francisco, CA 94105Tel.: 415-568-2555Fax: 415-568-2556

BEELER, SCHAD & DIAMOND, P.C.

Lawrence W. SchadJames SheddenMichael S. HilickiTony H. Kim332 South Michigan Avenue, Suite 1000Chicago, IL 60604Tel.: 312-939-6280

196





Fax: 312-939-4661

BOLOGNESE & ASSOCIATES

Anthony J. BologneseOne Penn Center

1617 John F. Kennedy BoulevardSuite 650Philadelphia, PA 19103Tel.: 215-814-6750Fax.: 215-814-6764

BONSIGNORE & BREWER

Robert J. BonsignoreRobin BrewerDaniel D’Angelo23 Forest Street

Medford, MA 02155Tel.: 781-391-9400Fax: 781-391-9496


Jennifer W. Sprengel Nyran Rose Pearson30 N. LaSalle Street, Suite 3200Chicago, IL 60602Tel: 312-782-4880Fax: 312-782-4485

CAREY & DANIS L.L.C.

Michael J. FlanneryJames Rosemergy8235 Forsyth Blvd.Suite 1100St. Louis, MO 63105Tel.: 314-725-7700Fax: 314-721-0905

CHAVEZ LAW FIRM, P.C.

Kathleen C. ChavezP.O. Box 772Geneva, IL 60134Tel.: 630-232-4480Fax: 630-232-8265

CHIMICLES & TIKELLIS LLP

Nicholas E. Chimicles

197





Michael D. Gottsch361 West Lancaster AvenueHaverford, PA 19041Tel.: 610-642-8500Fax: 610-649-3633

COHN, LIFLAND, PEARLMAN,

HERRMANN & KNOPF

Peter S. PearlmanPark 80 Plaza West OneSaddle Brook, NJ 07663Tel.: 201-845-9600Fax: 201-845-9423

COOPER & KIRKHAM, P.C.

Josef D. Cooper

655 Montgomery Street, 17

th

FloorSan Francisco, CA 94111Tel.: 415-788-3030Fax: 415-882-7040

DOFFERMYRE SHIELDS CANFIELD

KNOWLES & DEVINE

Kenneth S. CanfieldRalph I. Knowles, Jr.Martha J. FessendenSamuel W. Wethern1355 Peachtree Street, Suite 1600Atlanta, GA 30309Tel.: 404-881-8900Fax: 404-881-3007

DRUBNER HARTLEY & O’CONNOR

James E. Hartley, Jr.Gary O’ConnorCharles S. Hellman500 Chase Parkway, 4

th Floor

Waterbury, CT 06708Tel.: 203-753-9291Fax: 203-753-6373

EYSTER KEY TUBB WEAVER &

ROTH, LLP

Nicholas B. RothHeather Necklaus Hudson

198





P.O. Box 1607Decatur, AL 35602Tel: 256- 353-6761Fax: 256- 353-6767

FINE KAPLAN & BLACKRoberta D. Liebenberg1835 Market Street, 28th FloorPhiladelphia, PA 19103Tel.: 215-567-6565Fax: 215-568-5872

FINKELSTEIN, THOMPSON

& LOUGHRAN

Burton H. FinkelsteinL. Kendall Satterfield

Halley F. Ascher1050 30th Street, N.W.Washington, D.C. 20007Tel.: 202-337-8000Fax: 202-337-8090

FURTH LEHMANN & GRANT, LLP

Michael P. LehmannThomas P. DoveJulio J. RamosJon T. King225 Bush Street, Suite 1500San Francisco, CA 94104Tel.: 415-433-2070Fax: 415-982-2076

GRAY AND WHITE

Mark K. Gray1200 PNC PlazaLouisville, KY 40202Tel.: 502-585-2060

HANSON BRIDGES MARCUS

VLAHOS

RUDY LLP

David J. Miller333 Market Street, 23

rd Floor

San Francisco, CA 94105Tel.: 415-777-3200Fax: 415-541-9366

199





HANZMAN CRIDEN & LOVE, P.A.

Michael E. CridenKevin B. LovePlaza 57

7301 SW 57th CourtSuite 515South Miami, Florida 33143Tel.: 305-357-9010Fax: 305-357-9050

JANSSEN, MALLOY, NEEDHAM,

MORRISON, REINHOLTSEN &

CROWLEY, LLP

W. Timothy Needham730 Fifth Street, Post Office Drawer 1288

Eureka, CA 95502Tel.: 707-445-2071Fax: 707-445-8305

JEFFREY BRODKIN 1845 Walnut Street, 22

nd Floor

Philadelphia, PA 19103Tel.: 215-567-1234Fax.: 609-569-0809

JEFFREY LOWE, P.C.

Jeff Lowe8235 Forsyth Blvd., Ste. 1100St. Louis, MO 63105Tel.: 314-721-3668Fax: 314-678-3401

JOHN P. MCCARTHY 217 Bay AvenueSomers Point, NJ 08224Tel.: 609-653-1094Fax.: 609-653-3029

KLAFTER & OLSEN LLP

Jeffrey A. Klafter1311 Mamaroneck Avenue, Suite 220White Plains, NY 10602Tel.: 914-997-5656Fax: 914-997-2444

200





LARRY D. DRURY, LTD.

Larry D. Drury205 West Randolph, Suite 1430Chicago, IL 60606Tel.: 312-346-7950

Fax: 312-346-5777

LAW OFFICES OF GARY H.

SAPOSNIK

Gary H. Saposnik105 West Madison Street, Ste. 700Chicago, IL 60602Tel: 312-357-1777Fax: 312-606-0413

LAW OFFICES OF RANDY R. RENICK

Randy R. Renick128 North Fair Oaks Avenue, Ste. 204Pasadena, CA 91103Tel.: 626-585-9608Fax: 626-585-9610

LERACH COUGHLIN STOIA GELLER

RUDMAN & ROBBINS, LLP

John J. Stoia, Jr.Theodore J. PintarBonny E. SweeneyJames D. McNamaraMary Lynne CalkinsRachel L. Jensen655 West BroadwaySuite 1900San Diego, CA 92101Tel.: 619-231-1058Fax: 619-231-7423



Samuel H. Rudman200 Broadhollow Road, Suite 406Melville, NY 11747Tel.: 631-367-7100Fax: 631-367-1173

LEVINE DESANTIS, LLC Mitchell B. Jacobs

201





150 Essex St., Ste. 303Millburn, New Jersey 07041Tel: 973-376-9050Fax: 973-379-6898

LOOPER, REED & MCGRAW James L. Reed, Jr.Travis Crabtree1300 Post Oak Blvd. Ste. 2000Houston, TX 77056Tel.: 713- 986-7000Fax: 713- 986-7100

MAGER & GOLDSTEIN, LLP

Jayne Arnold Goldstein1640 Town Center Circle, Suite 216

Weston, FL 33326Tel: 954-515-0123Fax: 954-515-0124

MEREDITH COHEN GREENFOGEL

& SKIRNICK, P.C.

Steven J. GreenfogelDaniel B. AllanoffArchitects Building, 22

nd Floor

117 South 17th StreetPhiladelphia, PA 19103Tel.: 215-564-5182Fax: 215-569-0958

PHILIP STEINBERG

124 Rockland AvenueBala Cynwood, PA 19004Tel.: 610-664 3101Fax.: 610-664-0972

SAVERI & SAVERI, INC.

Guido SaveriR. Alexander SaveriGeoffrey C. RushingCadio ZirpoliOne Eleven Pine, Suite 1700San Francisco, CA 94111-5619Tel.: 415-217-6810Fax: 415-217-6813

202





SHAHEEN & GORDON William ShaheenD. Michael Noonan140 Washington St., 2nd Fl.P.O. Box 977

Dover, NH 03821-0977Tel.: 603-749-5000Fax: 603-749-1838

SHERMAN, SILVERSTEIN, KOHL,

ROSE & PODOLSKY

Alan C. MilsteinJeffrey P. ResnickFairway Corporate Center4300 Haddonfield Road, Ste. 311Pennsauken, NJ 08109

Tel: 856-662-0700Fax: 856-488-4744

SPECTOR, ROSEMAN & KODROFF,

P.C.

Theodore M. LievermanEugene A. SpectorJay S. Cohen1818 Market Street, Suite 2500Philadelphia, PA 19102Tel.: 215-496-0300Fax: 215-496-6611

TRUJILLO RODRIGUEZ &

RICHARDS, LLP Lisa J. Rodriguez8 Kings Highway WestHaddonfield, NJ 08033Tel: 856-795-9002


Joe R. Whatley, Jr.Charlene FordRichard RoucoRichard Frankowski2001 Park Place NorthSuite 1000Birmingham, AL 35203Tel.: 205-328-9576

203





Fax: 205-328-9669

WOLF HALDENSTEIN ADLER

FREEMAN & HERZ LLC

Mary Jane Edelstein Fait

Adam J. Levitt656 West Randolph StreetSuite 500 WestChicago, IL 60661Tel.: 312-466-9200Fax: 312-466-9292


FREEMAN & HERZ LLC

Fred Taylor IsquithAlexander Schmidt

270 Madison Avenue, 10

th

Floor New York, NY 10016Tel.: 212-545-4600Fax: 212-545-4653

ZWERLING, SCHACHTER &

ZWERLING, LLP

Robert S. SchachterSusan SalvettiStephen L. BrodskyDaniel DrachlerJustin M. Tarshis41 Madison Avenue New York, NY 10010Tel.: 212-223-3900Fax: 212-371-5969

Attorneys for Plaintiffs

204





Case No. 14-56140




v.







Exhibit 3




UNITED STATES DISTRICT COURTDISTRICT OF NEW JERSEY

—————————————————— xIN RE: INSURANCE BROKERAGEANTITRUST LITIGATION


::

:::::

MDL No. 1663


Hon. Garrett E. Brown, Jr.

—————————————————— x

REVISED PARTICULARIZED STATEMENT DESCRIBING THE HORIZONTAL

CONSPIRACIES ALLEGED IN THE SECOND CONSOLIDATED AMENDED

COMMERCIAL CLASS ACTION COMPLAINT

* * REDACTED VERSION * *

Case 2:04-cv-05184-GEB-PS Document 1241 Filed 06/29/2007 Page 1 of 138Case: 14-56140 10/22/2014 ID: 9287316 DktEntry: 12 Page: 357 of 605



TABLE OF CONTENTS

THE BROKER-CENTERED CONSPIRACIES.............................................................................1

1) The Marsh Broker-Centered Conspiracy.......................................................................1

a) Participants in the Conspiracy. ....................................................................1

b) Operation of the Conspiracy. .......................................................................1

(1) Overview..........................................................................................1

(2) The Participants in the Marsh Broker-CenteredConspiracy Agreed that the Bulk of Marsh’sCustomers Would be Allocated to the ConspiringInsurers.............................................................................................2

(3)

The Participants in the Marsh Broker-CenteredConspiracy Agreed Not to Compete for EachOther’s Customers. ..........................................................................5

(4) Marsh and its Conspiring Insurers Agreed toProtect Each Others’ Incumbent Business throughBid-Rigging and other Overt Acts. ..................................................8

(5) Marsh and its Conspiring Insurers Agreed that inReturn for Contingent Commission Payments,the Insurer Participants Would be Guaranteed

Access to a Minimum Amount of PremiumVolume...........................................................................................19

(6) The Insurer Defendants Understood Their Rolein the Conspiracy and Were Disciplined if TheyDid Not Go Along..........................................................................22

(7) Communications Among the Participants in theMarsh Broker-Centered Conspiracy Facilitated byMarsh Furthered the Conspiracy....................................................26

(8) The Co-Conspirators Benefited from the Operation ofthe Conspiracy. ..............................................................................32

2) The Aon Broker-Centered Conspiracy. .......................................................................33

a) Participants in the Conspiracy. ..................................................................33

b) Operation of the Conspiracy. .....................................................................34

i




(1) Overview........................................................................................34

(2) The Participants in the Aon Broker-Centered ConspiracyAgreed that the Bulk of Aon’s Book of BusinessWould be Allocated to Conspiring Insurers...................................34

(3)

The Participants in the Aon Broker-CenteredConspiracy Agreed Not to Compete for EachOthers’ Customers. ........................................................................39

(4) Aon and the Conspiring Insurers Agreed that inReturn for Contingent Commission Payments, theConspiring Insurers Would Be Guaranteed Accessto a Minimum Amount of Premium Volume.................................41

(a) Aon Steered, Shifted or Rolled Business tothe Conspiring Insurers with Minimal or No

Competition........................................................................42

(b) Conspiring Insurers Expected and ReceivedCompetitive Advantages and Protection fromCompetition from Aon.......................................................46

(c) Aon Monitored and Enforced the Terms ofthe Conspiracy. ..................................................................49

(d) Communications Among the Participants in theAon Broker-Centered Conspiracy, Facilitated

by Aon, Made the Conspiracy Plausible............................49

(5) The Co-Conspirators Benefited From the Operationof the Conspiracy. ..........................................................................52

3) The Wells Fargo/Acordia Broker-Centered Conspiracy..............................................54



(1)

Overview........................................................................................54

(2) Wells Fargo/Acordia and the Conspiring InsurersAgreed that a Substantial Part of Wells Fargo/Acordia Business Would Be Allocated to theConspiring Insurers........................................................................54

(3) The Conspiring Insurers Agreed that, in Return fortheir Contingent Commission Payments, Wells Fargo/

ii




Acordia Would Guarantee Access to Competition-FreePremium Volume, and They Agreed to RefrainFrom Competing or Each Other’s Customers................................61

c)

Communications among the Participants in theWells Fargo/Acordia Broker-Centered Conspiracy,Facilitated by Wells Fargo/Acordia, Furthered theConspiracy. ................................................................................................67

d) The Conspiring Insurers Understood their Role in theConspiracy and Were Disciplined by Wells Fargo/Acordia if They Refused To Go Along......................................................70

e) The Co-Conspirators Benefited From the Operationof the Conspiracy. ......................................................................................71

4) The Gallagher Broker-Centered Conspiracy. ..............................................................74



(1) Overview........................................................................................74

(2) The Participants in the Gallagher Broker-CenteredConspiracy Agreed that the Bulk of Gallagher’sBusiness would be Allocated to Gallagher’sConspiring Insurers in Exchange for ContingentCommission Payments...................................................................74

(3)

The Conspiring Insurers Agreed to Refrain fromCompeting for Each Other’s Customers andExpected Gallagher to Protect Their RenewalBusiness from Competition............................................................76

(4) The Participants Agreed that in Return fortheir Contingent Commission Payments, TheyWould be Guaranteed Access to a MinimumAmount of Premium Volume, and That ThereWould be Minimal or No Competition for That

Business. ........................................................................................78

(5) The Conspiring Insurers Understood their Rolein the Conspiracy and were Disciplined byGallagher if they Refused To Go Along........................................79

(6) Communications Among the Participants in theGallagher Broker-Centered Conspiracy, Facilitated

iii




By Gallagher, Furthered the Conspiracy. ......................................81

(7) The Co-Conspirators Benefited From theOperation of the Conspiracy. .........................................................82

5) The HRH Broker-Centered Conspiracy.......................................................................82



(1) Overview........................................................................................83

(2) The Participants Agreed that a Substantial Partof HRH’s Business Would be Allocated AmongHRH’s Conspiring Insurers in Exchange forContingent Commissions...............................................................83

(3) The Conspiring Insurers Agreed to Refrain fromCompeting for Each Other’s Customers andExpected HRH to Protect Their RenewalBusiness from Competition............................................................87

(4) The Conspiring Insurers Agreed that inReturn for Their Contingent Commission Payments,They Would be Granted Access to a MinimumAmount of Premium Volume.........................................................88

c) The Conspiring Insurers Understood their Role in theConspiracy and Knew They Would be Disciplined byHRH if They Refused To Go Along..........................................................92

d) HRH and its Co-Conspirators Benefited from theHRH Conspiracy........................................................................................95

e) Defendants’ Agreement had an Impact on the Prices Paid by Members of the Class for Insurance Products. .....................................98

6) The Willis Broker-Centered Conspiracy. ....................................................................99

a)

Participants in the Operation......................................................................99

b) Operation of the Conspiracy. ...................................................................100

(1) Participants in the Willis Broker-CenteredConspiracy Agreed that Willis’ Business would be Allocated among the Conspiring Insurers...............................105

(2) The Conspiring Insurers Agreed Not to Compete

iv




With Each Other for the Willis Business.....................................112

(3) Willis and its Co-Conspirators Agreed thatin Return for Contingent Commissions, theConspiring Insurers Would be GuaranteedAccess to Premium Volume.........................................................114

(4) Insurer Co-Conspirators Understood TheirRole and were Disciplined by Willis if TheyDid Not Participate. .....................................................................119

(5) Communications Among Participants in theConspiracy, Facilitated by Willis,Furthered the Conspiracy.............................................................119

(6) The Co-Conspirators Benefited From the Conspiracy’sOperation......................................................................................119

v




Pursuant to the Court’s April 5, 2007 Order, Plaintiffs, by and through their undersigned

attorneys, submit this Revised Particularized Statement, describing the horizontal conspiracies

alleged in the Second Consolidated Amended Commercial Class Action Complaint (the

“Complaint”).1

THE BROKER CENTERED CONSPIRACIES

1) The Marsh Broker-Centered Conspiracy

a) Participants in the Conspiracy

1. Throughout the relevant time period, and as described more fully below,

participants in the Marsh Broker-Centered Conspiracy have included Insurer Defendants AIG,

ACE, CNA, Chubb, Crum & Forster, Hartford, Liberty Mutual, St. Paul Travelers, Zurich,

Fireman’s Fund, Munich, XL and Axis.

b) Operation of the Conspiracy

(1) Overview

2. Marsh allocated its customer base to and among its conspiring Insurers in two

steps. First, Marsh and each of its co-conspirators agreed, and the co-conspirators agreed

horizontally among themselves, that Marsh would “consolidate” its business by directing as

much as 80-95% of its commercial business to its “preferred carriers,” co-conspirators AIG,

ACE, CNA, Chubb, Crum & Forster, Hartford, Liberty Mutual, St. Paul Travelers, Zurich,

Fireman’s Fund, Munich, XL and Axis, thereby eliminating hundreds of other insurers from

competing equally with the conspiring insurers for a substantial portion of Marsh’s business. As

a second step in Defendants’ unlawful scheme, the Marsh and each of its conspirators agreed,

and the conspiring Insurers horizontally agreed, to reduce or eliminate competition among the

conspiring Insurers themselves as to that secured book of business. The key aspect of

1 All defined terms from the Complaint are used herein.




Defendants’ agreement in this regard was that each insurer would be permitted to keep its own

incumbent business, and that Marsh would protect that business from competition, using a

variety of incumbent protection devices, including the solicitation of false bids. As described

below, Marsh and its co-conspirators understood and agreed that incumbent protection was a

necessary element in its scheme to allocate its premium volume in the manner calculated to

achieve the highest profits, both for itself and itself co-conspirators. Because more than ___ of

Marsh’s premium volume was renewal business, the co-conspirators “incumbent protection

racket” effectively reduced or eliminated competition for the bulk of Marsh’s business.

(2)

The Participants in the Marsh Broker-Centered ConspiracyAgreed that the Bulk of Marsh’s Customers Would be

Allocated to the Conspiring Insurers

3. In the early to mid 1990s, in an effort to maximize its contingent commission

revenue and increase its profits, Marsh agreed with certain carriers that it was going to place the

bulk of its business with a limited number of “preferred” or “partner” carriers. Carriers were

selected to be a “preferred market” or a “market partner” as it was sometimes called, when they

agreed to pay Marsh contingent commissions based primarily on the volume of the business

allocated to the carriers. Marsh referred to the contingent commission agreements as placement

service agreements or “PSA’s.”

4. As part of this consolidation effort, in the early to mid 1990’s, Marsh created and

developed a special division designed to bring the marketing of its insurance brokerage services

under one centralized department -- the Global Broking Division (“Global Broking”). Global

Broking concentrated the marketing and negotiating power of all Marsh regional and local

brokers into a single set of offices headquartered in New York City. ____________________

2




_______________________________________________________ With the establishment of

Global Broking, the responsibility for negotiating PSA’s was put into the hands of a small group

of people who were able to ______________________________________________________

____________________.

5. Marsh Global Broking’s system of concentrating the marketing of its insurance

brokerage services under one centralized department was also referred to as “focused

marketing.” The purpose of focused marketing was to control insurance placement so as to

maximize Marsh’s contingent revenue. As Bill Gilman, former Executive Marketing Director at

Global Broking Excess Casualty, explained:

If we had control over the business then we could make the insurance companiesgive us lucrative placement service agreements we would have the ability toreward them or take the business way. We had control over whether or not theygot the business.

6. Global Broking handled more than half of the insurance placements for Marsh,

including excess casualty, healthcare, FINPRO, environmental, property and middle market.

Each of these lines of business was headed by a managing director. Global Broking Excess

Casualty, for example, was run by a Global Excess Casualty Placement Leader and was

organized by Global Broking Coordinators (“GBC’s”) and by placement teams (also referred to

as Local Broking Coordinators) (“LBC’s”). The GBC’s held senior level, leadership roles

within Global Broking and were responsible for groups of regional offices. The GBC’s

coordinated the insurance program for the client including the development of the “broking plan”

which set forth the name of the incumbent carrier as well as the insurance companies to approach

for protective quotes.

7.

The Local Broking Coordinators or LBC’s were dedicated to Marsh’s “preferred

markets,” that is, those conspiring Insurers with which Marsh had its most lucrative commission

3




contingent agreements. LBC’s dealt directly with the underwriters of the conspiring Insurers and

would not allow Marsh’s Client Advisors (CA’s) to communicate directly with the Insurer. In

fact, an underwriter quoting “directly” to a Marsh client advisor interfered with the operation of

the conspiracy because it prevented Global Broking from ensuring “that the incumbent who hits

a target and provides the coverages requested is protected.”

8. Marsh Global Broking closely monitored and controlled the placement of

premium with its conspiring Insurers. Its Middle Market division, for example, grouped its

conspiring Insurers into three tiers, classified as A, B and C Tiers, based on how much they were

paying in contingent commissions. Tiers A and B were the conspiring Insurers to which the bulk

of premium was allocated. In fact, a Marsh internal document entitled “Rules of Engagement”

states: ___________________________________________________________________

_________________________________________________________________________

______. All of the participants in the Marsh Broker-Centered conspiracy enjoyed either Tier A

or Tier B status at various times during the class period.

9.

To further its effort to allocate premium to its Tier A and B insurers, Marsh

Global Broking Middle Market created “Tiering Reports” as a tool to monitor premium

placements with its conspiring Insurers. According to a 2003 Marsh Tiering Report “the purpose

of this exercise was two fold: _____________________________________________________

_____________________________________________________________________________.

10.

Success at Marsh Global Broking was defined as placing as much premium as

possible with conspiring Insurers. Global Broking employees were required to evaluate

themselves in documents entitled “Balanced Scorecard.” Many of these self-evaluations

included the employees’ success in moving business to Marsh’s conspiring Insurers. For

4




example , the self-evaluation for _______________ (former GBC in Global Broking Excess

Casualty) described that he “direct[ed] business to partner markets that respond to our marketing

philosophy.” Similarly, the self evaluation for ___________ (former LBC in Global Broking

Excess Casualty) in 2002 described how she “[s]upported key partner markets AIG & Zurich,

[and] actively directed business to ‘new’ partner markets, e.g., ACE (Holman), St. Paul (Turner

& Lend Lease).”

11. Success at “focused marketing” was also rewarded. The “Balanced Scorecard”

for a Global Broking employee includes under “financial success”: “[i]mplement focused

marketing to direct business to specific markets based upon broadest coverages as well as

premium placement goals with partner markets.”

12. Because of these efforts, Marsh was successful in allocating the bulk of its

premium volume to its conspiring Insurers. By 1999, Marsh had consolidated 80%-85% of the

premium paid within its top 12 markets. The concentration of premium volume with its

conspiring Insurers continued throughout the Class Period. Marsh’s reports on its annual

contingent commissions from 1999 to 2003 show that its contingent commission income from

national commercial PSA’s grew from _________ in 1996 to ____________ in 1999 to _____

_________ in 2003.

(3) The Participants in the Marsh Broker-Centered Conspiracy

Agreed Not to Compete for Each Other’s Customers

13. A central element of the agreement among the participants in the Marsh Broker-

Centered Conspiracy was that each conspiring Insurer would be permitted to keep its incumbent

business, and that Marsh would protect that business from competition, both from insurers inside

and outside of the arrangement. Marsh facilitated this agreement with a variety of devices

designed to protect its co-conspirators’ incumbent status, including the solicitation of protective

5




quotes. As described below, Marsh and its conspiring Insurers understood and agreed that

incumbent protection was a necessary element in its scheme to allocate its premium volume in

the manner calculated to achieve the highest profits, both for itself and its co-conspirators. As an

employee of Munich ruefully observed "the incumbent protection racket works great when

you're the one being protected. Conversely, when you're on the outside looking in, it creates a

barrier to entry on new accounts."

14. Numerous employees of Marsh acknowledged its objective to protect its co-

conspirators incumbent business. For example, Kathryn Winter, a former GBC and LBC at

Global Broking Excess Casualty, acknowledged that Marsh protected the incumbent Insurer’s

renewal business if they hit a target price set by Marsh. As Ms. Winter stated: “if the incumbent

markets meet their target price and does the coverage we want, [Marsh Global Broking] will

protect them and make sure they get the business.”

15. The conspiring Insurers were aware of and complicit in the incumbent protection

scheme. An email between employees at Zurich, bearing the subject “Protection” demonstrates

this complicity: “We need and expect to be protected on our renewals just like AIG is protected

on theirs.” The email further states:

The only solution I see if we can not get protection against the AWAC’s andACE’s of the world who have not been there for MMGB in the past when youneeded favors, is to go after AIG leads which we are very prepared to do. If wecan not get proper protection, we will go hard after AIG leads that we feel you are protecting. We will no longer provide you with protective quotes for AIG butwill put out quotes that you will be forced to release, just like you tell me you areforced to release AWAC and ACE quotes.

I do not think we are asking for the moon. We just want the same protectiongiven to AIG and MMGB is definitely not doing that for Zurich now.

16. A former ACE employee acknowledged that Marsh’s system of protecting the

incumbent allowed co-conspirators, like ACE, to obtain last looks on placements and avoid real

6




competition. According to this former ACE employee, “Marsh [Global Broking] preferred

incumbents to remain on placements, so . . . if you were the incumbent on the game plan, you

would get last shot,” meaning that you would be “protect[ed] from competition.”

17. According to this former employee, ACE USA understood that Marsh would

protect the incumbent of an excess casualty risk by not sending submissions on that risk “out to

competition,” or by getting “quotes from other carriers that would support the incumbent as

being the best price.” ACE indicated its willingness to accept these terms from Marsh and

provided losing quotes, as described below, so long as “the Ace renewals with Marsh will

equally be ‘protected.’”

18. CNA acknowledged the benefits of incumbent protection, including the receipt of

“last looks.” In describing CNA’s relationship with Marsh, a CNA employee stated that even

though the CNA PSA ranked lower than other conspiring Insurers with a payout of 3%, “we

have a preferred relationship with Marsh. Our results with a $90 million GWP increase attest to

this. This frequently results in ‘last look’ pre-notification of terms and conditions and selected

new business submissions.”

19. Indeed, Axis was well aware of how Marsh’s incumbent protection system

worked after being informed by Bill Gilman that “he [Gilman] could keep business with

incumbents by allocating the business among underwriters if he could get renewals without an

outside competitive presence.”

20. In fact, a former AIG underwriter, Karen Radke, who pled guilty to a scheme to

defraud in connection with the regulatory action against AIG and Marsh, stated that Bill Gilman

told her about the “Marsh system” and that it was very important that she “not compete for other

business” in order to retain her business when her accounts were up for renewal.

7




21. Chubb similarly agreed to eliminate competition by conspiring with Marsh and

the other conspiring Insurers. In an April 1998 “Joint To Do List” from a meeting between

Chubb and Marsh, Chubb notes that Marsh and Chubb branches “will meet on the top 5-7

renewals for each branch (beginning with May renewals) to discuss pricing and strategy to retain

the accounts without marketing them.”

(4) Marsh and its Conspiring Insurers Agreed to Protect Each

Others’ Incumbent Business through Bid-Rigging and other

Overt Acts

22. As detailed below, on numerous occasions, participants in the Marsh Broker-

Centered Conspiracy provided alternative quotes at Marsh’s request to protect the incumbent

status of a conspiring Insurer or to support the placement of business with another conspiring

Insurer. Insurers engaged in this conduct in furtherance of a common scheme to allocate

Marsh’s customers to the incumbent Insurer, and to protect those Insurers from having to

compete for this business. Because more than _____ of Marsh’s premium volume was renewal

business, the co-conspirators “incumbent protection racket” effectively reduced or eliminated

competition for the bulk of Marsh’s business.

23. Former Marsh employee Kathryn Winter admitted that “the primary goal of th[e]

scheme was to maximize Marsh’s profits by controlling the market, and protecting incumbent

insurance carriers when their business was up for renewal.” In fact, Winter stated that the

agreement among Marsh and its conspiring Insurers to protect the incumbent required the

participating carriers to “artificially” get “quotes from other markets that were non-competitive.”

24. Marsh’s conspiring Insurers colluded with Marsh to supply these losing quotes so

that they would be protected from competition when their business was up for renewal. These

non-competitive fictitious quotes were also known as, “alternative quotes,” ”B Quotes,” “B’s,”

8




“phony quotes,” “false quotes,” “fake quotes” “protective quotes,” "throwaway quotes,” “bullshit

quotes” and “backup quotes.”

25. These quotes were often part of the “broking plans” that the GBC’s prepared

when an account was up for renewal. The broking plans assigned the business to a specific

insurer at a target price and outlined the coverage. The broking plans also included instructions

as to which conspiring Insurers would be asked to provide alternative quotes. If the incumbent

Insurer hit the “target”, it would get the business and then the LBC’s would solicit “alternative”,

“B” or non-competitive quotes from other members of the conspiracy.

26.

It was rare for a broking plan to request a competitive quote from the non-

incumbent Insurer. Rather, the “alternative” markets were directed as to what quote to provide,

invariably a non-competitive quote designed to make the incumbent’s quote look attractive. If

the carrier did not comply with the broking plan and provided a competitive quote, Marsh

harshly retaliated. As Bill Gilman stated:

Important to give alternative market the expiring and target. Thus, if analternative quotes below then they have made a conscious decision to quote belowthe market and pull the market down. If that happens, then (according to Bill)

we will put this guy in open competition on every acct. and CRUCIFY him.Further, we must make sure incumbent keeps this (or another market) and NOTgive it to the alternative and reward them.

27.

AIG provided protective quotes when requested, knowing it would be shielded

from normal competition when its business was up for renewal. For example, in October 2003,

an underwriter for AIG stated that with regard to a B Quote he had provided to Marsh: “This was

not a real opportunity. Incumbent Zurich did what they needed to do at renewal. We were just

there in case they defaulted. Broker… said Zurich came in around $750K & wanted us to quote

around $900K.”

9




28. Indeed, Karen Radke stated that she provided protective quotes when the broking

plan called for it “[t]o show, to pretend to show competition where there is none.” Radke was

told by Bill Gilman that AIG should provide protective quotes so that AIG’s business would not

face protection on its renewals.

29. For example, in an email dated March 5, 2004 from Edward Keane, former GBC

at Global Broking Excess Casualty, to Jason Monteforte, former LBC at Global Broking Excess

Casualty, Keane stated that Zurich “has released a quote of $173,720….Please have AIG provide

an email indication for $50mm xP.” Subsequently, Monteforte informed an AIG underwriter

that “the incumbent hit the target …” and instructed the AIG underwriter, “…need an indication

for $50mm at $200,000.” The AIG underwriter replied that he would send such an indication

under a separate email, and a minute later he sent an email containing the quote requested by

Marsh and Zurich got the account.

30. In exchange for providing losing quotes, AIG, as part of the agreement, was

protected by various conspiring Insurers when its business was up for renewal. For instance, on

December 18, 2002, Patricia Byrne emailed James Williams (both ACE) indicating that ACE

was asked by Marsh to submit a fictitious quote so that AIG would not lose the Fortune Brands

account. “We were more competitive than AIG in price and terms. MMGB requested we

increase premium to $1.1M to be less competitive, so AIG does not lose the business.” ACE in

fact increased its premium to $1.1 million on this account, as requested by Marsh.

31. In addition, on August 26, 2003, Todd Murphy, former GBC at Global Broking

Excess Casualty, emailed Mark Kaufman and Sue Rothberg, former LBC’s for ACE and Zurich

at the time, that “[w]e need a hard copy lead alternative from Zurich & ACE.” Kaufman sent an

email to the ACE underwriter later that morning with the details surrounding AIG’s quote (25M

10




X $545,000) and asked him to provide an alternative quote. The ACE underwriter emailed

Kaufman with quotes higher than AIG’s quote.

32. In addition, ACE provided a losing quote in the Cisco Systems account which was

up for renewal in April 2003. The broking plan, prepared by Josh Bewlay, former Head of

Global Broking Excess Casualty, stated: “If AIG hits the target, we are done.” Greg Doherty,

LBC for ACE, emailed James Williams, underwriter at ACE, for a B quote. ACE provided an

alternative quote and the account was bound with AIG. St. Paul also provided a protective quote

in connection with this account.

33.

Munich (sometimes referred to herein as MARP) also provided losing quotes to

protect AIG, as well as other conspiring Insurers. In connection with The Adams Companies

account that was up for renewal in October of 2001, Munich provided a protective quote in order

to allow AIG to keep the business. On September 4, 2001, Josh Bewlay sent an email to William

McBurnie and Mark Conklin, both former LBC’s at Global Broking Excess Casualty, informing

them that “AIG came in with a lead $25 million for $175,000. I need a B quote from St. Paul

and MARP. Email will suffice.” McBurnie sent an email to Brian Shea at MARP with AIG’s

quote and asked Shea for an indication. Shea agreed and provided a quote that was $50,000

higher.

34. Additionally, Munich provided a protective quote in order to protect AIG in

connection with the December 31, 2001 renewal on the Hughes Electronics account. In a

broking plan dated November 16, 2001, Todd Murphy, a GBC at Global Broking Excess

Casualty, designated AIG as the primary with a target on the $50 million limit of a $230,000

premium, followed by Chubb and Zurich for the excess coverage. Murphy also listed Kemper,

Liberty and Munich as Type B alternatives. Both Liberty Mutual and Munich were asked by the

11




LBC’s dedicated to the Liberty Mutual and Munich teams, Nicole Michaels and William

McBurnie, to provide losing quotes, and they complied.

35. Additionally, in October 2001, Munich provided a false quote to protect AIG, the

incumbent carrier on the Thomas Development account. On October 3, 2001, Joshua Bewlay

emailed Peter Andersen, the former LBC Team Leader for AIG, advising of the need for the AIG

“quote by Friday” and that if he receives the quote by then “we can do a Type B on it and protect

you.” Bewlay also stated in his email that he “need[s] to hit the target on this.”

36. By October 10, 2001, Bewlay was becoming panicked about the lack of back-up

documentation for his renewal and sent an email to the LBC’s for Munich and St. Paul, William

McBurnie and Mark Conklin, stating “I need those emails from MARP and St. Paul. This dates

[sic] on Friday!” On October 11, 2001, the LBC for MARP came through with a $135,000

MARP quote, noting with satisfaction that “[t]hey are not competitive with either AIG or

Zurich.”

37. Liberty Mutual also provided protective quotes when the broking plan called for

it. According to the plea agreement of Kevin M. Bott, the Assistant Vice President of

Underwriting in the excess casualty division at Liberty Mutual, Marsh brokers asked Mr. Bott

“to submit protective quotes on certain pieces of business where Marsh had predetermined which

insurance carrier would win the bid.” Mr. Bott “understood that such quotes were intended to

allow Marsh to maintain its control of the market and to protect the incumbent.” Additionally,

Mr. Bott “understood that Liberty benefited from this scheme; when Liberty submitted a ‘B

quote’ on the lead layer of insurance, Marsh often allowed Liberty either to renew its place on

the excess layer or to gain new business.”

12




38. For instance, when the Merle Norman account was up for renewal in April of

2003, Edward Keane, former GBC at Global Broking Excess Casualty, emailed Greg Doherty,

former LBC for Liberty Mutual, to obtain a B quote to protect AIG’s renewal and specified the

amount that Liberty should bid. Keane informed Doherty that AIG hit the target at $140,000 and

that Liberty should come in around $175,000. Kevin Bott at Liberty Mutual emailed Doherty

with a losing quote.

39. Liberty Mutual also provided a losing quote in order to protect Zurich win the

USS Posco account. On April 10, 2003, Edward Keane emailed Heidi Haber, former LBC for

Liberty Mutual, regarding the need for a B quote from Liberty and informed Haber of Zurich’s

quote ($25 mm x$25 mm for $163,000). Haber advised Kevin Bott of Zurich’s quote and asked

for an indication for the same layer of coverage. Bott responded with a losing quote of

$195,000.

40. St. Paul also agreed not to compete with Marsh’s other conspiring Insurers for

business by engaging in bid-rigging conduct with Marsh. On or about January 2003, Marsh

brokered an insurance policy for its client, Schmidt Baking. In the email, the LBC for St. Paul,

Nilda Janacek, asked Francesca D’Angelo, an underwriter at St. Paul, to provide a “B quote” in

order to protect XL. The email states: “The Lead and excess have already been quoted. The

Lead was quoted by XL Winterthur 25x25 at $140,000.” The next day, D’Angelo forwarded

Marsh’s request to another St. Paul underwriter, Richard Rollins, and asked him to handle it.

Rollins complied with Marsh’s request by submitting a false quote of $200,000.

41. Additionally, St. Paul was asked to provide a protective quote in the Allianz of

America account in order to protect Zurich on its renewal. On February 28, 2002, Todd Murphy

sent an email to the LBC’s on the account, including Mark Conklin and attached the broking

13




plan which stated: “Please sent [sic] to St. Paul for a B.” Following Conklin’s request to Richard

Rollins at St. Paul for a B quote, Rollins emailed Conklin with a non-competitive quote.

42. In exchange for providing protective quotes, St. Paul was in fact protected from

competition. On or about June 2003, Marsh sought competitive bids for the excess casualty

coverage of HP Hood Inc., on which St. Paul was the incumbent. An internal Marsh email from

Carrie Raspantini to Annemarie Tobin states: “Risk Manager has said that she wants to see

options other than [the] incumbent.” Despite the wishes of the client, Marsh had no intention of

opening up St. Paul to competition. St. Paul, with Marsh’s blessing, proposed raising the

premiums of the policy over 40% from the year before. In order to convince its client that the

increase was justified, Marsh reached out to Zurich and ACE to provide higher non-competitive

bids. As a Marsh executive wrote to Zurich:

I need a protective quote.

Please email me indicating you would need a 2mm per occurrence, and make your premium for [the layer] unattractive, St. Paul is the incumbent and they offered[the layer for] $351,000 . . .

43.

Additionally, in or about July 2003, the broking plan for the Neiman Marcus

account dictated that St. Paul was to receive the coverage for the lead layer at a premium of

$200,000. Once St. Paul hit that target in its bid, Marsh sought protective quotes. An internal

Marsh e-mail from Edward Keane to one of the LBC’s, Heidi Haber, stated: “I am going to need

a B quote from ACE . . . so I can get CA off my back. In fact, please have ACE Excess release a

quote for [the lead layer].” This was followed by an e-mail from Haber to Curt Pontz, the ACE

underwriter, which stated:

St. Paul quoted a lead . . . (same attachments as expiring) and hit target of$200,000. I rated up the program and came to approx. $460,000 for a lead . . . .[giving ACE an indication of what to bid].

14




Can you please provide us with a back-up indication at your soonest. Should youneed any additional information, please advise. I await your indication.

Later that same day, ACE responded by stating that its price would be about $450,000 or

more than double St. Paul’s quote. St. Paul received the coverage.

44. XL also submitted accommodation quotes to protect the business of a rival. The

head of XL’s U.S. Excess Casualty Unit, Diane Amodeo, described her unit’s working

relationship with Marsh as follows: “We [XL Excess Casualty] are generally cooperative in

providing ‘backup’ quotes to protect incumbents when required to do so.”

45. Indeed, XL was repeatedly asked by Marsh to provide “B quotes” to support the

proposed Insurer in the broking plan and often did. For example, in connection with the State

Farm account which was up for renewal in April 2003, Marsh had already solicited and received

the bid from AIG that Marsh wanted the client to accept. When the client advisor asked for

additional quotes, Edward Keane, GBC, sent Leslie Lafrano, LBC for XL, an email directing her

to get a quote from XL higher than AIG’s quote. In the email, Keane wrote: “Just to be clear,

CA has requested an option from XL Wint. AIG has hit the target premium of $200,000 so

please get a B Quote from XLW for $230,000 or higher.” XL provided a losing quote of

$275,000 in a March 11, 2003 email.

46. XL received protection from Marsh in return for its cooperation. As described

above, St. Paul provided a “B quote” of $200,000 to protect XL’s lower quote.

47. Chubb also participated in the scheme by providing protective quotes when

requested to do so knowing, that in return, it would be protected. In June of 2000, Marsh sought

to place the CDI account with AIG for a premium of $195,000. In a June 8, 2000 email, Bewlay

wrote to Amy Dubuque, LBC for Chubb, “I would like a bullshit quote from [Chubb and

15




Kemper] to support the AIG lead. Please have them quote 210,000 and 217,000.” Chubb

provided a quote for $225,000 and the policy was placed with AIG.

48. In addition to providing Marsh with non-competitive quotes, Chubb sometimes

did not bid at all. In those instances, Marsh would then use Chubb’s declination to protect the

incumbent and present the client with the false appearance that the contract was placed in

competition. For example, when the Hexcel account was up for renewal on March 1, 2001 with

AIG as the incumbent, Joshua Bewlay emailed Kathy Drake, former LBC team leader for Chubb

on February 27, 2001: “Need Chubb to say no thank you on a lead basis and excess basis at the

Marsh decided numbers immediately.” Chubb responded just a few hours later with a

declination and the client ended up purchasing its primary layer of insurance with AIG.

49. Chubb also received unfair competitive advantages from Marsh in that it too, like

all the other conspiring Insurers, was protected from competition either when its business was up

for renewal or when Chubb was otherwise chosen to win the business. When the Basic

American account was up for renewal and Chubb was the incumbent for the $25m x $25m layer,

Marsh asked Liberty Mutual and Zurich to provide “B quotes” for that layer. Both Liberty

Mutual and Chubb provided protective quotes and Chubb ended up getting the renewal.

Similarly, Marsh asked St. Paul Travelers and Zurich to provide “alternate” quotes to allow

Chubb retain the Timberland account.

50. Fireman’s Fund also agreed with Marsh and conspiring Insurers to cooperate in

protecting renewals. For example, when the Grosvenor account was up for renewal in December

2001, Todd Murphy requested B quotes from St. Paul, Zurich, Fireman’s Fund and Liberty.

Fireman’s Fund provided a “declination” to the LBC allowing the incumbent to retain the

business. When the Golden Gate Bridge account was up for renewal in July 2002, Fireman’s

16




Fund was asked to provide a B quote, along with ACE, Munich, XL, Chubb and Zurich.

Fireman’s Fund again declined from writing the account.

51. Similarly, when the Union Bank of California account was up for renewal in

January 2002, Todd Murphy asked Leslie Lafrano, former LBC, to get a “type B alternative”

from Fireman’s Fund and Chubb. Lafrano asked Millie Valentine at Fireman’s Fund to provide

a declination to give the appearance that the account was placed in competition. Lafrano wrote:

“Can you send me an email that you are not interested in the $20m x$5m layer.” All incumbents

renewed their respective layers.

52.

Like all the other participants in the conspiracy, Fireman’s Fund was protected

from competition as part of its agreement with Marsh and the other conspiring Insurers. As

detailed in the Broking Plan for the See’s Candies, Inc. account which was up for renewal in

June 2001, Fireman’s’ Fund was the incumbent and was designated to remain the Insurer on the

account. The Broking Plan detailed Fireman’s Fund’s target price and requested that AIG

provide an “alternate quote.” Similarly, when Fireman’s Fund was the incumbent on the

Catellus Development account, the Broking Plan requested B quotes from ACE, Liberty Mutual

and Zurich, among others.

53. Axis also provided protective quotes. In a letter to the Connecticut Insurance

Department dated January 14, 2005, Axis admitted that it provided protective quotes to Marsh.

Specifically, the letter stated that Axis employees submitted quotes that were “higher than one or

more quotes that may have been, or were anticipated to be submitted on the same account by

another insurance company” and that the underwriters who submitted the quotes knew they

“would not be chose for the primary layer of coverage on that account.”

17




54. Marsh also invited other members of the conspiracy to collude. For example, on

at least two occasions, in 2001 and 2002, Marsh requested false quotes from CNA. In an email

dated October 17, 2001 from Todd Murphy to Katie Jamison, LBC at Global Broking Excess

Casualty, regarding the broking plan for Water Pik Technologies, Murphy requested that

Jamison “send a submission to CNA for a type B quote.” Additionally, in an email dated

December 16, 2002, Glenn Bosshardt asked John Hall of CNA for a quote which is “reasonably

competitive, but will not be a winner” and listed the quotes provided by ACE and Zurich.

55. In addition to receiving protection as the incumbent carrier when their existing

business was up for renewal, the conspiring Insurers were also promised layers in the excess

coverage in exchange for participating in the conspiracy. For example, ACE’s President of

Casualty Risk stated that he “support[ed] [Marsh’s] business model,” explaining that “Marsh is

consistently asking us to provide what they refer to as ‘B’ quotes for a risk. They openly

acknowledge we will not bind these ‘B’ quotes in the layers we are be [sic]asked to quote but

that they ‘will work us into the program’ at another attachment point .”

56.

Marsh and its conspiring Insurers were aware at all times that the above described

conduct was anticompetitive. For instance, in an exchange dated November 3, 2002 between

Geoffrey Gregory, the President of ACE’s casualty unit in Philadelphia and Susan Rivera,

President and CEO of ACE, describing the arrangement of bids with Marsh, Gregory warned

Rivera that the way the bids were being arranged “could potentially be construed as simply

creating the appearance of competition.” Despite this email discussion, ACE continued to

provide Marsh with protective quotes.

18




(5) Marsh and its Conspiring Insurers Agreed that in Return for

Contingent Commission Payments, the Insurer Participants

Would be Guaranteed Access to a Minimum Amount of

Premium Volume

57. The customer allocation scheme included horizontal agreements among the

conspiring insurers that the conspiring Insurers would be guaranteed access to minimum amounts

of Marsh’s business. Indeed, Marsh made explicit premium commitments to its conspiring

Insurers, promising, for example, to give ACE $100M in excess casualty business for 2003 and

$175M in excess casualty business in 2004.

58. The amount of premium promised to each conspiring Insurer was determined by

the premium threshold levels negotiated in the PSA’s between Marsh and its partners. For

example, when Marsh and Zurich negotiated its PSA for excess casualty in 2003, Zurich

expected to be delivered premium volume sufficient to meet the negotiated threshold.

59. To meet the premium threshold levels promised in the agreements, Marsh steered

business, with little or no competition, to its insurer co-conspirators. As Mark Manzi, a Global

Broking managing director who pleaded guilty on June 22, 2005 in connection with this scheme

put it: “Some PSAs are better than others. Shortly we will tier our market and I will give you

clear direction on who we are steering business to and who we are steering business from .”

60. For example:

• Marsh steered business to Chubb as one of its conspiring Insurers. Inconnection with the negotiation of the 1998 PSA with Chubb, Marsh promisedChubb that Marsh would move Zurich’s business to Chubb: “[Marsh] wantsour PSA done soon so there’s no excuse in the J&H/M&M offices to pushnew business to the other carriers in the meantime….As they have stated before, they are anxious to undertake ‘Operation Switzerland’…their term formoving Z.A. business to us.”

•

Marsh steered business to Crum & Forster. In a March 21, 2003 emailexchange between John Schloman of Crum & Forster and Daniel O’Donovanat Global Broking, O’Donovan observed that Marsh’s booked premium was

19




short of the amount needed to qualify for their PSA and stated that Marsh“contacted our placement center managers and advised them how important itwould be to make a final push and break through the $50 m threshold.”O’Donovan noted that while they place their Comcast business via GuyCarpenter, they may have “an opportunity to influence where this $900,000

deal gets placed.”

•

Marsh steered business to Liberty Mutual. On September 4, 2003, LibertyMutual’s Bob Herlihy wrote an email to Jeffery Kister, also of Liberty Mutualnoting that Marsh would be steering business to Liberty Mutual: “See whatcoaching and/or pricing info we can get from Marsh before releasing ourquote. They are supposedly going to try and steer the business our way.”

• Marsh steered business to St. Paul Travelers. In an email dated May 12, 2003regarding Kathryn Winter’s notes from a Monday morning meeting2 held withcertain GBCs and LBCs, Winter reported that new business should be

funneled to St. Paul Travelers since St. Paul recently did big favors for Marsh.Winter’s email further stated that St. Paul should be put in future broking plans for any new business so that they could be awarded the business if theymeet the target.”

• Additionally, in a November 11, 2003 internal Marsh email from William

Roeder, former Managing Director at Global Broking Middle Market, Roederencouraged his group to do everything possible to place the Royal CL business with St. Paul Travelers given that St. Paul Travelers wrote 2 millionof Royal business in September and October.

•

Marsh steered business to XL. Winter was advised to direct new business toXL by the end of 2002 in return for favors that XL had provided to Marsh.Winter’s notes from a Monday morning meeting held on November 25, 2002state that XL should be given four new leads on new business and put in the broking plans so that they can get the accounts if they meet the target prices.

• Marsh steered business to Axis. In July of 2003, Axis reported that BobHowe of Global Broking Property informed his employees that they “need todo more business with Axis” and “get [Axis] in on accounts” in light of Axis’‘A’ rated PSA. Indeed, in October of 2003, when Marsh and Axis finalizedtheir 2003 PSA, Howe reported to other Global Broking employees: “Psa is

done. We need to get over 40mm bar so we need a bigger push from offices.Payout is 5 or 6.”

2 Beginning in January 2002, the GBC and LBC team leaders met every Monday morning to discuss and updateeach other on what was going on in the market including which carriers were nearing PSA thresholds. The meetingswere led by Joseph Peiser, Head of Global Broking Excess Casualty. When Joshua Bewlay took over as Head ofGlobal Broking Excess Casualty in 2003, he continued the Monday morning meetings.

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• Marsh steered business to Hartford. In an October 2002 email from Karen

Mildenhall, a former senior vice president at Global Broking Middle Market,to William Roeder, former Managing Director at Global Broking MiddleMarket, Mildenhall wrote: “Question about preferred markets and growthincentives….What markets do we need a little push on to get us to the

“promised land” growth targets?” Roeder responded: “We need to protect ourrenewals with the key Partners . . . We are at ___ growth with Hartford and at _____________________________________________ Additionally, in aDecember 2002 email which attached a list of accounts, Alexandra Littlejohn,former Head of Global Broking Middle Market emailed others within GlobalBroking Middle Market, including Roeder that “[w]e need to support NYBroking anything you can do to steer this business to Hartford would begreatly appreciated.”

61. To meet the promised volume thresholds, the conspiring Insurers expected and

received competitive advantages and protection from competition. Insurers’ expectations in this

regard are illustrated in an email written by Liberty Mutual’s Mark Bernacki, Manager of Broker

Operations at LMG Property: “chances are we will trigger the marsh 2001 psa pay-out and we

must continue to ‘SELL’ and leverage the psa to our best advantage.” Mr. Bernacki stressed that

“the marsh psa must work to our advantage on all marsh quotes” and that Liberty Mutual must

receive “proper attention and treatment.” Following up on Bernacki’s email, Patrick O’Connor,

vice president of underwriting for Liberty Mutual, sent an internal email on November 29, 2001:

“again DEMAND, that marsh gives [Liberty Mutual] property the consideration and preference

we mutually and formally agreed to via the psa agreement.”

62. Similarly, after Liberty Mutual Property finalized the terms of a PSA with Marsh

in January 2003, Liberty Mutual made it clear that Liberty Mutual Property expected Marsh to

reward it in return for the attractive arrangement that was executed: “[W]e agreed to a very, very

attractive and lucrative plan and expect preferential treatment in return …[T]he price of poker

has just gone up and we will demand the appropriate consideration from marsh.”

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63. On October 15, 2003, when Liberty Mutual was getting close to meeting its

threshold, Patrick O’Conner wrote an email in which he urged others within Liberty Mutual to

“bang this drum loud as you DEMAND the attention and respect of marsh in Q4 and 1-1-04.”

64. Fireman’s Fund also expected greater business in return for its PSA with Marsh.

Following an internal Fireman’s Funds’ conference call with Joan Williamson and Fireman’s

Fund’s Global Broking liaisons, Cheryl Jennings and Pam Gaddy, Williamson reported that the

“Bottom Line” is that “Marsh Brokers should only be sending us business (Primary and Excess)

that are within our appetite – and that we should also be awarded our fair share of that business.

If we mutually agree on our objectives, I get the feeling that Cheryl will be steering the ship so

that Marsh does it’s [sic] part to meet those objectives.”

65. AIG expected, and did receive, more business from Marsh through its PSA with

Marsh: “Because we incent Marsh to write more business through us through a PSA, we expect

to get more business as compensation levels are based on growth thresholds.”

(6) The Insurer Defendants Understood Their Role in the

Conspiracy and Were Disciplined if They Did Not Go Along

66. As in all effective conspiracies, participants who did not play ball were

disciplined. Marsh’s message was loud and clear that if you did not have a PSA with Marsh, you

would not receive any business and would not be protected from competition.

67. Chubb learned as much in 1999, when it refused to pay Marsh the contingent

commission it sought. As a result, Chubb was informed by Bill Gilman that Chubb “is no longer

a preferred market for Risk Management umbrella business.” In a memo from John Angerami to

Charles Luchs (both of Chubb) on this subject, Luchs writes: “Confirming our earlier discussion,

Casualty Practice Midtown Managers have been advised verbally by Marsh Management that

effective immediately Chubb no longer enjoys ‘Partner’ Company status for the EUD lines of

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business. My understanding is this means we will no longer receive any new business and all

Chubb renewals will be marketed with the implication that the book will be depopulated.”

68. Indeed, approximately three days after Gilman declared that Chubb was no longer

a preferred carrier, Marsh Global Broking moved a significant amount of Chubb business to

other Insurers. When Kathryn Winter was asked why the Chubb business was moved, she stated

that she was “advised that because Chubb had not signed a placement service agreement, we,

Global Broking Excess Casualty were punishing them by moving all their business to other

markets.”

69.

After approximately 40 accounts were moved from Chubb to other Insurers,

including AIG3 and Zurich, Chubb agreed to renew its PSA and was reinstated as a partner

market, meaning, “we [Marsh Global Broking] protected the business and they [Chubb] kept it.”

70. Marsh used the situation with Chubb as a threat to other insurers. For example,

Bill Gilman told ACE what happened to Chubb when it refused to renew its PSA and said that

Marsh intended to punish those who did not go along with Global Broking’s structure.

71.

Chubb’s situation with Marsh was well known by other insurers as well. In

deciding whether to sign a PSA with Marsh in October of 2000, Gil Benjamin at Fireman’s Fund

informed others at Fireman’s Fund that they have been warned that Marsh “will move the

business if we don’t pay (they did to Chubb).”

72. CNA recognized the same thing in an internal email dated March 4, 2002

regarding 2002 Marsh compensation: “Marsh is saying that they are not happy with this

3 In fact, following the decision to move Chubb business to Marsh’s other conspiring Insurers, AIG received a list ofChubb accounts which included the insured’s limit for insurance, the premium for that limit, the inception date andthe expiring date. A former AIG underwriter, Karen Radke, stated that receipt of such information was unusual sinceit was private.

23




agreement for open brokerage and is already threatening to not place business with us. If we

cannot work out an agreement with Marsh, they likely would reduce their writing.”

73. Indeed, in an email dated April 10, 2003, discussing PSA negotiations with

Marsh, a CNA executive states: “Alex [Littlejohn] is very candid about the fact that she ‘cut us

off’ last year due to the conflict over the incentive.”

74. Liberty Mutual Property also learned that it was “not on marsh’s ‘preferred

partner list’ because of [its] refusal to do a psa in 2002,” and that “marsh is favoring others over

lmg property.” Liberty Mutual had a PSA with Marsh in 2001 and, as described below, made the

wrong decision in not renewing in 2002.

75. On May 2, 2002, Patrick O’Connor, Vice President of Underwriting for Liberty

Mutual sent an email to other Liberty Mutual Property executives writing that he had “heard that

bob howe sent a memo to the global broking managers with lmg as the subject matter . . . [S]teer

new business away from [Liberty Mutual Group] property.” Furthermore, in a September 2,

2002 memo to other Liberty Mutual employees, O’Connor wrote: “Marsh GBS forwarded a

memo to all GBS brokers indicating LM Property is no longer a preferred market and therefore,

should be treated as such.”

76. Liberty Mutual was unhappy with the results of not having a PSA with Marsh and

started to reconsider its decision not to renew. A September 30, 2002 memorandum from Doug

Nelson, then President of Liberty Mutual Property noted, among other things: “I think 2003 is a

new year and we should discuss PSA options (DWP based, LR driven) under the banner of

‘2002’ was driven by profit/budget constraints; 2003 is a new year where we want to increase

our production overall and partner with you, etc. – need to start in Q$ to hit 1/1.”

24




77. Also in November 2002, after Liberty Mutual Property “lost a renewal account

after matching terms/conditions requested by the broker,” it questioned Marsh as to why, to

which Marsh responded, “no PSA.”

78. By the end of 2002, Liberty Mutual had lost a substantial amount of business

which Marsh was providing to other preferred markets. A November 2002 email describing

Liberty Mutual’s discontent over the loss of business stated:

dismal results with marsh are the number 1 contributor to our poor retention andnew business in 2002.

back in april we said; results are strong with marsh, we want/need to diversifyaway from marsh, marsh needs us more than we need marsh, no need for a psa.

now in November; our results with marsh are bad and getting worse, they are the biggest broker in the world, they have and control the largest book of “mainthing” business, they control most of the shared and layered business, we want/need to diversify but marsh will always be our biggest producer, placing brokersare steering business away from us, we are the market of last resort and onlyseeing the low priced junk, we need a psa.

79. Liberty Mutual therefore agreed to a PSA with Marsh for 2003. As soon as

Liberty Mutual Property confirmed its intention to proceed with a 2003 PSA, Marsh made clear

that Liberty Mutual was again a market Marsh would use. Marsh informed Liberty Mutual that

“a memo was sent out to the ‘leaders’ yesterday indicating our expected agreement and to

consider Liberty Mutual Property as a market for new and renewal business.”

80. Likewise, XL knew that a PSA was a “prerequisite” for doing business with

Marsh and that PSA payments determined the level of business that XL could expect from

Marsh. One XL executive stated: “We know they [Marsh] will move even more business away

from XL unless we provide them some incentive to continue.”

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(7) Communications Among the Participants in the Marsh

Broker-Centered Conspiracy Facilitated by Marsh Furthered

the Conspiracy

81.

Marsh shared information with its conspiring Insurers in order to ensure that the

conspiracy would operate successfully. In particular, Marsh told its conspiring Insurers who the

other partners were; details of the contingent commission arrangements that the other conspiring

Insurers had with Marsh; the amount of contingent commissions paid by other conspiring

Insurers; and the amount of premium volume delivered or expected to be delivered to other

partner markets. Dissemination of this type of detailed information permitted each conspirator to

monitor not only what its co-conspirators were paying for their premium volume, but also, what

they were receiving in return.

82. The conspiring Insurers were aware for instance, not only what tier or level they

were on, but which other Insurers shared their status. For example, an Ace employee reported on

ACE’s status as compared to Marsh’s other conspiring Insurers: “We are only a “B” market

based on our PSA (we pay 2%, “A” markets pay 4-5%). I am working on this with Ed Zaccaria.

This is critical as the market starts to soften and they are overlined, Marsh will go to higher PSA

carriers.”

83. An early September 1997 internal Chubb email reveals that the following subjects

were discussed with Marsh: “An update of who the top ten carriers are, the nature of the

placement agreement they have with them, the names of the carriers they expect to close out in

98…and a review of how their other major carriers are handling the roll in.”

84. Details of competitor’s PSA’s were freely shared among the co-conspirators.

Marsh told ACE that Marsh would be “candid and absolutely honest about where [ACE’s] PSA

stands relative to similar partners in terms of both %'s and growth thresholds.” Conspiring

26




Insurers also had access to the proprietary information of rivals, including “key components” of

PSAs, and a comparison of payouts based on a uniform set of premium and expense factors.

85. Documents produced by Crum & Forster also show that it had access to its

supposed competitors’ proprietary information. A 1999 email entitled “PSAs – The

Competition” includes comparative information on the key components of PSAs offered by

seven of C&F’s competitors, and a comparison of payouts of twelve competitors based on a

uniform set of premium and expense factors. Moreover, following a meeting held between Crum

& Forster and Global Broking Middle Market, on April 19, 2001, Marsh informed Crum &

Forster that Global Broking placed 1.5 billion in written premium in 1999 and that 81% of this

premium was placed with nine carriers.

86. Global Broking also told Munich the details of how much the other conspiring

Insurers paid in contingent commissions, advising Munich of the terms of AIG’s and other

Insurer’s PSA’s. In April of 2001, when Global Broking and Munich were negotiating a PSA for

the Healthspectrum business, Global Broking told MARP that AIG’s PSA pays Global Broking

4.5% in gross premium and that most of its PSAs are in the “6% to 6.5% range.” Additionally,

in March of 2002, a Munich GRM manager noted that Global Broking’s excess liability PSAs

“tend to run in a fairly tight band between 15% and 18%.” Furthermore, Munich and other

insurer conspirators communicated with one another about the terms of their PSA’s with Marsh.

A Munich employee wrote: “AIG does it this way and I spoke with ACE and they do something

similar.” Indeed this type of detailed information was routinely provided in the context of PSA

negotiations and permitted each conspirator to monitor not only what its co-conspirators were

paying for their premium volume, but also, what they were receiving in return.

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87. When ACE was negotiating growth targets and commitments for its 2004 PSA

with Marsh in October 2003, it realized it had to pay on par with its “key competitor,” AIG in

order to grow its premiums. ACE accepted a PSA that paid Global Broking 15% in total

commissions, provided that AIG renewed their PSA at the same level.

88. Marsh shared information with Liberty Mutual as to its own standing with Marsh

as well as the standing of Marsh’s other conspiring Insurers. In 2003, Liberty Mutual requested

from Marsh information regarding the business of other Insurers. Marsh confirmed for Liberty

Mutual that it had a PSA with CNA and also identified its other “go to” markets. In a June 2003

email, Greg Lamb, Marsh’s Director of Broker Administration for National Markets,

acknowledged that _____________________________________________________________

________________________________________________________________. In that email,

Lamb asked Marsh “how do our hit ratios compare to other carriers’ 1st Quarter hit ratios. . . .”

89. Marsh also provided Liberty Mutual with Marsh’s 2004 internal carrier evaluation

survey results. In the email attaching the survey, Marsh informed Liberty Mutual that Liberty

Mutual “is one of [Marsh’s] top 9 preferred markets; that it is “ranked about 5 th; but “other than

AIG, there’s a very small % difference … that separates the 2nd - 6th ranked carriers.”

90. Additionally, in 2002, as part of a business development program for Liberty

Mutual, Liberty Mutual conducted interviews of executives of certain brokers. According to

typed interview notes from a meeting with Bill Gilman, Mr. Gilman informed Liberty Mutual

that AIG and Chubb are the carriers with which Marsh does most of its business and that the

“competitors” of Liberty Mutual include AIG, Chubb and Zurich each of whom have a signed

PSA agreement with Marsh.

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91. Similarly, Marsh Global Broking provided Fireman’s Fund with information as to

Fireman’s Fund’s competitors when Fireman’s Fund met with Marsh in November of 2000 to

develop its 2001 PSA. According to an internal Fireman’s Fund email on November 30, 2000

which reported on the meeting, Global Broking informed Fireman’s Fund of the details of its

arrangements with other conspiring Insurers:

Hartford will write ______ with GB in 2000 and has offered a “guaranteed”override of ___on the book for 2001, plus specific product incentives . . . St. Paulwrites ____ bolstered by their high tech product segment push … Chubb is backin GB’s good graces and is guaranteeing ___ on next year’s book. They do ________ down from ______ in ’99 and are making money with GB.

92.

At meetings held in December 2002 between Axis and senior people at Marsh,

including Mack Rice, former Global Broking North America Market Relationship Officer and

Chris Treanor, former Head of Marsh Global Broking North America, Marsh not only advised

Axis where they ranked in premium as compared to the other conspiring Insurers but also where

the other insurers ranked as well.

93. The same is true for CNA when it was informed by Marsh in December 2002

exactly where CNA ranked in premium compared to other preferred carriers including AIG,

Zurich and Chubb.

94. Marsh also shared detailed information with its partner markets regarding

upcoming renewals. This information was detailed in charts, entitled “Account Logs” or

“Account Assignments” and contained information regarding proposed game plans on accounts,

whether the market would be needed to provide non-competitive quotes and other information

regarding the other conspiring Insurers.

95. For example, on June 16, 2003, Greg Doherty, the LBC for ACE, sent an email to

underwriters at Liberty Mutual and ACE, among others, attaching a chart entitled “Doherty

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Account Assignments.” The chart included information concerning the accounts where ACE or

Liberty Mutual will provide alternative quotes. The chart also included the terms of the

incumbent carrier’s lead quote.

96. Doherty sent similar account logs to ACE and/or Liberty Mutual on June 19,

2003, August 20, 2003, September 19, 2003, September 23, 2003, October 13, 2003, December

22, 2003 and March 19, 2004. For example, on March 19, 2004, Greg Doherty sent an email to

Marsh employees as well as ACE employees attaching an “Updated Doherty Account Log.” Just

like the chart described in the above paragraph, this log outlined proposed game plans for a

number of accounts and detailed whether ACE would be providing “B” quotes on certain

renewals.

97. Marsh also disclosed information about premium delivered to rival carriers. An

internal Chubb email dated February 2, 2002 shows that Chubb received information on business

regarding premium volume and amounts of contingent commission paid by AIG, Munich,

Liberty Mutual and St. Paul, among others. In addition, ACE was aware that AIG was “Marsh’s

clear number one market” for excess casualty (with about $800M in premiums) and that Zurich’s

premium was “about $200M.”

98. Marsh also facilitated the exchange of information about co-conspirator status by

sponsoring meetings that its conspiring Insurers were invited to attend and attended. For

example, Marsh hosted a series of meetings with its “partner markets” during the week of

February 24, 2003 inviting, among others, Chubb, Hartford, AIG, St. Paul and CNA. Similarly,

on September 9, 2003, Marsh hosted a cocktail reception inviting senior executives from

Marsh’s “partner markets.” An email regarding the reception lists some of the “partner markets”

30




invited to the reception, including defendants Liberty Mutual, St. Paul Travelers, Hartford and

CNA.

99. Additionally, Marsh hosted a “Marsh Global Broking 2000 Planning Meeting” in

October of 1999. At the meeting, “competitor activities” were discussed where each of Marsh’s

conspiring Insurers gave updates on what was going on at their particular company including

strategies going forward and renewal activities. St. Paul Travelers, Chubb, CNA and Hartford

attended the meeting.

100. Similarly, Marsh exchanged information about its conspiring Insurers during the

“Marsh Casualty Congress” in February 2004. At this event, Karen Radke, former AIG

underwriter, met with Greg Doherty, the Global Broking LBC responsible for ACE who

informed Radke that ACE wrote “just under $200M in excess casualty business” and that “Marsh

represents 47% of the excess book” which equates to “53M” which “is up from almost nothing 2

years ago.”

101. Frequent meetings at the annual CIAB conference at The Greenbrier also afforded

Marsh the opportunity to share information about its arrangements with its conspiring Insurers

and to compare notes on the terms and profitability of the various contingent commission

arrangements. Marsh often sent is executive leadership who met with the top executives from its

partner markets, allowing Marsh to share details of its arrangements with those carriers and to

compare notes on the terms and profitability of its PSAs. For example, at the October 2002

Greenbriar, Marsh held a variety of meetings (private meetings with carriers as well as meetings

with groups of carriers), cocktail receptions and dinners with ACE, AIG, Axis, Chubb, CNA,

Fireman’s Fund, Hartford, Liberty Mutual, Munich, St. Paul Travelers and Zurich.

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102. Indeed, Marsh used The Greenbriar as an opportunity to speak with its conspiring

Insurers regarding the details of the PSAs. In anticipation of The Greenbriar held in October

2003, Robert Howe noted that he “and Joe Peiser would be finalizing the Axis PSA by mid-

October at Greenbriar.”

103. In addition to facilitating the exchange of information at The Greenbriar, Marsh

also exchanged information with its conspiring Insurers about the status of the other conspiring

Insurers, at meetings which were referred to as “Executive Partnership Meetings.” These

meetings provided a forum for review and discussion concerning the status of the relationship

and to comment on the quality of the PSA agreements. In preparation for these meetings, Marsh

would compile briefing materials for its attendees which included, inter alia, a list of PSAs with

the carrier, the quality of the PSA as compared to other Marsh conspiring Insurers, and

information regarding how to meet thresholds in the PSAs.

(8) The Co-Conspirators Benefited from the Operation of the

Conspiracy

104. Both Marsh and its conspiring Insurers profited handsomely from their

anticompetitive arrangement. Marsh saw its contingent commission revenue for Global Broking

skyrocket from _________ in 1992 to __________ in 1999. In 2001, Global Broking’s

contingent commission revenue reached ____________ and by 2003, Global Broking’s

contingent commission revenue reached _______________.

105. Marsh’s co-conspirators saw their gross written premium skyrocket as well. As

Liberty Mutual acknowledged, “I do believe [that] our PSA played a role in seeing our book of

business nearly double with Marsh from 1999 to 2002.” In fact, Liberty Mutual’s book of

business with Marsh grew by 73% from 2000 to 2002, while paying $1.45 million in contingent

commissions which was a “small price for $80M in additional revenue!”

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106. St. Paul Travelers characterized its success with Marsh in 2002 and 2003 as

“dramatic” as its book of business with Marsh increased almost ________, growing from _____

_______ in 2001 to _________ in 2002 to _________ in 2003.

107. Likewise, ACE’s gross written premium with Marsh grew from $3.95 million in

the first half of 2002 to over $34 million in the same period in 2003, an 860% increase; Crum &

Forster saw its gross written premium with Marsh more than quadruple from 2000 to 2004, from

$35 million to over $170 million; and Fireman’s Fund gross written premium grew from

$142,000 in 1997 to $2.6 million in 2001.

108.

Everyone understood that it was the clients who paid the price for this huge

increase in the profitability of the conspirators. In responding to questions about the MGB PSA

from his Chief Underwriting Officer, one Munich manager stated: “In answer to your question

‘does Marsh understand that the PSA is an expense load to the premium’, their answer is

absolutely. And ever [sic] other market has to cope with the same expense load components as

part of their overall premium ‘equation.’”

2)

The Aon Broker-Centered Conspiracy


109. The participants in the Aon broker-centered conspiracy are Aon (as defined in the

Complaint) and the insurance carriers with which it had “strategic partnership” relationships. At

various times during the Class Period, Aon’s conspiring Insurers including the following Insurer

Defendants: ACE, AIG, AXIS, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford,

Liberty Mutual, St. Paul Travelers, XL and Zurich.

33





(1) Overview

110. Aon allocated its customer base to and among its conspiring insurers in two steps.

First, Aon and its co-conspirators agreed that Aon would “consolidate” its business by directing

as much as 80-90% of its business to its “preferred carriers,” co-conspirators AIG, ACE, AXIS,

CNA, Chubb, Crum & Forster, Fireman’s Fund, Hartford, Liberty Mutual, St. Paul Travelers,

XL and Zurich, thereby eliminating hundreds of other insurers from competing equally with the

conspiring insurers for a substantial portion of Aon’s business. As a second step in Defendants’

unlawful scheme, the parties agreed to reduce or eliminate competition among the conspiring

insurers themselves as to that secured book of business. The key aspect of Defendants’

agreement in this regard was that each insurer would be permitted to keep its own incumbent

business, and that Aon would protect that business from competition, using a variety of

incumbent protection devices. As described below, Aon and its co-conspirators understood and

agreed that incumbent protection was a necessary element in its scheme to allocate its premium

volume in the manner calculated to achieve the highest profits, both for itself and itself co-

conspirators.

(2) The Participants in the Aon Broker-Centered Conspiracy Agreed

that the Bulk of Aon’s Book of Business Would Be Allocated to

Conspiring Insurers

111. Beginning at a time unknown, but certainly by the late 1990s, Aon saw an

opportunity to maximize its contingent commission revenue by placing the majority of its

business with a small number of “strategic” or “premiere” partners with whom it had its most

lucrative contingent commission arrangements. In return for their contingent commission

payments, these “strategic partners” were allocated a guaranteed flow of premium dollars and

protection from competition from those outside of the arrangement. The Insurer co-conspirators

34




who participated in this conspiracy were kept abreast of the terms of the agreements that other

co-conspirators had with Aon, and shared competitive information that would have been

economically irrational to share in the absence of a conspiracy.

112. Aon’s consolidation efforts were carried out and overseen at the highest levels of

the company. Aon’s two top executives, Patrick Ryan (the founder of the company and

chairman of the board) and Michael O’Halleran (the CEO), were both focused on the

consolidation of markets and movement of business to Aon’s conspiring Insurers. For example,

as late as March 13, 2004, these two top executives discussed a list of “Strategic Issues” for a

board presentation. Their agenda included the following item: “Move business to ‘key’ partners

(CSU’s).”

113. Aon’s efforts to “consolidate its markets” – that is, to limit the insurers with

which it did business - were extensive and well-coordinated, and it communicated those efforts

to the chosen insurers. For example, a Chubb document from 1997 notes:

Aon Group, has formed a new subsidiary, Aon Enterprise Insurance Services, Inc.into which it will consolidate more than $300 million in gross premiums to AonGroup’s smaller accounts. This business will be served by four carriers: Chubb,Kemper Insurance, Wausau Insurance Company (a division of Liberty) andVirginia Surety (an Aon subsidiary)…. [W]e were selected as one of the four partners in the new venture.

Aon not only identified the four conspiring Insurers to Chubb, but also allocated a substantial

premium volume to Chubb. The Chubb document continues:

Our participation in Aon Enterprise will result in more than $70 million of new premiums to Chubb in the short term as Aon Group consolidates its book.”

Prior to this consolidation the business was written by over 1000 carriers.

114. In connection with its efforts to centralize and standardize its contingent

commission arrangements and corresponding allocation efforts, Aon hired Bruce O’Neil.

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O’Neil’s mandate was to focus Aon’s executives to make sure that those executives were fully

engaged in the process of identifying and cultivating the “strategic partnership” arrangements.

115. By 2000, Aon’s consolidation efforts were well under way. The “key action

items” in the ARS year 2000 business plan included the following: “We have already begun to

implement an aggressive program of increasing average commissions, market consolidation and

contingent commission increase[.]”

116. On January 11, 2000, O’Neil held a meeting with senior executives to explain the

company’s strategy. Notes of the meeting indicate that Aon senior executives were directed to

“urge marketing departments to use the ‘Big 10’ carriers” so that Aon could “have more leverage

and receive the largest commission possible.” These Aon senior executives were also instructed

“to consolidate business with Strategic Partners and move away from some of the smaller lines

we use.” One of O’Neil’s specific tasks was “developing information on potential business that

can be moved over to the Strategic Partners.”

117. On March 31, 2000, Joseph Lombardo, a senior executive with Aon Risk Services

(“ARS”), wrote to the head of ARS, Ken LeStrange, to discuss the company’s strategy going

forward. Under the heading “Compression of Markets,” Lombardo wrote that “[w]e absolutely,

undoubtedly, without question, should not be doing business with the number of markets that we

currently do.” Lombardo estimated that Aon would be able to “knock off about 20 carriers” in

the course of its consolidation effort.

118. In a memorandum from O'Neil to Patrick Ryan and Michael O'Halleran dated

August 17, 2000, O'Neil referred to planned meetings at the Greenbrier with "our other Strategic

Carrier Partners." During this period, Aon named its strategic partners as AIG, Royal,

Travelers/St. Paul, Hartford, Zurich, Chubb, Kemper and CNA. A “Terms of

36




Trade_Contract_Contingents Status Report” chart from June of 2001 shows that Aon was

tracking its national agreements with ten “Strategic Partners”: CNA, Chubb, Fireman’s Fund,

Hartford, Kemper, Liberty Mutual (through Wausau), Royal, St. Paul, Travelers, and Zurich.

119. Nearly two years later, on June 3, 2002, Aon’s core cast of conspiring Insurers

looked quite similar. On that date Aon executive Gerald Brown noted that Aon’s Financial

Services Group (“FSG”) had identified certain core providers of specialty insurance, and stated

that “[m]ost of these key players are also corporate Aon strategic partners in various other

product endeavors.” FSG core carriers which were also listed as corporate Aon strategic

partners included ACE Bermuda, CNA, Chubb, Hartford, Liberty Mutual, St. Paul, Traveler’s,

XL/ELU and Zurich.

120. The process of allocating the bulk of Aon’s premium volume to its conspiring

Insurers in exchange for contingent commission payments continued throughout the class period.

As senior ARS executive Tom Rodell noted: “Our vision is that for each product/industry, we

would have a relatively small number of selected strategic partners where we would place the

majority of our business, and we would have appropriate PEF [a form of “contingent

commission”] Agreements."

121. To carry out its agreement with its conspiring Insurers to consolidate its business

with them and allocate business between them, Aon concentrated control over national

contingent commission agreements in the hands of a small group of executives, known as the

Syndication Group, which oversaw multiple product lines within ARS. The leading Aon

executives who oversaw this aspect of the scheme were Robert Needle, Managing Principal of

Retail Syndication (the largest division of the Syndication Group), Carol Spurlock, Managing

Director of Commercial Risk, and Ronald Moyer, Managing Director of Financial Services.

37




Aon’s brokers were encouraged by the Syndication Group to “drive further market consolidation

to achieve . . . improved revenue management . . . [and] greater market leverage.”

122. The Syndication Group organized each product line into national units that

oversaw placements and the negotiations of new contingent commission agreements intended to

replace smaller local and region agreements with large national ones. These national

agreements, originally called Placement Service Agreements (“PSAs”), Professional

Enhancement Fund agreements (“PEFs”) or override agreements, were misleadingly renamed

“Compensation for Services to Underwriters” or “CSUs” in March 2004.

123.

Chubb, one of the Insurer co-conspirators, recognized that the allocation scheme

was successful: “By consolidating this business and having a dedicated team to work with Aon,

we have become their number one market and now have over 40% of their book. We expect this

number to grow as they consolidate their business from the non-focused markets to the focused

markets (Chubb, AIG, Travelers, Hartford and Royal).”

124. Bob Needle acknowledged in a November 25, 2003 memorandum that Aon’s

“strategy over the last couple of years has been to reduce volatility and increase revenues by

shifting from local office based contingency agreements to volume driven override

arrangements.” In a December 1, 2003 internal Aon e-mail to other ARS executives, Renae

Flanders noted that the following question was key to Aon’s “overall business planning for

2004”: “Are you placing business with our strategic partners? If not, do you have a plan in

place to better align your business with our partners?”

125. The market consolidation efforts continued into 2004, as described in an ARS

business plan for that year: “Our Leading Carriers have been condensed into seven carriers,

down from nine, where we enjoy National Professional Enhancement Fund Agreements with a

38




defined placement strategy. These carriers are Chubb, Hartford, Travelers, St. Paul, CNA,

Wausau and Zurich. Our strategy in middle market is to create a condensed group of markets

that can handle 80-90 percent of our business obtaining cost efficiencies in dealing in this market

segment.”

(3) The Participants in the Aon Broker-Centered Conspiracy Agreed

Not to Compete for Each Others’ Customers

126. The Insurer Defendant co-conspirators -- ACE, AIG, AXIS, Chubb, CNA, Crum

& Forster, Fireman’s Fund, Hartford, Liberty Mutual, St. Paul Travelers, XL and Zurich -- knew

of and understood their role in the conspiracy, and they each agreed horizontally to participate in

it. Each was a “strategic partner” of Aon during the relevant time period and each enjoyed the

guaranteed premium allocation and the protection from competition that the status afforded.

127. One of the key mechanisms for allotting premium that was agreed upon by Aon

and its partners was very simple: protection of incumbent business. In other words, the

members of the Aon broker-centered conspiracy understood and agreed that when one of their

accounts was due for renewal, Aon would take steps to keep that account with the incumbent

conspiring Insurer. Aon accomplished this by failing to seek competitive bids, giving the

incumbent a “last look” on the account, and/or providing other anticompetitive information and

advantages.

128. AIG, for example, expected to have its incumbent position protected by Aon. In

an exchange in late 2004 with an AIG casualty manager regarding a particular environmental

account, Mitch Cohen of Aon noted that because AIG was late with its proposal, Aon “chose not

to offer you [AIG] last look.” Trying to explain the late bid to Aon, the AIG manager indicated

that “we were unaware of competition until the last day and therefore unaware that you would

need to provide program comparisons to your client.” In other words, AIG made the assumption

39




that Aon would honor the agreement to protect its incumbent position without seeking

competitive quotes.

129. Aon’s treatment of another Insurer co-conspirator, CNA, offers further evidence

of Aon’s incumbency protection. After a meeting with CNA’s senior leadership in early

December 2003, Carol Spurlock sent a note to several ARS managers exhorting them to push as

much business as possible to CNA so that Aon could maximize its profits under the Aon /CNA

contingent commission agreement. Spurlock’s pointed direction was heeded, as one of these

Aon employees told her that, on a particular account, “we’ve put CNA in the incumbent’s seat,

although Travelers is ready to quote,” and noting that “[i]t’s up to them to do the deal.” Spurlock

went straight to CNA with this news, telling the CNA representative that “[w]e have put you in

an incumbent position, I don’t think you can ask for more.” Spurlock went on to note that “[t]his

could very well be the deal that brings us to the finish line,” meaning that Aon was close to

meeting its contingent commission threshold with CNA and was in a position to cash in on its

incumbency protection.

130.

In a November 18, 2003 e-mail to St. Paul, Aon’s Ron Moyer discussed the

_____________ account, and assured St. Paul that “I want to treat you right as an incumbent. . .

.” Mr. Moyer went on to share with St. Paul detailed information about the structure of the

placement in order to protect St. Paul’s incumbent position.

131. Aon employees were careful to police the incumbent protection aspect of the

conspiracy. For example, in April of 2003, Rhonda Rayha wrote to Carol Spurlock and others

about an “incident” where Travelers “brought to my attention that we are not protecting our

incumbent, premiere markets.” The e-mail went on to note that “[i]n addition to our Syndication

colleagues I have communicated to the Region our commitment to our “premier-market”

40




relationships.” The Travelers employee who initially brought the incident to the attention of

ARS noted that “we are doing our best to live up to our promise to treat Aon like a preferred

partner, but incidents such as this make us feel as if it’s not reciprocated.”

132. In fact, when Aon sought an enhancement of its 2002 payout from Chubb, Chubb

developed a “shopping list” of accounts in exchange for the requested enhancement. An internal

Chubb e-mail noted that “in an effort to maximize their Chubb incentive plan [Bob Needle of

Aon] asked for a list of all significant (6-7 figure) renewals and new lines for November and

December in CCI and CSI. His intent is to alert his people of the importance of renewing or

placing these accounts with Chubb.” In an email in November 2003, Bob Needle of Aon

forwards an email containing “another list,” stating, “as you know we need to do our utmost to

keep this and drive other new business to Chubb.”

(4) Aon and the Conspiring Insurers Agreed that in Return for

Contingent Commission Payments, the Conspiring Insurers

Would Be Guaranteed Access to a Minimum Amount of Premium

Volume.

133. Beyond incumbency protection, the Insurer co-conspirators also agreed with Aon,

and horizontally among themselves, that access to new business would be protected from

competition, and that they would be allocated a guaranteed level of both types of business. As

an employee of Chubb noted, “Chubb is Aon’s preferred market for all new business. We will

get first look and be guided as to how we stack up against the competition…he has steered

several new lines our way.”

134.

A February 2004 internal ARS e-mail regarding the 2003 estimated payout

calculation under the Crum & Forster incentive agreements demonstrates that Crum & Forster

(and other members of the conspiracy) expected both production and protection from Aon in

return for its contingent commission payments: “They [C&F] are satisfied, but want more

41




production, better alignment, and payback for the unbinding of the piece of January business

given back to AIG.”

135. Another example of Aon’s allocation of business to its Insurer co-conspirators

was its relationship with ACE, where PSA payments to Aon were tied to the steady flow of

business to ACE. As ACE saw it, “high front end commissions” were necessary to “focus”

Aon’s brokers on providing “value” to ACE in the form of placements. According to a June 4,

2004 memo from Lupica to John Alfieri setting forth the ACE USA NY Region Monthly Report,

Gary Marchitello (Aon’s National Property Practice leader) met with Lupica and “re-committed

to increase submissions to ACE.”

136. Indeed, Aon regularly tracked the premium levels directed to its insurer co-

conspirators in order to allocate business in accordance with the thresholds embodied in the

contingent commission agreements. For example, in an e-mail dated December 23, 2002,

executives in ARS exchanged correspondence about “Aon/Zurich Incentive Results”, i.e., the

progress of steering premium toward Zurich: “Attached is a spreadsheet showing our production

results as of Dec. 17th. Aon’s net premium now stands at slightly more than $82.5 million.

Getting very close to the next threshold now. Only $7.5 million to go.”

(a) Aon Steered, Shifted or Rolled Business to the Conspiring

Insurers with Minimal or No Competition

137. Steering business to conspiring Insurers was a well-accepted and important

element of the agreements between and among Aon and its conspiring Insurers. In August of

2000, Bruce O’Neil wrote to Patrick Ryan and Michael O’Halleran about a series of Greenbrier

meetings with Aon’s conspiring Insurers. Mr. O’Neil made clear that the status of strategic

partners carried with it certain important benefits. In particular, with respect to Chubb, Mr.

O’Neil listed the following agenda item:

42




Suggest we use Atlantic Mutual and CGU to “payoff” Chubb to secure$4,300,000 agreement or 1% override (see May 18, 2000 agreement) for ourentire Chubb ARS book.

In other words, Aon would transfer business from carriers who were not conspiring Insurers to

the members of the conspiracy, without regard to the best interests of the client involved, in order

allocate premium in the agreed-upon amounts.

138. As ARS put agreements to allocate business in place with various conspiring

Insurers, it put out the word internally to deliver on promises that were made to steer business to

those Insurers. Robert Needle, the Managing Principal of ARS’s Retail Syndication, told his

subordinates at a Syndication Operations meeting that “[w]e should continue to grow our book

with Chubb and also Hartford and Wausau based on our favorable contingency agreements.”

139. In a February 2003 e-mail exchange with Gail Soja of Chubb, Carol Spurlock

made clear that accounts then held by Kemper would be allocated to conspiring Insurers, saying:

“[W]e are committed to giving Chubb first choice among strategic partners in our business

consolidation efforts.”

140.

On May 6, 2003, Ms. Rayha wrote to another ARS colleague, making sure he was

aware that business should be steered to conspiring Insurers whenever possible. Writing about

the placement of one client’s business, Ms. Rayha remarked that “Senior Mgt wants to make sure

that we give every opportunity to one of our partner-markets to participate in this placement (St.

Paul, Chubb, etc…).”

141. In late June of 2003, Ms. Rayha discussed another incident where two conspiring

Insurers were competing for the business of a particular client, making clear that placating these

conspiring Insurers was critical to Aon’s conspiratorial conduct. Having discovered that the

account in question had been placed with St. Paul rather than Chubb, Ms. Rayha noted that “St.

43




Paul deserves the order on this, but Chubb is screaming loudly and based on my last

conversation, they don’t necessarily feel that we gave them an equal opportunity on this

placement. Let’s prove otherwise. We would be requesting the same information if it were the

other-way-around. St. Paul is also a partner market and would deserve the same justification.”

142. In March 2003, Carol Spurlock, who at the time was the head of Middle Markets,

wrote to a colleague who had inquired whether business should be directed to Zurich even

though it had not paid contingent commissions to the Middle Markets department during the

prior year: “Going forward, we are going to push Zurich. I just today negotiated our incentive so

that we will get paid next year.” A month later, Spurlock described the Zurich relationship to

another colleague:

We have always had an extremely nice contingency with the excess folks atZurich. We received a huge check from them on umbrella business last year. Wedid not have a middle market contingency last year, we do this year. So yes placelotz [sic] of business with [Zurich]. . . .

143. Another Spurlock e-mail to senior ARS executives from June 20, 2003 shows that

the efforts to push business toward the Insurer co-conspirators continued. Reviewing a mid-year

conference call about the status of production to various conspiring Insurers, including Travelers,

Crum & Forster, Hartford, St. Paul, Chubb, CNA, Wausau, and Zurich, Spurlock noted, among

other things, that: “St. Paul does not have a last look on Kemper business. We own the

business, preference is to place with Chubb when we can. . . . Need to continue to replace Royal

business with partner carrier. Working on a National deal with C&F. Mainly to receive payment

on what we have with them. Not necessarily to push business there. Need to push Hartford and

Wausau on that business.”

144.

Aon tracked its progress towards the goal of allocating its premium to and among

its Insurer co-conspirators. For example, a report entitled “Aon Syndication Central Region

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January-June 2002 Strategic Partner Report” shows that Aon was working very hard to make

sure that its Insurer co-conspirators were enjoying ever increasing volumes of business as a result

of the group’s agreements. This report, like many other similar reports, charts the progress of

Aon’s efforts to steer premium to those insurer co-conspirators.

145. ARS also provided financial incentives to employees who steered placements to

the Insurer co-conspirators. Needle told one insurer that “[i]nsurer incentives are a key factor in

the property bonus pool.”

146. This message was reiterated by Needle’s subordinates and the executives from the

other ARS product groups. As Carol Spurlock, Aon’s Managing Director of Commercial Risk,

explained on April 14, 2003 to an insurance company executive whom she was attempting to

persuade to enter into a contingent commission agreement:

Let me further confirm our ability to effect [sic] placement behaviors. Oursyndicators are evaluated on the percentage of their books that are with our“premiere” markets. Each Regional Syndication Director is held accountable aswell. This is a measurable, compensated item that each syndicator is financiallymotivated to drive.

147.

Similarly, Eric Andersen, co-head of Aon’s Financial Services Group, stated:

The revenue that arrives from the [contingent commissions] are [sic] integral toour budget and profit derived from FSG [Financial Services Group]. When we are being evaluated, they look at the full picture of earnings. Our bonus pool is set asa percentage of revenue. . . . If our [contingent commissions] fall, our ability touse the percents that we use to pay individual brokers would need to be changed.In short, it is a critical factor in our business and has a direct impact on how muchwe can pay people in FSG.

148. In a later e-mail, the Managing Director of the Financial Services Group, Ronald

Moyer, chastised an employee for questioning how contingent commissions are helpful to the

group:

[I]t is safe to say that, over the past couple of years, [contingent commission]money has funded our entire bonus pool as well as our investment hires and stillcontributed significantly to the bottom line of the company. Anyone who does not

45




see that as advantageous for them personally is looking through the wrong end oftheir telescope.

149. ARS e-mails between Carol Spurlock and Valerie Daniel from November 19,

2003 show that steering business to the Insurer co-conspirators continued unabated. In these e-

mails, the two senior Aon employees were discussing the placement of insurance for two

accounts, ____________ and ______________. With respect to _________________, Ms.

Daniel noted that “[c]andidates are Zurich, Chubb, Travelers & FF – FF wrote this for 13 years

before account moved to Royal 3 years ago. Will do my best to steer it to one of the other mkts

[sic] referenced.” In response, Ms. Spurlock suggested that Ms. Daniel should “[p]ush Chubb

and Travelers to the extent that you can on __________. Definitely Zurich before FF.”

150. On one occasion, Aon chose to book roll certain business (Aon Enterprise) from

one strategic partner, CNA, to another, Hartford. CNA was unhappy about the decision, noting

that “I guess it isn’t really about “strategic partners” just $$$ -- duh!”

151. Aon often steered premium to conspiring Insurers in return for another form of

compensation: reinsurance brokerage fees. Aon’s reinsurance brokerage affiliates, known

generally as Aon Re and Aon Specialty Re, charged hefty fees to retail insurers when those retail

insurers used Aon to place their own reinsurance programs.

(b) Conspiring Insurers Expected and Received Competitive

Advantages and Protection from Competition from Aon.

152. Aon used its power to allocate premiums to its conspiring Insurers in a number of

other ways.

153. In at least two instances, Aon’s willingness to place its own interests and that of

its co-conspirators ahead of its clients led it to manipulate the bidding process and cause Insurers

to submit higher bids than the insurer otherwise would have tendered.

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154. In the first instance, which occurred in September 2003, ARS instructed Zurich

that its bid of $246,922 for the workers compensation business of Fieldstone Investment Corp.

was too low and suggested that Zurich raise its bid before the bids were shown to the client. In

this way, ARS sought to help Zurich recoup funds Zurich had expended on an unrelated client’s

account, Pearlstine Distributors, Inc.

155. Three months earlier, Aon had sought insurance coverage for Pearlstine, and

Zurich had obliged, though Zurich had eventually spent $18,000 on excess liability policy,

deeming Pearlstine a poor risk. Seeking to placate their strategic partner, Aon promised Zurich

that ARS would “re-imburse [sic] you folks for the Additional Reinsurance costs associated with

umbrella coverage on Pearlstine through 9-1. . . .” Aon’s opportunity to reimburse Zurich came

at the expense of Fieldstone Investment Corp., which had retained ARS to obtain a variety of

coverages, including workers’ compensation insurance. Shortly after Zurich’s initial bid was

submitted, ARS told Zurich it could raise its quote without losing the bid. Zurich won the

account after raising its quote by nearly $45,000.

156.

On November 13, 2003, after the account was bound with Zurich, the ARS

employee assigned to the Fieldstone account wrote to Spurlock to explain what had occurred:

We wanted to let you know that when we first started negotiating this deal with[the Zurich underwriter], his initial WC premium came in at $246,922. Theexpiring premium with the same payroll was $283,532. He quoted $36,610 lessthan expiring. We came back to him and allowed him to increase his initial WCquote to approx. same as expiring, $283,532. We allowed Zurich to get moremoney on this. . . . This is an example of AON letting Zurich have more rate and premium when we could have held them at a cheaper price.

157. The next day Spurlock wrote to the Zurich executive who had negotiated

the agreement on the Pearlstine account. She attached the November 13th

e-mail and stated:

[t]his one deal gave you twice the amount compromised on the Pearlstine account.Are we in agreement that we have now met that obligation[?]:

47




158. On January 5, 2004, Spurlock again wrote to Zurich and attached both the

November 13 and 14 emails:

I never heard from you or [the Zurich executive] on this subject and we assumedthat you are in agreement with the statements made below [the November 13 and14 e-mails]. To refresh the circumstances surrounding this topic, remember thatwe agreed at a senior management level to forgive the additional premiumgenerated by building the primary limit to $2M to Pearlstine with the promise thatwe would make it up to you in other business. This was done twice over on[Fieldstone].

159. A later Aon internal e-mail noted that the inflated bid not only settled the

Pearlstine debt to Zurich but helped Aon get closer to achieving payout on its contingent

commission goal:

Congrats again on Fieldstone. Not only was that a nice new hit, it certainly helpedus on two fronts. It obviously helps to get us closer to our premium goal withZurich and also to make up the $18K in premium that they helped us out on[Pearlstine], go away. As I recall you were able to get them $36K more in premium than they originally quoted to more than make up for what we owedthem. That is the way a National operation should work.

160. In the second instance of bid manipulation, Aon encouraged Zurich to raise its bid

on certain environmental coverage for Pitcairn Properties, Inc. from the mid-60s to just over

$90,000. Aon’s syndicator told the Zurich underwriter that the initial quote was too low and that

he wanted Zurich to quote in the upper ninety thousand dollar range. The Zurich underwriter

agreed to provide the higher quote. The conversation was followed by an e-mail from the Aon

syndicator to the Zurich underwriter: “[i]t was good talking with you just now, and it was

refreshing to hear some willingness to take this opportunity on. . . . [t]he target is in the upper

90s.”

161. Four days after the conversation, Zurich provided a formal quote to ARS of

$92,497. Although Zurich had the lowest quote, ARS advised Pitcairn to reject Zurich and take

48




a higher AIG quote of $99,519. ARS justified the recommendation by telling Pitcairn that

Zurich had refused to cover the disposal sites, even though Zurich had agreed orally to cover the

sites.

(c) Aon Monitored and Enforced the Terms of the Conspiracy

162. During the class period, Aon monitored and policed the conspiracy by cutting off

premium volume supply to companies that did not live up to their end of the bargain. As one

ARS executive informed an insurer that had promised but not yet signed a contingent

commission agreement:

We have been operating on the good faith that this [contingent commissionagreement] would be mutually agreed quickly after our meeting here in NY.Based on the fact that we are almost halfway through the year, I will be advisingour people in the field that we in fact don’t have a [contingent commissionagreement] with [Industrial Risk].

163. Aon essentially denied premium flow to carriers who would not cooperate with

the aims of the conspiracy. At a meeting with Aon representatives in June of 2001, James

Snedeker of Munich American Risk Partners was told that contingent commission agreements

were critical to receiving any business from Aon. Mr. Snedeker noted that “As they have

previously, Aon re-emphasized that all business will be placed through the newly formed

Syndication unit. For a market to see any new or renewal business we must have PSA in place.”

(d) Communications Among the Participants in the Aon

Broker-Centered Conspiracy, Facilitated by Aon, Made the

Conspiracy Plausible

164. The Insurer co-conspirators were aware of their preferred status with Aon, were

advised of the preferred status of other carriers, and all agreed to the corresponding allocation of

business to and among them. For example, Fireman’s Fund was specifically aware of the terms

that the other conspiring Insurers had agreed to with Aon:

49




Each company is offering slightly different incentive plans for this consolidation.Our plan offers a 3% override for new business in excess of $500,000 for theentire office, as well as a 4% override at $1,000,000, up to $50,000. Chubb has asimilar arrangement, with an overall agreement tied to profitability and retentionlike our ICA (this is big bucks as their book exceeds $10M). Travelers has a

1.5% override on all new business in this unit, and Wausau offers 3% on specifiedaccounts in the unit. The specifics on the Royal plan are not yet known.

165. Information about the terms that other co-conspirators had with Aon was

routinely distributed among Aon’s Insurer co-conspirators. For example, Aon provided Chubb

their carrier Contract Checklist, noting that “most of our strategic partner carriers were

interested” in the list. Aon also provided Chubb with copies of its agreements with its other

preferred partners. Moreover, competitive information also flowed to Aon. Aon knew the terms

of Chubb’s deal with Marsh and suggested to Chubb: “Alternatively, you could give us the

Marsh deal.”

166. Often it was Aon’s top executives that passed information about compensation

agreements between the conspiring Insurers. This is reflected, for example, in a June 21, 2004

email from XL’s top executive, Clive Tobin. Mr. Tobin wrote to Mike O’Halleran and

referenced their discussions about compensation agreements with other Insurers, saying: “Mike

this is in line with our discussions and agreements with other carriers.”

167. Aon freely distributed specific competitive information to other insurers who

sought to break into the Aon conspiracy’s inner circle. For example, in a meeting on April 20,

2001, Bob Needle of Aon met with James Snedeker to discuss the possible terms of a contingent

commission agreement between Aon and Munich American Risk Partners. In the course of the

discussion about the terms of a potential agreement, Mr. Needle shared the terms of contingent

commission agreements that Aon had entered into with Zurich, Chubb, XL and AIG, including

the specific percentages that these companies were paying Aon on specific areas of business.

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168. A series of April 2003 e-mail exchanges between Carol Spurlock and Keith

Braxton of Liberty Mutual affiliate Wausau shows that Aon facilitated the exchange of

competitive information among the members of the conspiracy, informing each conspirator of

Aon’s agreements with its competitors, and making clear that terms of individual contingent

commission agreements were paramount in Aon’s distribution of new business. The exchanges

between Spurlock and Braxton concerned the possibility of Liberty Mutual obtaining some of the

Kemper middle market business. In the course of this exchange, Ms. Spurlock makes it clear

that Liberty Mutual is viewed as a strategic partner, and that Aon was prepared to shift the

business toward Liberty Mutual if an appropriate contingent commission agreement was put in

place. Mr. Braxton asked, in the course of the discussions, “Is this an exclusive offer to Wausau

or is this out with every carrier?” Ms. Spurlock responds that “[w]e have had discussion with

Chubb and Hartford. Chubb has picked up some of the business, not allot [sic] of movement . . .

We went to them because our agreement is more favorable. . . . . We are having preliminary

conversations with CNA and St. Paul.”

169.

An e-mail dated May 23, 2003 further demonstrates Aon’s information-sharing

role. In the e-mail, executives within ARS discussed the terms of a contingent commission

agreement with AIG and indicated that information on the terms with other carriers was routinely

shared with Insurer co-conspirators: “PEF is in draft form and Ken has agreed in principle to our

terms. . . .They should be falling all over you guys to reward your placement and encourage you

to continue to place business with them. You can also mention that all their competitors pay us

12 to 13 points on placement.” (emphasis supplied).

170. The sharing of detailed competitive information is also revealed in a Crum &

Forster document entitled “Agency Call Report” which describes a visit between Crum & Forster

51




employees Jerry Czekalski and Dutch Egbers, and Ralph Hodges of Aon. The report explains

that Aon informed Crum & Forster that its contingency agreement was “average within the

industry and available from anyone.” Hodges specifically recounted that Hartford, Royal and

Chubb had better plans. The Report goes on to note that “Ralph [Hodges] will share competitor

R&G plan information with us (we met off-site)”, and that Ralph asked if Crum & Forster “could

enhance its R&G to pay on new business from dollar one to attain a better share of available

premium from Aon.” After noting Aon’s long term profitability, the report recommends that

Crum & Forster “enhance” its R&G offer. In his comments forwarding the report internally,

another Crum & Forster employee asks that others in the company make sure to secure the

promised competitor information for Chubb, Royal and Hartford.

(5) The Co-Conspirators Benefited From the Operation of the

Conspiracy.

171. Liberty Mutual, in a message to ARS in March of 2004, continued to recognize

the impact of the contingent commission agreements on its bottom line, forwarding the latest

Liberty/Aon contingent commission agreement to ARS with the note “we would like to execute,

announce and get it into play quickly so as to start impacting results.”

172. Payments from the Insurer co-conspirators, on an annual basis, were substantial.

For example, in 2003 Crum & Forster paid Aon $1,236,655 in national account incentive

commissions.

173. An e-mail from John Sullivan to Elliott Jones from July 26, 2001 shows that AON

knew that the concentration of premium in the preferred partners would be a lucrative

proposition, and that steering of business to these preferred partners had to be pressed

aggressively: "[O]ur arrangement with CNA will be quite lucrative to ARS, therefore we need to

52




carefully yet aggressively be certain all casualty syndicators understand this is a preferred

market."

174. In the discussion of the 2004 business plan for the ARS Environmental, Aon

made clear that the contingent commission income was substantial and growing: “PSA renewals

– It is our expectation to take what are now decent Market Agreements and mature them into

more lucrative deals for Aon. A major objective in the effort is to raise the overall commission

levels on the book from an average of around 10% to upwards of 12-13% on the entire book.

We expect some of the newer carriers might be willing to offer Aon 15% on new business.”

175.

In early 2000, Paul Markey of Aon emailed Michael O’Halleran about the fact

that XL was not getting a lot of business from Aon, explaining “I think our producers also get

better commissions etc. elsewhere.” Markey noticed that XL’s management was “not confident

that PSA’s or incentives will bring our business back to XL.” Yet Markey was confident that if

XL understood that Aon could, in fact, allocate premium in exchange for higher contingent

commissions,” that XL would want to join the conspiracy:

Clearly I believe that the reinsurance equation and the PSA have enormous impacton this type of situation . . .***I remain convinced that XL is a partner of choice for Aon and that given thestrong endorsement and a modicum of proof of our ability to deliver, we stand togain a great deal.

XL did, in fact, become a strategic partner, and by 2002 the profitability to both companies was

evident. Bob Needle reported that “with XL America, we grew 82% from $121 million in 2001

to $220 million for 2002.” As a result, Aon’s “XL override for 2002 was $7 million[.]”

176. The losers in this have been Aon’s clients and the marketplace for insurance. The

clients have been harmed because insurers pass the cost of contingent commissions on to the

clients in the form of higher premiums. As one insurer noted about the contingent commissions it

53




would have to pay Aon: “It appears that [contingent commissions] could hit 2.5% this year. Let’s

load an additional 2.5% in their premiums.”

3) The Wells Fargo/Acordia Broker-Centered Conspiracy

a)

Participants in the Conspiracy

177. The participants in the Wells Fargo/Acordia broker-centered conspiracy are Wells

Fargo/Acordia (as defined in the Complaint) and the Insurer Defendants with which Wells

Fargo/Acordia had “strategic partnership” relationships. At various times during the class

period, Wells Fargo/Acordia’s conspiring Insurers included Chubb, St. Paul/Travelers, The

Hartford, CNA and Fireman’s Fund.


(1) Overview

178. Wells Fargo/Acordia allocated its customer base to and among its conspiring

Insurers in two steps. First, Wells Fargo/Acordia and each of its co-conspirators agreed, and the

conspiring Insurers agreed among themselves, that Wells Fargo/Acordia would “consolidate” its

business by directing a significant portion of its business to Chubb, Travelers, Hartford, CNA

and Fireman’s Fund, thereby eliminating hundreds of other insurers from competing equally with

the five conspiring Insurers for virtually 100% of its small business customers and a substantial

portion of Wells Fargo/Acordia’s total commercial customers. Second, Wells Fargo/Acordia and

its conspiring Insurers agreed that each of these five Insurers would be allocated specific

business for which they would not have to compete among themselves.

(2) Wells Fargo/Acordia and the Conspiring Insurers Agreed that

a Substantial Part of Wells Fargo/Acordia’s Business Would

Be Allocated to the Conspiring Insurers

179. Beginning as early as 1997, Wells Fargo/Acordia embarked on a plan to maximize

its contingent commission revenue by placing a substantial portion of its business with a small

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number of insurance carriers with whom it had lucrative contingent commission agreements.

Specifically, Wells Fargo/Acordia conspired with a handful of its major Insurers to consolidate

its business with those chosen Insurers, allocate customers, and unlawfully limit competition.

Wells Fargo/Acordia entered into the conspiracy with these Insurers with the understanding that

it would receive substantial contingent commission payments; in return, the Insurers

participating in the Wells Fargo/Acordia conspiracy expected and understood that they would be

guaranteed significant amounts of premium dollars free from outside competition, and that they

would be protected from having to compete even among themselves for some or most of the

business they were allocated. Wells Fargo/Acordia and its conspiring Insurers kept one another

abreast of the terms of the agreements within the conspiracy and shared competitive information

in a manner that would have been economically irrational in the absence of a conspiracy.

180. Wells Fargo/Acordia’s consolidation efforts began at least as early as October 21,

1997, when Chubb & Son, Inc. President Bob Crawford, Jr. wrote to Wells Fargo/Acordia, Inc.

President Frank Witthun regarding a prior meeting in Florida. Materials from this “Chubb –

Acordia Partnering Workshop” indicate that Wells Fargo/Acordia was in the process of

“consolidating its business with carriers, preferring to place the majority of its business with a

small number of carriers.”

181. In early March 1998, Chubb noted internally that Wells Fargo/Acordia had hired

Charlie Ruoff “to drive their initiative of consolidating their middle to [small] business markets.”

Ruoff’s prior work experience included serving as the President of AIG’s Commercial Accounts

Division.

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182. On January 6, 1999, David Cover, a Fireman’s Fund Executive Production

Underwriter wrote to Acordia’s ________ stating “you had indicated that your agency has

basically _________________ that you will be doing business with in 1999.”

183. As the Attorneys General of New York, Connecticut and Illinois noted in the

“Assurance of Discontinuance” entered in the Matter of St. Paul Travelers Companies, Wells

Fargo/Acordia’s implementation of the conspiracy continued in mid-1999, when Wells

Fargo/Acordia implemented a “Millennium Partnership Program” in order to “leverage our

major market [insurer] relationships in conjunction with our strategic initiative to electronically

link ourselves to markets [insurers].” Wells Fargo/Acordia expected this program to generate

millions of dollars from “Preferred Market Partners” – i.e., its Insurer co-conspirators – over a

three year period. The program was designed to consolidate insurance business with a very

small number of conspiring Insurers by giving them “the inside track for future business

development.”

184. On March 15, 1999, Acordia’s Chief Marketing Officer, Ruoff, wrote an email

titled “Millennium Agency System Partnership” to Acordia’s Chief Executive Officer Robert

Nevins and stated that “[s]ince these markets ______________________________________

have agreed to a _____ override on GWP over the next three (3) years, they need to be given

priority in our marketing plans . . . you need to tell the Regional CEO’s about what happens to

AMS costs in their region of they don’t cooperate with the plan . . . they all need to help and

can’t let ‘the other regions do it’! This note has been sent to the 4 regional CEO’s.”

185. On or about May 21, 1999, David Hovey, Jr., Hartford’s Director of Broker

Strategy & Management, wrote to Ruoff to discuss Wells Fargo/Acordia’s “Millennium Agency

System Partnership” and Hartford becoming a “key strategic partner” of Wells Fargo/Acordia.

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Hovey further indicated that Hartford was “anxious to aggressively move forward with this

Small Business Consolidation Initiative.”

186. On or about June 3, 1999, Ruoff wrote back to Hartford’s Hovey and stated that

they needed to “balance” their negotiations “to the understandings with other markets,” meaning

their Millennium carrier partners. Ruoff further stated that “[i]t is very important to us that we

treat all of our Millennium market partners fairly” and that “[b]usiness initiatives have begun

with other partners.”

187. Insurer members of the conspiracy understood that they were required to pay

significant amounts of contingent commissions to Wells Fargo/Acordia in order to continue to

receive their premium allocations. Travelers, for example, advanced Wells Fargo/Acordia

________ in early 2000, ________ in 2001, and _______ in 2002, giving Wells Fargo/Acordia a

strong incentive to steer business to Travelers so that it could avoid repaying these advances, i.e.,

to “‘incent the proper national and local commitment to the program.” Wells Fargo/Acordia

responded by making certain that Travelers business with Wells Fargo/Acordia increased.

Travelers was pleased with the results of the Millennium agreement and renewed it in 2003

under terms similar to the original deal.

188. On or about August 10, 1999, Ruoff and other Acordia executives met with

Hartford executives in Hartford, Connecticut for an “Acordia/Hartford Sales Partnership

Meeting.” Handwritten notes from Hartford indicate that Acordia had “Bus[iness] placed in

mkts [markets] that aren’t our future,” a plan to “consol[idate] (3) mkts [markets]?,” and that

Acordia was pursuing a “long term partnership” with “a few carriers.” Most notably, the notes

indicate that “Travelers will be a mkt [market]” and that “other carriers not in direct

competition.” As explained below, Wells Fargo/Acordia, Hartford and Travelers had an express,

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detailed anticompetitive agreement to limit and regulate competition 1) between the two carriers,

and 2) between the two carriers as a group and non- conspiring Insurers, with respect to the bulk

of Wells Fargo/Acordia’s small commercial customers.

189. On September 30, 1999, Wells Fargo/Acordia’s Ruoff wrote to Dave Hovey of

Hartford, and stated: “Last week Acordia had its Annual General Management Meeting in

Denver, which included senior management and regional/office management of the company. I

had the opportunity to present a detailed description of the markets, which responded to our

partnership plan. The strong support of senior management to the priority position of our

Millennium markets was endorsed by the regional and office colleagues in attendance . . . Our

regional marketing directors will serve as the field leadership for growth initiatives that we have

discussed.”

190. Wells Fargo/Acordia shared its consolidation plan with its other conspiring Insurers

as well, including Travelers. On October 8, 1999, Patrick Kinney, Travelers’ V.P. of Sales and

Marketing, wrote to Wells Fargo/Acordia’s Ruoff to confirm that he understood that “[b]y the

middle of October, each Acordia agency location will provide Acordia, Inc. a business plan

outlining their strategy to achieve growth with the Millennium Partners.”

191. As various Wells Fargo/Acordia personnel reported in October 2001, Wells

Fargo/Acordia continued its major consolidation of business with a select few carriers. These

reports evidence not only this massive consolidation scheme in process, but also an explicit

recognition of its anticompetitive effects, because Wells Fargo/Acordia was moving its

customers’ business to the Millennium Partners even if those conspiring Insurers did not offer

competitive products:

• We’re probably about 30-40% into our book roll [in the Columbus, Ohiooffice] since we’re finding it hard to convert multi-year policies with other

58




carriers to either Travelers or Hartford. They are just not competitive. However, as these policies fully expire, they will be moved .

• The other factor that will effect both Travelers and Hartford is that we’veconsolidated the Community Accounts [small business accounts] into 5

markets over the past 2 years . . . Here are my questions . . . How far along areyou in the consolidation (book roll) process? . . .

• Michigan is almost done with consolidation of carriers in small business.

• [T]he [Minnesota] business is scattered between several carriers and they needto consolidate it . . . sounds like this is an opportunity for Travelers, Hartfordand Acordia.

192. With respect to St. Paul, Dan Monson of Wells Fargo Insurance, Inc. wrote to

Acordia Inc.’s Property/Casualty Marketing Committee on or about October 10, 2001 about his

meeting the prior day with Jim Abraham, VP of Large Accounts Property for St. Paul. Monson

stated that St. Paul was “open for business and would like to be a go-to market for Acordia.”

Monson further noted to Ruoff on or about October 22, 2001 that “[t]he St. Paul folks would like

to meet and present their ideas for incentives and our results to date. They think they would like

to become a Millennium Partner.”

193.

On December 19, 2001 Ruoff wrote to Tom Motamend, the Chief Operating

Officer of the Chubb Group of Insurance Companies, as follows:

[I]n the three years of our Millennium Partnership we have seen excellent growthand business mix that has been mutually beneficial. Our field relationships are atthe best level in years and local business planning appears very productive. Thereis no doubt that the high profile given to our Millennium Partners is now anintegral part of our local, regional and national marketing strategies.

194. On or about March 19, 2002, Ruoff wrote to Doug Stewart, a CNA Vice President

that “I am anxious to put something in place to replace the National Preferred Market agreement

we had for 2000 and 2001 business” and that “[w]e have an effort underway with interested

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markets in small commercial (i.e., Community Accounts) and have prepared a separate

agreement (copy attached) for this business.”

195. In July 2003, Hartford also contacted Wells Fargo/Acordia with respect to

consolidation efforts occurring in Wells Fargo/Acordia’s Seattle, Portland, and Salt Lake City

offices. Specifically, Hartford executive Bruce Anderson sought reassurances from Wells

Fargo/Acordia executives that Wells Fargo/Acordia had not intended to include “any specific

target non-strategic companies for consolidation in those offices.”

196. In August 2003, Wells Fargo/Acordia and Hartford’s executives exchanged a

document titled “‘Share Shift’ Opportunity,” which noted that Wells Fargo/Acordia “desires to

execute a _________________________________________________________________

________________.”

197. At the October 2003 Greenbrier conference, Wells Fargo/Acordia stated that it

separately met with seven companies, including Hartford, St. Paul, Travelers, Chubb, AIG, and

CNA. Wells Fargo/Acordia noted that in each meeting, the insurers made clear that “[t]hey view

us as a growth engine for them as we continue to acquire and as we consolidate markets.”

198. Hartford reported that “Acordia has made a decision that __________________

will be moved with ‘implied consent ’ to partner carrier[s] with customer centers. We will work

with Tom Hite [of Acordia] to facilitate the movement of business to The Hartford.”

199. By the fall of 2003, Wells Fargo/Acordia’s clout with its conspiring carriers had

grown to such an extent that “several of the Carriers provided financial resources and incentives

for the [establishment of] RFG,” Acordia’s Risk Finance Group. For example, as Hartford noted

in an internal communication at that time, “Acordia solicited ___________________________

_________________________.”

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200. The Wells Fargo/Acordia Broker-Centered Conspiracy continued later into 2003

and beyond.4 On November 5, 2003, Thomas Hite wrote to Marilyn Norman of St. Paul

concerning “Consolidation of Markets” and stated that “one of our 04 objectives is to consolidate

business especially with those markets with whom we have a national or enterprise incentives.”

In early 2004, Hite gave the same message to several of Acordia’s other “Partner Markets,” such

as Hartford and Travelers.

201. Moreover, in 2004, Hite wrote to Wells Fargo/Acordia’s top national and regional

executives as follows:

As you are aware, we have been able to execute several National agreements withfive carrier partners. These, for the most part, are also carriers for which you havelocal agreements. We believe, as a firm, that it is important to grow faster with_____________________ in general, thus having our partner markets buildlarger shares of our business.

To that end, we are introducing specific performance goals for each Region thatwe can track throughout the year and measure ourselves against. We wouldexpect that we should ________________________________________________ ________. Moreover, we are looking at this measure in the aggregate rather than partner by partner . . .

Your goal for 04 in the aggregate is [redacted]. That represents ____ growthwhich is twice the ____ we are forecasting as a company.

(3) The Conspiring Insurers Agreed that, in Return for their

Contingent Commission Payments, Wells Fargo/Acordia

Would Guarantee Access to Competition-Free Premium

Volume, and They Agreed to Refrain from Competing for

Each Other’s Customers

202. Wells Fargo/Acordia and the conspiring Insurers’ efforts, made with the full

knowledge and agreement of all participants, included engaging in initiatives to ___________

4 On May 19, 2005, the State of West Virginia filed suit against Acordia, Inc. alleging a conspiracy among Acordiaand various favored insurers to, among other things, protect the favored insurers from competition, allocatecustomers and markets and restrain competition among insurers. On December 19, 2006, subsequent to the filing ofthe Supplemental Statement of Particularity in this case, the States of New York, Illinois, and Connecticut filed suitagainst Acordia, Inc., and New York also sued Wells Fargo Bank N.A.

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_________ and to accomplish “book rolls” – mass transfers of business based on their contingent

commission deals. As shown above, these massive transfers occurred even in situations where

Wells Fargo/Acordia acknowledged that the recipient carriers “are just not competitive.” Further

documents detail Wells Fargo/Acordia’s arrangements with Hartford and Travelers whereby

those two conspiring Insurers agreed horizontally to work with Wells Fargo/Acordia to prevent

“extensive quoting between both of us” and to facilitate the “split of accounts or books” between

them.

203. Wells Fargo/Acordia’s scheme insulated Hartford and Travelers from virtually all

outside competition for its new small business customers and for all small business customers

currently with other non-conspiring carriers. A September 29, 1999 internal Hartford email

noted that “Acordia [wa]s anxious to proceed” with the Millennium Partnership arrangement,

pursuant to which Hartford noted that it “will vie for all business under $2000 per account in

commission revenue” with primarily only one other Insurer – Travelers: “Our primary

competitor will be the Travelers for this business. FIRST COME FIRST SERVE would be an

appropriate description here.” The Hartford further noted that “[e]ach Acordia office will be

allowed one wild card company [in addition to Hartford and Travelers], primarily for business

over $2000 in income.” Hartford further noted that “[t]his initiative is being ‘mandated’ by

senior management of Acordia” and that “[a]ll Acordia heads of office should be very much

aware of this direction.”

204. On or about October 1, 1999, Hartford’s David Hovey co-wrote a telling

memorandum titled “Wells Fargo/Acordia Small Commercial Consolidation” sent to Hartford’s

Regional Vice Presidents. The memorandum stated the following:

We are pleased to announce that The Hartford has been selected as one of thecarriers to handle Small Commercial Accounts throughout the countrywide Wells

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Fargo/Acordia network. ...Wells Fargo/Acordia management is focused onincreased revenues at the top end and lowering expenses on the bottom line insupport of their ultimate objective of substantially improve [sic] margins peremployee. Highlights of our Consolidation Initiative are as follows:

•The Hartford and Travelers will be the primary carriers for all accounts withcommission revenues up to $1 - $2,000 (This approximately equates to premiumsof up to $15K). ...

. . .

•Wells Fargo/Acordia senior management is mandating this strategy and it wasrolled-out to their organization during a Countrywide Managers Meeting inDenver last week. Their agency presidents are responsible for executing theinitiatives in each local jurisdiction. Their National Marketing Committee willalso be utilized to surface opportunities and issues as we proceed with

implementation. (italics added; underlining in original).

205.

The memorandum from Hartford’s Hovey explicitly detailed Hartford’s role,

Travelers’ role, and Wells Fargo/Acordia’s role in this small business customer allocation

scheme as follows:

•“Important” to get there first! Given that we will be competing with Travelersfor this business, our ability to quickly meet and initiate consolidation activities ata local level will be critical. Acordia has indicated that they do not anticipateextensive quoting between both of us.

Parameters [c]oncerning the split of accounts or books should be determinedduring your initial meetings.

206. Further, Wells Fargo/Acordia and its Insurer co-conspirators agreed not to expose

the vast majority – at least ____ – of those protected accounts to outside competition. For

example, in 2001, Wells Fargo/Acordia Northeast entered into a blatantly anticompetitive “Elite

Agreement” with Travelers in which, among other things, the parties “agree[d] that no more

than ____ of Travelers renewals will be marketed unless at the sole direction of the client .”

207. Numerous additional documents make clear that Wells Fargo/Acordia steered,

shifted, rolled or otherwise moved business to its co-conspirator Insurers with no or minimal

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competition. On or about April 25, 2001 Ruoff wrote to Wells Fargo/Acordia’s Property and

Casualty Executive Marketing Group about a meeting with Travelers regarding the Travelers

Select Agreement for 2001 and a review of their 2000 results together. Ruoff noted that

“we…look forward to implementing plans to sweep more business into Travelers and

particularly their Service Center operations.”

208. In 2003, Scott Isaacson, Wells Fargo/Acordia’s Chief Marketing Officer, wrote a

memo titled “Consolidation of Kemper Accounts” to the heads of all of Wells Fargo/Acordia’s

local and regional offices, on which he copied Kevin Conboy, Wells Fargo/Acordia’s CEO. The

memo stated in pertinent part the following:

Travelers Select Accounts is willing to help us consolidate the business we havewith Kemper as quickly as possible.

. . .

In order to help facilitate the transfer, the Travelers Select Team has offered totake a “SWAT team” approach. Travelers will come to your office and help youreview your entire Kemper book of business. . . .

You may also want to take this as an opportunity to review business you havewith other carriers. If you have any business with other carriers you would likeTravelers to consider, now is the time to do it! Your local Travelers Selectcontact is eager to help you consolidate your small business.

This deal is in addition to the National Compensation Agreement we have withTravelers and on local agreements you may have in place.

No other agencies are being offered these incentives at the premium levels we arebeing offered. I recommend you start this process as soon as possible given thecurrent circumstances surrounding Kemper.

209.

In mid-2003, Wells Fargo/Acordia negotiated a national incentive deal with St.

Paul. As Wells Fargo/Acordia’s executives noted, “St. Paul will agree to a National incentive

and will pay us the greater of the aggregation of the individual deals we now have or a National

incentive. The quid pro quo is that we roll the Kemper book . The down side is that we would

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loose [sic] the Travelers deal.” On or about December 1, 2003, St. Paul and Travelers

announced a merger, rendering moot any internal Wells Fargo/Acordia concerns about how to

carve up a share of the Kemper book between two of Wells Fargo/Acordia’s co-conspirators.

Wells Fargo/Acordia later confirmed internally that “the national deal is contingent on our

moving Kemper business to St. Paul” and that “[t]he actual wording is ‘Wells Fargo/Acordia

agrees to influence its Agents to assist the Company in moving Kemper policies to the

Company.’”

210. Wells Fargo/Acordia also worked with Hartford in an effort to give Hartford its

piece of the Kemper book roll. The “Share Shift” materials exchanged between Wells

Fargo/Acordia and Hartford further noted that the parties would work together to _________

_______________________. The parties further noted that they would ____________________

_____________________________________________________________________________.

211. Wells Fargo/Acordia’s coconspirator Insurers expected and received numerous

competitive advantages from Wells Fargo/Acordia that served to protect them from competition.

First, Wells Fargo/Acordia ensured its conspiring Insurers that they would obtain business even

when those Insurers’ pricing was not competitive. For example, with respect to The Hartford,

Acordia’s Pittsburg office noted the following to Acordia’s top executives: “The [Pittsburg]

office has been a big supporter of the Hartford over the past several years including being the

only legitimate VIP in western Pa since 1993. We supported their efforts to grow key accounts

(and other areas) when their pricing was greater than market, … and we supported their

position on increased pricing during late 1998 and early 1999 (way earlier that [sic] our other

markets) when the market was still extremely soft.”

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212. In January of 2000, Hartford Senior Vice President David Becker noted feedback

from Wells Fargo/Acordia at an Acordia Partnership meeting that the Wells Fargo/Acordia

would participate in “selling higher increases then [sic] needed ” as follows: there is a clear

recognition and acknowledgement that they can get more money on renewals, significantly more

on some accounts, which could create flexibility for some renewals. ____________________

________________________.

213. Second, Wells Fargo/Acordia gave those of its Millennium Partners that were

exposed to outside competition at all both a first and last opportunity to secure certain pieces of

business. On February 22, 2001, for example, Chubb noted that “[w]e are a preferred market at

Wells Fargo/Acordia NY and we get first shot (and last look) at their business.”

214. Third, Wells Fargo/Acordia and its conspiring Insurers worked together to “sweep”

business into Insurer-operated “service centers,” which Wells Fargo/Acordia and its carrier

partners knew featured high persistency/renewal rates. Hartford wrote to various Wells

Fargo/Acordia personnel regarding Hartford’s Select Customer Insurance Center (“SCIC”) that

“The SCIC handles policyholder renewals (with a renewal retention rate of ___).” Hartford also

noted that __________________________ of customer policies in the SCIC, meaning that Wells

Fargo/Acordia would be guarantied to receive commissions on all those near-automatic

renewals.

215. With respect to Travelers, Donna Maddox, Acordia of West Virginia’s VP of

Marketing, wrote to her staff telling them to expect an e-mail from Charles Ruoff “regarding

Travelers service centers and the next sweep to get business into the centers…. I am working

with all our profit centers to get more of the eligible business into the centers.” On April 25,

2001, Ruoff wrote to Wells Fargo/Acordia’s Property and Casualty Executive Marketing Group

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concerning the Travelers Selection Agreement for 2001 and state that Acordia “look[s] forward

to implementing plans to sweep more business into Travelers and particularly their Service

Center Operations.”

c) Communications among the Participants in the Wells Fargo/Acordia

Broker-Centered Conspiracy, Facilitated by Wells Fargo/Acordia,

Furthered the Conspiracy

216. The Insurer participants in the Wells Fargo/Acordia Broker-Centered conspiracy

exchanged numerous communications, either directly among themselves or through Wells

Fargo/Acordia personnel, by which they monitored each others’ participation in, benefits of, and

compliance with the conspiracy. On or about August 9, 1999, Wells Fargo/Acordia’s Ruoff

wrote to Sylvester Green, Chubb’s Executive Vice President and Managing Director for U.S.

Field Operations, with the subject heading “Millennium Partnership” and stated that “Frank

Witthun [Acordia, Inc’s President] has asked me for status report on financial support. I have

checks from Hartford and Atlantic Mutual (see attached) so would like to tell him we have

receipt of check from Chubb as soon as possible.” Ruoff included a letter from Atlantic Mutual

discussing Atlantic Mutual’s “formula for this payment” and “[t]he actual figures that this

payment was based upon.”

217. On August 11, 1999, Ruoff sent a detailed memorandum titled “Millennium

Agency System Partnership” to Wells Fargo/Acordia’s “National P/C [Property/Casualty]

Marketing Committee,” and blind copied Chubb’s Sylvester Green. This memorandum

specifically identified Wells Fargo/Acordia’s Insurer co-conspirators, and Wells Fargo/Acordia

circulated this memorandum to the Insurers to make certain that each understood its role, Wells

Fargo/Acordia’s role, the role of the other conspiring Insurers, and agreed to the same. The

memo stated, among other things, the following:

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Since March 1999, we have been in conversation with a number of our nationalinsurance company markets for financial assistance with our new AMS Sagittasystem project. . . . The markets we initially approached all readily agreed towhat we called the Millennium Partnership.

. . .

These markets have offered supplement incentives to the Millennium overridefocused on specific program initiatives we have released to you or are continuingto develop . . .

. . . the preference must at this time be given to our ‘priority’ group . This meansthat we expect to see our overall business grow with these ‘priority’ companiesespecially through specific initiatives.

. . .

At this time we are concentrating on the plans and initiatives put forward by our‘priority’ markets to the exclusivity of all other markets.”

218. Ruoff sent this same internal Wells Fargo/Acordia memorandum to Hartford, with

the exception that it bore a blind copy notation for Hartford executives Dave Hovey, the Director

of Broker Strategy and Management, and Rich Quagliaroli. The copy that Wells Fargo/Acordia

sent to Hartford thus apprised Hartford of the identity of its co-conspirators – including Chubb

and Travelers.

219. Ruoff sent additional copies of this memorandum to Travelers, St. Paul, CNA, and

Fireman’s Fund.

220. Wells Fargo/Acordia arranged to meet and otherwise communicate with its

conspiring Insurers under the guise of a purported project to launch a technological “quoting

system” platform for use by its Millennium Partners. Though the “project” – called the “AMS”

or “AMS Sagitta system” project – never came to fruition, the conspiratorial communications

that began under its cover continued. The AMS Project’s purported aim was discussed in an

Chubb October 26, 1999 email titled “Acordia Millennium Partnership:

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As you may already know, Chubb is one of 5 preferred carriers providingfinancial support to the Acordia organization for the installation of their newAMS Sagitta system project . . . . This support, known within Acordia as theMillennium Partnership, is above and beyond local point programs and/orregional Acordia deals, and should provide Chubb profitable growth opportunities

on a preferential basis in the field. . . . Indications from several Chubb branchesconfirm that this, i[n] fact, is happening.

221. The real purpose of the AMS Project, however, was to serve as a cover for

conspiratorial communications, as revealed in two memos from Wells Fargo/Acordia’s Charles

Ruoff. In a memo dated May 11, 1999, Ruoff stated that CNA “suggest[s] one technical

interface meeting with all participating carriers.” A follow-up memo, dated May 21, 1999 from

Ruoff and titled “Millennium Agency System Project” stated that, with respect to CNA, “don’t

think technology is the issues here but they volunteered to set up a ‘strawman’ scenario for

multiple market [i.e., Insurer-to-Insurer] discussions.”

222. A Wells Fargo/Acordia chart dated July 28, 1999 reiterated that Chubb “[w]ant[s]

to create a working group with other markets and AMS/Acordia,” and that CNA wanted to

“[c]reate ‘strawman’ group tech meeting?”

223.

The Insurer co-conspirators also used a Wells Fargo/Acordia intranet site to

exchange competitive information. A Chubb memorandum detailed a December 18, 2001

meeting with Wells Fargo/Acordia executives Ruoff and Frank Witthun, and with respect to

Acordia’s intranet, noted that “[Acordia’s] Millennium partners have access to this site

[Acordia’s intranet] to download information on appetite, capabilities, etc.”

224. The co-conspirators exchanged competitive information in other ways as well. On

or about March 8, 2002, Chubb executive James Hyatt noted internally regarding Millennium

Partnership overrides that “other partner markets are stepping in with overrides.” In 2002, Wells

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Fargo/Acordia also discussed a conference call with Chubb “to go over some of the profit

sharing addendums we’re seeing” from other Insurers.

225. In the 2003 “Share Shift” materials, Wells Fargo/Acordia and Hartford further

explicitly exchanged financial information with respect to numerous other Defendants. Wells

Fargo/Acordia indicated 2002 written premium placed with various Insurer Defendants by

ranking and written premium including as follows: 1) AIG - ____________; 2) CNA- ____

______; 3) Travelers - ___________; 4) Zurich -- _________; 5) Hartford - __________; and 6)

Fireman’s Fund - __________. For its part, Hartford advised Wells Fargo/Acordia of its ranking

of numerous broker defendants according to business placed as follows: ___________________

____________. A subsequent draft noted that Chubb was in fact Wells Fargo/Acordia’s number

2 carrier.

d) The Conspiring Insurers Understood their Role in the Conspiracy and

Were Disciplined by Wells Fargo/Acordia if They Refused To Go

Along

226.

There is no doubt that Wells Fargo/Acordia and its conspiring Insurers agreed and

understood that they would be subject to discipline in the form of losing business if they did not

cooperate in the conspiracy. On September 7, 1999, Charles Ruoff wrote a memorandum to each

of Wells Fargo/Acordia’s four Regional Managing Directors stating that “We are therefore not

inclined to support any business growth with [insurers that did not sign national Millennium

agreements] at the determent [sic] to our Priority Millennium Partners noted above. Please be

guided accordingly in the future business plans within your region . . . Please caution your

colleagues . . they need to know that significant revenues and strategic partnerships are at

stake.”

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227. In addition, Ruoff wrote in 1998 that “it should be noted that CNA and Fireman’s

Fund have declined to support our financial plan without profitability stipulations. We are

therefore not inclined to support any business growth with them at the determent [sic] to our

Priority Millennium Partners noted above. Please be guided accordingly in the future business

plans within your region.” After this message was communicated to CNA and Fireman’s Fund,

CNA became a Millennium Partner, and Fireman’s Fund became a “Key Partner” of Wells

Fargo/Acordia.

228. On September 30, 1999, Ruoff wrote to Dave Mathis, Chairman of the Kemper

Insurance Group, attempting to entice Kemper into a Millennium Partnership. Ruoff wrote that

“[w]e would still like to find an appropriate position for your company but need to keep it within

the context of those markets that have stepped forward to our initial invitation. Please let me

know if we can find a solution before our marketing plans for the next 18 months exclude you

from growth potential.”

229. In an email dated March 18, 2002, Ruoff noted the following conversation with

Crum & Forster: “I declined the National Incentive….I told C&F they would be better off

creating improved incentive terms and service locally, otherwise I saw business declining.”

e) The Co-Conspirators Benefited From the Operation of the

Conspiracy

230. Wells Fargo/Acordia and its co-conspirators enjoyed substantial profits and other

compensation as a result of their anticompetitive conspiracy. The Millennium project generated

nearly ______ in added revenue for Wells Fargo/Acordia, nearly ______ of which was from

Travelers, in the first year and a half “with little, if any, associated expense.”

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231. A September 5, 2000 Chubb memorandum stated that Charles Ruoff, then Wells

Fargo/Acordia’s Chief Marketing Officer, “explained that in the small business arena … Acordia

realizes roughly _______ in commission income, including ‘kickers,’ from this line.”

232. On or about January 2, 2002, Chubb executives Jim Hyatt and Tom Motamed met

with Ruoff and Wells Fargo/Acordia’s CEO Frank Witthun, who “stated that all of the

Millennium Partner Markets grew exceptionally well over the last three years and outperformed

their other markets.”

233. For a March 15, 2000 Chubb-Wells Fargo/Acordia meeting, Chubb prepared

materials detailing commissions that it paid to Wells Fargo/Acordia in 1998 and 1999 as follows:

1998 -- _______ in “regular” commissions; and _________ in contingent commissions for

“branch contracts and deals”; 1999 -- _________ in regular commissions; ____________ in

contingent commission for branch contracts; and ___________ for contingent commissions from

the Millennium Partnership, for a total that year of _________ in contingent commissions. For

its part, Wells Fargo/Acordia delivered to Chubb ___________ in written premium in 1998 and

________________ in written premium for 1999.

234. The substantial and mutually beneficial nature of the conspiracy continued as the

2000 year-end numbers for Wells Fargo/Acordia reflect:

● Wells Fargo/Acordia placed _____________ in commercial premium withChubb, and received __________ in direct commissions, __________ in localcontingent commissions, _______ in “special” commissions, and ________ inMillennium national overrides.

● Wells Fargo/Acordia delivered ____________ in premium to CNA, andreceived ___________ in direct commissions, __________ in local contingentcommissions, and ______________ in Millennium national overrides.

● Wells Fargo/Acordia placed ____________ in commercial premium withHartford and received _______ in direct commissions, ____________ in localcontingent commissions, _______ in “special” commissions, and _______ inMillennium national overrides.

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● Wells Fargo/Acordia delivered __________ in premium to St. Paul inexchange for __________ in direct commissions, and _________ in localcontingent commissions.

● Wells Fargo/Acordia placed ___________ in written commercial premiumwith Travelers and received _________ in local contingent commissions, __________ in “special” commissions, ________ in Millennium nationaloverrides, and _________ in national growth overrides.

235. On or about June 5, 2001, Chubb executive Terry Cavanaugh wrote to all Chubb’s

U.S. Zone Officers, U.S. Marketing “Zonals,” SBU Heads, and SBU Marketing Managers with

an “Wells Fargo/Acordia Update.” Cavanaugh described a recent meeting with Wells

Fargo/Acordia’s Ruoff in New York City and explained that “[o]ur results through March

indicated a ___ growth rate.....This is on the heels of two very good years in 1999 and 2000,” in

which Chubb enjoyed a premium “rate increase of _____ on the entire book of business.”

Cavanaugh further wrote that “[a]ll Millennium partners are doing well with the exception of

[non-Defendant] Royal Sun Alliance.”

236. In 2002, Wells Fargo/Acordia’s efforts in limiting competition for the benefit of its

co-conspirator Insurers continued to pay off handsomely for Wells Fargo/Acordia at all levels.

That year Wells Fargo/Acordia reported that it “earned almost __________ in Contingency

Compensation from Travelers Commercial Lines (Select, Commercial Accounts, and

Construction)” and that “[t]his was in addition to more than __________ we received in

commission payments from the same business groups.” By way of further example, Wells

Fargo/Acordia received a profit sharing allocation check from St. Paul for _______ based on the

2002 production of just one Wells Fargo/Acordia region.

237. Wells Fargo/Acordia made certain that its Insurer co-conspirators continued to

benefit as well. For example, Wells Fargo/Acordia delivered the following premium in 2002 to

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its “priority markets: Chubb - __________; St. Paul - __________; Travelers - _________;

CNA - ___________; and Hartford - _________.

238. Other documents indicate that Wells Fargo/Acordia’s delivery of commercial

premium to Hartford in 2002 alone reflected a ______ increase over the prior year.

239. Wells Fargo/Acordia’s CEO Kevin Conboy wrote that 2003 was also a “banner

year” for Wells Fargo/Acordia, as it “added almost ________ additional brokerage profit.”

Conboy further noted that “contingent income was __________ over budget and ______ higher

than 02.” Wells Fargo/Acordia noted to its parent Wells Fargo & Co. the following about Wells

Fargo/Acordia’s robust financial performance in 2003: “Last year ended with another year of

record-breaking revenues for Wells Fargo/Acordia, the fifth largest broker in the U.S. . . .

Brokerage revenues increased to _________in 2003, up ________ from its 2002 performance.”

4) The Gallagher Broker-Centered Conspiracy



participants in the Gallagher Broker-Centered Conspiracy have included Insurer Defendants

Chubb, The Hartford, St. Paul/Travelers, AIG, CNA, Fireman’s Fund, and Crum & Forester.


(1) Overview.

(2) The Participants in the Gallagher Broker-Centered Conspiracy

Agreed that the Bulk of Gallagher’s Business would be Allocated

to Gallagher’s Conspiring Insurers in Exchange for Contingent

Commission Payments.

241. Gallagher’s effort to consolidate its business with its partners in the conspiracy

began at least as early as September of 1996, when Gallagher Area President, Denis Duran

summed up the process with the following statement:

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[W]e began the process of market consolidation earlier this year and you will seea significant reduction in the number of markets used . . . . We undertook this process because we were not leveraging our relationships with carriers tomaximize our commission and contingent income. . . . We have already begunthe process of moving business to these preferred markets and intermediaries.

Our preferred markets will be:

TIER 1 TIER 2 1- AIG 1- CNA/Continental2- Chubb 2- Atlantic Mutual3- Fireman’s Fund 3- Zurich4- Kemper 4- Royal5- Hartford

242. In August 1997, Gallagher was continuing its consolidation plan and recognized

its goal to increase its commission revenue. Denis Duran summarized the status of Gallagher’s

consolidation efforts as follows:

We began our Market Consolidation Project approximately eighteen months ago.Our goal was to maximize commission income, achieve leverage in the market place and control the relationship with the underwriter.

Once we had determined our preferred and second line carriers [which includedChubb Fireman’s Fund, AIG and Hartford], we approached each of these marketsand asked for a commission over-ride and/or incentive agreement. We told all people controlling placement business . . . that every effort must be made to place business with our preferred carriers. This is reinforced monthly at our MarketStrategy Meetings and at the monthly Unit Managers Meetings. The details of allincentive over-rides were shared with the Unit Managers and marketing reps toshow them what placement with this business could mean to the Branch.

243.

During 1996 and 1997, Gallagher successfully moved placements of insurance to

its conspiring Insurers and reduced the volume of business placed with other insurers. The shift

of business away from non- conspiring Insurers to conspiring Insurers was achieved by

reinforcing the need to place business with these conspiring Insurers at, among other things,

Gallagher monthly Market Strategy Meetings, during which all renewals were discussed and

business was targeted to be moved to Gallagher’s conspiring Insurers.

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244. In December 1998, Gallagher took steps to ensure that all branch offices focused

on placing business only with its conspiring Insurers. At that time, Gallagher’s senior

management directed its branch managers to create a “market consolidation plan” by which each

office was directed to specify how it intended to grow its business with specific partner markets

and to determine whether the business of any other carriers should be shifted to the conspiring

Insurers.

245. In another email, the same Vice-President again expressed his desire “to see as

much small business consolidated into the service centers of ______________________ and

maybe a third company . . . . ____ stands to earn more from this book if we do it in the manner in

which I described.”

(3) The Conspiring Insurers Agreed to Refrain from Competing for

Each Other’s Customers and Expected Gallagher to Protect Their

Renewal Business from Competition

246. Gallagher also agreed with its conspiring Insurers, and those Insurers agreed

horizontally among themselves, to restrict competition by giving the partners preferential

treatment in insurance placements through “first look”, “rights of first refusal” and “last look”

agreements. By virtue of these agreements, the Insurer co-conspirators market partners were

able to review the other bids of other carriers and bid to retain and/or capture the business. This

reinforced and further rewarded the conspiring Insurers by reducing competition and thereby

preventing clients from obtaining prices that would have prevailed if insurers bidding for a

clients’ placement had no knowledge as to competitors’ bids.

247. For instance, in June 1997, Gallagher advised all branch managers and

management that the significant amount of contingent commissions it could earn from Chubb

warranted giving Chubb a “first opportunity” for business. Specifically, he stated:

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If each of our 40 branches found $1,000,000 of existing premium from non- productive carriers and moved that to Chubb, that would generate $6,800,000additional incentive on top of the 2% of the existing volume of $72,000,000, or$1,440,000 for a total incentive of $8,240,000 versus last year’s $2,000,000. Isanyone confused as to why Chubb deserves a first opportunity for business…?

The Gallagher/Chubb agreement demands your immediate support and attention.

248. Similarly, President of Gallagher’s Risk Placement Services, observed in

December 1997 that Chubb deserved a “last shot” before business could be shifted away from it.

249. When a Gallagher employee complained that the quote he obtained from non-

partner ACE was disclosed to CNA, an executive responded that Gallagher has an “allegiance to

all markets that support us (and pay 12.5% or more commission.”

250. Once an insurer qualified as a “Partner Market”, it was standard operating

procedure to direct insurance placements to those Insurers and insulate them from competition.

For instance, at a December 1998 “Partner Market” meeting with Chubb, Gallagher explained to

Chubb that as a partner market: “Team Gallagher becomes locked in and competitors become

locked out.”

251. In November 2003, in order to ensure the receipt of extra consideration from AIG,

Gallagher placed a client’s insurance with AIG at a premium of ________ when a competitor of

AIG would have only charged that client a premium of ______ on the coverage. Gallagher

informed AIG that it protected AIG from competition in placing this insurance, and had also

increased the volume of insurance place with AIG by over ______ from the prior year.

252. Gallagher provided a “preferred position” to its conspiring Insurers in the quoting

of business. Gallagher told the Hartford “that unless there is a clear cut advantage to placing a

piece of business with a non-preferred carrier, the client recommendation should be a preferred

carrier.”

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(4) The Participants Agreed that in Return for their Contingent

Commission Payments, They Would be Guaranteed Access to a

Minimum Amount of Premium Volume, and That There Would

be Minimal or No Competition for That Business.

253. As part of Gallagher’s plan to increase and maximize contingent commission

profits under the conspiracy, Gallagher’s corporate officers instructed Gallagher’s employees to

place business with Gallagher’s conspiring Insurers. In 2001, Gallagher senior management

emphasized to each of Gallagher’s divisions that Gallagher had “special bonus agreements in

place with markets like ________________________________ and “so that additional revenues

can be earned…[p]lease do whatever you can in your respective divisions to support our

‘partner’ markets and any bonus plans.”

254. Near the end of 2003, Gallagher management directed regional and branch

managers to steer business to partner markets. They were also advised that, because year-end

was approaching, it was their last chance to pump premium volume into partner markets for 2003

contingent income calculation in order to take advantage of the agreements with the most

lucrative financial incentives, including the commission agreements with conspiring Insurers

__________________________________________________________.

255. In November 2002, Gallagher urged allocating additional business to Crum &

Forster because Gallagher was _______ in premiums short of qualifying for a full incentive

commission for that Insurer. Accordingly, he directed Gallagher personnel to jointly address the

renewal of all existing Crum & Forster business and to provide Crum & Forster with new

opportunities as well.

256. Similarly, Gallagher also steered business to Hartford. In 1997, Gallagher

received a _______ check from Hartford for 1996 business, which Gallagher acknowledged was

received as a result of pushing new business to Hartford. Gallagher management stated: “We

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have got to try and stabilize our book with Hartford, or better, grow it…We cannot afford to lose

that kind of revenue.”

257. Gallagher’s allocation of business to partner Hartford continued unabated. In

September 2003, Gallagher was still urging branch managers to move business to Hartford to

gain additional compensation. At this time, he emphasized that “[o]ur AJG Branches have

earned more than ______ in bonus commission through only the second quarter as a result of

moving small commercial business to Hartford’s service center. Take advantage of this bonus

opportunity.” James Agnew, Vice President of the South Central Region, also exhorted the

branches under his direction, “If your branch represents Hartford, you should make every effort

to qualify for this additional compensation.”

(5) The Conspiring Insurers Understood their Role in the Conspiracy

and were Disciplined by Gallagher if they Refused To Go Along.

258. When the Hartford believed it was not seeing enough business from a Gallagher

office it complained to Gallagher’s Vice-President for Market Relations. The Hartford asked for

help with an “office [that was] not interested in moving business.” The Vice-President then sent

an internal email saying that they should talk about supporting the “moving of more of our small

commercial accounts to Hartford’s Select Service Centers. This falls right with our increased

productivity strategy [because Gallagher would continue] to earn lucrative commissions.”

259. Similar efforts were made with regard to preferred market St. Paul. In July 1998,

Gallagher CEO J. Patrick Gallagher announced a new National Incentive Agreement with St.

Paul for that year and advised all Gallagher employees to “do all we can to crank up the

production into St. Paul.”

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260. Gallagher steered business to Chubb in April 1997 based upon new override

agreements with that partner. As stated by Denis Duran at the time, “[e]very effort should be

made to place business with these markets in order to maximize our commission income.”

261. In late 1997 Chubb complained to Gallagher after accounts more moved to

Allianz, a competitor. An internal Gallagher email addressing the incident said that its

employees must understand the importance of contingency income that came from its partner

markets, including Chubb but not Allianz, and reprimanded them to “make good business

decisions.”

262.

Further, to assure that Gallagher would continue to steer placements to it, in 2003,

CNA paid an incentive payment to Gallagher pursuant to their national incentive agreements

even though Gallagher failed to meet the thresholds for payment. As stated at the time by Gregg

Effner (AVP of Distribution for CNA), failing to pay would strain the parties’ relationships.

263. Fireman’s Fund understood the purposes of entering into agreements with

Gallagher. An internal Fireman’s Fund email states, “in return for Gallagher offices directing

more business toward Fireman’s Fund, we propose to pay an incentive.” The email continued,

“It is essential that in return for the moneys paid out under this agreement we take aggressive

steps to drive the type of business we want from Gallagher.”

264. Fireman’s Fund considered changes to its agreement with Gallagher in order to

“sweeten the pot.” Gallagher told Fireman’s Fund that their offices should place business with

its two primary carriers- Chubb and Fireman’s Fund. The change that the Fireman’s Fund was

considering would cause Gallagher to direct better business to it.

265. Fireman’s Fund agreed to advance ________ to Gallagher the anticipated

payment under the 1998 National Incentive Agreement. The advance was not required but was

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made as a “show of good faith.” Internal emails show that the purpose of this payment was to

guarantee growth that is more profitable. The email continued, “Fireman’s Fund is now high on

Gallagher’s Christmas card list!”

266. The following year, Gallagher asked for another advance payment from

Fireman’s Fund. The Fund declined because it was not receiving enough production from

Gallagher in the year-to-date results but asked for Gallagher’s help on growing profitability

through the remainder of the year.

(6) Communications Among the Participants in the Gallagher

Broker-Centered Conspiracy, Facilitated by Gallagher, Furthered

the Conspiracy

267. In June 1997, Hartford had a meeting with Gallagher to discuss “the potential

identification of markets for consolidation” in exchange for financial incentives, price and

product guarantees, and additional service commitments. A key part of those discussions was

the financial incentives that would best motivate Gallagher to drive business to Hartford.

268. Similarly, in December 1998, Gallagher held a “Partner Market” meeting with

Chubb at which Gallagher dictated its “Partner Market Requirements.” Those requirements

included having a “mutual commitment to grow,” “mutual commitment to change the rules,”

“maximum commission,” and “top overrides/incentives.”

269. Gallagher made sure that the conspiring Insurers were aware of the quid-pro-quo

for becoming and remaining a “Partner Market” and that in order to reap the benefits of more

placements, they would have to provide Gallagher with substantial contingent commission

income.

270. Gallagher shared the identity of its conspiring Insurers with other conspiring

Insurers, which served to diminish competition as each conspiring Insurers became aware that it

would not have to compete with said carriers. For instance, Gallagher disclosed to Hartford the

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identity of three of its other conspiring Insurers in 2002 – Chubb, St. Paul, and CNA. Fireman’s

Fund was likewise aware of Gallagher’s agreements with Chubb and Hartford and was thus able

to compare its agreements compared to the others.

(7) The Co-Conspirators Benefited From the Operation of the

Conspiracy.

271. Gallagher’s anticompetitive agreements with its conspiring Insurers resulted in a

huge growth in contingent commissions at the expense of its clients’ best interests. From 1997

to 1998, Gallagher received $3.7 million more in incentive commissions due to placing more

business with its conspiring Insurers: Chubb, Hartford, Fireman’s Fund and CNA.

272.

Gallagher’s participation in these contingent commission programs provided it

with millions of dollars of income at the clients’ expense. From 2002 to 2004, Gallagher earned

over ___________ in contingents from its conspiring Insurers. Of particular note, Gallagher

earned over _____ from Hartford in 2002, ___ from Chubb in 2003, _____ from Hartford in

2003, over ______ from Fireman’s Fund in 2003, and _______ from Hartford in 2004.

273. Fireman’s Fund saw drastic increases in the amount of business it received from

Gallagher as a result of entering into the contingent commission agreements. It admitted, “The

National Incentive, and your hard work, evidently had the desired effect and enabled us to grow

eligible business by ______ In the two years prior to partnering with Gallagher, Fireman’s

Fund’s business received declined by ___ and ___.

5) The HRH Broker-Centered Conspiracy

a)

Participants in the Conspiracy


participants in the HRH Broker-Centered Conspiracy have included Insurer Defendants CNA,

Hartford and St. Paul Travelers.

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(1) Overview

275. HRH allocated its customer base to and among its conspiring Insurers in two steps.

First, HRH and each of its co-conspirators agreed, and the conspiring Insurers agreed

horizontally among themselves, that HRH would “consolidate” its business by directing a

significant portion of its business to Hartford, CNA and Travelers, thereby eliminating hundreds

of other insurers from competing equally with the three conspiring Insurers for virtually 100% of

its small business customers and at least 35% of HRH’s total commercial customers. Second,

HRH and each of its conspiring Insurers agreed, and the conspiring Insurers agreed horizontally,

that each of the three Insurers would be allocated specific business for which they would not

have to compete among themselves.

(2) The Participants Agreed that a Substantial Part of HRH’s

Business Would be Allocated Among HRH’s Conspiring Insurers

in Exchange for Contingent Commissions

276. In or about late December 1996, HRH determined that it needed a new strategic

plan “as the industry [wa]s changing and the Company’s stock performance ha[d] been below

par.” HRH’s “first priority” was to hire a strategic consultant with “strategic planning and . . .

industry experience” that would provide a “broad, sophisticated view to the industry.” HRH

selected the Mitchell Madison Group (“MMG”) to develop and deliver a strategic plan to HRH’s

Board of Directors by May 1997.

277. Based in part on MMG’s recommendations, HRH developed its concept of

consolidating the number of carriers with whom it conducted business. At an August 5, 1997

meeting of the Board of Directors, HRH’s then-President and CEO Andrew Rogal (“Rogal”)

advised that the Company was “focused on implementing its strategic plan,” through which it

was anticipated the Company would “double its earnings in three to five years.”

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278. The first initiative to be implemented involved a very significant portion of HRH’s

business: the small commercial accounts that HRH called “Select Commercial” accounts. An

“arrangement” was made to “de-market” those accounts from their current carriers and to

allocate them instead to Hartford. In exchange for this business, Hartford agreed to pay HRH

“an upfront override, [and] guaranteed commissions and overrides.”

279. HRH’s Select Commercial initiative was eventually expanded to explore

opportunities with additional Insurer Defendants seeking to trade volume for enhanced

contingency commissions, bonuses and other incentives. By mid-1998, HRH formed a “Carrier

Consolidation Task Force” to undertake partnership negotiations with prospective carrier

“partners” in connection with virtually all of HRH’s various lines of property and casualty

business. In particular, the “Carrier Consolidation Initiative,” covering all P&C initiatives, was

to focus HRH’s “attempt to have a deeper relationship with a few carriers” rather than the

hundreds of insurers with which HRH’s field offices had historically conducted business.

280. Members of HRH’s Carrier Consolidation Task force met with numerous

Defendant Insurers to discuss potential “partnerships” anchored by national override commission

agreements, including Hartford, CNA, Travelers, St. Paul, Firemen’s Fund and AIG. Among the

things deliberated with these prospective partner conspiring Insurers was:

[T]he concept of a consortium of carriers, selected by HRH, who might quotashare the majority of the consolidated HRH book and receive the bulk of its new business. (Emphasis added.)

281. Notably, the ultimate number of carriers with whom HRH established a “deeper

relationship” was shaped by Travelers. During its negotiations with HRH, Travelers was aware

of the existence of other proposed carrier partners and expressed concern that HRH was

considering consolidating its business with four Insurers rather than only three, which Travelers

preferred.

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282. By mid-1998, HRH reached arrangements to consolidate volumes of many lines of

its business with Hartford, Travelers and CNA in exchange for enhanced contingent

commissions. Those arrangements were announced by Rogal in a July 1998 memorandum. The

memorandum made, inter alia, the following points:

a. The arrangements represent “our best opportunity to … leverage our premium for enhanced revenue”;

b. “Any existing profit sharing, contingency, bonus or override agreementswill be superceded by the new national contract[s]”;

c. “[A]t this stage, this information should be treated as confidential and proprietary in nature”; and

d. “In order to maximize our benefits under these arrangements, it is crucialthat we approach the movement of business to these partners in anaggressive, orderly and disciplined manner, and in a fairly short timeframe.”

283. At an August 4, 1998 Board meeting, Rogal advised the directors about the

“incentive arrangements” HRH had negotiated with Travelers, Hartford and CNA (which HRH

came to call the “Big 3”). In terms of volume, by “moving existing books of business” placed

with other non-conspiring insurers, “the Company hoped to grow its total business with these

Companies from $150,000,000 to $300,000,000, and could realize as much as $12,000,000 [in

profit] from these arrangements in the coming 18 months.” To further these goals, HRH also

began to explore opportunities “to ‘buy’ proven producers with books of business which could

be rolled into CNA, Travelers and Hartford as new business.”

284. In September 1998, Hartford communicated a similar understanding of the

conspiracy with HRH and the other two insurer co-conspirators to its Regional Vice Presidents:

We are pleased to announce that The Hartford has been selected as one ofthree National partner Carriers in conjunction with HRH Insurance’s newstrategic direction for Commercial and Personal Lines business. Theagreement culminates a series of negotiations and allows us to build on the

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Small Commercial Consolidation Program that has been executed over the past ten months.

In exchange for a significant premium commitment over the next several years, anenhanced Incentive Bonus Agreement has been developed to reward andcapitalize on production opportunities throughout our segments. …

Focus on the movement of business to their trading partners will commenceimmediately. This business model was rolled out to their Agency Presidents at acountrywide meeting late last week. An Implementation Task Force consisting of four senior managers … has been formed to corporately manage this process.

…

Overall, this is an excellent opportunity to significantly enhance our relationshipswith a larger regional Broker that is dedicated to working with us to mutuallygrow the revenues for our respective firms. (Emphasis added.)

285. A September 1, 1998 Travelers memorandum noted that the HRH “deal” had

expanded to include additional business lines, and it was equally unambiguous in setting forth

the conspiratorial plan for HRH to allocate customers to Travelers, Hartford and CNA:

In a general sense, the deal calls for HRH to place approximately 35 percent ofthe national commercial property casualty business with Travelers, Hartford andCNA. Presently, the three carriers write a combined 17 percent of total HRHwritten premium countrywide. Doubling the penetration rate represents a

planned movement of approximately $150 million of business to the threecarriers. Each carrier partner was selected due to breadth of commercial product,current agency penetration, past partnership performance and a willingness towork with HRH to meet their business objectives.

HRH currently plans to work with each of their 38 area presidents to design abusiness migration plan that meets and exceeds the above stated objectives.

286. HRH’s movement of business to its three “strategic partners” was very successful.

In November 1998, a senior HRH executive wrote that the “first month of this initiative has been

mostly very positive. We have moved a significant volume of business in a very short time…

[P]lease understand that we are going to make this happen in all HRH locations.”

287. In addition, such communication was sent to, and circulated within Travelers and,

on information and belief, communicated to Hartford and CNA.

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288. HRH’s commitment to allocating competition-free customers to its Big 3 Insurer

co-conspirators existed for a substantial period even without a formal written contingent

commission agreement in place. For example, by letter dated November 16, 1998, HRH

received a mid-term bonus payment from Hartford in the amount of _______. The payment was

for bonuses earned by HRH through June 1998. By letter dated November 24, HRH responded,

thanking Hartford for the “deposit” on its bonus for 1998 even though a written agreement was

not yet drafted.

(3) The Conspiring Insurers Agreed to Refrain from Competing for

Each Other’s Customers and Expected HRH to Protect Their

Renewal Business from Competition

289. HRH continued to allocate customers to its Big 3 Insurer co-conspirators and took

steps to ensure that the allocated customers would remain with the designated Insurer. In a

November 1998 memo addressed to all of HRH’s Agency Presidents, Jack McGrath (the head of

HRH’s Carrier Consolidation Task Force) instructed HRH’s nationwide field offices as follows:

We need to avoid situations where we move accounts from one of our three partners to another .

No select customer business currently written by C.N.A. or the Travelers is to bemoved to the Hartford …

When offering up blocks of business, those blocks should not be sent to more thanone of the three partners for review at a time. If after the chosen companydeclines a significant enough share of the accounts, then we can offer the same block to another of the partners.

290. A September 1, 1998 Travelers memorandum noted that:

HRH . . . [a]rea presidents will [be] held responsible by corporate to hit the business plan over an 18 month period. Those area presidents meeting orexceeding their approved business plan will receive an additional significant bonus payment. HRH corporate plans to work closely with each area president toensure compliance with the program. Fail safe systems are being designed tomonitor individual performance to the plan complete with action steps to correctany volume movement concerns.

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291. A September 1998 Hartford memorandum likewise made clear that HRH would

protect its “Big 3” Insurer co-conspirators from having to compete for business allocated to

them:

[W]e are positioned to be the lead market on Select Customer business. Theagencies have been instructed to begin moving all accounts generating $1,000 ofrevenue and below to [us]. In various locations, this threshold may be increasedto the $2,000 revenue level.… It has been communicated that the only exceptionsto this rule are accounts generating between $500 - $1,000 of revenue that arecurrently placed with Travelers or CNA.

292. HRH’s disciplined approach to protecting its Insurer co-conspirators was even

embodied in its internal procedural manuals. For example, the 1999 Select Commercial

Procedural Manual for HRH’s Northern California office made clear that the Big 3 were to be

allocated select commercial business and that no customers placed with one of those Insurers

could later be moved without the Agency President’s consent. It provided, in relevant part:

The Select Commercial unit will abide by corporate initiatives for placing business. Nationwide, HRH has contracted with “The Big Three,” Hartford, CNAand Travelers, for preferred rates and products. In addition, HRH of NorthernCalifornia has special in-house underwriting with General Accident. These fourcompanies represent our prime markets. No business is to be moved from thesecarriers without the express consent of the agency president.

293. As of year end 1999, Hartford reported _________ premium retention rate with

HRH across all commercial lines of business placed.

(4) The Conspiring Insurers Agreed that in Return for Their

Contingent Commission Payments, They Would be Granted

Access to a Minimum Amount of Premium Volume

294. HRH executed contingent commission agreements with each of its Big 3 Insurer co-

conspirators. In the first three years of the conspiracy, from 1998 through 2000, the contingent

commission agreements were purely volume-driven in that override commissions were paid

based on the overall book of business placed with the Big 3 Insurers. From 2001 through 2004,

after HRH’s business had largely been consolidated, the contingent commission agreements

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began to include growth thresholds and paid increasingly large overrides depending on the level

of business growth achieved over the prior year.

295. The first written contingent commission agreement was reached in December 1998,

when HRH executed an override agreement with Travelers that terminated all pre-existing

override and profit sharing agreements between Travelers and HRH’s local offices and replaced

them with a new national override agreement that was made effective as of January 1, 1998.

296. The new national override agreement entitled HRH to earn, in addition to standard

commissions, overrides of _____ on all direct written premiums produced during the 1998

calendar year on Select Commercial Lines, Commercial Accounts, Construction, Bond, Gulf

Insurance Companies and certain Personal Lines. For the fourth quarter 1998, Travelers also

agreed to pay HRH an additional override of ____ on new business for most of those lines. This

agreement, which effectively paid HRH an additional ____ for virtually all renewal customer

policies and ____ for all new customer policies that were moved to Travelers from non-

conspiring insurers, was purely volume-driven and rewarded HRH for business regardless of its

profitability.

297. The same HRH and Travelers program – providing for _____ contingent

commissions on renewal business and a total of ____ contingent commissions on new business –

was re-executed in 1999 and 2000. Similar agreements were executed from 2001 through 2004,

though the override percentages were stratified based on the percentage of new premium growth

over the prior year and profitability.

298. In or about February 1999, HRH executed a commercial lines “Excess

Compensation” agreement with CNA that, just like the Travelers agreement, (a) superseded all

pre-existing local contingent commission agreements between the two companies; (b) entitled

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HRH to earn 3.5% overrides on all renewals and 8.5% on all newly written business during 1998

on most commercial insurance lines; and (c) remained in place through 2000.

299. In March 1999, HRH executed a strategic partnership agreement with Hartford that

likewise terminated all pre-existing contingent commission agreements between them. For the

calendar year 1998, the agreement entitled HRH to earn a “select customer new business bonus”

of ___ for new select commercial business directed to Hartford’s Service Center; an “all other

lines bonus” of ____ for other new or renewed Select Customer accounts, Marine accounts and

“Key Accounts”; and a “commercial programs bonus” of ____ for all other new or renewal

commercial business.

300. The Hartford Agreement also provided for “all lines bonuses” of up to ____ for

renewals and _____ for new business from 1999 through 2001, if HRH met specified dollar

volume “net growth thresholds”; for “commercial programs bonuses” of _____ on all new

business and renewals during those years; and for “special casualty” and “risk management”

bonuses of ____ for renewal business and ____ for new business if growth thresholds were met.

301.

In a December 2000 memorandum, HRH’s President Martin Vaughan announced

that future contingent commission agreements with the Big 3 Insurer co-conspirators would

hinge on HRH meeting guaranteed growth thresholds:

After going through the process of renewing several of these deals, it is importantto note that most of these are contingent upon us reaching certain performancelevels in year 2001 for them to continue in the immediate future. If we do nothave movement of business and be serious about market consolidation, we run therisk of these deals disappearing. There are very few opportunities that pay thesetypes of overrides and the importance of continuing these is paramount.

…

We are asking you to do this at a time when market conditions are veryunpredictable and at times frustrating From an economics standpoint I think it iseasy to realize how important these deals are to us and that we do everything in

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our power to make certain that they have a chance to not only succeed, but tocontinue in future years.

…

Over the course of the next few weeks, I would appreciate your assistance withreviewing your markets to identify those carriers that are eligible to beconsolidated within one of our partner companies. (Emphasis added.)

302. Vaughan stated the following in a subsequent December 2000 memorandum:

Note we have signed Confidentiality Agreements with these carriers. The sharingof this information could jeopardize our overrides.)

HRH is committed to carrier consolidation as an important part of our strategic plan. Doing more business with fewer carriers will leverage our strength withunderwriters and add efficiency to our operations.

These four deals exemplify our ability to leverage our strength for superiorcommission and growth overrides. The time is here for each agency to reviewyour carrier representation with an eye toward consolidating markets and meetingvolume commitments to our partner companies.

303. HRH continued direct business to its Big 3 conspiring Insurers through 2004.

Throughout the existence of the HRH conspiracy, HRH and its Big 3 co-conspirators engaged in

meetings to reinforce the existing agreements, and subsequently disseminated and reiterated the

message to their local offices to continue further implementation of their partnership objectives.

304. For example, after the October 2000 meeting at the Greenbrier, David K. Zweiner,

the President and Chief Operating Officer of Hartford’s Worldwide Property and Casualty

Operations, wrote to thank HRH’s then-CEO Andy Rogal for their frank conversation regarding

the two companies’ “partnership” and reiterated Hartford’s “commitment to discovering and

exploiting new opportunities with [its] partners.”

305.

Thereafter, Hartford continued to pay HRH net growth bonuses ranging between

____ and ____ because “[e]mphasis on the generation of new/new revenue continues to be a top

priority.”

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c) The Conspiring Insurers Understood their Role in the Conspiracy and

Knew They Would be Disciplined by HRH if They Refused To Go Along

306. HRH’s Big 3 Insurer co-conspirators knew of each others’ involvement, and each

clearly understood that they had entered into these arrangements with HRH to purchase volumes

of business as to which they would not have to engage in price competition with each other or

with non-conspiring insurers. For example, in summarizing its negotiations with HRH, a

Travelers representative stated that “HRH will limit participation [for the commercial lines

business] to a maximum of 3 national carriers with ‘similar’ programs.” The representative

continued: “[t]hese terms and conditions assume a similarity of intent with the strategic

partners.”

307. Travelers was even more explicit in the description of its illicit arrangements with

HRH in a memorandum to its Regional Vice Presidents, in which Travelers made clear that each

of the Big 3 Insurer co-conspirators had agreed horizontally among themselves to participate in

HRH’s Broker-Centered scheme:

The recent announcement of a global retention and new business partnership withHRH presents significant opportunities for Select to increase our net position withthe HRH profit centers. Remember, the main thrust of HRH’s small businessstrategy is to reduce the number of partners to three – Hartford, CNA andTravelers.

The financial program encourages HRH to consolidate a significant amount ofthis business with the Travelers and the other partners. To ensure a level playing field, each carrier agreed to the same financial program.

308.

A September 1, 1998 Travelers memorandum expressly stated: “Please note, while

the financial terms of the deal are confidential at our request, each carrier agreed to the exact

same elite, growth override financial program.”

309. Hartford communicated a similar understanding of the conspiracy with HRH and

the other two carrier conspirators to its Regional Vice Presidents:

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We are pleased to announce that The Hartford has been selected as one of three National partner Carriers in conjunction with HRH Insurance’s new strategicdirection for Commercial and Personal Lines business. The agreement culminatesa series of negotiations and allows us to build on the Small CommercialConsolidation Program that has been executed over the past ten months.

In exchange for a significant premium commitment over the next several years, anenhanced Incentive Bonus Agreement has been developed to reward andcapitalize on production opportunities throughout our segments. As articulated inthe attached exhibit, there will be a modified Commercial Lines Agreementretroactive back to January 1, 1998, and second agreement put in place for 1999-2001. (Emphasis added.)

310.

CNA was likewise fully aware that it was one of three national carriers selected by

HRH pursuant to its “consolidation program.” CNA knew that HRH was allocating competition-

free premium volume to its “strategic partners,” CNA, Hartford and Travelers, in exchange for

contingent commissions and overrides, and knew that it would be penalized by HRH for non-

compliance with the conspiracy. CNA expressly recognized that HRH would move CNA

business to Hartford and Travelers if CNA did not pay HRH the contingent commissions it

wanted. “They [HRH] expressed that our changing anything, or requiring anything other than

simply paying the 3.5% on the volume (assuming growth) will expressly jeopardize our

relationship . . . , and that this would create a situation where their retail leaders would likely

move some of the CNA business.”

311. HRH kept its conspiring Insurers aware of how much in premiums and what

percentage of HRH’s business each of the Big 3 were allocated. An October 2000 letter by

Steven Wachtel of Hartford, enclosing “action” items discussed at a Greenbrier meeting,

summarized such information that HRH had conveyed:

Just less than _____. with the 3 strategic partners. Travelers ≈ ___, CNA ≈ ___, Hartford ≈ ___________ available.

HRH needs to get down to 5-10 carriers. Consolidation is the game plan. Jointlydetermine how we can assist.

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312. Other Insurer Defendants were also familiar with HRH’s arrangements with its

conspiring Insurers. Defendant Chubb, for example, met with HRH to confirm its understanding

from the marketplace that HRH had, in fact, entered into arrangements wherein it would allocate

premium volume to only three Insurers in exchange for enhanced compensation. The sum of

Chubb’s findings, in relevant part, were memorialized as follows:

Sy and I met with Steve Deal, National Director, Select Company Relations andAndy Rogal, CEO to review Chubb’s concern over marketplace rumor about theircombining all middle market business to three companies. Andy opened themeeting emphasizing HRH’s critical need to retain Chubb as a market …. Heindicated HRH has been having uncomfortable conversations with some marketsthat will not be future players but they did not expect Chubb to fall in that

category with any of their regions.

As we anticipated, they are entering Phase II of a strategic direction to make their“roll-up” of agencies more focused and efficient. This includes plans toconsolidate markets, regionalize practices and create company partnerships tomaximize their revenues.

While they would not tell us the specifics of their consolidation deals withTravelers, CNA and Hartford … they shared some of the following:

…

HRH is interested in withdrawal of incentive compensation for overrides. Theywant these coordinated by corporate. Likely these would flow to the bottom-lineof their branches. …

They do not anticipate a movement of Chubb business but did indicate that thevery rich … overrides may limit new business. There are minimums they mustmeet with these markets and these will be managed monthly. They instructedtheir presidents to prepare lists of their top 25 accounts that may get to thisinitiative quickly, and deliver to the task force ASAP.

…

They have about $ l.2 billion in P&C premium as of y/e 1997. (Emphasis added.)

313. The conclusions from this meeting are equally notable in that Chubb in September

1998 contemplated joining the HRH conspiracy in response to the threat that premium volume

would be allocated away from Chubb:

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I recommend that National Marketing prepare the interim profit sharinginformation to help facilitate the discussion of replacement overrides in 1999. Weshould also be certain to make the right connections with them at the Greenbrier.

As an editorial note: [HRH] knows this position is going to be unpopular withvarying constituents and are not going to be as forthcoming as we would like. … An estimated $10 million+ today is in middle market package/umbrella business,in which our competitors will be in [sic] very interested. Our clients will be in thetop 25 lists being prepared. I believe we need to re-emphasize our expectationthat this business stays with Chubb and convince them to partner with us in areaswe excel.…With $1.2 billion, there is plenty opportunity for everyone. (Emphasisadded.)

314.

Chubb, however, did not join the conspiracy at that time, which Travelers had at

that time insisted include only three Insurers, and HRH and its Big 3 Insurer co-conspirators

pressed forward with their conspiracy. In a November 1998 memorandum to all HRH field

office Agency Presidents, HRH’s then-CEO wrote:

The Carrier Consolidation Initiative continues to be one of the highest priorities ofour Company throughout the remainder of 1998 and during 1999. In order tomaximize our benefits under these arrangements, it is critical that we approach themovement of this business to our partners in a very aggressive manner.

d) HRH and its Co-Conspirators Benefited From the HRH conspiracy

315.

Two years later, in December 2000, HRH’s President Martin Vaughan provided the

Company with a report on its progress in connection with implementation of the Carrier

Consolidation Initiative:

Last month at our Presidents’ Meeting we spoke of the arrangements that wecurrently have in place with the Big Three and in addition the new partnershipwith Allmerica.

Over the past three years, these arrangements have produced annually

approximately 7.5 million dollars of overrides to our company and havesignificantly proven to be beneficial additions to our bottom line. It is difficult toimagine where we would be without the inclusion of these dollars in ourconsolidated numbers. We were able to count on these overrides in the face of amarket adjustment that made it difficult to grow with these carriers but,nonetheless, we were rewarded with the base bonus overrides.

316. Vaughan stated the following in a subsequent December 2000 memorandum:

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Last month at our Presidents’ Meeting we talked about the arrangements wecurrently have in place with the Big 3 and in addition the new partnership withAllmerica. During 2000, the deals produced approximately $7,500,000.00 inoverrides to our company. These monies went straight to the bottom line and area primary driver in our financial success.

317.

HRH indeed reaped significant profit from its diversion of clients to its carrier co-

conspirators. An internal HRH document indicates that between 1997 and 2004, from its

participation in the conspiracy, HRH and received approximately $133,428,000 in contingent

commissions and $55,310,000 in additional override commissions, or total of $188,738,000 in

non-standard commissions.

318. HRH’s sales staff and Agency Presidents also benefited from the conspiracy. To

further the conspiracy, HRH provided financial incentives to its employees to move business to

its Big 3 Insurers in an aggressive manner. The “1998 & 1999 Carrier Consolidation Incentive

Plan” established an incentive bonus pool to be generated for each year based on the volume of

new net business placed with HRH’s Big 3 co-conspirators. At least 50% of the 1998 bonus pool

was to be paid to employees, as determined by each agency President, “that ha[d] a direct impact

on moving business to the preferred carriers.” Agency Presidents were eligible for a maximum

of 50% of the bonus pool remaining. Agency Presidents and employees shared equally in the

1999 bonus pool, but for Presidents to obtain payment their agencies were required to meet or

exceed an established target for movement of business to HRH’s co-conspirators.

319. Similar financial were in place for the conspiring Insurers’ employees. An HRH

regional executive wrote in October 1998:

Please take a look at your renewals and new business thru January to see whichaccounts should be submitted to one of our BIG 3 markets. . . .

We are charged with moving a great deal of our renewal and new business to oneof the BIG 3 over the next few months. The extra bonuses on business placedwith Travelers or CNA can really add to the “Christmas” account. …

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The current bonus commission plan is good for any renewal moved from a non-BIG 3 company to Travelers or CNA. …

Our BIG 3 contacts are eager to help us place business with their companies .(Some of them are receiving incentives too.) Here is the schedule for the nextvisits for each company. Please try to have as many submissions as possibleready to give them when they come in.

320. The financial incentives positively reinforced Company discipline in favor of

protecting HRH’s Big 3 Insurer co-conspirators, and recognized HRH employees responsible for

driving the Carrier Consolidation Initiative toward success. They maintained similar influence in

HRH’s 2000 and 2001 Presidents Incentive Plans. Notably, the 2000 Presidents Incentive Plan

included a strategic objective stating: “It is in the best interests of HRH for agencies to move

property, casualty and employee benefit business to the preferred carriers as designated by the

Company.” In order to meet the objective, each President’s HRH’s agency’s placements with the

three conspiring Insurers had to grow by 15% or more. For a President to “exceed the

objective,” HRH’s conspiring Insurers had to be the top markets in the President’s agency.

321. The 2001 Presidents Incentive Plan was similar. It included a strategic objective

stating: “It is in the best interests of HRH for agencies to move property, casualty, select and

benefit business to the preferred carriers as designated by the Company, to take advantage of the

large overrides and increased revenues generated by these relationships.” Whether a president

met or exceeded the objective was to be determined by his or her Regional Director.

322. HRH’s conspiring Insurers similarly profited from the conspiracy. The conspiring

Insurers were able to drive profit improvement through price increases, and they achieved large

growth in premium volumes. Hartford, for example achieved ___ growth across all commercial

lines with HRH during the first 11 months of 2002. Growth in HRH’s Select Commercial

accounts increased by ___ with Hartford over the same period. Indeed, Hartford “experienced

significant growth over a 5 year period [from 1997-2001] with [HRH’s] Select Customer book in

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excess of _________________.”

323. CNA and Travelers also reaped substantially increased premium volume and profits

from their participation in the conspiracy.

e) Defendants’ Agreement had an Impact on the Prices Paid by Members of

the Class for Insurance Products

324. While achieving enormous growth in its premium volume from HRH, and paying

the accompanying increasing overrides to HRH, Hartford was simultaneously driving profit

improvement by executing a strategy to increase prices.

325. Hartford stated in its 2001 engagement plan for HRH’s Select Customer Business

that profit improvement would be driven by, among other things: (i) pricing increases in

profitable account segments; (ii) “capitalizing on ongoing rate strengthening across the line;” and

(iii) improving profitability by enforcing and executing “non-renewals and price increases as

communicated by segment.”

326. HRH, moreover, allocated premium volume to Hartford and its other Insurer co-

conspirators even if it caused an increase of its customers’ insurance premiums. The section on

premiums in HRH’s 1998 Select Commercial Operations Procedures Manual for all offices

provided the following instructions:

The SCIC (Hartford Select Customer Insurance Center) will make every effort tomatch the expiring premium; however, this will not always be possible. TheSCIS will automatically issue policies if they are within _____ of the expiring premium for the total account. Do not request a cancellation from the SCIC if one part of an account is more than ___ higher than expiring. The SCICs will takeinto consideration the total premium for an account and automatically issue all

policies if the total premium is within _____ of the total expiring premium.

With respect to minimum premiums, the SCIC will automatically issue policieswith premiums less than _____ that are subject to minimum premiums even if theincrease is more than ____. For example: a policy is currently written throughanother carrier at ____ and Hartford’s minimum premium is ____. The increasehere is much higher than _____ but Hartford will go ahead and issue the policy

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because it is subject to their minimum premium and falls below _____. Do notrequest cancellation in these situations.

327. It was also agreed and understood between and among HRH and its three

conspiring Insurers that HRH would allocate premium volume to those Insurers and protect the

from competition even if the Big 3’s prices or policies were not competitive. For example, one

HRH employee wrote: “Obviously everybody wants Automobile coverage. As a matter of fact,

those three big [sic] companies are really not competitive, but yet we must give them

Automobile coverage.”

328. Indeed, the Big 3 Insurers’ conspiracy with HRH contemplated from the outset that

the relationship would provide the Insurers with greater control over their profitability by being

assured they were going to be allocated the most profitable HRH customers. For example, the

head of HRH’s Select Business segment wrote to a Travelers affiliate in January 1999 as

follows: “With this agreement, you [First Floridian, a Travelers company] have presented us

with a wonderful opportunity and now the ball is in our court to perform. I can assure you that

we will be looking for every opportunity to move books of business to you and also favor you on

our new business production with profitable business.”

6) The Willis Broker-Centered Conspiracy

a) Participants in the Operation


participants in the Willis Broker-Centered Conspiracy were Broker Defendant Willis and Insurer

Defendants St. Paul Travelers, Chubb, The Hartford, Zurich, AIG, CNA, Liberty Mutual

(including Wausau), Ace, Axis, Crum & Forster, and Fireman’s Fund. This select group of

carriers was known as “strategic,” “preferred” or “market” partners, or partner markets.

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330. Willis allocated its customer base to and among its conspiring Insurers in two

steps. First, Willis and each of its Insurer co-conspirators agreed, and the conspiring Insurers

agreed horizontally among themselves, that Willis would “consolidate” its business by directing

a significant portion of its commercial business to St. Paul Travelers, Chubb, The Hartford,

Zurich, AIG, CNA, Liberty Mutual, Ace, Crum & Forster, Fireman’s Fund and Axis, thereby

eliminating hundreds of other insurers from competing equally with the conspiring Insurers for a

substantial portion of Willis’ business. Second, Willis and each of its co-conspirators agreed,

and the conspiring Insurers agreed horizontally, to reduce or eliminate competition among the

conspiring Insurers through the allocation of specific business for which they would not have to

compete among themselves.

331. One aspect of the conspiracy was the agreement that each conspiring Insurer

would keep its own incumbent business, and that Willis would protect that business from

competition by using a variety of incumbent protection devices.

332.

Starting in early 1996, Willis began consolidating its insurer markets from 1700

to less than 20. In January 2001, Willis’ Marketing Practice leaders held a “Strategic Marketing

Practice Conference” where a plan was devised to align Willis with a select few “key” carriers

who would enter into agreements that would yield “improved commissions” and “improved

contingents and overrides.” These key carriers would benefit from the placement of Willis’

business once they agreed to pay Willis contingent commissions or enter into special deals

providing increased revenue to Willis.

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333. Willis’ co-conspirators also attended these meetings. Travelers and Zurich

attended the January, 2001 meeting. Chubb and CNA were included in the follow-up Marketing

Practice Leaders Conference held in April 2001.

334. As a follow-up to the action steps developed at these meetings, Willis continued

to hold meetings with its partner markets. A summary of the key points from meetings with AIG

and Hartford was forwarded to Mario Vitale, CEO of Willis, in a May 28, 2001 e-mail, entitled

“Carrier Update – Maximizing Revenue.” In addition to providing summaries of these meetings,

Vitale was advised that the next meeting was scheduled with St. Paul. The email further states:

The plan is to keep moving forward with key carrier meetings for NorthAmerica. … All the meetings being held with carriers are based around specificobjectives important to Willis and the carrier. Our goal is to leave each meetingwith a clear action plan to obtain the results we have mutually agreed upon. Thisincludes steps to drive more business to local and national contingentarrangements for maximum impact in 2002 and to explore any possible impactwe can still have on 2001.

335. The meeting scheduled with St. Paul took place at the next Marketing Practice

Leaders Conference held in August 2001. This meeting provided an “Update and Planning for

2002.” The other part of the agenda again included updates on contingent agreements and

“Premium Volume by carrier and ahead-behind-on track impact on contingents.”

336. Beginning in early 2003, Willis furthered its efforts to consolidate the carriers it

used in order to maximize its contingent commission income by creating a specific group called

the Global Markets - Carrier Relationship/Marketing department (“Global Markets”). The stated

purpose of the Global Markets was to “maximize group revenue” by maximizing commissions

and contingent commissions.

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337. Global Markets developed market leverage through the use of partner markets.

Global Markets’ head James Drinkwater described how Willis would partner with Insurers who

were willing to support it in return for steering business to the partner insurer:

[market] leverage can only be maximized by ‘Partnering’ with a selectnumber of carriers who share our vision, want to work with, and supportthe Group. Focusing on our ‘partner’ markets will require themanagement of our premium flows and the overall relationship.

338. As stated by Willis’ Marketing Manager for its Portland, Oregon office in an

August 26, 2003 e-mail, “the whole marketing concept was originally predicated on the fact that

we would limit our markets to some strategic markets where we would place 80% of our

business.”

339. Although there were approximately 860 insurers who were qualified to place

insurance on behalf of Willis customers, the number of “preferred strategic markets” was

significantly smaller, numbering a mere 15 retail insurers, all of whom had entered into pay-to-

play agreements with Willis, either in the form of PSA’s or special deals providing increased

revenue to Willis. Among the identified conspiring Insurers at the time were Hartford, St. Paul,

Chubb, Liberty Mutual, AIG, Zurich, Travelers and CNA.

340. Global Markets used Regional Marketing Officers (“RMOs”), responsible for

each of Willis’s regions, to communicate its corporate-wide mandate to concentrate business

with specified conspiring Insurers. In August, 2003, John Pearson, Chief Marketing Officer of

Willis North America, admonished the local offices “to bring significant opportunities to C&F

[Crum & Forster] before year end,” which he indicated was “critical to maximize the incentive

opportunity.” At or about the same time, Pearson reminded Willis’s RMOs not to “forget the

advantages of placing as much business as possible with the carriers we have negotiated special

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deals with, as you look for ways to maximize revenues the last few months of this year and into

2004.”

341. Global Markets exercised control over the “negotiation, collection and

management of contingents in North America” and prohibited any region or local office of Willis

to enter into any contingent commission agreement without specific approval by James

Drinkwater, the Managing Director of Global Markets (“Drinkwater”).

342. The purpose of this control was to ensure “uniformity” and to “maximize the

terms . . . across the [Willis] Group.”

Additionally, this control was intended to help Global

Markets “budget, monitor and manage the potential revenue from any of these agreements as a

Group.” Global markets collected information from the local offices such as production goals for

the year with each carrier, the year-to-date number, and how far off they were from hitting their

bonuses. This information was necessary to realize Willis’s “plan of action to obtain the

maximum contingency from each carrier ... onboard.”

343. To maximize Willis’ revenue, customers were steered to its conspiring Insurers

regardless of the interests of clients. Global Markets “require[d] premium flows to be

restructured to focus on Partner Markets and to de-emphasize non-Partner Markets.”

344. In September 2003, Michael Mann, North American Marketing Director for

Global Markets, advised Willis’ RMOs to review their contingent and override agreements to set

the stage for fourth quarter business placement. The RMOs were to contact the Insurers to find

out where they were in terms of meeting thresholds, and then to "determine where you make the

biggest bang for your bucks." On October 8, 2003, John Pearson wrote that “Marketing centers

are reviewing contingent, bonus and override plans to maximize all agreements during the fourth

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quarter. Special attention is being given to St. Paul, Chubb, Liberty Mutual, Hartford and Crum

& Forster due to special agreements.”

345. Global Markets organized a National Planning Meeting in October, 2003 at which

Willis devised a “marketing plan to develop an additional $2.5mm in Group revenue in

November and December.” Global Markets disseminated a company-wide plan to achieve this

goal. That plan was titled “$2.5 MILLION REVENUE STRATEGY WNA MARKETING

PRACTICE OCTOBER 31, 2003.”

346. The “key objectives” of the 2003 $2.5 Million Revenue Strategy were to

“maximize the premium volume flow to key carriers with most attractive contingent income

agreements” and to “monitor key renewal accounts which are ‘in jeopardy’ and deliver

Marketing resources where necessary to increase renewal retention percentages.”

347. In exhorting Willis offices to “Maximiz[e] Year End Revenues,” in November,

2003, John Pearson stated:

Don’t forget the advantages of placing as much business as possible with thecarriers we have negotiated special deals with, as you look for ways tomaximize revenues the last few months of this year and into 2004.

While in some cases there are numerous variables in calculating these deals wehave plenty of opportunity to add needed revenue to the North America results, by taking time to direct our business when possible to the carriers listed below.

The conspiring Insurers listed are: Liberty Mutual, Crum and Forster, CNA, The Hartford, AXIS

and St. Paul.

348. Referring to the Willis partner markets St. Paul, Chubb, Hartford and Crum &

Forster, in an October 17, 2003 e-mail, Drinkwater stated to the RMOs “I want to see you

directing the flow of business to these companies.”

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349. On November 3, 2003, RMO David Michels sent an e-mail to his region with the

subject line “We need your help!” He advised RMOs, CMOs and others to:

Look for opportunities to feed our biggest contingency players, Hartford, St.

Paul, Chubb, Liberty Mutual (national accounts)

Look for opportunities to get Willis Re involved in any accounts possible.

Ask for bonuses from carriers for new business placements.

Ask for 2% additional commission on all accounts (I [k]now I already said it, butit is so important that I am repeating it again).

350. Another Willis RMO sent an “urgent” e-mail to all office marketers within his

region, urging them to “where possible drive ALL of our new and renewal business to our

partners who are paying Willis added incentives for year end growth results.”

351. Willis exceeded its goal of $2.5 million in revenue in the fourth quarter of 2003,

“generating over $3 million of additional income from increased commission rates, contingent

income growth, supporting Group Revenue and placing new business opportunities.”

352. Suzanne Douglass, an officer within Global Markets, expressed her concern that

as a result of this Global Markets mandate, Willis was going to be “just like Marsh” as Willis

moved to “place all our business on the basis of the direct commissions the group can derive

from a market on a given placement.”

(1) Participants in the Willis Broker-Centered Conspiracy Agreed

that Willis’ Business would be Allocated among the Conspiring

Insurers.

353. Willis’ Insurer co-conspirators agreed that Willis’ business would be allocated

among them without regard for competition.

354.

CNA and Zurich assisted Fireman’s Fund in maintaining its insurance coverage of

ABM Industries’ airport parking facilities. In March 2001, Willis client, ABM Industries, was

required to obtain three bids for insurance to cover ABM’s new parking contract with Detroit

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Metro Airport, but Willis had previously placed an omnibus Fireman’s Fund policy covering all

of the ABM’s other airport parking facility contracts. To enable Fireman’s Fund to maintain

coverage over this omnibus policy for the Detroit Metro parking facility, CNA and Zurich agreed

to the request of Russell Kiernan of Willis’ San Francisco office to submit bids with the

understanding that they would not result in a placement. Willis provided them with the premium

breakdown they needed to quote in order to be assured of losing the bid.

355. At a Greenbrier meeting with Zurich on October 13, 2003, it was reported that

Zurich experienced a 50-60% growth rate from Willis in 2003, principally driven by exposure,

rather than rate.

356. Willis directed insurance placements to Hartford without regard for competition.

This direction of insurance placements was in furtherance of an agreement reached between

Willis and Hartford by which Willis _____________________________________________

______________. The arrangement was known as __________ At the 2003 Greenbrier

convention, held October 11-14, 2003, Drinkwater, Pearson and other high level Willis

executives met with Hartford’s Chairman and CEO Ramani Ayer and other high level Hartford

executives to discuss final details of the ________ plan. Willis and Hartford finalized their

__________ plan and sent out memos regarding their agreement to their respective offices by the

end of October, 2003. ___________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________.

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357. The share shift plan included a “prospecting process” with Willis offices in San

Francisco, Bethesda, Radnor, Hunt Valley and Charlotte. Hartford representatives were allowed

to meet with Willis representatives of these offices to select the most profitable accounts for

placement with Hartford in order to double the written premium placed with Hartford.

358. Willis and Hartford agreed to work together to allocate customers:

_____________________________________________________ _____________________________________________________ _____________________________________________________

_______________________________________________________ _______________________________________________________

________

________________________________________________________ ______________________________________________________

_________________________________________________________ _____________________

__________________________________________________________ ____________________________________.

359.

In return for agreeing to provide Willis with significant contingent payments,

Willis further agreed to provide Hartford with both a _________________________________

_________. On December 11, 2003, about the same time Willis and The Hartford entered into

their new PSA, Hartford sent out a memo to all Hartford field offices stating, in part:

A second key piece of the plan which we are now working on with Willis is __________________________________________________________ Wewill score leads and distribute back to you and Willis for follow up. The jointcommitment is for Willis to give_______________________________________

_________________________________________________________________ _______________.

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Hartford closed its communication by emphasizing that Hartford’s local offices were to invest

their “time and resources” toward Willis placements since they would have an “excellent return.”

360. Willis furnished Hartford with their entire account list for _____________

______________ companies with the understanding that “the joint commitment is for Willis to

give Hartford ________________________ .

361. Willis provided Liberty Mutual with information on potential clients to give it an

“unfair advantage” in client placements. Willis provided Liberty with an account listing of

prospective accounts so that Liberty managers could cherry pick by “directly contact[ing] Willis

RMOs and proactively ask[ing] for the specific accounts.” In one instance, Fred Frey of Liberty

asked Willis Global Markets RMO Michels about a potential placement. Michels responded to

Frey that he would check to determine if it was a “real opportunity” for Liberty to acquire the

placement and, if so, Michels “will make sure you have solid information, and an unfair

advantage.”

362. Chubb expected that Willis would allocate $20M of existing Willis business to

Chubb. In order to “encourage” Willis, Chubb “agreed to pay an additional incentive override to

the Willis organization, based on year-end 1997 results.” This national override, a form of

contingent commission, was in addition to any local or branch incentive agreements and

provided a double incentive to protect existing business with Chubb and steer new opportunities

to it. Willis provided Chubb with a list of clients for Chubb to review so Chubb could cherry

pick the accounts it wanted. As stated in a June 30, 1997 letter to Willis from Barbara Marshall,

Chubb Senior Underwriter, “Per our discussion of June 12, we have reviewed the business

consolidation listing provided to us by Willis Corroon [Willis’ predecessor]….We would like to

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pursue $7,950,545 of the list provided to us. This comprises approximately 78% of the

$10,000,000 book consolidation effort.”

363. Like other Willis partner markets, ACE was provided with the opportunity to

cherry pick client business and developed a “target list.” In June 2004, Susan Rivera requested

that the Ace USA business unit heads inform her of the performance of Marsh and Willis, in

preparation for a meeting with senior management of each broker. In response, Kudret Oztap,

head of Ace Global Energy, indicated that Willis had placed with Ace “almost all of the WILLIS

accounts in our target list in USA.”

364.

AIG had entered into a PSA with Willis’ predecessor, Willis Coroon, as early as

1998 and AIG also entered into PSAs with various Willis regional offices.

365. AIG, and its wholly owned subsidiary Hartford Steam & Boiler (“HSB”), had two

principal means of compensating Willis for steering it insurance placements: contingent

commission agreements and AIG’s agreement to use Willis’ wholly owned reinsurance broker,

Willis Re, as its broker in meeting AIG’s reinsurance needs.

366.

As a result of the PSA entered into by Willis and HSB in 2003, HSB was fully

insulated from competition for this class of business, as evidenced by an August 26, 2003 e-mail

from Joani Pepper, Marketing Manager of Willis’ Portland, Oregon office in which she stated

she was “mandated to place all B&M with HSB unless there is a very compelling reason not to.”

367. This practice continued in 2004 when Willis negotiated a new contingent

commission with HSB. Going into those negotiations, the HSB carrier advocate for Willis,

Damian Chapman, reported on a planned meeting with the HSB representative and stated that he

was going to discuss “the possibility of [HSB] taking over the [Boiler & Machinery] of one of

their competitors that may not be one of [Willis’] ‘partner’ markets.”

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368. In the first quarter of 2004, after the PSA with HSB had been executed, the carrier

advocate for HSB e-mailed Willis’ RMO’s to remind them to “keep the pressure on and advise

where the business is going if not to HSB - The Willis preferred B&M market!!”

369. Willis provided a list of Royal accounts John Echemendia of C&F and he

informed James Drinkwater and John Pearson on September 17, 2003 the subset of accounts in

which C&F was interested. Upon receipt of this list, on September 19, 2003, James Drinkwater

informed John Pearson and Michael Mann that he wanted to “guide as many of these accounts

into C&F as possible. C&F have agreed to put our submissions to the top of the piles and give

our clients preferred [sic] service.” He forecasted the result of such partnering as “a huge

windfall for all parties.” He further opined on the importance of the initiative as “it will

demonstrate to the Group and Crum & Forster that [Willis] can control the placement of business

and that Willis is committed to partnering with carriers where we have mutual objectives.”

Drinkwater further instructed Willis’ marketers on October 17 to “ensure that C&F is shown the

accounts listed and they are given the best opportunity of writing the account.” As a result of

these actions, the contingent income received by Willis from C&F increased three-fold from

$76,422 in 2002 to $228,553 in 2003.

370. 2003 was not the first time Willis steered placements to C&F. In 1998, C&F

increased the contingent commission payable to Willis Carroon because it recognized that Willis

“is a self professed revenue incentive driven agency”, and that “Incentives play a key role in

generating opportunities at this agency.” C&F further determined to increase the incentive paid

to Willis because it would provide an incentive to rollover existing business Willis had with

Zurich to C&F. As observed by C&F at the time, “without the new business incentive, rollover

opportunities on the Zurich book are no longer a consideration”.

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371. Moving blocks of business to St. Paul Travelers was “the type of growth and

share shift of our business [Willis] expect[ed] from a strategic partner.”

372. In May 2004, James Drinkwater met with John Albano, President & CEO at

National Accounts at St. Paul/Travelers and John Stites, VP National Accounts at St. Paul

Travelers. At the time, Willis was responsible for $161MM of premium and premium

equivalents of St Paul Travelers’ $4.1Billiion. As a result of the meeting, Drinkwater

determined to create a new National plan with St. Paul/Travelers under which Willis could grow

to $250 million in premium, and in furtherance of that plan, Willis determined to identify

specific accounts to steer to St. Paul Travelers. These plans, however, were not fully

implemented because of the NYAG’s investigation.

373. Business was allocated to Fireman’s Fund even when Fireman’s Fund was not

competitive. As a result Willis became eligible for and executed a platinum level Profit Sharing

Agreement: the most mutually profitable level of profit sharing agreement that Fireman’s Fund

offered.

374.

In addition, Willis gave Fireman’s Fund “last looks” on accounts. For example,

on or around June 14, 2001, Willis provided Fireman's Fund three last looks on an account for

______________. According to an internal Fireman’s Fund report documenting the telephone

conversation between Fireman’s Fund and Willis: “Willis came back and provided competitive

information on AIG, Hartford and Royal (who quoted) at the direction of insured.”

375. In August 2002, Zurich requested that it be afforded a “last look on all renewal

and new business,” that Willis “pre-qualify accounts” representing new business, and proposed a

joint Willis/Zurich Business Plan that provided for a 90 percent “renewal retention ratio.”

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(2) The Conspiring Insurers Agreed Not to Compete With Each

Other for the Willis Business

376. Within Global Markets, Carrier Advocates were responsible for overseeing and

managing the relationship between Willis and their assigned partner markets. Carrier Advocates

also worked to protect incumbent partner market insurers from competition so that Willis would

have the greatest leverage with which to increase the contingent commissions it was receiving

from its partner markets.

377. The Carrier Advocate assigned to Hartford listed several Hartford accounts up for

renewal and asked the RMOs to “make sure that [those] renewals are put to be cleanly with

Hartford.” The Carrier Advocate concluded by noting the importance of assuring that these

accounts stayed with the incumbent (i.e., Hartford), asking that “if [the RMOs] perceive any

issues with these renewals then please let me know as a matter of urgency.”

378. To meet its contingent commission threshold, Willis asked Liberty to give it an

indication of where Willis stood with regard to meeting contingency goals. Liberty responded

with an e-mail detailing where Willis stood with regard to writing Liberty business for 2003 and

concluding with a reference to the fact that the two had “agreed to an aggressive new business

plan together for next year.” Drinkwater then forwarded the Liberty PSA indication e-mail to his

RMOs asking them to “make sure that we protect the position and revenue that we have

generated.” To protect its position, Drinkwater instructed the RMO’s to “make sure that you

know what you have renewing and manage the renewal process.”

379.

The conspiracy protected an incumbent conspiring Insurer on a renewal even

when the client could have obtained a less expensive product. In order to meet its retention

contingency goals, Willis “went the extra mile to make sure that the incumbent, Chubb, retained

[an] account” “even though Willis had “obtain[ed] more favorable pricing from other carriers.”

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380. Fireman’s Fund agreed with Willis to limit competition so that it could increase

the cost of insurance on renewal while at the same time preventing any competition from

endangering a Fireman’s Fund renewal. In a Producer Call Report regarding Willis, Fireman’s

Fund’s Cheryl DeBro wrote on July 17, 2001:

Gaye and I met with Doug Brown on ______________, a 9/1/01 renewal tocome up with an early game plan to avoid outside/inside competition. Wausauis wanting to quote on the account through their wood program. Per Doug ifwe could give a minimum of 10% increase, they would not market. The

account has a 0% loss ratio…. Suggested increase is 20%. Quoted a 10% to12% increase in order to keep the account.

381. Willis agreed with Zurich to protect Zurich’s incumbent business. Zurich’s

August 2002 proposed Joint Willis/Zurich Business Plan provided for 90 percent “renewal

retention ratio.”

382. In a 2004 email to Zurich from Drinkwater, sent “in the spirit of partnership,”

Drinkwater addresses his concerns about a softening market and expresses his desire to jointly

develop a national strategy “to protect both what currently [we] have as well as create new

business opportunitoes [sic].” Among Drinkwater’s suggestions were ongoing efforts to (1)

protect Zurich as the incumbent, stating “In order to maintain our renewals we need to identify

any issues and ensure that we elevate any problems to the appropriate level.” and requests a list

of Willis renewals; (2) working together so that Willis RMOs understand Zurich contact points

so they can develop new opportunities, and (3) maximizing Willis revenue and negotiating

“Contingencies on a National or an Enterprise basis so that we can drive the appropriate behavior

throughout our Group.”

383. Co-conspirator ACE believed that renewal retention with Willis was “critical for

the PSA.”

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384. Travelers provided for a contingent payment to Willis if it achieved _____

premium retention.

385. Renewal retention was important for CNA.

(3) Willis and its Co-Conspirators Agreed that in Return for

Contingent Commissions, the Conspiring Insurers Would be

Guaranteed Access to Premium Volume

386. Willis guaranteed conspiring Insurers access to premium by way of steering

business to those insurers in return for contingent commission payments.

387. On October 21, 2003, Pearson sent a letter to Willis CMO’s, Office CEO’s and

Marketing Heads regarding Willis’ “growing relationship” with Hartford. Pearson’s letter

disclosed the terms of an “Enterprise Bonus” Willis had negotiated with Hartford providing for

payment of a national contingent commission. The Enterprise Bonus Agreement was

“[I]mplemented to support share shift results in key Segments.” Pearson also emphasized the

reciprocal nature of Willis relationship with Hartford: “As a strategic partner, Hartford has

shown a willingness to help Willis generate new-new business towards meeting our objective of

____ in new business in 2004. Consistent with this, we are working with them to provide access

to our prospect pipeline.”

388. Willis communicated with its offices the necessity of steering business to

Hartford in order to maximize contingent commissions. Specifically, Willis took steps to ensure

that the local offices held sales planning meetings to go over the contingency targets. Hartford

communicated to its sales mangers the value of its National Producer agreement with Willis that

included “Willis’ commitment to deliver a certain level of sales, persistency and widespread

office participation in sales.”

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389. In the fall of 1999, CNA and Willis entered into a Surety Partnership Agreement,

and CNA was identified as a “preferred carrier.” Willis then directed that “business for the

remainder of this year [will] be focused on 3 strategic partners: CNA, Hartford and St. Paul.”

390. In 2003, in furtherance of its role as a conspiring Insurer and in accordance with

the PSA with Willis, CNA sought to make sure that business was steered to it. CNA e-mailed

Willis’s Chicago office (and cc’d Global Markets) regarding placement of the City of Chicago

Airports policy. CNA began its e-mail by making sure the Willis Chicago office was aware of

the “Additional Compensation Agreement between Willis and CNA offering an additional

compensation of 5%.” CNA then reminded the Chicago office that CNA shared its premium

numbers monthly with Global Markets and that it had even discussed this particular policy with

Global Markets. In response to CNA’s e-mail, Global Markets interceded to make sure the

placement was steered to CNA by telling the Chicago office that Willis could use the extra

income and by instructing the Carrier Advocate to put the account on the list so Global Markets

could track it.

391.

Axis knew that the payment of contingents was the quid-pro-quo for premium

flow from Willis. In late 2002, just prior to launching operations in the U.S. market, Axis

planned its strategy. The Retail Property Business Plan (revised 11/02) for Axis Specialty

Insurance Company stated, “[W]e will need to consider a profit sharing agreement with Marsh,

and potentially other national brokers, as a price of entry into the marketplace.” According to

plan, Axis entered into an agreement with Willis in 2003, making Willis one of Axis’ first tier

National Brokers. These agreements were part of a strategy to “see a regular flow of business.”

392. Axis participated as a Willis conspiring Insurer as well. To maximize the benefits

to be received from the Axis PSA, in June 2003, Drinkwater directed Willis to send business to

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Axis and provided his internal directives to Jack Gressier, CEO and President of Axis Global

Insurance. Drinkwater focused on Axis' challenge for Willis to build business in the June 2003

directive provided to Axis:

AXIS have a very clearly defined broker strategy. They are committed to building their volume with Willis, however, they currently do not feel that theyare getting the number of opportunities that they should be seeing from a Brokerof our size. Their ultimate goal is to have a very limited number of brokers andthey have challenged us to build our volume significantly over the next eighteenmonths in order for us to be one of their preferred partners. If we are successful,the rewards will be significant. Axis is an important emerging market that I askyou all to support wherever and whenever possible. This Global initiative is thefirst of its kind and we will monitor our progress closely and I will share theresults with you on a quarterly basis. I ask you to share this important

announcement with all of your staff.

393.

In or about August, 2000, Liberty Mutual and Willis discussed entering into a

“partnership.” In return for partnering with Willis, Liberty Mutual expected Willis to “assist”

with its goal of “profitable growth in the National Market arena.”

394. Liberty Mutual viewed PSAs as the means by which it would pay for Willis

allocating clients to it in order to obtain the maximum compensation under the PSA. In May

2004, Mark Butler, Liberty Mutual’s Executive Vice President, Sales and Service Department,

National Markets, wrote:

I don’t believe in PSA’s but they are a fact of life. With that said, we set theexpectations with regards to new business, retention, growth that WE must havefor our business, not theirs.

Each represent [sic] the majority of our market. I simply want a bigger piece ofwhat they already have. They deliver, we pay. They don’t deliver, we don’t.

395.

Wausau, a Liberty Mutual subsidiary, entered into a “sweetener” agreement

whereby Wausau agreed to pay an extra point of contingent income for the entire Wausau book

of business if Willis could place $4 million with Wausau for the fourth quarter. At the time of

the agreement, Willis had placed $2.95M with Wausau for the fourth quarter. The Willis Carrier

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Advocate for the Wausau account then instructed the RMO’s that they “really need to make a

push and reach the $4M goal.”

396. After negotiating the “sweetener,” both Willis and Wausau were working hard to

meet the contingency goal. Not only was Wausau aware of Willis steering customers to Wausau

to meet the goal, but they encouraged it, suggesting to Drinkwater at Global Markets that “[w]e

will probably need some higher level nudging to get to the $4 million bell ringer. Your extra

effort is appreciated (and worth your while!).” Willis did some “higher level nudging,” with

RMO’s forwarding the agreement to the local offices and asking them to see if they had anything

that could be placed with Wausau.

397. The RMO at Global Markets for the Midwest, Michael Mann, sent an e-mail out

to the Midwest Willis offices attaching the Wausau agreement in order to make sure that they

steered business to Wausau in the last 2 weeks of the quarter. Mann noted that they would “only

need to generate an additional $1,250,000 in new business premium to Wausau in order to hit the

1% contingency on the book of business.” Mann then noted that meeting this goal would be a

“slam dunk” “[c]onsidering that there are 7 offices in the Midwest Region with business that

Wausau can write.”

398. Similarly, the RMO for the Southeast also sent an e-mail to his local offices

attaching the Carrier Advocate’s request for Wausau business, along with the Wausau

agreement. In response to the RMO’s request, the Director of Marketing for Willis Florida was

able to direct business to Wausau so that Willis would qualify for the contingency sweetener.

399. In the Fall of 2003, the plan between Willis and Crum & Forster for allocating

placements to Crum & Forster included Willis directing its local offices to deal with Crum &

Forster’s local offices. Consistent with that plan, on August 29, 2003, John Pearson sent an e-

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mail to James Drinkwater and a lengthy distribution list (all of Willis) announcing the “NEW

Crum & Forster / Willis Incentive Agreement.” Pearson directed the recipients to “review [their]

renewal book of business and pipeline of new opportunities for clients and prospects meeting

C&F’s guidelines.” He further advised: “C&F is serious about growing with Willis. We must

demonstrate our ability to bring significant opportunities to C&F before year end .” Pearson

closed by stressing the need for Willis to “maximize the incentive opportunity.”

400. Similarly, in the September 2003 e-mail from Drinkwater to Pearson and other

Global market executives, discussed above, concerning the “NEW Crum & Forster / Willis

Incentive Agreement,” Drinkwater stated that he wants to be sure information on the Crum &

Forster agreement is appropriately articulated “to the marketing practice”, because it is important

that those people understand who Willis’s “partner markets” are, and because it is important to

show Willis’s “Partners” how Willis distributes information about them. Drinkwater concluded

that, “most importantly,” Willis should ensure that “we move, where appropriate, business to

C&F”.

401.

Willis also allocated business to St. Paul. A September 2003 internal report at

Willis stated, “Marketing centers are reviewing contingent, bonus and override plans to

maximize all agreements during the fourth quarter. Special attention is being given to St. Paul,

Chubb, Liberty Mutual, Hartford and Crum & Forster due to special [contingent commission]

agreements.” The following month, Willis put together a revenue growth strategy focused on

contingent commissions.

402. According to a September 2003 Willis e-mail:

We all have some ability to direct premium to certain markets and there is a greatdeal of potential income to be made from the PSAs. Those of us who can direct premium need some “direction”. . . . This way we will funnel premium tocarriers with PSAs and achieve greater numbers of thresholds than we would

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with an “unfocused” approach. Look forward [to] . . . some direction to help usachieve income goals without having to produce one cent of new biz.

(4) Insurer Co-Conspirators Understood Their Role and were

Disciplined by Willis if They Did Not Participate

403.

Insurers knew that being designated a “Preferred Market” by Willis would

guarantee that their products would be in the select pool of insurance offered to Willis clients and

that falling out of favor would eliminate or severely reduce business from Willis.

404. In December 2003, William Curcio, President of the ACE Risk Management

reported that Mario Vitale, then CEO of Willis, told him that to meet a Willis income deficiency

in 2003, he needed $500,000, and that Vitale was going “to approach a couple of ‘partner

markets’ that he would then ‘guarantee’ significant new business growth into ’04. Those who

did not choose to help him as a partner now would not be designated as a ‘favored’ market.”

(5) Communications Among Participants in the Conspiracy,

Facilitated by Willis, Furthered the Conspiracy

405. Willis shared information with Chubb regarding its contingent commission plans

with Royal, Hartford and Travelers.

406. The Hartford knew that CNA was a “Top Carrier” and “key market” for Willis.

407. Willis advised Travelers in December 2003 that it would be on an “equal footing”

with partner markets Chubb and Hartford with respect to its contingent commission agreement.

408. Willis gave Crum & Forster information concerning other insurer co-conspirators’

renewal retentions.

(6)

The Co-Conspirators Benefited From the Conspiracy’sOperation

409. Both Willis and its co-conspirators benefited from participating in the conspiracy.

410. In April 4, 2004, Drinkwater explained how an insurer would benefit from having

a PSA agreement with Willis:

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Underwriters [insurers] need to realise [sic] that our PSA’s are a reward forservices that we provide to carriers such as carrier advocacy . . . CarrierAdvocacy includes transparency into our organisation [sic] and our book, accessto our leadership and our clients, an unfair competitive advantage as well asother benefits that partnerships bring. While the downside of not partnering with

us is impossible to calculate I think that Hartford, Axis, Ace, St. Paul would alladvocate the value and the positive effect that it has on our business.

411. Chubb identified the following benefits it would realize from being a co-

conspirator: “The first phase of this process will be the consolidation of their mid market

commercial business. This would represent the movement of approx. $20 million of existing

Willis business from current markets to Chubb over the next 12 to 18 months…. Standard

commissions will stay in place though we will pay a consolidation fee, some form of profit

sharing…and a new incentive.” In consideration for Willis’ consolidation of markets in

Chubb’s favor, Chubb agreed in April 1997 to pay an additional 5-10% incentive override to

Willis, depending on the volume of premium written.

412. Chubb was consistently one of Willis’ top 5 carriers in terms of premium written

and contingent commissions for 2002 through 2004.

413. In December 2003, Michael Mann, informed Liberty Mutual that Willis would

“be able to deliver results for our key Partner Markets on an unprecedented basis.”

414. St. Paul/Travelers discussed a “2004 Travelers Willis National Elite Profit

Sharing” agreement with Willis and listed the significant benefits for both organizations to have

a national profit sharing agreement. Among the benefits highlighted were that the agreement

requires a threshold of 20% maximum loss ratio, based on gross written premium and that the

agreement offers a minimum award of $150,000.

415. Willis did not meet the threshold for receiving contingent income from CNA in

2003. Patricia Corrigan Johnston, the Willis Carrier Advocate responsible for CNA informed

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Drinkwater and others at Willis that “CNA is paying us $141,500 [as contingent commission

income for 2003] which we are technically not owed. I think these payments of good faith need

to be remembered. We frequently discuss ‘partner markets’ and ‘markets stepping up’. CNA is

clearly putting their money where their mouth is in making a commitment to Willis.” This

information was subsequently communicated to CNA by Johnston: “I feel strongly (and have

conveyed my feeling to anyone who will listen!) that CNA is supporting Willis in a partner

market fashion. We, in turn, will support CNA and drive growth through our retail offices.”

416. In early 2004, Willis entered into a new contingent agreement with CNA. E-

mails exchange between Suzanne Douglas of Willis and CNA in January 2004 noted that for the

Large Property operation, CNA's writings with Willis grew 60% in 2003 over 2002, meaning

that Willis would earn approximately $185,000 in contingent payout for 2003. Based upon this,

the proposed deal for 2004 was a 5% contingent for all business over the highest threshold which

they had met in 2003. Based upon this arrangement for Willis, Michael Mann indicated that

Willis should consider pushing CNA aggressively in the field because Willis would receive 5%

on every dollar placed with CNA over the threshold.

417. Willis had a “significant global business relationship with Ace as a Partner

Market on a retail, wholesale and reinsurance basis.” “Willis North America retail grew at a

49% rate with ACE USA in 2003.”

418. Intent to build upon the success of 2003, Willis and Ace entered into a significant

premium growth agreement for 2004 that tied placement of business with three Ace business

units - Ace Risk Management, Excess Casualty and Global Property – to PSA payments. Ace, in

turn, recognized that a more lucrative PSA arrangement would further its goal of elevating its

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position with Willis vis-à-vis other carriers. As of January 2004, Ace USA was Willis’s fifth

largest Partner Market.

419. Michael Mann wrote in a February 23, 2004 e-mail: “Remember - It’s all about

increasing commission percentages (always ask for more), driving business to our Partner

Markets and utilizing Group Resources. The RMOs will set expectations on an office by office

basis and follow-up for results.” Only days later, on February 25, 2004, Mann wrote another e-

mail regarding Willis North American contingent agreements that began: “One (very important)

element of meeting the $50MM revenue target for 2004 is ensuring that we maximize the use of

our existing contingent partnership agreements.”

Tom Motamed of Chubb described the benefits of being a participant in the Willis market

consolidation efforts as follows: “Needless to say, if we can capitalize on [Willis’s] greed, we

should.”

420. As consideration for Willis’ significant insurance placements with AIG, AIG

agreed to use Willis Re as its reinsurance broker, and listed Willis Re as an approved direct

reinsurer for AIG underwriters to use. In January 2002, AIG entered into a PSA with Willis Re

providing contingent commission payments to Willis Re on its placements of reinsurance for

AIG. For 2002, AIG placed a total of $255,489,580 in premium with Willis Re, and a

comparable amount for 2003.

Date: May 22, 2007 Respectfully submitted,


/s/ Bryan L. Clobes Bryan L. ClobesEllen MeriwetherMelody ForresterTimothy Fraser 1717 Arch Street, Ste. 3610

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Philadelphia, PA 19103Tel.: 215-864-2800Fax: 215-864-2810


/s/ Edith M. KallasEdith M. KallasJoseph P. GuglielmoElizabeth RosenbergLili R. Sabo1540 Broadway, 37th Floor New York, NY 10036Tel.: 212-447-7070Fax: 212-447-7077



FLOWERS

Robert M. Foote28 North First Street, Suite 2Geneva, IL 60134Tel.: 630-232-6333Fax: 845-8982


BERMANHoward J. Sedran510 Walnut Street - Suite 500Philadelphia, PA 19106Tel.: 215-592-1500Fax: 215-592-4663



& RIVAS, LLCAllyn Z. LiteBruce D. GreenbergMichael E. PatunasTwo Gateway Center, 12th Floor Newark, NJ 07102Tel.: 973-623-3000

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Fax: 973-623-0858

Liaison Counsel for Commercial Insurance Litigation


& BALINT, P.C.

Andrew S. FriedmanElaine A. RyanPatricia N. Hurd2901 N. Central Avenue, Suite 1000Phoenix, AZ 85012Tel.: 602-274-1100Fax: 602-274-1199

Liaison Counsel for Employee-Benefit Litigation


William M. Audet221 Main StreetSuite 1460San Francisco, CA 94105Tel.: 415-568-2555Fax: 415-568-2556


Lawrence W. SchadJames SheddenMichael S. HilickiTony H. Kim332 South Michigan Avenue, Suite 1000Chicago, IL 60604Tel.: 312-939-6280Fax: 312-939-4661


Anthony J. BologneseOne Penn Center1617 John F. Kennedy BoulevardSuite 650Philadelphia, PA 19103Tel.: 215-814-6750Fax.: 215-814-6764

124




BONSIGNORE & BREWER

Robert J. BonsignoreRobin BrewerDaniel D’Angelo

23 Forest StreetMedford, MA 02155Tel.: 781-391-9400Fax: 781-391-9496


Jennifer W. Sprengel Nyran Rose Pearson30 N. LaSalle Street, Suite 3200Chicago, IL 60602Tel: 312-782-4880

Fax: 312-782-4485


Michael J. FlanneryJames Rosemergy8235 Forsyth Blvd.Suite 1100St. Louis, MO 63105Tel.: 314-725-7700Fax: 314-721-0905




Nicholas E. ChimiclesMichael D. Gottsch361 West Lancaster AvenueHaverford, PA 19041Tel.: 610-642-8500Fax: 610-649-3633


HERRMANN & KNOPF

Peter S. PearlmanPark 80 Plaza West One

125




Saddle Brook, NJ 07663Tel.: 201-845-9600Fax: 201-845-9423


Josef D. Cooper655 Montgomery Street, 17th FloorSan Francisco, CA 94111Tel.: 415-788-3030Fax: 415-882-7040


KNOWLES & DEVINE

Kenneth S. CanfieldRalph I. Knowles, Jr.Martha J. Fessenden

Samuel W. Wethern1355 Peachtree Street, Suite 1600Atlanta, GA 30309Tel.: 404-881-8900Fax: 404-881-3007



th Floor



ROTH, LLP

Nicholas B. RothHeather Necklaus HudsonP.O. Box 1607Decatur, AL 35602Tel: 256- 353-6761Fax: 256- 353-6767

FINE KAPLAN & BLACK

Roberta D. Liebenberg1835 Market Street, 28th FloorPhiladelphia, PA 19103Tel.: 215-567-6565Fax: 215-568-5872

126





& LOUGHRAN

Burton H. FinkelsteinL. Kendall Satterfield

Halley F. Ascher1050 30th Street, N.W.Washington, D.C. 20007Tel.: 202-337-8000Fax: 202-337-8090


Michael P. LehmannThomas P. DoveJulio J. RamosJon T. King

225 Bush Street, Suite 1500San Francisco, CA 94104Tel.: 415-433-2070Fax: 415-982-2076

GRAY AND WHITE



VLAHOS

RUDY LLP

David J. Miller333 Market Street, 23rd FloorSan Francisco, CA 94105Tel.: 415-777-3200Fax: 415-541-9366


Michael E. CridenKevin B. LovePlaza 577301 SW 57th CourtSuite 515South Miami, Florida 33143Tel.: 305-357-9010Fax: 305-357-9050

127






CROWLEY, LLP

W. Timothy Needham

730 Fifth Street, Post Office Drawer 1288Eureka, CA 95502Tel.: 707-445-2071Fax: 707-445-8305

JEFFREY BRODKIN 1845 Walnut Street, 22

nd Floor

Philadelphia, PA 19103Tel.: 215-567-1234Fax.: 609-569-0809

JEFFREY LOWE, P.C.Jeff Lowe8235 Forsyth Blvd., Ste. 1100St. Louis, MO 63105Tel.: 314-721-3668Fax: 314-678-3401


KLAFTER & OLSEN LLP



Larry D. Drury205 West Randolph, Suite 1430Chicago, IL 60606Tel.: 312-346-7950Fax: 312-346-5777


SAPOSNIK

Gary H. Saposnik

128




105 West Madison Street, Ste. 700Chicago, IL 60602Tel: 312-357-1777Fax: 312-606-0413

LAW OFFICES OF RANDY R. RENICKRandy R. Renick128 North Fair Oaks Avenue, Ste. 204Pasadena, CA 91103Tel.: 626-585-9608Fax: 626-585-9610



John J. Stoia, Jr.Theodore J. Pintar

Bonny E. SweeneyJames D. McNamaraMary Lynne CalkinsRachel L. Jensen655 West BroadwaySuite 1900San Diego, CA 92101Tel.: 619-231-1058Fax: 619-231-7423




LEVINE DESANTIS, LLC Mitchell B. Jacobs150 Essex St., Ste. 303Millburn, New Jersey 07041Tel: 973-376-9050Fax: 973-379-6898

LOOPER, REED & MCGRAW James L. Reed, Jr.Travis Crabtree1300 Post Oak Blvd. Ste. 2000Houston, TX 77056

129




Tel.: 713- 986-7000Fax: 713- 986-7100


Jayne Arnold Goldstein

1640 Town Center Circle, Suite 216Weston, FL 33326Tel: 954-515-0123Fax: 954-515-0124


& SKIRNICK, P.C.

Steven J. GreenfogelDaniel B. AllanoffArchitects Building, 22

nd Floor

117 South 17th Street


PHILIP STEINBERG




SHAHEEN & GORDON William ShaheenD. Michael Noonan140 Washington St., 2nd Fl.P.O. Box 977Dover, NH 03821-0977Tel.: 603-749-5000Fax: 603-749-1838

130





ROSE & PODOLSKY

Alan C. MilsteinJeffrey P. ResnickFairway Corporate Center

4300 Haddonfield Road, Ste. 311Pennsauken, NJ 08109Tel: 856-662-0700Fax: 856-488-4744


P.C.

Theodore M. LievermanEugene A. SpectorJay S. Cohen1818 Market Street, Suite 2500





Joe R. Whatley, Jr.Charlene FordRichard RoucoRichard Frankowski2001 Park Place NorthSuite 1000Birmingham, AL 35203Tel.: 205-328-9576Fax: 205-328-9669


FREEMAN & HERZ LLC

Mary Jane Edelstein FaitAdam J. Levitt656 West Randolph StreetSuite 500 WestChicago, IL 60661Tel.: 312-466-9200

131




Fax: 312-466-9292


FREEMAN & HERZ LLC

Fred Taylor Isquith

Alexander Schmidt270 Madison Avenue, 10th Floor New York, NY 10016Tel.: 212-545-4600Fax: 212-545-4653


ZWERLING, LLP

Robert S. SchachterSusan SalvettiStephen L. Brodsky

Daniel DrachlerJustin M. Tarshis41 Madison Avenue New York, NY 10010Tel.: 212-223-3900Fax: 212-371-5969


132




Case No. 14-56140




v.







Exhibit 4




UNITED STATES DISTRICT COURTDISTRICT OF NEW JERSEY

________________________________________ xIN RE: INSURANCE BROKERAGEANTITRUST LITIGATION


::

:::::

MDL No. 1663


Hon. Garrett E. Brown

JURY TRIAL DEMANDED

________________________________________ x

THIRD AMENDED COMMERCIAL INSURANCE PLAINTIFFS’ RICO CASE

STATEMENT PURSUANT TO LOCAL RULE 16.1(B)(4)




2

Pursuant to the Court’s Order of April 5, 20071, Plaintiffs respectfully submit this

Third Amended RICO Case Statement under Local Civil Rule 16.1(B)(4).

1. State whether the alleged unlawful conduct is in violation of 18 U.S.C. §

1962(a), (b), (c) and/or (d).

Plaintiffs assert violations of 18 U.S.C. § 1962(c) and 18 U.S.C. § 1962(d). There

are no alleged violations of 18 U.S.C. § 1962(a) or 18 U.S.C. § 1962(b).

2. List each Defendant and state the alleged misconduct and basis of liability of

each defendant.

MARSH ENTERPRISE DEFENDANTS:

1 Pursuant to Order No. 1, dated March 11, 2005, Plaintiffs previously submitted a JointRICO Case Statement, which addressed both commercial insurance allegations andemployee benefit allegations. Plaintiffs submitted an Amended RICO Case Statement onAugust 15, 2005. Likewise, pursuant to an Order dated October 3, 2006, Plaintiffssubmitted a Second Amended RICO Case Statement on October 25, 2006.




3

Defendants Marsh2, ACE3, AIG4, Axis5, Chubb6, CNA7, Crum & Forster 8,

Fireman’s Fund 9, Hartford 10, Liberty Mutual11, Munich12, St. Paul Travelers13, XL14 and

Zurich15

(herein referred to collectively as the “Marsh Enterprise Defendants”) formed an

2 “Marsh" collectively refers to the Defendants identified in Paragraphs 24 and 25 of the

Second Consolidated Amended Commercial Class Action Complaint.

3 “ACE” collectively refers to the Defendants identified in Paragraphs 39 and 40 of the


4 “AIG” collectively refers to the Defendants identified in Paragraphs 37 and 38 of theSecond Consolidated Amended Commercial Class Action Complaint.

5 “Axis” collectively refers to the Defendants identified in Paragraphs 62 and 63 of the


6 “Chubb” collectively refers to the Defendants identified in Paragraphs 48 and 49 of theSecond Consolidated Amended Commercial Class Action Complaint.

7 “CNA” collectively refers to the Defendants identified in Paragraphs 56 and 57 of theSecond Consolidated Amended Commercial Class Action Complaint.

8 “Crum & Forster” collectively refers to the Defendants identified in Paragraphs 50 and 51

of the Second Consolidated Amended Commercial Class Action Complaint.

9

“Fireman’s Fund” collectively refers to the Defendants identified in Paragraphs 52 and 53of the Second Consolidated Amended Commercial Class Action Complaint.

10 “Hartford” collectively refers to the Defendants identified in Paragraphs 41 and 42 of theSecond Consolidated Amended Commercial Class Action Complaint.

11 “Liberty Mutual” collectively refers to the Defendants identified in Paragraphs 60 and 61of the Second Consolidated Amended Commercial Class Action Complaint.

12 “Munich” collectively refers to the Defendants identified in Paragraphs 58 and 59 of the


13 “St. Paul” collectively refers to the Defendants identified in Paragraphs 43 and 44 of theSecond Consolidated Amended Commercial Class Action Complaint.

14 “XL” collectively refers to the Defendants identified in Paragraphs 54 and 55 of theSecond Consolidated Amended Commercial Class Action Complaint.

15 “Zurich” collectively refers to the Defendants identified in Paragraphs 45-47 of theSecond Consolidated Amended Commercial Class Action Complaint.




4

association in fact enterprise (the “Marsh Enterprise”) and participated in or conducted the

affairs of the Marsh Enterprise through a pattern of racketeering activity in violation of

18 U.S.C. § 1962(c), utilizing interstate mail and wire in furtherance of the scheme.

Marsh and the Marsh Enterprise Insurers likewise conspired to violate 18 U.S.C. §

1962(c) in violation of 18 U.S.C. § 1962(d).

Based on Marsh’s relationship with its clients, its fiduciary duty and its

representations, Marsh had a duty to fully disclose any conflicts of interest it had in

providing services to its clients as well as any material information that might impact its

ability to act in its client's best interest. Instead, the Marsh Enterprise Defendants

engaged in a scheme whereby the Marsh Enterprise Defendants engaged in steering and

other practices in order to maximize the volume of insurance placed with the Insurer

Defendants and maximizing the volume of renewal business placed with the

Insurer Defendants. In furtherance of the scheme, the Marsh Enterprise Defendants

knowingly and intentionally concealed the following material matters from Marsh's

clients who paid for the kickbacks through higher premiums:

• that Marsh was not acting in the best interest of its clients but was instead

acting on behalf of the Marsh Enterprise Insurers and in furtherance of its own

financial interests;

• the true nature of the association and agreements between Marsh and the

Marsh Enterprise Insurers;

• the conflict of interest inherent in the agreements between Marsh and the





5

• Marsh’s consolidation of its insurance markets to a few select strategic

partners;

• Marsh’s steering of insurance placements to Marsh Enterprise Insurers;

• that Marsh was protecting Marsh Enterprise Insurers from competition;

• the rigging of bids by Marsh and Insurer Defendants AIG, ACE, Axis, Chubb,

XL, Munich/AmRe, Liberty Mutual, St. Paul Travelers, Fireman’s Fund and

Zurich in furtherance of the scheme and to prevent disclosure;

• that Marsh Enterprise Insurers kick back a substantial portion of their

increased profits to Marsh in the form of contingent commissions, loans,

subsidies and payments for “services” as well as other agreements and tying

arrangements that serve the same function;

• that the Marsh Enterprise Insurers factor the kickbacks paid to Marsh into the

cost of Plaintiffs’ and Class Members’ insurance, resulting in injury to Plaintiffs’

and Class Members’ business and property.

The Marsh Enterprise Defendants’ fraudulent scheme violated 18 U.S.C. 1962(c) and (d).

In addition, as set forth in response to Question 14, Marsh violated 18 U.S.C.

1962(d) by conspiring with Aon, Willis, Gallagher, Wells Fargo/Acordia, and HRH to

prevent detection of each broker’s fraudulent scheme.

AON ENTERPRISE DEFENDANTS:

Aon16

, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford,

Liberty Mutual, St. Paul Travelers, XL and Zurich (herein referred to collectively as the

16 “Aon” collectively refers to the Defendants identified in Paragraphs 26 and 27 of theSecond Consolidated Amended Commercial Class Action Complaint.




6

“Aon Enterprise Defendants”) formed an association in fact enterprise (the “Aon Enterprise”)

and participated in or conducted the affairs of the Aon Enterprise through a pattern of

racketeering activity in violation of 18 U.S.C. § 1962(c), utilizing interstate mail and wire

in furtherance of the scheme. The Aon Enterprise Defendants likewise conspired to

violate 18 U.S.C. § 1962(c) in violation of 18 U.S.C. § 1962(d).

Based on Aon’s relationship with its clients, its fiduciary duty and its

representations, Aon had a duty to fully disclose any conflicts of interest it had in


ability to act in its client's best interest. Instead, the Aon Enterprise Defendants engaged

in a scheme whereby the Aon Enterprise Defendants engaged in steering and other

practices in order to maximize the volume of insurance placed with the Insurer


Insurer Defendants. In furtherance of the scheme, the Aon Enterprise Defendants

knowingly and intentionally concealed the following material matters from Aon's clients

who paid for the kickbacks through higher premiums:

• that Aon was not acting in the best interest of its clients but was instead acting

on behalf of the Aon Enterprise Insurers and in furtherance of its own


• the true nature of the association and agreements between Aon and the Aon

Enterprise Insurers;

• the conflict of interest inherent in the agreements between Aon and the Aon


• Aon’s consolidation of its insurance markets to a few select strategic partners;




7

• Aon’s steering of insurance placements to the Aon Enterprise Insurers;

• that Aon was protecting the Aon Enterprise Insurers from competition;

• that the Aon Enterprise Insurers kick back a substantial portion of their

increased profits to Aon in the form of contingent commissions, loans,



• that the Aon Enterprise Insurers factor the kickbacks paid to Aon into the cost

of Plaintiffs’ and Class Members’ insurance, resulting in injury to Plaintiffs’ and

Class Members’ business and property.

The Aon Enterprise Defendants’ fraudulent scheme violated 18 U.S.C. 1962(c) and (d).

In addition, as set forth in response to Question 14, Aon violated 18 U.S.C.

1962(d) by conspiring with Marsh, Willis, Gallagher, Wells Fargo/Acordia, and HRH to


WILLIS ENTERPRISE DEFENDANTS:

Defendants Willis17

, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s

Fund, Hartford, Liberty Mutual, St. Paul Travelers and Zurich (herein referred to

collectively as the “Willis Enterprise Defendants”) formed an association in fact enterprise

(the Willis Enterprise) and participated in or conducted the affairs of the Willis enterprise

through a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c), utilizing

interstate mail and wire in furtherance of the scheme. The Willis Enterprise Defendants

likewise conspired to violate 18 U.S.C. § 1962(c) in violation of 18 U.S.C. § 1962(d).

17 “Willis” collectively refers to the Defendants identified in Paragraphs 28 and 29 of theSecond Consolidated Amended Commercial Class Action Complaint.




8

Based on Willis’s relationship with its clients, its fiduciary duty and its

representations, Willis had a duty to fully disclose any conflicts of interest it had in


ability to act in its client's best interest. Instead, the Willis Enterprise Defendants

engaged in a scheme whereby the Willis Enterprise Defendants engaged in steering and

other practices in order to maximize the volume of insurance placed with the Insurer


Insurer Defendants. In furtherance of the scheme, the Willis Enterprise Defendants

knowingly and intentionally concealed the following material matters from Willis's


• that Willis was not acting in the best interest of its clients but was instead

acting on behalf of the Willis Enterprise Insurers and in furtherance of its own


• the true nature of the association and agreements between Willis and the

Willis Enterprise Insurers;

• the conflict of interest inherent in the agreements between Willis and the


• Willis’s consolidation of its insurance markets to a few select strategic

partners;

•

Willis’s steering of insurance placements to the Willis Enterprise Insurers;

• that Willis was protecting the Willis Enterprise Insurers from competition;

• that Willis Enterprise Insurers kick back a substantial portion of their

increased profits to Willis in the form of contingent commissions, loans,




9



• that the Willis Enterprise Insurers factor the kickbacks paid to Willis into the



The Willis Enterprise Defendants’ fraudulent scheme violated 18 U.S.C. 1962(c) and (d).

In addition, as set forth in response to Question 14, Willis violated 18 U.S.C.

1962(d) by conspiring with Marsh, Aon, Gallagher, Wells Fargo/Acordia, and HRH to


GALLAGHER ENTERPRISE DEFENDANTS:

Gallagher 18, AIG, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford and

St. Paul Travelers (herein referred to collectively as the “Gallagher Enterprise Defendants”)

formed an association in fact enterprise (the Gallagher Enterprise) and participated in or

conducted the affairs of the Gallagher enterprise through a pattern of racketeering activity

in violation of 18 U.S.C. § 1962(c), utilizing interstate mail and wire in furtherance of the

scheme. Gallagher Enterprise Defendants likewise conspired to violate 18 U.S.C. §

1962(c) in violation of 18 U.S.C. § 1962(d).

Based on Gallagher’s relationship with its clients, its fiduciary duty and its

representations, Gallagher had a duty to fully disclose any conflicts of interest it had in


ability to act in its client's best interest. Instead, the Gallagher Enterprise Defendants

engaged in a scheme whereby the Gallagher Enterprise Defendants engaged in steering

18 “Gallagher” collectively refers to the Defendants identified in Paragraphs 30-33 of theSecond Consolidated Amended Commercial Class Action Complaint.




10

and other practices in order to maximize the volume of insurance placed with the Insurer


Insurer Defendants. In furtherance of the scheme, the Gallagher Enterprise Defendants

knowingly and intentionally concealed the following material matters from Gallagher's


• that Gallagher was not acting in the best interest of its clients but was instead

acting on behalf of the Gallagher Enterprise Insurers and in furtherance of its

own financial interests;

•

the true nature of the association and agreements between Gallagher and the

Gallagher Enterprise Insurers;

• the conflict of interest inherent in the agreements between Gallagher and the


• Gallagher’s consolidation of its insurance markets to a few select strategic

partners;

• Gallagher’s steering of insurance placements to the Gallagher Enterprise

Insurers;

• that Gallagher was protecting the Gallagher Enterprise Insurers from

competition;

• that the Gallagher Enterprise Insurers kick back a substantial portion of their

increased profits to Gallagher in the form of contingent commissions, loans,






11

• that the Gallagher Enterprise Insurers factor the kickbacks paid to Gallagher

into the cost of Plaintiffs’ and Class Members’ insurance, resulting in injury to

Plaintiffs’ and Class Members’ business and property.

The Gallagher Enterprise Defendants’ fraudulent scheme violated 18 U.S.C. 1962(c) and

(d).

In addition, as set forth in response to Question 14, Gallagher violated 18 U.S.C.

1962(d) by conspiring with Marsh, Aon, Willis, Wells Fargo/Acordia, and HRH to


HRH ENTERPRISE DEFENDANTS:

Defendants HRH, CNA, Hartford and St. Paul Travelers (herein referred to

collectively as the “HRH Enterprise Defendants”) formed an association in fact enterprise

(the HRH Enterprise) and participated in or conducted the affairs of the HRH enterprise

through a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c), utilizing

interstate mail and wire in furtherance of the scheme. The HRH Enterprise Defendants

likewise conspired to violate 18 U.S.C. § 1962(c) in violation of 18 U.S.C. § 1962(d).

Based on HRH’s relationship with its clients, its fiduciary duty and its

representations, HRH had a duty to fully disclose any conflicts of interest it had in


ability to act in its client's best interest. Instead, the HRH Enterprise Defendants engaged

in a scheme whereby the HRH Enterprise Defendants engaged in steering and other

practices in order to maximize the volume of insurance placed with the Insurer


Insurer Defendants. In furtherance of the scheme, the HRH Enterprise Defendants




12

knowingly and intentionally concealed the following material matters from HRH's clients

who paid for the kickbacks through higher premiums:

• that HRH was not acting in the best interest of its clients but was instead

acting on behalf of the HRH Enterprise Insurers and in furtherance of its own


• the true nature of the association and agreements between HRH and the HRH


• the conflict of interest inherent in the agreements between HRH and the HRH


• HRH’s consolidation of its insurance markets to a few select strategic partners;

• HRH’s steering of insurance placements to HRH Enterprise Insurers;

• that HRH was protecting the HRH Enterprise Insurers from competition;

• that the HRH Enterprise Insurers kick back a substantial portion of their

increased profits to HRH in the form of contingent commissions, loans,



• that the HRH Enterprise Insurers factor the kickbacks paid to HRH into the



HRH Enterprise Defendants’ fraudulent scheme violated 18 U.S.C. 1962(c) and (d).

In addition, as set forth in response to Question 14, HRH violated 18 U.S.C. 1962(d) by

conspiring with Marsh, Aon, Willis, Gallagher and Wells Fargo/Acordia to prevent

detection of each broker’s fraudulent scheme.




13

WELLS FARGO/ACORDIA ENTERPRISE DEFENDANTS:

Wells Fargo/Acordia, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford,

St. Paul Travelers (herein referred to collectively to as the “Wells Fargo/Acordia

Enterprise Defendants”) formed an association in fact enterprise (the Wells Fargo/Acordia

Enterprise) and participated in or conducted the affairs of the Wells Fargo/Acordia

Enterprise through a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c),

utilizing interstate mail and wire in furtherance of the scheme. The Wells Fargo/Acordia

Enterprise Defendants likewise conspired to violate 18 U.S.C. § 1962(c) in violation of

18 U.S.C. § 1962(d).

Based on Wells Fargo/Acordia’s relationship with its clients, its fiduciary duty and

its representations, Wells Fargo/Acordia had a duty to fully disclose any conflicts of

interest it had in providing services to its clients as well as any material information that

might impact its ability to act in its client's best interest. Instead, the Wells

Fargo/Acordia Enterprise Defendants engaged in a scheme whereby the Wells

Fargo/Acordia Enterprise Defendants engaged in steering and other practices in order to

maximize the volume of insurance placed with the Insurer Defendants and maximizing

the volume of renewal business placed with the Insurer Defendants. In furtherance of the

scheme, the Wells Fargo/Acordia Enterprise Defendants knowingly and intentionally

concealed the following material matters from Wells Fargo/Acordia's clients who paid for

the kickbacks through higher premiums:

• that Wells Fargo/Acordia was not acting in the best interest of its clients but

was instead acting on behalf of the Wells Fargo/Acordia Enterprise Insurers

and in furtherance of its own financial interests;




14

• the true nature of the association and agreements between Wells

Fargo/Acordia and the Wells Fargo/Acordia Enterprise Insurers;

• the conflict of interest inherent in the agreements between Wells


• Wells Fargo/Acordia’s consolidation of its insurance markets to a few select

strategic partners;

• Wells Fargo/Acordia’s steering of insurance placements to the Wells

Fargo/Acordia Enterprise Insurers;

•

that Wells Fargo/Acordia was protecting the Wells Fargo/Acordia Enterprise

Insurers from competition;

• that the Wells Fargo/Acordia Enterprise Insurers kick back a substantial

portion of their increased profits to Wells Fargo/Acordia in the form of

contingent commissions, loans, subsidies and payments for “services” as well as

other agreements and tying arrangements that serve the same function;

• that the Wells Fargo/Acordia Enterprise Insurers factor the kickbacks paid to

Wells Fargo/Acordia into the cost of Plaintiffs’ and Class Members’ insurance,

resulting in injury to Plaintiffs’ and Class Members’ business and property.

The Wells Fargo/Acordia Enterprise Defendants’ fraudulent scheme violated 18 U.S.C.

1962(c) and (d).

In addition, as set forth in response to Question 14, Wells Fargo/Acordia violated

18 U.S.C. 1962(d) by conspiring with Marsh, Aon, Willis, Gallagher and HRH to prevent

detection of each broker’s fraudulent scheme.

3. List the alleged wrongdoers, other than the defendants listed above, and state

the alleged misconduct of each wrongdoer.




15

Additional wrongdoers not named as defendants include Karen Radke, Jean-

Baptiste Tateossian, Carlos Coello and James Mohs of AIG; Patricia Abrams of ACE;

John Keenan, Edward Coughlin and James Spiegel of Zurich American Insurance

Company; Kevin Bott of Liberty Mutual and Robert Stearns, Joshua Bewlay, Kathryn

Winter, Regina Hatton, Nicole Michaels, Jason Monteforte, Todd Murphy, Peter

Andersen, and Mark Manzi of Marsh. These individuals have pleaded guilty to criminal

charges for their involvement in a bid-rigging scheme. The following persons have also

been the subject of criminal investigations which led to indictments: Greg Doherty,

Kathleen Drake, William Gilman, Thomas T. Green, Edward Keane Jr., William

McBurnie, Edward McNenny, and Joseph Peiser.

4. List the alleged victims and state how each victim was allegedly injured.

Plaintiffs and Class Members are victims of Defendants’ pattern of racketeering

activity and conspiracies. Plaintiffs and Class Members were injured because Defendants’

illegally increased profits were imbedded in the premiums all Plaintiffs and Class

Members paid for insurance; accordingly, Defendants’ control of the enterprises through

the pattern of racketeering and their conspiracy regarding the fraudulent scheme and

concealment of the scheme proximately caused the cost of insurance obtained by all

Plaintiffs and Class Members to increase, thereby injuring them in their business and

property.

5 Describe in detail the pattern of racketeering activity or collection of

unlawful debts alleged for each RICO claim. A description of the pattern of

racketeering shall include the following information:

a. List the alleged predicate acts and the specific statutes which are

allegedly violated;




16

Defendants have engaged in numerous predicate acts of mail and wire fraud. In

carrying out these overt acts and fraudulent schemes described throughout this Amended

RICO Case Statement, Defendants have violated federal laws including mail and wire

fraud, 18 U.S.C. §§ 1341 and 1343. These predicate acts constitute a pattern of

racketeering through which defendants have violated 18 U.S.C. 1962(c) and (d).

b/c. Provide the dates of the predicate acts, the participants in the

predicate acts, and a description of the facts surrounding the

predicate acts; If the RICO claim is based on the predicate offenses of

wire fraud, mail fraud, or fraud in the sale of securities, provide the

“circumstances constituting fraud or mistake [which] shall be stated

with particularity.” Fed. R. Civ. P. 9(b). Identify the time, place and

contents of the alleged misrepresentations, and the identity of personsto whom and by whom the alleged misrepresentations were made;

Mail and Wire Fraud:

MARSH ENTERPRISE DEFENDANTS:

The Marsh Enterprise Defendants have violated 18 U.S.C. § 1341 and 18 U.S.C. §

1343 by utilizing or causing the use of the United States postal service, commercial

interstate carrier, wire or other interstate electronic media in furtherance of their

fraudulent scheme.

Defendants have engaged in a scheme whereby Marsh would allocate business to a

limited number of partner Insurer Defendants in exchange for kickbacks in the form of

contingent commissions and/or other payments which were factored into the premiums

paid by plaintiffs and class members. Specifically, as set forth in further detail in the

Revised Particularized Statement and the Second Amended Complaint, Marsh in

conjunction with the Marsh Insurer Defendants engaged in the following conduct:

- Marsh significantly consolidated the number of carriers to which it would

market its clients’ business.




17

- Marsh entered into “strategic partnerships” with the Marsh Enterprise

Defendants to which Marsh agreed to steer the bulk of its business.

- As strategic partners, the Marsh Enterprise Defendants would be given access

to a guaranteed flow of premium volume from Marsh, as well as protection

from normal competition from both inside and outside of the strategic

partnership for renewal of each Insurer Defendant’s own business.

- In order to accomplish this, the Marsh Enterprise Defendants engaged in a

number of practices specifically set forth in the Revised Particularized

Statements including bid rigging, agreements not to bid renewals

competitively, limiting the marketing of renewals, disclosing other carriers’

bids and other actions designed to maximize the volume of insurance placed

with the Marsh Enterprise Insurers.

- In exchange for being given these unfair competitive advantages, the Marsh

Enterprise Insurers agreed to pay kickbacks to Marsh.

In furtherance of the scheme, the Marsh Enterprise Defendants have sent matters

and things through the mail and wire or have known that mail or wire would be used in

furtherance of the scheme. Materials sent by mail or wire have included correspondence,

emails, faxes, marketing materials, contracts or agreements between Marsh and the client,

requests for proposals, policies and policy materials, insurance quotes, contingent

commission agreements, insurance binders, commission schedules, invoices to clients

and payments from insurers to brokers.

The Marsh Enterprise Defendants have frequently communicated with each other

by mail and/or wire in furtherance of the scheme. Such communications have included




18

contingent commission agreements, letters, faxes and emails memorializing various

agreements between Marsh and the Marsh Enterprise Insurers and details regarding

consolidation, requests for bids and bids, invoices, and contingent payments. Many

instances of these types of communications are further detailed in the Revised

Particularized Statement and the Second Amended Complaint.

Defendants’ scheme conflicts with Marsh’s duties and representations to its clients.

Marsh is retained by its clients, including Plaintiffs and Class Members, for the sole

purpose of acting on behalf of and providing the clients with unbiased advice concerning

the type, amount and level of insurance needed, as well as to provide sound and accurate

advice regarding the insurance companies they recommend.

Additionally, Marsh is a fiduciary of its clients, and therefore owes its clients,

including Plaintiffs and other members of the Class: (i) a duty of loyalty to act in the best

interests of its clients and to always put its clients’ interests ahead of its own; (ii) a duty of

full and fair disclosure and complete candor in connection with any insurance-related

products purchased by clients or services rendered by Marsh, including the duty to

disclose the source and amounts of all income it receives in or as a result of any

transaction involving its clients; (iii) a duty of care in connection with any insurance-

related products purchased by its clients or services rendered by Marsh; (iv) a duty to

provide impartial advice in connection with any insurance-related products purchased by

its clients or services rendered by Marsh; (v) a duty to use its best business judgment in

connection with any insurance-related products or services purchased by its clients – in

other words to find the best coverage at the lowest price; and, (vi) a duty of good faith

and fair dealing.




19

In his 1998 speech to RIMS, Roger Egan recognized that Marsh has “a duty to

fully disclose [its] income.” Since the announcement of the investigation by Attorney

General Spitzer, Marsh has yet again acknowledged and affirmed its duty to act on behalf

of its clients. In a October 29, 2004 letter to “the Clients of Marsh” from Michael G.

Cherkasky, Chairman and Chief Executive Officer of Marsh Inc., Cherkasky stated, “We

must reaffirm our commitment to you and provide you with complete assurance that we

will execute transactions in your best interest and in accordance with the highest

professional and ethical standards.” Marsh then reaffirmed, “There are more than 42,000

colleagues at Marsh who believe – as they always have – that the clients’ interests must

come first.” In a document created to assist employees in responding to client questions

regarding regulatory investigations, Marsh wrote: “Our guiding principle is to consider our

client’s best interest in all placements. We are our clients’ advocates and we represent

them in negotiations. We don’t represent the markets.”

As a result of the nature of the relationship between Marsh and its clients, as a

result of Marsh’s fiduciary status and as a result of Marsh’s representations, Marsh had a

duty to fully disclose any conflicts of interest it had in providing services to its clients as

well as any material information that might impact its ability to act in its client’s best

interest. Marsh, however, did not disclose its conflicts of interest, its allocation of

business to a limited number of insurer partners or the resulting harm to its clients.

Throughout the Class Period, Marsh regularly disseminated materials by mail and

wire wherein Marsh routinely represented that Marsh was acting on the client’s behalf and

not on behalf of the insurer, that Marsh was functioning as the client’s broker, that Marsh

would keep the client informed and that Marsh would use its “best efforts” on behalf of the




20

client. To the extent Marsh provided any information regarding contingent commission

income or Marsh’s relationship with the Marsh Enterprise Insurers the information was

either materially false or misleading. Marsh’s communications with its clients, including

Plaintiffs, which contained material misrepresentations and/or omissions are evidenced

by the examples set forth herein. For example, on or about January 1, 1995, Marsh &

McLennan, Inc. and the Golden Gate Bridge, Highway and Transportation District

entered into a “Contract for Professional Services” wherein Marsh agreed to act as an

“advisor and broker” for Golden Gate. The agreement contained no reference to contingent

commissions. Marsh made the following misrepresentations in brokerage agreements

with Plaintiffs Bayou Steel and City of Stamford:

This agreement reflects our understanding with you regarding our serviceson your behalf. We will act as your representative to the world insurancemarket with the objective of presenting to you an insurance placementopportunity which you regard as appropriate considering cost, coverageand continuity. We are first and foremost your representative in thisfunction. As such, we do not speak for and are not bound to utilize any particular insurance company….It is our responsibility to negotiate on your behalf with your insurance company and to keep you informed ofsignificant developments in those negotiations which are likely to have a bearing on your insurance program….It is our practice to make placementswith insurance companies that meet prevailing guidelines established byus from time to time as circumstances and markets consideration maywarrant.

On or about September 21, 1999 Marsh USA Inc. sent Plaintiff Bayou Steel Corporation

(“Bayou Steel”) a Brokerage Services Agreement containing this language. The agreement

was signed by Robert C. Hill on behalf of Marsh USA Inc. and by Brian P. Verrette on

behalf of Bayou Steel. Marsh likewise sent the City of Stamford an executed version of

this form agreement on or about July 1, 2001 signed by Chad F. Marrison. Marsh and the

City of Stamford entered an agreement with the same or substantially similar terms




21

effective June 28, 2004, again signed by Chad F. Marrison on behalf of Marsh. The

document contained only the following reference to contingent commissions: “As used in

this paragraph, the term ‘commissions’ does not include contingent payments or

allowances by markets based on our overall book of business or its performance.” This

statement was insufficient to fully disclose Marsh’s compensation arrangements with the

Marsh Enterprise Insurers, noting only that commissions does not include contingent

payments while failing to provide any information regarding the strategic partnerships

that Marsh had entered into with the Marsh Enterprise Insurers or the significance these

partnerships and the contingent payment arrangements had on the insurance placement

process and the premiums charged.

The Engagement Letter or Client Service Agreement sent to Plaintiffs Cellect,

Comcar, Golden Gate, Opticare and Sunburst likewise reassured them that Marsh was

acting in their best interest as their insurance, risk management and risk financing advisor

and insurance broker, performing the following services:

-

Identify and negotiate on your behalf with insurers and keep you informed of

significant developments. Marsh will be authorized to represent and assist you in

all discussions and transactions with all insurers, provided that Marsh will not

place any insurance on your behalf unless authorized by you….

- Use its best efforts to place insurance on your behalf, if so instructed by you….

- Keep you information of significant changes and/or trends in the insurance

marketplace….

- Provide you with detailed invoices, except in the case of direct billing by insurers….

- Act as a liaison between you and insurers…




22

- Develop a mutually agreeable renewal action plan and timeline that highlights

accountability and meets your objectives.

Marsh also continued to assure clients that “Marsh does not speak for any insurer, is

not bound to utilize any particular insurer, and does not have the authority to make

binding commitments on behalf of any insurer.”

The following explanation regarding compensation was included in the

agreements which were commission based:

Marsh will be compensated for the services outlined in this letter throughcommissions received from insurance companies. In addition as is the

custom in Marsh’s industry, Marsh has agreements with certain insurersunder which Marsh may receive payments based upon such factors as theoverall book of business placed by it and its affiliates, the performance ofthat book or the aggregate commissions paid for that book. Such“placement service revenue” would be in addition to any other compensationMarsh may receive such as retail, excess and surplus lines and wholesale brokerage fees or commissions, administrative fees and similar items. Atyour request, Marsh will provide additional information in this regard.

The fee based version of the agreement contained this explanation:

With respect to insurance placed by Marsh on your behalf, Marsh willdisclose to you any commissions received by Marsh and credit themagainst the annual fee….Such commissions do not include: wholesale brokerage fees or commissions; administrative fees and similar items; or payments that Marsh may receive, in accordance with the custom of itsindustry, under agreements with certain insurers that provide for payments based upon such factors as the overall book of business placed by Marshand its affiliates the performance of that book or the aggregatecommissions paid for that book. At your request, Marsh will provideadditional information in this regard.

This statement was insufficient to fully disclose Marsh’s compensation arrangements with

the Marsh Enterprise Insurers, noting only that Marsh “may receive” additional

compensation from “certain insurers” while failing to provide any information regarding

the strategic partnerships that Marsh had entered into with the Marsh Enterprise Insurers




23

or the significance these partnerships and the contingent payment arrangements had on

the insurance placement process and the premiums charged. On or about September 10,

2003, Marsh USA Inc. sent Plaintiff Cellect, LLC (“Cellect”) a sample of this “Engagement

Letter” for fee based accounts and on or about September 22, 2003, Marsh sent Cellect a

completed version of the letter signed by Michael Swan on behalf of Marsh and Scott

Smith on behalf of Cellect. Margaret Groenendyke sent Comcar an executed

commission based version of the agreement on or about November 1, 2002 and again on

or about November 19, 2003 directed to the attention of Susie Kirkland. Likewise,

pursuant to its November 5, 2003 agreement with Golden Gate, Marsh agreed to “use its

best efforts to place insurance” on behalf of Golden Gate and assured the client that Marsh

“does not speak for any insurer, is not bound to utilize any particular insurer, and does not

have the authority to make binding commitments on behalf of any insurer.” The Client

Service Agreement executed by Stephen G. Geib on behalf of Marsh on November 15,

2002 and William A. Blaskiewiez on behalf of Opticare on December 15, 2002 also

contained the promises and the compensation “disclosure” set forth above as did the

agreement between Marsh USA and Opticare dated October 1, 2003. The agreement

between Sunburst and Marsh which was effective December 31, 2002 that was signed by

Gregory A. Wager on behalf of Marsh and by Pamela M. Williams on behalf of Sunburst

likewise contained this language.

Marsh also sent invoices to its clients which included the excess premiums

resulting from Defendants’ scheme without a separate accounting of the excess amount

being invoiced. In the invoices forwarded to clients, Marsh noted only that it “may have”

agreements with insurers “pursuant to which Marsh may derive compensation contingent




24

upon such factors as size, growth and/or overall profitability of an entire book of business

placed by marsh with such insurers.” This statement was insufficient to fully disclose

Marsh’s compensation arrangements with the Marsh Enterprise Insurers, noting only that

Marsh “may have” agreements with insurers from which Marsh “may” derive additional

income while failing to provide any information regarding the strategic partnerships that

Marsh had entered into with the Marsh Enterprise Insurers or the significance these

partnerships and the contingent payment arrangements had on the insurance placement

process and the premiums charged. Marsh sent such invoices to Plaintiff Bayou Steel on

August 10, 2001, October 3, 2001 and October 2, 2002; to Plaintiff Cellect on September

30, 2003, October 1, 2003 and October 31, 2003; to Plaintiff Comcar on November 6,

2001, November 7, 2001, December 31, 2001, January 24, 2002, January 31, 2002,

March 4, 2202, April 2, 2002, April 11, 2002, May 2, 2002, and August 6, 2002; to

Plaintiff Golden Gate on January 23, 2001, March 1, 2001, March 2, 2001, April 3, 2001,

February 13, 2002, July 2, 2002, July 3, 2002, and July 3, 2003; to Plaintiff Opticare on

August 10, 2000, August 17, 2000, October 4, 2000, October 10, 2000, October 25, 2000,

November 2, 2000, December 27, 2000, December 29, 2000, August 12, 2002, May 5,

2003 and May 7, 2003; to Plaintiff City of Stamford on July 10, 2000, July 28, 2000, July

2, 2003 and July 7, 2003 and to Plaintiff Sunburst on May 2, 2002, June 13, 2002,

January 10, 2003 and May 2, 2003.

During the relevant time period, Marsh also transmitted to its clients, including

Plaintiffs, various other communications relating to its provision of brokerage services.

For example, on May 22, 2001 Marsh USA Inc. sent Comcar Industries, Inc. a letter

setting forth a risk management consulting and insurance brokerage services proposal.




25

The letter stated that Marsh U.S.A. would “position Comcar with the underwriters very

early and in a way that gives you maximum leverage to get the best results.” On May 31,

2001, Marsh USA Ins. sent Comcar a “Marsh Risk Management Services Engagement

Letter” reiterating how much Marsh appreciated Comcar’s“confidence and trust.” On or

about June 17, 2003, in response to Golden Gate’s “Request for Proposal for Insurance

Broker Services,” Marsh submitted a Proposal for a 3 year contract which stated, inter alia,

“Through strong working relationships with the market leaders, Marsh is able to maintain

the best terms and conditions for the pricing.” Marsh USA Inc. transmitted to Plaintiff

Singer insurance policies and various other communications related to those policies,

including summaries of insurance transmitted on January 9, 2004 and again in 2004 or

2005. Marsh USA Inc. also sent Sunburst Hospitality Corp. various summaries and other

descriptions of insurance. These were typically direct to Chuck Warczak, its Chief

Financial Officer and/or Candi Tamar, its Manager of Risk Management. In 2003, Marsh

also sent Sunburst a presentation touting its ability to “negotiate the best deal for Sunburst

by accessing key carrier contacts and using our relationships and premium leverage in the

marketplace.”

Marsh did not disclose the following material facts in any of its communications

with clients:

• that Marsh was not acting in the best interest of its clients but was instead

acting on behalf of itself and its partner carriers to further their financial

interests at the expense of Marsh’s clients;

• the true nature of the association and agreements between Marsh and the





26

• the conflict of interest inherent in the agreements between Marsh and the


• Marsh’s consolidation of its insurance markets to a few select strategic

partners;

• Marsh’s steering of insurance placements to the Marsh Enterprise Insurers, its

strategic partners;

• that Marsh was protecting the Marsh Enterprise Insurers from competition;

• the rigging of bids by Marsh and Insurer Defendants AIG, ACE, Chubb, XL,

Munich/AmRe, Liberty Mutual, St. Paul Travelers, Fireman’s Fund and Zurich

in furtherance of the scheme and to prevent disclosure;

• that the Marsh Enterprise Insurers kick back a substantial portion of their

increased profits to Marsh in the form of contingent commissions, loans,



• that the kickbacks to Marsh are factored into the cost of Plaintiffs and Class

Members’ insurance, resulting in injury to Plaintiffs’ and Class Members’

business and property.

Marsh’s misrepresentation of its allegiance to its client’s interests and concealment of

Marsh’s allocation of business to a limited number of partner Insurer Defendants was

necessary to encourage clients to retain Marsh, to conceal the scheme, to lull clients,

including Plaintiffs and Class Members, into a false sense of security and to assure

payment of the excess premiums. Likewise, inclusion of the excess amount of premium

resulting from Marsh and the Insurer Defendants’ scheme in invoices forwarded to each




27

Plaintiff without explanation or a separate accounting for the excess premium was

necessary to conceal the scheme and to assure payment of the entire invoice amount.

The fraudulent scheme and the conspiracy in furtherance of the scheme

proximately caused the cost of insurance obtained by Plaintiffs and Class Members to

increase because the kickbacks paid to Marsh were included in the price of insurance paid

by Plaintiffs and Class Members. In addition, Plaintiffs and Class Members reasonably

relied on Marsh’s representations and the Defendants’ omissions in paying higher

premiums that included the kickbacks to Marsh.

Despite Marsh’s duties to its clients, despite Marsh’s acknowledgement of its

obligations and despite Marsh’s representations, Marsh did not act in its clients’ best

interests but instead engaged in a fraudulent scheme designed to increase the profits of

Marsh and its insurer partners at the expense of its clients.




28

AON ENTERPRISE DEFENDANTS:

The Aon Enterprise Defendants have violated 18 U.S.C. § 1341 and 18 U.S.C. § 1343

by utilizing or causing the use of the United States postal service, commercial interstate

carrier, wire or other interstate electronic media in furtherance of their fraudulent scheme.

The Aon Enterprise Defendants have engaged in a scheme whereby Aon would

allocate business to a limited number of partner Insurer Defendants in exchange for

kickbacks in the form of contingent commissions and/or other payments which were

factored into the premiums paid by plaintiffs and class members. Specifically, as set

forth in further detail in the Revised Particularized Statement and the Second Amended

Complaint, Aon in conjunction with the Aon Enterprise Insurers engaged in the following

conduct:

- Aon significantly consolidated the number of carriers to which it would


- Aon then entered into “strategic partnerships” with the Aon Enterprise Insurers

to which Aon agreed to steer the bulk of its business.

- As strategic partners, the Aon Enterprise Insurers would be given access to a

guaranteed flow of premium volume from Aon, as well as protection from

normal competition from both inside and outside of the strategic partnership

for renewal of each Insurer Defendant’s own business.

- In order to accomplish this, the Aon Enterprise Defendants engaged in a


Statements including “book rolls”, agreements not to bid renewals





29


with the Aon Enterprise Insurers.

- In exchange for being given these unfair competitive advantages, the Aon

Enterprise Insurers agreed to pay kickbacks to Aon.

In furtherance of the scheme, Aon and the Aon Enterprise Insurers have sent

matters and things through the mail and wire or have known that mail or wire would be

used in furtherance of the scheme. Materials sent by mail or wire have included

correspondence, emails, faxes, marketing materials, contracts or agreements between

Aon and the client, requests for proposals, policies and policy materials, insurance

quotes, contingent commission agreements, insurance binders, commission schedules,

invoices to clients and payments from insurers to brokers.

The Aon Enterprise Defendants have frequently communicated with each other



agreements between Aon and its partner markets and details regarding consolidation,

requests for bids and bids, invoices, and contingent payments. Many instances of these

types of communications are further detailed in the Revised Particularized Statement and

the Second Amended Complaint.

The Aon Enterprise Defendants’ scheme conflicts with Aon’s duties and

representations to its clients. Aon is retained by its clients, including Plaintiffs and Class

Members, for the sole purpose of acting on behalf of and providing the clients with

unbiased advice concerning the type, amount and level of insurance needed, as well as to

provide sound and accurate advice regarding the insurance companies they recommend.




30

Additionally, Aon is a fiduciary of its clients, and therefore owes its clients,




products purchased by clients or services rendered by Aon, including the duty to disclose

the source and amounts of all income it receives in or as a result of any transaction

involving its clients; (iii) a duty of care in connection with any insurance-related products

purchased by its clients or services rendered by Aon; (iv) a duty to provide impartial

advice in connection with any insurance-related products purchased by its clients or

services rendered by Aon; (v) a duty to use its best business judgment in connection with

any insurance-related products or services purchased by its clients – in other words to find

the best coverage at the lowest price; and, (vi) a duty of good faith and fair dealing.

As a result of the nature of the relationship between Aon and its clients, as a result

of Aon’s fiduciary status and as a result of Aon’s representations, Aon had a duty to fully

disclose any conflicts of interest it had in providing services to their clients as well as any

material information that might impact their ability to act in its client’s best interest. Aon,

however, did not disclose its conflicts of interest, its allocation of business to a limited

number of insurer partners or the resulting harm to its clients.

Aon has acknowledged and reaffirmed its duties to its clients. For example, Aon

sent the following letter to “Valued Aon Clients” dated 20 October 2004 signed by Patrick

G. Ryan, Chairman and CEO:

Aon has a clear code of conduct that all employees are expected to follow.Integrity is our most important company value, followed closely by acommitment to being Client Centric. We expect our colleagues to drivefor the best terms for the clients using the highest ethical standards – that’s




31

fundamental to the way we do business….Aon colleagues are expected to putour clients first – to focus on what is best for you, understanding yourissues and bringing you solutions.

This simply echoes previous Aon statements:

We are a service organization committed to putting our clients first. We provide advice, service and consulting as the industry’s leading globaldistribution organization. Everything we do is ultimately focused oncreating value for our clients….Acting as advocates for our clients, we offerthem our specialized skills, industry experience and knowledge,innovative technology and professionalism.

Throughout the Class Period, Aon regularly disseminated materials by mail and

wire wherein Aon reinforced Aon’s commitments and routinely represented that Aon was

functioning as the client’s broker. Aon’s communications with its clients, including


by the examples set forth herein. For example, on or about August 19, 1999, Aon sent

Plaintiff Bayou Steel a Service and Retainer Agreement whereby Aon undertook to

“develop, recommend, negotiate, and place insurance” and to “administer all aspects of

relationship with insurance companies.” On or about February 16, 2000, Aon sent

Plaintiff Sunburst a Service Agreement whereby Aon likewise indicated that it would

“develop, recommend, negotiate, and place insurance” and “administer all aspects of

Sunburst Hospitality Corporation’s relationship with insurance companies.” In 1998, Aon

sent Sunburst a Service Agreement indicating that Aon would “negotiate and place

insurance” for Sunburst.

To the extent Aon provided any information regarding contingent commission

income or Aon’s relationship with the Aon Enterprise Insurers the information was either

materially false or misleading. For example, with respect to Aon’s compensation, each of

these agreements provided that “any revenue” Aon “might be entitled to from third parties




32

due to contingencies, override, bonus commissions, and/or administrative expense

reimbursements are strictly for the benefit” of Aon. This statement was insufficient to

fully disclose Aon’s compensation arrangements with the Aon Enterprise Insurers, noting

only that Aon “might be entitled” to additional compensation from “third parties” while

failing to provide any information regarding the strategic partnerships that Aon had

entered into with the Aon Enterprise Insurers or the significance these partnerships and

the contingent payment arrangements had on the insurance placement process and the

premiums charged. On or about June 20, 2002, Aon sent Plaintiff Michigan Multi-King,

Inc. an “Insurance and Risk Management Proposal”wherein Aon represented that Aon will

“serve our clients’ needs” and that Aon has “access to virtually every major insurance

company and desirable specialty companies.” Aon sent similar proposals to Michigan

Multi-King on June 6, 2000; April 6, 2001; April 4, 2002; April 7, 2003; June 13, 2003;

March 29, 2004; October 12, 2004 and September 27, 2005.

Aon also sent invoices to its clients which included the excess premiums resulting

from Defendants’ scheme without a separate accounting of the excess amount being

invoiced. For example, on our about June 22, 2001, Aon sent Bayou Steel an invoice for

payment of insurance premiums. This invoice contained the following boilerplate

language on the reverse side:

Regarding Compensation

Subsidiaries of Aon Corporation receive revenue in several forms.For its insurance companies, premium is received on which underwritingand investment income is realized. For the subsidiaries of Aon Group,Inc., which provide insurance and reinsurance brokerage, riskmanagement, underwriting management, captive management and benefitsconsulting, remuneration may be received as commissions paid by aninsurer; fees paid by a client in lieu of, or in addition to, commissions; andinvestment income on premiums, claim payments and return premiums




33

temporarily held as fiduciary funds. In certain circumstances, one or moreof these subsidiaries may also receive compensation in the followingforms: commissions or fees paid to reinsurance brokerage or captivemanagement companies for placement or management of reinsurance of aclient’s risk; commissions paid to a managing general agent to whom a risk

has been referred for placement; contingent commissions paid by aninsurer based on aggregate loss experience; overrides paid by aninsurer/reinsurer based on services performed and the volume of business placed with the insurer/reinsurer; fees paid for premium financing; andfees paid for performance of technical or other services.

If you have any questions regarding the nature or amount of thecompensation paid to any Aon Group company on your account, pleasecontact the President of the Aon office that services the account.

Aon sent Bayou Steel similar invoices on November 1, 1998; October 1, 1999; October

30, 1999; November 1, 1999; January 1, 2000; April 1, 2000; November 6, 2000;

November 7, 2000; December 1, 2000; February 1, 2001; October 26, 2001; November 1,

2001; November 19, 2001; December 3, 2001; December 12, 2001; November 5, 2002;

November 6, 2002; November 12, 2002; November 21, 2003; and April 6, 2004.

On our about April 9, 2001, Aon sent Michigan Multi-King an invoice for

payment of insurance premiums. This invoice contained the following boilerplate

language on the reverse side:


Subsidiaries of Aon Corporation receive revenue in several forms.For its insurance companies, premium is received on which underwritingand investment income is realized. For the subsidiaries of Aon Group,Inc., which provide insurance and reinsurance brokerage, riskmanagement, underwriting management, captive management and benefitsconsulting, remuneration may be received as commissions paid by aninsurer; fees paid by a client in lieu of, or in addition to, commissions; andinvestment income on premiums, claim payments and return premiumstemporarily held as fiduciary funds. In certain circumstances, one or moreof these subsidiaries may also receive compensation in the followingforms: commissions or fees paid to reinsurance brokerage or captivemanagement companies for placement or management of reinsurance of aclient’s risk; commissions paid to a managing general agent to whom a risk




34

has been referred for placement; contingent commissions paid by aninsurer based on aggregate loss experience; overrides paid by aninsurer/reinsurer based on services performed and the volume of business placed with the insurer/reinsurer; fees paid for premium financing; andfees paid for performance of technical or other services.


Aon sent Michigan Multi-King similar invoices on April 10, 2001; February 3, 2004;

April 22, 2004; May 12, 2004; and May 27, 2004.

On or about January 28, 2000, Aon sent Sunburst an invoice for payment of

insurance premiums. This invoice contained the following boilerplate language on the

reverse side:


Subsidiaries of Aon Corporation receive revenue in several forms.For its insurance companies, premium is received on which underwritingand investment income is realized. For the subsidiaries of Aon Group,Inc., which provide insurance and reinsurance brokerage, riskmanagement, underwriting management, captive management and benefitsconsulting, remuneration may be received as commissions paid by aninsurer; fees paid by a client in lieu of, or in addition to, commissions; andinvestment income on premiums, claim payments and return premiumstemporarily held as fiduciary funds. In certain circumstances, one or moreof these subsidiaries may also receive compensation in the followingforms: commissions or fees paid to reinsurance brokerage or captivemanagement companies for placement or management of reinsurance of aclient’s risk; commissions paid to a managing general agent to whom a riskhas been referred for placement; contingent commissions paid by aninsurer based on aggregate loss experience; overrides paid by aninsurer/reinsurer based on services performed and the volume of business placed with the insurer/reinsurer; fees paid for premium financing; andfees paid for performance of technical or other services.





35

In the invoices forwarded to clients, Aon noted only that “in certain circumstances” Aon

“may receive” contingent commissions. This statement was insufficient to fully disclose

Aon’s compensation arrangements with the Aon Enterprise Insurers, failing to provide any

information regarding the strategic partnerships that Aon had entered into with the Aon

Enterprise Insurers or the significance these partnerships and the contingent payment

arrangements had on the insurance placement process and the premiums charged.

During the relevant time period, Aon also transmitted to its clients, including

Plaintiffs, various other communications relating to Aon’s provision of brokerage

services.

Aon did not disclose the following material facts in any of its communications

with clients:

• that Aon was not acting in the best interest of its clients but was instead acting

on behalf of itself and its partner carriers to further their financial interests at

the expense of Aon’s clients;

• the true nature of the association and agreements between Aon and the Aon


• the conflict of interest inherent in the agreements between Aon and the Aon


• Aon’s consolidation of its insurance markets to a few select strategic partners;

•

Aon’s steering of insurance placements to the Aon Enterprise Insurers, its

strategic partners;

• that Aon was protecting the Aon Enterprise Insurers from competition;




36

• that the Aon Enterprise Insurers kick back a substantial portion of their

increased profits to Aon in the form of contingent commissions, loans,



• that the kickbacks to Aon are factored into the cost of Plaintiffs and Class



Aon’s misrepresentation of its allegiance to its client’s interests and concealment of

Aon’s allocation of business to a limited number of partner Insurer Defendants was

necessary to encourage clients to retain Aon, to conceal the scheme, to lull clients,



resulting from Aon and the Insurer Defendants’ scheme in invoices forwarded to each





increase because the kickbacks paid to Aon were included in the price of insurance paid


relied on Aon’s representations and the Defendants’ omissions in paying higher premiums

that included the kickbacks to Aon.

Despite Aon’s duties to its clients, despite Aon’s acknowledgement of its

obligations and despite Aon’s representations, Aon did not act in its clients’ best interests




37

but instead engaged in a fraudulent scheme designed to increase the profits of Aon and its

insurer partners at the expense of its clients.

THE WILLIS ENTERPRISE DEFENDANTS:

The Willis Enterprise Defendants have violated 18 U.S.C. § 1341 and 18 U.S.C. §



fraudulent scheme.

The Willis Enterprise Defendants have engaged in a scheme whereby Willis would

allocate business to a limited number of partner Insurer Defendants in exchange for

kickbacks in the form of contingent commissions and/or other payments which were



Complaint, Willis in conjunction with the Willis Enterprise Insurers engaged in the

following conduct:

-

Willis significantly consolidated the number of carriers to which it would


- Willis entered into “strategic partnerships” with the Willis Enterprise Insurers to

which Willis agreed to steer the bulk of its business.

- As strategic partners, the Willis Enterprise Insurers would be given access to a

guaranteed flow of premium volume from Willis, as well as protection from






38

- In order to accomplish this, the Willis Enterprise Defendants engaged in a


Statements including “book rolls”, agreements not to bid placements or renewals

competitively, limiting the marketing of renewals and other actions designed

to maximize the volume of insurance placed with the Willis Enterprise

Insurers.

- In exchange for being given these unfair competitive advantages, the Willis

Enterprise Insurers agreed to pay kickbacks to Willis.

In furtherance of the scheme, Willis and the Willis Enterprise Insurers have sent




Willis and the client, requests for proposals, policies and policy materials, insurance



The Willis Enterprise Defendants have frequently communicated with each other



agreements between Willis and its partner markets and details regarding consolidation,







39

Defendants’ scheme conflicts with Willis’ duties and representations to its clients.

Willis is retained by its clients, including Plaintiffs and Class Members, for the sole




Additionally, Willis is a fiduciary of its clients, and therefore owes its clients,




products purchased by clients or services rendered by Willis, including the duty to



related products purchased by its clients or services rendered by Willis; (iv) a duty to


its clients or services rendered by Willis; (v) a duty to use its best business judgment in



and fair dealing.

As a result of the nature of the relationship between Willis and its clients, as a

result of Willis’ fiduciary status and as a result of Willis’ representations, Willis had a duty

to fully disclose any conflicts of interest it had in providing services to its clients as well

as any material information that might impact their ability to act in its client’s best




40

interest. Willis, however, did not disclose its conflicts of interest, its allocation of


Since the announcement of the regulatory investigations, Willis has

acknowledged and reaffirmed its duty to act on behalf of its clients. In an October 22,

2004 letter to “all Clients of Willis Group Holdings” Joseph J. Plumeri, Chairman and

Chief Executive Officer of Willis Group Holdings Ltd. stated, “Willis continues to run its

business by a basic principle: Our first priority is our clients. We represent you and

conduct business in your best interest utilizing our global resources….Willis represents the

client’s best interests through a Client Advocate….Willis’ recommendations and solutions

will be driven by what is in the client’s best interests.” Willis also reaffirmed that the

clients Willis represents are Willis’ continuing priority in an October 27, 2004

communication to CEOs, CFOs, Treasurers, Risk Managers and Human Resource

Managers.

Prior to the announcement of the investigations, Willis in a September 15, 2003

news release discussed its “client advocacy model”, referring to clients as “partner[s] in the

insurance placement process” and promising “access to the Markets on a worldwide basis”

and “the best insurance program available from the worldwide insurance marketplace.”

Willis likewise lauded “constant coordination and communication between client,

producer, marketer and carrier.”

These statements echoed other communications from Willis to its clients such as

statements that Willis would negotiate on behalf of clients and acknowledgements that

Willis was acting in the capacity of a broker. As indicated in correspondence sent via fax

from Willis to Plaintiff Sunburst Hospitality Company (Sunburst) on December 21, 2000,




41

Willis acknowledge that it was functioning as Sunburst’s broker with respect to property

insurance and umbrella liability insurance. Willis Corroon Corp. sent an insurance

proposal to Sunburst on or about November 12, 1998. Willis also sent invoices to its

clients, including Plaintiff Sunburst, which included the excess premiums resulting from

Defendants’ scheme without a separate accounting of the excess amount being invoiced.

For example, Willis sent such invoices to Plaintiff Sunburst on or about December 29,

1999, January 5, 2000, January 7, 2000, July 7, 2000, February 9, 2000, January 2, 2001,

January 5, 2001, January 12, 2001, and January 17, 2001. The invoices sent from Willis

to Sunburst failed to disclose compensation agreements between Willis and the Willis

Enterprise Insurers that may have resulted in additional income in the form of contingent

commissions paid by the Willis Enterprise Insurers to Willis.

Beginning in or about September 2001, the invoices sent by Willis to clients

contained language stating only that “it is possible”that Willis “may receive contingent

payments or allowances from insurers based on factors which are not client-specific, such

as the size or performance of an overall book of business produced with an insurer by us.”

This statement was insufficient to fully disclose Willis’ compensation arrangements with

the Willis Enterprise Insurers, noting only that “it is possible” that Willis may have

agreements with insurers from which Willis could derive additional income while failing

to provide any information regarding the strategic partnerships and the contingent

payment arrangements had on the insurance placement process and the premiums

charged.

During the relevant time period, Willis also transmitted to its clients, including

Plaintiffs, various other communications relating to Willis’ provision of brokerage




42

services. Willis disclosed none of the following material facts in any of its

communications to clients:

• that Willis was not acting in the best interest of its clients but was instead


interests at the expense of Willis’ clients;

• the true nature of the association and agreements between Willis and the


• the conflict of interest inherent in the agreements between Willis and the


• Willis’ consolidation of its insurance markets to a few select strategic partners;

• Willis’ steering of insurance placements to the Willis Enterprise Insurers, its

strategic partners;

• that Willis was protecting the Willis Enterprise Insurers from competition;

• that the Willis Enterprise Insurers kick back a substantial portion of their

increased profits to Willis in the form of contingent commissions, loans,



•

that the kickbacks to Willis are factored into the cost of Plaintiffs and Class



Willis’ representation that Willis was acting on behalf of its client and concealment of

Willis’s allocation of business to a limited number of partner Insurer Defendants was

necessary to encourage clients to retain Willis, to conceal the scheme, to lull clients,




43



resulting from Willis and the Insurer Defendants’ scheme in invoices forwarded to each



Despite Willis’ duties to its clients, despite Willis’ acknowledgement of its

obligations and despite Willis’ representations, Willis did not act in its clients’ best

interests but instead engaged in a fraudulent scheme designed to increase the profits of

Willis and its insurer partners at the expense of its clients.



increase because the kickbacks paid to Willis were included in the price of insurance paid


relied on the Willis’s representations and the Defendants’ omissions in paying higher

premiums that included the kickbacks to Willis.

GALLAGHER ENTERPRISE DEFENDANTS:

The Gallagher Enterprise Defendants have violated 18 U.S.C. § 1341 and 18 U.S.C. §



fraudulent scheme.

The Gallagher Enterprise Defendants have engaged in a scheme whereby Gallagher

would allocate business to a limited number of partner Insurer Defendants in exchange

for kickbacks in the form of contingent commissions and/or other payments which were




44



Complaint, the Gallagher Enterprise Insurers Defendants engaged in the following

conduct:

- Gallagher significantly consolidated the number of carriers to which it would


- Gallagher entered into “strategic partnerships” with the Gallagher Enterprise

Insurers to which Gallagher agreed to steer the bulk of its business.

-

As strategic partners, the Gallagher Enterprise Insurers would be given access

to a guaranteed flow of premium volume from Gallagher, as well as protection

from normal competition from both inside and outside of the strategic

partnership for renewal of each Insurer Defendant’s own business.

- In order to accomplish this, the Gallagher Enterprise Defendants engaged in a





with the Gallagher Enterprise Insurers.

- In exchange for being given these unfair competitive advantages, the

Gallagher Enterprise Insurers agreed to pay kickbacks to Gallagher.

In furtherance of the scheme, the Gallagher Enterprise Defendants have sent






45


Gallagher and the client, requests for proposals, policies and policy materials, insurance



The Gallagher Enterprise Defendants have frequently communicated with each

other by mail and/or wire in furtherance of the scheme. Such communications have

included contingent commission agreements, letters, faxes and emails memorializing

various agreements between Gallagher and its partner markets and details regarding




Defendants’ scheme conflicts with Gallagher’s duties and representations to its

clients. Gallagher is retained by its clients, including Plaintiffs and Class Members, for

the sole purpose of acting on behalf of and providing the clients with unbiased advice

concerning the type, amount and level of insurance needed, as well as to provide sound

and accurate advice regarding the insurance companies they recommend.

Additionally, Gallagher is a fiduciary of its clients, and therefore owes its clients,




products purchased by clients or services rendered by Gallagher, including the duty to






46

related products purchased by its clients or services rendered by Gallagher; (iv) a duty to


its clients or services rendered by Gallagher; (v) a duty to use its best business judgment

in connection with any insurance-related products or services purchased by its clients – in


and fair dealing.

In a November 3, 2004 letter to Gallagher’s “Valued Clients”, J. Patrick Gallagher

reaffirmed Gallagher’s duty to act on behalf of its clients:

For 77 years, the leaders and employees of this company have alwaysunderstood that to succeed as an enterprise we must put customers first….I’dlike to take this opportunity to reiterate that we view ourselves as youradvocates in the marketplace. We want there to be absolutely noconfusion about our priorities. Our employees understand that clientscome first at Gallagher.

As a result of the nature of the relationship between Gallagher and its clients, as a result

of Gallagher’s fiduciary status and as a result of Gallagher’s representations, Gallagher had

a duty to fully disclose any conflicts of interest it had in providing services to their clients

as well as any material information that might impact its ability to act in its client’s best

interest. Gallagher, however, did not disclose its conflicts of interest, its allocation of


Instead, Gallagher in communications with clients simply reinforced that it was

acting in its clients’ interests. Gallagher’s communications with its clients, including


by the examples set forth herein. Throughout the Class Period, Gallagher regularly

disseminated materials by mail and wire wherein Gallagher routinely represented that

Gallagher was acting on the client’s behalf and not on behalf of the insurer, that Gallagher




47

was functioning as the client’s broker, and that Gallagher would use its “best efforts” on

behalf of the client. To the extent Gallagher provided any information regarding

contingent commission income or Gallagher’s relationship with the Gallagher Enterprise

Insurers the information was either materially false or misleading. Gallagher routinely

represented that it would use its “best efforts” in providing brokerage services to its clients.

For example, on or about January 6, 2003, Arthur J. Gallagher (“Gallagher”) sent Clear

Lam a “Fee Agreement” stating that “Gallagher will provide insurance brokerage services to

Client and will use its best efforts to secure insurance required for the proper

administration of Client’s business.” The Fee Agreement further provides as follows:

Gallagher shall receive its usual and customary brokerage commission forthe services provided hereunder. Gallagher will be charging a fee of$29,766 for brokerage and administration services, in addition to 15%commission on boiler and machinery coverage, 7.5% on pollution liabilityand 1% commission on auto coverage (already included in the premiums proposed)….

In addition to the fees (commissions) provided herein, it is understood andagreed that other parties, such as excess and surplus lines brokers,wholesalers, reinsurance intermediaries, underwriting managers, andsimilar parties, some of which may be owned in whole or in part byGallagher’s corporate parent, may earn and retain usual and customarycommissions and fees in the course of providing insurance products toclient pursuant to this Agreement. Any such fees or commission will notconstitute compensation to Gallagher ….

Gallagher from time to time enters into arrangements with certaininsurance carriers or those carriers’ reinsurers providing for compensation,in addition to commissions, to be paid by such carriers or reinsurers toGallagher or its affiliates based on, among other things, the volume of premium and/or underwriting profitability of the insurance coverageswritten through Gallagher by such carriers or reinsurers. In addition,Gallagher and its affiliates provide management and other services to, andreceive compensation for those services from, certain reinsurers thatreinsurer insurance coverages written through Gallagher by otherinsurance carriers. The insurance coverages you purchase throughGallagher might be issued by an insurance carrier or reinsured by areinsurer that has such a relationship with Gallagher or its affiliates.




48

This statement was insufficient to fully disclose Gallagher’s compensation arrangements

with the Gallagher Enterprise Insurers, noting only that Gallagher has agreements with

“certain” insurers and that the client’s policies “might” be issued by one of those carriers while

failing to provide any information regarding the strategic partnerships that Gallagher had

entered into with the Gallagher Enterprise Insurers or the significance these partnerships

and the contingent payment arrangements had on the insurance placement process and the

premiums charged. Gallagher also sent Plaintiff Clear Lam an “Insurance Proposal” with

an effective date of December 2003 in which Gallagher again indicated that it would “use

its best efforts” on Clear Lam’s behalf.

Gallagher also routinely sent invoices to its clients which included the excess

premiums resulting from Defendants’ scheme without a separate accounting of the excess

amount being invoiced. For example, on April 4 and April 5, 2003, Gallagher transmitted

invoices to Clear Lam which did not separately account for contingent commission

payments and in no way referenced contingent commission income. Gallagher also

transmitted invoices to Redwood Oil Co. on September 10, 1998, August 26, 1999,

August 27, 1999, August 15, 2000, November 7, 2000 and December 6, 2000.

During the relevant time period, Gallagher also transmitted to its clients,

including Plaintiffs, various other communications relating to Gallagher’s provision of

brokerage services. For example, Gallagher transmitted to plaintiff Mulcahy certificates

of insurance and various other communications related to those policies. These included

a Certificate of Insurance transmitted on or about February 25, 2004. During the time

that Arthur J. Gallagher (“Gallagher”) was the broker for plaintiff Redwood Oil Company

(“Redwood Oil”) Gallagher also transmitted various communications to Redwood Oil




49

including, for example, general summaries, titled “Summary of Insurance,” such as those

transmitted on or about August 13, 1995, and January 14, 1997. On or about April 4,

2001, Gallagher transmitted a “Summary of Insurance” to Redwood Oil that contained the

following statement:

“ADDITIONAL DISCLOSURE – BROKER/CARRIER COMPENSATION

Gallagher from time to time enters into arrangements with certaininsurance carriers or those carriers’ reinsurers providing forcompensation, in addition to commissions, to be paid by suchcarriers or reinsurers to Gallagher or its affiliates based on, amongother things, the volume of premium and/or underwriting profitability of the insurance coverages written through Gallagher

by such carriers or reinsurers. In addition, Gallagher and itsaffiliates provide management and other services to, and receivecompensation for those services from, certain reinsurers thatreinsure insurance coverages written through Gallagher by otherinsurance carriers. The insurance coverages you purchase throughGallagher might be issued by an insurance carrier or reinsured by areinsurer that has such a relationship with Gallagher or itsaffiliates.”

This statement was insufficient to fully disclose Gallagher’s compensation arrangements

with the Gallagher Enterprise Insurers, noting only that Gallagher has agreements with

“certain” insurers and that the client’s policies “might” be issued by one of those carriers while

failing to provide any information regarding the strategic partnerships that Gallagher had

entered into with the Gallagher Enterprise Insurers or the significance these partnerships

and the contingent payment arrangements had on the insurance placement process and the

premiums charged.

Gallagher did not disclose the following material facts in any of its communications

to clients:




50

• that Gallagher was not acting in the best interest of its clients but was instead


interests at the expense of Gallagher’s clients;

• the true nature of the association and agreements between Gallagher and the


• the conflict of interest inherent in the agreements between Gallagher and the


• Gallagher’s consolidation of its insurance markets to a few select strategic

partners;

• Gallagher’s steering of insurance placements to the Gallagher Enterprise

Insurers, its strategic partners;

• that Gallagher was protecting the Gallagher Enterprise Insurers from

competition

• that the Gallagher Enterprise Insurers kick back a substantial portion of their

increased profits to Gallagher in the form of contingent commissions, loans,



•

that the kickbacks to Gallagher are factored into the cost of Plaintiffs and

Class Members’ insurance, resulting in injury to Plaintiffs’ and Class Members’


Gallagher’s misrepresentation of its allegiance to its client’s interests and concealment

of Gallagher’s allocation of business to a limited number of partner Insurer Defendants

was necessary to encourage clients to retain Gallagher, to conceal the scheme, to lull




51

clients, including Plaintiffs and Class Members, into a false sense of security and to

assure payment of the excess premiums. Likewise, inclusion of the excess amount of

premium resulting from Gallagher and the Insurer Defendants’ scheme in invoices

forwarded to each Plaintiff without explanation or a separate accounting for the excess

premium was necessary to conceal the scheme and to assure payment of the entire

invoice amount.

The fraudulent scheme and the conspiracy in furtherance of the scheme proximately

caused the cost of insurance obtained by Plaintiffs and Class Members to increase

because the kickbacks paid to Gallagher were included in the price of insurance paid by

Plaintiffs and Class Members. In addition, Plaintiffs and Class Members reasonably

relied on Gallagher’s representations and the Defendants’ omissions in paying higher

premiums that included the kickbacks to Gallagher.

Despite Gallagher’s duties to its clients, despite Gallagher’s acknowledgement of

its obligations and despite Gallagher’s representations, Gallagher did not act in its clients’

best interests but instead engaged in a fraudulent scheme designed to increase the profits

of Gallagher and its insurer partners at the expense of its clients.

HRH ENTERPRISE DEFENDANTS:

The HRH Enterprise Defendants have violated 18 U.S.C. § 1341 and 18 U.S.C. §



fraudulent scheme.

Defendants have engaged in a scheme whereby HRH would allocate business to a

limited number of partner Insurer Defendants in exchange for kickbacks in the form of




52

contingent commissions and/or other payments which were factored into the premiums

paid by plaintiffs and class members. Specifically, as set forth in further detail in the

Revised Particularized Statement and the Second Amended Complaint, the HRH

Enterprise Defendants engaged in the following conduct:

- HRH significantly consolidated the number of carriers to which it would


- HRH entered into “strategic partnerships” with the HRH Enterprise Insurers to

which HRH agreed to steer the bulk of its business.

-

As strategic partners, the HRH Enterprise Insurers would be given access to a

guaranteed flow of premium volume from HRH, as well as protection from



- In order to accomplish this, HRH and the HRH Enterprise Insurers engaged in

a number of practices specifically set forth in the Revised Particularized


competitively, limiting the marketing of renewals and other actions designed

to maximize the volume of insurance placed with the HRH Enterprise

Insurers.

- In exchange for being given these unfair competitive advantages, the HRH

Enterprise Insurers agreed to pay kickbacks to HRH.

In furtherance of the scheme, the HRH Enterprise Defendants have sent matters

and things through the mail and wire or have known that mail or wire would be used in

furtherance of the scheme. Materials sent by mail or wire have included correspondence,




53

emails, faxes, marketing materials, contracts or agreements between HRH and the client,

requests for proposals, policies and policy materials, insurance quotes, contingent

commission agreements, insurance binders, commission schedules, invoices to clients

and payments from insurers to brokers.

The HRH Enterprise Defendants have frequently communicated with each other



agreements between HRH and its partner markets and details regarding consolidation,




Defendants’ scheme conflicts with HRH’s duties and representations to its clients.

HRH is retained by its clients, including Plaintiffs and Class Members, for the sole




Additionally, HRH is a fiduciary of its clients, and therefore owes its clients,




products purchased by clients or services rendered by HRH, including the duty to






54

related products purchased by its clients or services rendered by HRH; (iv) a duty to


its clients or services rendered by HRH; (v) a duty to use its best business judgment in



and fair dealing.

As a result of the nature of the relationship between HRH and its clients, as a

result of HRH’s fiduciary status and as a result of HRH’s representations, HRH had a duty

to fully disclose any conflicts of interest it had in providing services to its clients as well

as any material information that might impact their ability to act in its client’s best

interest. HRH, however, did not disclose its conflicts of interest, its allocation of


Throughout the Class Period, HRH regularly disseminated materials by mail and

wire wherein HRH routinely represented that HRH was acting on the client’s behalf,

using, among others, the following phrases:

- “We work for our customers, literally. We’re paid by them. We have to listen

to them entirely.”

- “your advocate in the negotiation of claim settlements”

- “an objective and unbiased evaluation of the various coverage terms,

conditions and exclusions”

- “represent the financial interest of our clients. Our very existence and

continued success is wholly dependent upon meeting the needs and

expectations of our clients”




55

- “Everything we do, everything we are and everything we’re going to be is

driven by our clients”

- “HRH Claims Professionals work for you”

- “We want you to have confidence that our recommendations are driven by your

needs, not our own”

- “We want to represent you in the marketplace”

- “functioning as your broker, we will negotiate with all companies on your

behalf and protect your interests”

-

“We negotiate ethically and tirelessly on your behalf”

-

“We advocate our clients [sic] needs and desires first and foremost”

Following institution of the regulatory investigations, HRH determined that phrases that

suggest that HRH is a “selfless, disinterested party working for the client” would no longer

be “allowed”. Yet HRH’s Chairman and Chief Executive Officer Martin L. (Mell)

Vaughan, III in a news release on or about October 26, 2004 reiterated HRH’s

“longstanding commitment to serve [HRH’s] clients in accordance with the highest

professional and ethical standards.”

To the extent HRH provided any information regarding contingent commission

income or HRH’s relationship with the HRH Enterprise Insurers the information was

either materially false or misleading. HRH’s statement that it “may have” contingent fee

agreements with insurance carriers was insufficient to fully disclose HRH’s compensation

arrangements with the HRH Enterprise Insurers, noting only that HRH “may have”

agreements with insurers from which HRH “may” derive additional income while failing to

provide any information regarding the strategic partnerships that HRH had entered into




56

with the HRH Enterprise Insurers or the significance these partnerships and the

contingent payment arrangements had on the insurance placement process and the

premiums charged.

HRH also sent invoices to its clients, including Plaintiffs Tri-State and Opticare,

which included the excess premiums resulting from Defendants’ scheme without a

separate accounting of the excess amount being invoiced as well as policies and other

communications relating to HRH’s provision of brokerage services.

HRH did not disclose the following material facts in any of its communications

with clients:

• that HRH was not acting in the best interest of its clients but was instead


interests at the expense of HRH’s clients;

•

the true nature of the association and agreements between HRH and the HRH


•

the conflict of interest inherent in the agreements between HRH and the HRH


• HRH’s consolidation of its insurance markets to a few select strategic partners;

•

HRH’s steering of insurance placements to the HRH Enterprise Insurers, its

strategic partners;

•

that HRH was protecting the HRH Enterprise Insurers from competition;

• that the HRH Enterprise Insurers kick back a substantial portion of their

increased profits to HRH in the form of contingent commissions, loans,




57



• that the kickbacks to HRH are factored into the cost of Plaintiffs and Class



HRH’s misrepresentation of its allegiance to its client’s interests and concealment of

HRH’s allocation of business to a limited number of partner Insurer Defendants was

necessary to encourage clients to retain HRH, to conceal the scheme, to lull clients,



resulting from HRH and the Insurer Defendants’ scheme in invoices forwarded to each





increase because the kickbacks paid to HRH were included in the price of insurance paid


relied on HRH’s representations and the Defendants’ omissions in paying higher premiums

that included the kickbacks to HRH.

Despite HRH’s duties to its clients, despite HRH’s acknowledgement of its

obligations and despite HRH’s representations, HRH did not act in its clients’ best interests

but instead engaged in a fraudulent scheme designed to increase the profits of HRH and

its insurer partners at the expense of its clients.




58

WELLS FARGO/ACORDIA ENTERPRISE DEFENDANTS:

The Wells Fargo/Acordia Enterprise Defendants have violated 18 U.S.C. § 1341

and 18 U.S.C. § 1343 by utilizing or causing the use of the United States postal service,

commercial interstate carrier, wire or other interstate electronic media in furtherance of

their fraudulent scheme.

Defendants have engaged in a scheme whereby Wells Fargo/Acordia would allocate

business to a limited number of partner Insurer Defendants in exchange for kickbacks in

the form of contingent commissions and/or other payments which were factored into the

premiums paid by plaintiffs and class members. Specifically, as set forth in further detail

in the Revised Particularized Statement and the Second Amended Complaint, the Wells

Fargo/Acordia Enterprise Defendants engaged in the following conduct:

- Wells Fargo/Acordia significantly consolidated the number of carriers to

which it would market its clients’ business.

- Wells Fargo/Acordia entered into “strategic partnerships” with the Wells

Fargo/Acordia Enterprise Insurers to which Wells Fargo/Acordia agreed to

steer the bulk of its business.

- As strategic partners, Wells Fargo/Acordia Enterprise Insurers would be given

access to a guaranteed flow of premium volume from Wells Fargo/Acordia, as

well as protection from normal competition from both inside and outside of

the strategic partnership for renewal of each Insurer Defendant’s own business.

- In order to accomplish this, the Wells Fargo/Acordia Enterprise Defendants

engaged in a number of practices specifically set forth in the Revised

Particularized Statements including “book rolls”, agreements not to bid renewals




59



with the Wells Fargo/Acordia Enterprise Insurers.

- In exchange for being given these unfair competitive advantages, the Wells

Fargo/Acordia Enterprise Insurers agreed to pay kickbacks to Wells

Fargo/Acordia.

In furtherance of the scheme, the Wells Fargo/Acordia Enterprise Defendants

have sent matters and things through the mail and wire or have known that mail or wire

would be used in furtherance of the scheme. Materials sent by mail or wire have

included correspondence, emails, faxes, marketing materials, contracts or agreements

between Wells Fargo/Acordia and the client, requests for proposals, policies and policy

materials, insurance quotes, contingent commission agreements, insurance binders,

commission schedules, invoices to clients and payments from insurers to brokers.

The Wells Fargo/Acordia Defendants have frequently communicated with each

other by mail and/or wire in furtherance of the scheme. Such communications have

included contingent commission agreements, letters, faxes and emails memorializing

various agreements between Marsh and its partner markets and details regarding




Defendants’ scheme conflicts with Wells Fargo/Acordia’s duties and

representations to its clients. Wells Fargo/Acordia is retained by its clients, including

Plaintiffs and Class Members, for the sole purpose of acting on behalf of and providing




60

the clients with unbiased advice concerning the type, amount and level of insurance

needed, as well as to provide sound and accurate advice regarding the insurance

companies they recommend.

Additionally, Wells Fargo/Acordia is a fiduciary of its clients, and therefore owes

its clients, including Plaintiffs and other members of the Class: (i) a duty of loyalty to act

in the best interests of its clients and to always put its clients’ interests ahead of its own;

(ii) a duty of full and fair disclosure and complete candor in connection with any

insurance-related products purchased by clients or services rendered by Wells

Fargo/Acordia, including the duty to disclose the source and amounts of all income it

receives in or as a result of any transaction involving its clients; (iii) a duty of care in

connection with any insurance-related products purchased by its clients or services

rendered by Wells Fargo/Acordia; (iv) a duty to provide impartial advice in connection

with any insurance-related products purchased by its clients or services rendered by

Wells Fargo/Acordia; (v) a duty to use its best business judgment in connection with any

insurance-related products or services purchased by its clients – in other words to find the

best coverage at the lowest price; and, (vi) a duty of good faith and fair dealing.

As a result of the nature of the relationship between Wells Fargo/Acordia and its

clients, as a result of Wells Fargo/Acordia’s fiduciary status and as a result of Wells

Fargo/Acordia’s representations, Wells Fargo/Acordia had a duty to fully disclose any

conflicts of interest it had in providing services to its clients as well as any material

information that might impact its ability to act in its client’s best interest. Wells

Fargo/Acordia, however, did not disclose its conflicts of interest, its allocation of





61

Wells Fargo/Acordia’s form “Client Services Agreement” acknowledges that Wells

Fargo/Acordia is acting as an “insurance broker” and will be providing “insurance brokerage

services.” This agreement, at least at times, contained the notation that Wells

Fargo/Acorida has “agreements with certain insurers under which they may receive

payments based upon factors that are not client specific such as the overall book of

business placed and the performance of that book." This statement was insufficient to

fully disclose Wells Fargo/Acordia’s compensation arrangements with the Wells

Fargo/Acordia Enterprise Insurers, noting only that Wells Fargo/Acordia “may receive”

additional compensation from “certain insurers” while failing to provide any information

regarding the strategic partnerships that Marsh had entered into with Wells

Fargo/Acordia Enterprise Insurers or the significance these partnerships and the

contingent payment arrangements had on the insurance placement process and the

premiums charged.

During the relevant time period, Wells Fargo/Acordia also transmitted to its

clients, including Plaintiffs, various other communications relating to its provision of

brokerage services, including insurance policies, correspondence and quotes. Wells

Fargo/Acordia also sent invoices to its clients which included the excess premiums

resulting from Defendants’ scheme without a separate accounting of the excess amount

being invoiced. Wells Fargo/Acordia sent an invoice to Omni Group on or about August

2003.

Wells Fargo/Acordia did not disclose the following material facts in any of its

communications with clients:




62

• that Wells Fargo/Acordia was not acting in the best interest of its clients but

was instead acting on behalf of itself and its partner carriers to further their

financial interests at the expense of Wells Fargo/Acordia’s clients;

• the true nature of the association and agreements between Wells


• the conflict of interest inherent in the agreements between Wells


• Wells Fargo/Acordia’s consolidation of its insurance markets to a few select

strategic partners;

• Wells Fargo/Acordia’s steering of insurance placements to the Wells

Fargo/Acordia Enterprise Insurers , its strategic partners;

• that Wells Fargo/Acordia was protecting the Wells Fargo/Acordia Enterprise

Insurers from competition;

• that the Wells Fargo/Acordia Enterprise Insurers kick back a substantial

portion of their increased profits to Wells Fargo/Acordia in the form of

contingent commissions, loans, subsidies and payments for “services” as well as

other agreements and tying arrangements that serve the same function;

•

that the kickbacks to Wells Fargo/Acordia are factored into the cost of

Plaintiffs and Class Members’ insurance, resulting in injury to Plaintiffs’ and

Class Members’ business and property.

Wells Fargo/Acordia’s misrepresentation of its allegiance to its client’s interests and

concealment of Wells Fargo/Acordia’s allocation of business to a limited number of

partner Insurer Defendants was necessary to encourage clients to retain Wells




63

Fargo/Acordia, to conceal the scheme, to lull clients, including Plaintiffs and Class

Members, into a false sense of security and to assure payment of the excess premiums.

Likewise, inclusion of the excess amount of premium resulting from Wells

Fargo/Acordia and the Insurer Defendants’ scheme in invoices forwarded to each Plaintiff

without explanation or a separate accounting for the excess premium was necessary to

conceal the scheme and to assure payment of the entire invoice amount.



increase because the kickbacks paid to Wells Fargo/Acordia were included in the price of

insurance paid by Plaintiffs and Class Members. In addition, Plaintiffs and Class

Members reasonably relied on Wells Fargo/Acordia’s representations and the Defendants’

omissions in paying higher premiums that included the kickbacks to Wells

Fargo/Acordia.

Despite Wells Fargo/Acordia’s duties to its clients, despite Wells Fargo/Acordia’s

acknowledgement of its obligations and despite Wells Fargo/Acordia’s representations,

Wells Fargo/Acordia did not act in its clients’ best interests but instead engaged in a

fraudulent scheme designed to increase the profits of Wells Fargo/Acordia and its insurer

partners at the expense of its clients.

d. State whether there has been a criminal conviction in regard to the

predicate acts;

To date, there have been ten criminal convictions in connection with the

allegations in the complaints in the following proceedings:

a. People v. Patricia Abrams (N.Y. County Supreme Court) (felonycomplaint against former ACE executive resulting in guilty pleaentered on or about October 14, 2004);




64

b. People v. Karen Radke (N.Y. County Supreme Court) (felonycomplaint against former AIG executive resulting in guilty pleaentered on or about October 14, 2004);

c.

People v. Jean-Baptiste Tateossian (N.Y. County Supreme Court)(felony complaint against former AIG executive resulting in guilty plea entered on or about October 14, 2004);

d. People v. John Keenan (N.Y. County Supreme Court) (felonycomplaint against former Zurich American Insurance Companyexecutive resulting in guilty plea entered on or about November16, 2004);

e. People v. Edward Coughlin (N.Y. County Supreme Court) (felonycomplaint against former Zurich American Insurance Companyexecutive resulting in guilty plea entered on or about November16, 2004);

f. People v. Robert Stearns (N.Y. County Supreme Court) (felonycomplaint against former Marsh executive resulting in guilty pleaentered on or about January 4, 2005);

g. People v. Carlos Coello (N.Y. County Supreme Court) (felonycomplaint against former AIG executive resulting in guilty pleaentered on or about January 19, 2005);

h.

People v. John Mohs (N.Y. County Supreme Court) (felonycomplaint against former AIG executive resulting in guilty plea

entered on or about January 25, 2005);

i. People v. Joshua M. Bewlay (N.Y. County Supreme Court) (felonycomplaint against former Marsh executive resulting in guilty pleaentered on or about February 14, 2005); and

j. People v. Kathryn Winter (N.Y. County Supreme Court) (felonycomplaint against former Marsh executive resulting in guilty pleaentered on or about February 18, 2005).

In addition, the following persons have now been indicted:

Kevin Bott

Greg Doherty

Kathleen Drake

William Gilman




65

Thomas T. Green

Regina Hatton

Edward Keane Jr.

William McBurnie

Edward McNenny

Nicole Michaels

Todd Murphy

Joseph Peiser

James Spiegel

e. State whether civil litigation has resulted in a judgment in regard to

the predicate acts;

Several Defendants have settled with regulators for the conduct at issue in this

case as set forth in the Second Amended Complaint.

f. Describe how the predicate acts form a “pattern of racketeering

activity”; and

Defendants’ predicate acts form a “pattern of racketeering activity” consisting of

multiple related acts of racketeering activity since at least the mid to late 1990’s. Each

and every predicate act of mail and wire fraud was related in that the purpose of each was

to prevent detection of the scheme involving allocation of business to the insurer

Defendants. Each predicate act involved the same or similar participants –the broker

Defendant and the Insurer Defendants associated with each broker-centered enterprise.

Each predicate act involved the same method of commission including the transmittal of

documents to the Broker Defendants’ clients which included misrepresentations and

omissions aimed at preventing detection of the Defendants’ scheme. The predicate acts

had the similar result of obscuring Defendants’ activities and impacted similar victims – the




66

clients of the Broker Defendants, including Plaintiffs and Members of the Class. The

predicate acts amount to continued racketeering activity in that the predicate acts

occurred repeatedly over an extended period of time, beginning in the mid to late 1990’s.

Accordingly, the predicate acts constitute a “pattern of racketeering activity.”

g. State whether the alleged predicate acts relate to each other as part of

a common plan. If so, describe in detail.

The predicate acts of mail fraud and wire fraud were part of a common

plan whereby the members of each broker-centered Enterprise engaged in numerous acts

of mail and wire to conceal and prevent detection of a scheme whereby the broker

defendants consolidated their markets and allocated their business to the Insurer

Defendants associated with their Enterprise.

6. State whether the existence of an “enterprise” is alleged within the meaning

of 18 U.S.C. § 1961(4). If so, for each such enterprise, provide the following

information:

Six association in fact enterprises are alleged.

a. State the names of the individuals, partnerships, corporations,

associations or other legal entities, which allegedly constitute theenterprise.

Each of the following constitutes a group of persons or entities associated in fact:

(1) Marsh, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’sFund, Hartford, Liberty Mutual, Munich, St. Paul Travelers, XL andZurich (the “Marsh Enterprise”). The Marsh Enterprise is an ongoingorganization which has existed continuously since the mid to late 1990’s.

(2) Aon, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s

Fund, Hartford, Liberty Mutual, St. Paul Travelers, Zurich and XL (the“Aon Enterprise”) The Aon Enterprise is an ongoing organization which hasexisted continuously since the mid to late 1990’s.

(3) Willis, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’sFund, Hartford, Liberty Mutual, St. Paul Travelers and Zurich (the “WillisEnterprise”) The Willis Enterprise is an ongoing organization which hasexisted continuously since the mid to late 1990’s.




67

(4) Gallagher, AIG, Chubb, CNA, Crum & Forster, Fireman’s Fund,Hartford and St. Paul Travelers (the “Gallagher Enterprise”). The GallagherEnterprise is an ongoing organization which has existed continuouslysince the mid to late 1990’s.

(5) HRH, CNA, Hartford and St. Paul Travelers (the “HRH Enterprise”).The HRH Enterprise is an ongoing organization which has existedcontinuously since the mid to late 1990’s.

(6) Wells Fargo/Acordia, Chubb, CNA, Fireman’s Fund, Hartford andSt. Paul Travelers (the “Wells Fargo/Acordia Enterprise”). The WellsFargo/Acordia Enterprise is an ongoing organization which has existedcontinuously since the mid to late 1990’s.

b. Describe the structure, purpose, function and course of conduct of the

enterprise;

The purpose of each Enterprise is (1) to make money through the creation of a

defined and limited group of insurance carriers to which the broker defendant steers the

insurance business of class members with limited or no competition in exchange for

sharing increased profits and (2) to conceal this scheme from customers.

The structure for decision-making within each enterprise includes the following:

(1) one or more broker executives who have responsibility and authority for interfacing

with the insurers to determine compensation, to plan for the steering or retention of

business, and to monitor and direct that business be retained or steered to insurer

members of the enterprise; (2) broker account executives who implement direction

regarding the retention or steering of business; (3) one or more executives at each insurer

who have the responsibility and authority to plan with the broker, to monitor the

placement of business and to determine compensation for the steering or retention of

business; (4) an employee or employees of the insurer who monitor(s) and reports

placement volume to insurer executives as well as the broker; (5) an employee or

employees of the broker who keeps track of reports received from the insurers regarding




68

placement volume; (6) an employee or employees who implement decisions regarding

the placement of business; and (7) an employee or employee who factor(s) the cost of the

kickbacks into the insurance premiums paid by Plaintiffs and Class Members. In

addition, the broker assumes primary responsibility for concealment of the scheme with

support and assistance from the insurer members of the enterprise.

Each enterprise has undertaken a course of conduct to develop, coordinate,

monitor and conceal the fraudulent scheme.

c. State whether any defendants are employees, officers or directors of

the alleged enterprise;

Defendants are not employees, officers or directors of any of the Enterprises.

d. State whether any defendants are associated with the alleged

enterprise;

The Marsh Enterprise Defendants associated with, participate in and control the

affairs of the Marsh Enterprise.

The Aon Enterprise Defendants are associated with, participate in and control the

affairs of the Aon Enterprise.

The Willis Enterprise Defendants are associated with, participate in and control

the affairs of the Willis Enterprise.

The Gallagher Enterprise Defendants are associated with, participate in and

control the affairs of the Gallagher Enterprise.

The HRH Enterprise Defendants are associated with, participate in and control the

affairs of the HRH Enterprise.

The Wells Fargo/Acordia Enterprise Defendants are associated with, participate in

and control the affairs of the Wells Fargo/Acordia Enterprise.




69

e. State whether you are alleging that the defendants are individuals or

entities separate from the alleged enterprise, or that the defendants

are the enterprise itself, or members of the enterprise; and

While these Defendants participate in and are members of each enterprise as

indicated above, they have an existence separate and distinct from the enterprise.

f. If any defendants are alleged to be the enterprise itself, or members of

the enterprise, explain whether such defendants are perpetrators,

passive instruments, or victims of the alleged racketeering activity.

Defendants are perpetrators of the racketeering activity.

7. State and describe in detail whether you are alleging that the pattern of

racketeering activity and the enterprise are separate or have merged into one

entity.

The racketeering activity and the enterprise are separate. The members of each

Enterprise share a common purpose and each Enterprise is continuing and has a structure

for decision-making and for oversight, coordination and facilitation of the predicate

offenses. The pattern of racketeering activity includes numerous acts of mail and wire

fraud in furtherance of a fraudulent scheme whereby each Broker Defendant allocates

business to the Insurer members in exchange for kickbacks in the form of contingent

commissions and/or other payments.

8. Describe the alleged relationship between the activities of the enterprise and

the pattern of racketeering activity. Discuss how the racketeering activity

differs from the usual and daily activities of the enterprise, if at all.

Each Enterprise oversees, coordinates and facilitates the commission of numerous

predicate offenses. The daily activities of the enterprise include some legitimate

activities relating to the distribution of insurance on a competitive basis. The

racketeering activity is comprised of a fraudulent scheme to allocate business on a

noncompetitive basis resulting in additional profits for all Defendants as well as

concealment of the scheme.




70

9. Described what benefits, if any, the alleged enterprise receives from the

alleged pattern of racketeering.

Each Enterprise benefits from the pattern of racketeering through reduced

competition and additional profits as well as concealment of the scheme.

10. Describe the effect of the activities of the enterprise on interstate or foreign

commerce.

Each Enterprise operates on a nation-wide basis and utilizes interstate

communications including United States mail and wire across state lines. The activities of

the enterprises are national in scope, affecting most of the commercial insurance market

in the United States. The enterprises have a substantial impact upon the economy and

upon interstate commerce.

11. If the complaint alleges a violation of 18 U.S.C. § 1962(a), provide the

following information:

Plaintiffs do not allege a violation of 18 U.S.C. § 1962(a).

a. State who received the income derived from the pattern of

racketeering activity or through the collection of an unlawful debt;

and

Not applicable.

b. Describe the use or investment of such income.

Not applicable.

12. If the complaint alleges a violation of 18 U.S.C. § 1962(b), describe in detail

the acquisition or maintenance of any interest in or control of the alleged

enterprise.

Plaintiffs do not allege a violation of 18 U.S.C. § 1962(b).

13. If the complaint alleges a violation of 18 U.S.C. § 1962(c), provide the


a. State who is employed by or associated with the enterprise; and




71

Marsh, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund,

Hartford, Liberty Mutual, Munich, St. Paul Travelers, XL and Zurich are

associated with the Marsh Enterprise.

Aon, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund,

Hartford, Liberty Mutual, St. Paul Travelers, Zurich and XL are associated with

the Aon Enterprise.

Willis, ACE, AIG, Axis, Chubb, CNA, Crum & Forster, Fireman’s Fund,

Hartford, Liberty Mutual, St. Paul Travelers and Zurich are associated with the

Willis Enterprise.

Gallagher, AIG, Chubb, CNA, Crum & Forster, Fireman’s Fund, Hartford

and St. Paul Travelers are associated with the Gallagher Enterprise.

HRH, CNA, Hartford and St. Paul Travelers are associated with the HRH

Enterprise.

Wells Fargo/Acordia, Chubb, CNA, Fireman’s Fund, Hartford and St. Paul

Travelers are associated with the Wells Fargo/Acordia Enterprise.

b. State whether the same entity is both the liable “person” and the

“enterprise” under § 1962(c).

The same entity is not both the liable person and the enterprise under § 1962(c).

c. Describe specifically how the defendant(s) participated in the

operation or management of the enterprise.

As set forth herein, each Defendant had officers and employees who had responsibility

for participating in, operating and managing each enterprise. The Broker Defendants

have participated in the operation or management of each Enterprise in at least the

following ways:

a. consolidation of the broker’s insurance markets;




72

b. reaching agreement with the Insurer Defendants with whom the Broker

Defendant is associated regarding amount of contingent commissions to be

paid to the Broker and the level of business to be steered to each Insurer

Defendant;

c. the monitoring of current and new business;

d. determining whether a partner carrier is to retain current business and the

insurer partner to whom new business is to be steered;

e. steering of business to preferred partners;

f.

collection of inflated premiums; and coordinating concealment of the scheme.

The Insurer Defendants have participated in the operation or management of each

Enterprise with which they are associated in at least the following ways:

a. reaching agreement with the Broker Defendants with whom the Insurer

Defendant is associated regarding amount of contingent commissions to be paid

to the Broker and the level of business to be steered to each Insurer Defendant;

b.

monitoring and reporting of business levels;

c. computation of premium levels to encompass contingent commissions;

d. payment of kickbacks; and coordinating concealment of the scheme.

ALTERNATIVE ENTERPRISE RESPONSES:

6. State whether the existence of an “enterprise” is alleged within the meaning

of 18 U.S.C. § 1961(4). If so, for each such enterprise, provide the following

information:

a. State the names of the individuals, partnerships, corporations,

associations or other legal entities, which allegedly constitute the enterprise.




73

CIAB is a legal entity which constitutes a RICO enterprise referred to herein at

the “CIAB Enterprise.”

b. Describe the structure, purpose, function and course of conduct of the

enterprise;

The purpose of the CIAB Enterprise is to further the interests of larger brokers

generally and to further the Defendants’ scheme specifically including implementation

and concealment of the scheme. The CIAB Enterprise has a structure for decision-

making that includes an Executive Committee , Board of Directors and various other

committees and decision-making structures as well as the Council of Insurance Company

Executives.

c. State whether any defendants are employees, officers or directors of

the alleged enterprise;

Defendants are not employees of the CIAB Enterprise. However, at times,

Defendants or representatives of Defendants have served as officers or directors within

the CIAB Enterprise.

d.

State whether any defendants are associated with the allegedenterprise;

Defendants are associated with the enterprises and participate and control the

affairs of the CIAB Enterprise. Defendants’ control and participation in the enterprise is

necessary for the successful operation of Defendants’ scheme. While Defendants

participate in and are members of the Enterprise, Defendants also have an existence

separate and distinct from the Enterprise.

e. State whether you are alleging that the defendants are individuals or

entities separate from the alleged enterprise, or that the defendants

are the enterprise itself, or members of the enterprise; and




74

Defendants are members of the CIAB Enterprise but have an existence separate

and distinct from the Enterprise.

f. If any defendants are alleged to be the enterprise itself, or members of

the enterprise, explain whether such defendants are perpetrators,passive instruments, or victims of the alleged racketeering activity.

Defendants are perpetrators of the racketeering activity.

7. State and describe in detail whether you are alleging that the pattern of

racketeering activity and the enterprise are separate or have merged into one entity.

The CIAB enterprise is a legal entity that has an ascertainable structure separate

and apart from the pattern of racketeering activity in which the defendants have engaged.

The Defendants have engaged in continuing mail and wire fraud in order to further and to

conceal their fraudulent scheme.

8. Describe the alleged relationship between the activities of the enterprise and

the pattern of racketeering activity. Discuss how the racketeering activity differs

from the usual and daily activities of the enterprise, if at all.

Defendants have been enabled to commit the predicate offenses solely by virtue

of their position in the CIAB Enterprise or involvement in or control over the affairs of

the CIAB Enterprise. Defendants were able to devise, implement and conceal their

scheme through CIAB. Concealment as well as controlled and coordinated

representations and disclosures, which were crucial to the success of the scheme, could

not have occurred absent the coordinating mechanism of CIAB. Defendants not only

used CIAB as the vehicle for developing, coordinating, monitoring and concealing the

scheme but also to disseminate misrepresentations in furtherance of the scheme. Absent

the Defendants’ participation in and control of CIAB, the Defendants would have been

unable to perpetrate the fraudulent scheme and the attendant predicate acts. CIAB

provided Defendants the necessary mechanism for decision-making regarding the




75

fraudulent scheme, regarding concealment of Defendants’ relationships and activities, and

regarding controlled and coordinated representations and disclosures. The CIAB

Enterprise is separate and distinct from the pattern of racketeering activity. However, the

predicate offenses are related to the activities of the CIAB Enterprise. The purpose of the

CIAB Enterprise is furtherance of the interest of large brokers generally and furtherance

of the Defendants’ scheme more specifically. Accordingly, the predicate acts taken in

furtherance of the scheme necessarily relate to the CIAB Enterprise. The racketeering

activity differs significantly from the usual and daily activities of the CIAB enterprise

which include political advocacy and continuing education opportunities for member

brokers.

9. Described what benefits, if any, the alleged enterprise receives from the

alleged pattern of racketeering.

CIAB is a membership organization. The members of CIAB benefit

tremendously from the pattern of racketeering. Likewise, members of CICE benefit from

the pattern of racketeering. Accordingly, CIAB benefits from the pattern of racketeering

through continuing and increased participation by its most powerful and wealthy

members and through continued sponsorship by the Insurer Defendants.

10. Describe the effect of the activities of the enterprise on interstate or foreign

commerce.

The activities of the CIAB Enterprise are national in scope, affecting must of the

commercial insurance market in the United States. The CIAB Enterprise has a

substantial impact upon the economy and upon interstate commerce. The activities of the

Enterprise were carried out through mail, wire and other facilities of interstate commerce.

11. If the complaint alleges a violation of 18 U.S.C. § 1962(a), provide the





76

Plaintiffs do not allege a violation of 18 U.S.C. § 1962(a).

a. State who received the income derived from the pattern of

racketeering activity or through the collection of an unlawful debt; and

Not applicable

b. Describe the use or investment of such income.

Not applicable.

12. If the complaint alleges a violation of 18 U.S.C. § 1962(b), describe in detail

the acquisition or maintenance of any interest in or control of the alleged enterprise.

Plaintiffs do not allege a violation of 18 U.S.C. § 1962(b).

13. If the complaint alleges a violation of 18 U.S.C. § 1962(c), provide the


a. State who is employed by or associated with the enterprise; and

The CIAB Enterprise has several employees. The Broker Defendants and Insurer

Defendants are associated with the Enterprise.

b. State whether the same entity is both the liable “person” and the

“enterprise” under § 1962(c).

The same entity is not both the liable person and the enterprise under § 1962(c).

c. Describe specifically how the defendant(s) participated in the

operation or management of the enterprise.

The Broker Defendants have participated in the operation or management of the

CIAB Enterprise in the at least the following ways:

a. through the positions held in CIAB by the Broker Defendants’ employees andofficers including board memberships, committee memberships and other

influential positions and as a result of the power the Broker Defendants enjoyed inCIAB as a consequence of their size and market share;


c. by submitting false or misleading information to customers;

d. by consolidating markets and steering business to strategic insurance partners;




77

e. in some instances by bid rigging; and

f. by sharing information relating to such matters as market conditions, placementsand payments.

The Insurer Defendants have participated in the operation or management of the


a. through their position in CICE, their sponsorship of CIAB, their attendance at theInsurance Leadership Forum at The Greenbrier and as a result of their importanceto CIAB and CIAB’s members


c. by kicking back profits to the Broker Defendants;

d. by submitting false or misleading information to customers or to brokers for

submission to customers;

e. by providing or withholding quotes as directed by Broker Defendants;

f. by sharing information relating to such matters as market conditions, placements

and payments.

14. If the complaint alleges a violation of 18 U.S.C. § 1962(d), describe in detail

the alleged conspiracy.

Since at least 1998, Marsh, Aon, Willis, Gallagher, HRH and Wells

Fargo/Acordia have conspired to facilitate the scheme being operated through each of the

Broker-Centered Enterprises and to further their common purpose of preventing detection

of these schemes through misrepresentations, concealment and coordinated and

controlled disclosures. The Broker Defendants’ conspiracy has been conducted,

implement and facilitated through the sharing of information among the Broker

Defendants and through their participation in CIAB. The purpose and effect of the

conspiracy was to prevent Plaintiffs and Members of the Class from becoming aware of

the terms and the significance of the contingent commission agreements between the




78

Defendants and the conflicts of interest arising out of the Broker Defendants’ strategic

partnerships with the Insurer Defendants, thereby allowing the Broker Defendants to

increase the compensation they received from the Insurer Defendants. The Broker

Defendants accomplished this by conspiring with one another to adopt substantially

similar vague and incomplete disclosure (or non-disclosure) policies regarding contingent

compensation matters modeled after CIAB’s 1998 position statement and by employing

CIAB to engage in a public relations campaign designed to create the impression that “full

disclosure” was the industry standard and to oppose any efforts to require meaningful

disclosure of contingent commission arrangements. Through their coordinated efforts,

the Broker Defendants were able to successfully prevent insurance purchasers from

becoming aware of the true nature of the relationships between the Broker Defendants

and the Insurer Defendants and from obtaining actual and complete disclosure of the

manner in which the Broker Defendants were compensated by the Insurer Defendants.

Each Broker Defendant was aware of the general nature of the conspiracy and its role in

facilitating the objectives of the conspiracy. Further, each Broker Defendant has agreed

to the overall objective of the conspiracy. Each Broker Defendant has committed overt

acts in furtherance of the alleged conspiratorial objectives. As a result of the Broker

Defendants’ conspiracy, Plaintiffs and other Members of the Class have paid more than

they otherwise would have paid for insurance they procured through the Broker

Defendants.

Additionally, the following broker-centered conspiracies have existed since the

mid to late 1990’s:




79

(1) A conspiracy involving the Marsh Enterprise Defendants in furtherance ofthe fraudulent scheme and to conceal the scheme.

(2) A conspiracy involving the Aon Enterprise Defendants in furtherance ofthe fraudulent scheme and to conceal the scheme.

(3) A conspiracy involving the Willis Enterprise Defendants in furtherance ofthe fraudulent scheme and to conceal the scheme.

(4) A conspiracy involving the Gallagher Enterprise Defendants infurtherance of the fraudulent scheme and to conceal the scheme.

(5) A conspiracy involving the HRH Enterprise Defendants in furtherance ofthe fraudulent scheme and to conceal the scheme.

(6) A conspiracy involving the Wells Fargo Enterprise Defendants infurtherance of the fraudulent scheme and to conceal the scheme.

The purpose and effect of each broker-centered conspiracy was to engage in a scheme

whereby each Broker Defendant would steer business to its strategic partner Insurer

Defendants and protect them from competition in exchange for increased compensation

paid to the Broker Defendants in the form of contingent commissions, and to conceal the

existence of the scheme from each Broker Defendant’s clients. Each Defendant within

each broker-centered conspiracy was aware of the general nature of the conspiracy and its

role in facilitating the objectives of the conspiracy. Further, each Defendant within each

broker-centered conspiracy has agreed to the overall objective of the conspiracy. Each

Defendant within each broker-centered conspiracy had committed overt acts in

furtherance of the alleged conspiratorial objective. As a result of the broker-centered

conspiracies, Plaintiffs and other Members of the Class have paid more they otherwise

would have for insurance that they procured through the Broker Defendants.

Alternatively, Plaintiffs allege that the Defendants have conspired to violate 18

U.S.C. § 1962(c). The conspiracy has been conducted, implemented and facilitated

through CIAB. The purpose and effect of the conspiracy was to prevent Plaintiffs and




80

Members of the Class from becoming aware of the terms and the significance of the

contingent commission agreements between the Defendants and the conflicts of interest

arising out of the Broker Defendants’ strategic partnerships with the Insurer Defendants,

thereby allowing the Broker Defendants to increase the compensation they received from

the Insurer Defendants and the Insurer Defendants to increase the business they received

from the Broker Defendants without competition. Each Defendant was aware of the

general nature of the conspiracy and its role in facilitating the objectives of the

conspiracy. Further, each Defendant has agreed to the overall objective of the

conspiracy. Each Defendant has committed overt acts in furtherance of the alleged

conspiratorial objectives. As a result of the Defendants’ conspiracy, Plaintiffs and other

Members of the Class have paid more than they otherwise would have paid for insurance

they procured through the Broker Defendants.

15. Describe the alleged injury to business or property.

Plaintiffs and Class Members have been injured in their business or property by

paying excessive premiums for insurance.

16. Describe the direct causal relationship between the alleged injury and the

violation of the RICO statute.

The fraudulent scheme and conspiracy involving each Broker Defendant and the

Insurer Defendants associated in the broker-centered enterprise with the Broker

Defendant and the conspiracy between Marsh, Aon, Willis, Gallagher, HRH and Wells

Fargo/Acordia to prevent detection of each broker’s fraudulent scheme proximately

caused the cost of insurance obtained by Plaintiffs and Class Members to increase

because the kickbacks paid to the Broker Defendant were included in the price of

insurance paid by Plaintiffs and Class Members. In addition, Plaintiffs and Class




81

Members reasonably relied on the Broker Defendant’s representations and omissions in

paying higher premiums that included the kickbacks to the Broker Defendant.

17. List the damages sustained by reason of the violation of § 1962, indicating the

amount for which each defendant is allegedly liable.

Each and every Defendant is jointly and severally liable for treble the damages

sustained by each Plaintiff and Class Member by paying higher premiums as a result of

Defendants’ fraud and conspiracy.

18. List all other Federal causes of action, if any, and provide the relevant statute

numbers.

The following additional Federal claim has been alleged in the actions currently

pending before the Court: Sherman Act, 15 U.S.C. § 1.

19. List all pendent state claims, if any.

Plaintiffs allege several state claims for which independent jurisdiction existence

pursuant to the Class Action Fairness Act (“CAFA”), 28 U.S.C. 1332(d)(2), et seq

These claims include claims for unjust enrichment and breach of fiduciary duty

as well as for violations of the statutes listed below:

State Antitrust Laws

Alaska Sta. §§45.50.462 et seq.

Arizona Revised Stat. §§44-1401 et seq.

Arkansas Stat. Ann. §44-75-309 et seq., §§4-75-201 et seq.

Cal. Bus. Prof. Code §§16700 et seq., §§17000 et seq.

Colorado Rev. Stat. §§6-4-101 et seq.

Connecticut Gen. Stat. §§35-26 et seq.

D.C. Code Ann. §§28-4503 et seq.




82

Delaware Code Ann. Tit. 6, §§2103 et seq.

Florida Stat. §§501-201 et seq.

Georgia Code Ann. §§16-10-22 et seq, §§ 13-8-2 et seq.

Hawaii Rev. Stat. §§480-1 et seq.

Idaho Code §§48-101 et seq.

740 Illinois Comp. Stat. §§10/1 et seq.

Indiana Code Ann. §§24-1-2-1 et seq.

Iowa Code §§553.1 et seq.

Kansas Stat. Ann. §§50-101 et seq.

Kentucky Rev. Stat. §§367.175 et seq., §446.070

Louisiana Rev. Stat. §§55:137 et seq.

Maine Rev. Stat. Ann. 10, §§1101 et seq.

Maryland Code Ann. Title 11, §§11-201 et seq.

Massachusetts Ann. Laws ch. 92 §§1 et seq.

Michigan Comp. Laws. Ann. §§445.773 et seq.

Minnesota Stat. §§325D.52 et seq.

Mississippi Code Ann. §§75-21-1 et seq.

Missouri Stat. Ann. §§416.011 et seq.

Montana Code Ann. §§30-14-101 et seq.

Nebraska Rev. Stat. §§59-801 et seq.

Nev. Rev. Stat. Ann. §§598A et seq.

New Hampshire Rev. Stat. Ann. §§356:1 et seq.

New Jersey Stat. Ann. §§56:9-1 et seq.




83

New Mexico Stat. Ann. §§57-1-1 et seq.

N.Y. Gen. Bus. Law §§340 et seq.

North Carolina Gen. Stat. §§75-1 et seq.

North Dakota Cent. Code §§51-08.1-01 et seq.

Ohio Rev. Code §§1331.01 et seq.

Oklahoma Stat. tit. 79 §§203(A) et seq.

Oregon Rev. Stat. §§646.705 et seq.

Rhode Island Gen. Laws §§6-36-1 et seq.

South Carolina Code §§39-1-10 et seq.

South Dakota Codified Laws Ann. §§37-1 et seq.

Tennessee Code Ann. §§47-25-101 et seq.

Texas Bus. & Com. Code §§15.01 et seq.

Utah Code Ann. §§76-10-911 et seq.

Vermont Stat. Ann. 9 §§2453 et seq.

Virginia Code §§59-1-9.2 et seq.

Washington Rev. Code §§19.86.010 et seq.

West Virginia §§47-18-1 et seq.

Wisconsin Stat. §§133.01 et seq.

Wyoming Stat. §§40-4-101 et seq.

20. Provide any additional information that you feel would be helpful to the

Court in processing your RICO claim.

Dated: May 22, 2007 Respectfully submitted,


/s/ Edith M. Kallas




84

Edith M. KallasJoseph P. GuglielmoElizabeth RosenbergLili R. Sabo1540 Broadway, 37

th Floor

New York, NY 10036Tel.: 212-447-7070Fax: 212-447-7077




85


/s/ Bryan L. Clobes Bryan L. ClobesEllen Meriwether

Melody ForresterTimothy Fraser One Logan Square18th and Cherry Streets, Suite 1700Philadelphia, PA 19103Tel.: 215-864-2800Fax: 215-864-2810



FLOWERSRobert M. Foote416 South Second StreetGeneva, IL 60134Tel.: 630-232-6333


BERMAN

Howard J. Sedran510 Walnut Street - Suite 500Philadelphia, PA 19106Tel.: 215-592-1500Fax: 215-592-4663



& RIVAS, LLC

Allyn Z. LiteBruce D. GreenbergMichael E. PatunasTwo Gateway Center, 12th Floor Newark, NJ 07102Tel.: 973-623-3000Fax: 973-623-0858

Liaison Counsel for Commercial Insurance

Litigation




86


& BALINT, P.C.

Andrew S. FriedmanElaine A. RyanPatricia N. Hurd

2901 N. Central Avenue, Suite 1000Phoenix, AZ 85012Tel.: 602-274-1100Fax: 602-274-1199

Liaison Counsel for Employee-Benefit

Litigation


William M. Audet221 Main Street

Suite 1460San Francisco, CA 94105Tel.: 415-568-2555Fax: 415-568-2556


Lawrence W. SchadJames SheddenMichael S. HilickiTony H. Kim332 South Michigan Avenue, Suite 1000Chicago, IL 60604Tel.: 312-939-6280Fax: 312-939-4661


Anthony J. BologneseOne Penn Center1617 John F. Kennedy BoulevardSuite 650Philadelphia, PA 19103Tel.: 215-814-6750Fax.: 215-814-6764




87

BONSIGNORE & BREWER

Robert J. BonsignoreRobin BrewerDaniel D’Angelo23 Forest Street

Medford, MA 02155Tel.: 781- 391-9400Fax: 781- 391-9496


Michael J. FlanneryJames Rosemergy8235 Forsyth Blvd.Suite 1100St. Louis, MO 63105Tel.: 314-725-7700

Fax: 314-721-0905




Nicholas E. ChimiclesMichael D. Gottsch361 West Lancaster AvenueHaverford, PA 19041Tel.: 610-642-8500Fax: 610-649-3633


HERRMANN & KNOPF

Peter S. PearlmanPark 80 Plaza West OneSaddle Brook, NJ 07663Tel.: 201-845-9600Fax: 201-845-9423




88


Josef D. Cooper655 Montgomery Street, 17th FloorSan Francisco, CA 94111Tel.: 415-788-3030

Fax: 415-882-7040


KNOWLES & DEVINE

Kenneth S. CanfieldRalph I. Knowles, Jr.Martha J. FessendenSamuel W. Wethern1355 Peachtree Street, Suite 1600Atlanta, GA 30309Tel.: 404-881-8900

Fax: 404-881-3007



th Floor



ROTH, LLP

Nicholas B. RothHeather Necklaus HudsonP.O. Box 1607Decatur, AL 35602Tel: 256- 353-6761Fax: 256- 353-6767

FINE KAPLAN & BLACK

Roberta D. Liebenberg1835 Market Street, 28th FloorPhiladelphia, PA 19103Tel.: 215-567-6565Fax: 215-568-5872




89


& LOUGHRAN

Burton H. FinkelsteinL. Kendall SatterfieldHalley F. Ascher

1050 30th Street, N.W.Washington, D.C. 20007Tel.: 202-337-8000Fax: 202-337-8090


Michael P. LehmannThomas P. DoveJulio J. RamosJon T. King225 Bush Street, Suite 1500

San Francisco, CA 94104Tel.: 415-433-2070Fax: 415-982-2076

GRAY AND WHITE



VLAHOS

RUDY LLP

David J. Miller333 Market Street, 23rd FloorSan Francisco, CA 94105Tel.: 415-777-3200Fax: 415-541-9366


Michael E. CridenKevin B. LovePlaza 577301 SW 57th CourtSuite 515South Miami, Florida 33143Tel.: 305-357-9010Fax: 305-357-9050




90



CROWLEY, LLP

W. Timothy Needham730 Fifth Street, Post Office Drawer 1288

Eureka, CA 95502Tel.: 707-445-2071Fax: 707-445-8305

JEFFREY BRODKIN 1845 Walnut Street, 22nd FloorPhiladelphia, PA 19103Tel.: 215-567-1234Fax.: 609-569-0809

JEFFREY LOWE, P.C.

Jeff Lowe8235 Forsyth Blvd., Ste. 1100St. Louis, MO 63105Tel.: 314-721-3668Fax: 314-678-3401


KLAFTER & OLSEN LLP



Larry D. Drury205 West Randolph, Suite 1430Chicago, IL 60606Tel.: 312-346-7950Fax: 312-346-5777




91


SAPOSNIK

Gary H. Saposnik105 West Madison Street, Ste. 700Chicago, IL 60602

Tel: 312- 357- 1777Fax: 312- 606- 0413

LAW OFFICES OF RANDY R. RENICK

Randy R. Renick128 North Fair Oaks Avenue, Ste. 204Pasadena, CA 91103Tel.: 626-585-9608Fax: 626-585-9610


RUDMAN & ROBBINS, LLPJohn J. Stoia, Jr.Theodore J. PintarBonny E. SweeneyJames D. McNamaraMary Lynne CalkinsRachel L. Jensen655 West BroadwaySuite 1900San Diego, CA 92101Tel.: 619-231-1058Fax: 619-231-7423




LEVINE DESANTIS, LLC Mitchell B. Jacobs150 Essex St., Ste. 303Millburn, New Jersey 07041Tel: 973-376-9050Fax: 973-379-6898




92

LOOPER, REED & MCGRAW James L. Reed, Jr.Travis Crabtree1300 Post Oak Blvd. Ste. 2000Houston, TX 77056

Tel.: 713- 986- 7000Fax: 713- 986- 7100


Jayne Arnold Goldstein2825 University Drive, Suite 350Coral Springs, FL 33065Tel.: 954-341-0844Fax: 954-341-0855


& SKIRNICK, P.C.Steven J. GreenfogelDaniel B. AllanoffArchitects Building, 22nd Floor117 South 17

th Street


PHILIP STEINBERG







93

SHAHEEN & GORDON William ShaheenD. Michael Noonan140 Washington St., 2nd Fl.P.O. Box 977

Dover, NH 03821-0977Tel.: 603-749-5000Fax: 603-749-1838


ROSE & PODOLSKY

Alan C. MilsteinJeffrey P. ResnickFairway Corporate Center4300 Haddonfield Road, Ste. 311Pennsauken, NJ 08109

Tel: 856- 662- 0700Fax: 856- 488- 4744


P.C.

Theodore M. LievermanEugene A. SpectorJay S. Cohen1818 Market Street, Suite 2500Philadelphia, PA 19102Tel.: 215-496-0300Fax: 215-496-6611




Joe R. Whatley, Jr.Charlene FordRichard Rouco2001 Park Place NorthSuite 1000Birmingham, AL 35203Tel.: 205-328-9576Fax: 205-328-9669




94


FREEMAN & HERZ LLC

Mary Jane Edelstein FaitAdam J. Levitt656 West Randolph Street

Suite 500 WestChicago, IL 60661Tel.: 312-466-9200Fax: 312-466-9292


FREEMAN & HERZ LLC

Fred Taylor Isquith270 Madison Avenue, 10th Floor New York, NY 10016Tel.: 212-545-4600

Fax: 212-545-4653


ZWERLING, LLP

Robert S. SchachterSusan SalvettiStephen L. BrodskyJustin M. Tarshis41 Madison Avenue New York, NY 10010Tel.: 212-223-3900Fax: 212-371-5969





Case No. 14-56140




v.







Exhibit 5

An excerpted recording of the oral argument in Cafasso, U.S. ex

v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047 (9th Cir. 2011) is

available by link to an internet website located at

http://youtu.be/SGCo1ISXo9U




Case No. 14-56140




v.







Exhibit 6




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- 1 -::ODMA\PCDOCS\WORDPERFECT\10417\1 May 5, 1999 (7:44am)


SOUTHERN DISTRICT OF CALIFORNIA

Plaintiff,

CASE NO.

vs.

Defendant.

RICO CASE STATEMENT

1. State whether the alleged unlawful conduct is in violation of 18 U.S.C. 1962(a), (b), (c),

and/or (d).

2. List the defendants and state the alleged misconduct and basis of liability of each

defendant.

3. List alleged wrongdoers, other than the defendants listed above, and state the alleged

misconduct of each wrongdoer.

4. List the alleged victims and state how each victim was allegedly injured.

5. Describe in detail the pattern of racketeering activities or collection of unlawful debts

alleged for each RICO claim. The description of the pattern of racketeering shall include the


a. List the alleged predicate acts and the specific statutes that were allegedly violated

Clear Form




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b. Provide the date of each predicate act, the participants in each predicate act, and

description of the facts constituting each predicate act;

c. If the RICO claim is based on the predicate offenses of wire fraud, mail fraud, or

fraud in the sale of securities, the “circumstances constituting fraud or mistake shall be statedwith particularity.” Fed. R. Civ. P. 9(b). Identify the time, place and substance of the allege

misrepresentations, and the identity of persons to whom and by whom the alleged

misrepresentations were made;

d. State whether there has been a criminal conviction for violation of any predicate

act;

e. State whether civil litigation has resulted in a judgment with regard to any

predicate act;

f. Describe how the predicate act forms a “pattern of racketeering activity;” and

g. State whether the alleged predicate acts relate to each other as part of a common

plan. If so, describe the alleged relationship and common plan in detail.

6. Describe in detail the alleged “enterprise” for each RICO claim. A description of the

enterprise shall include the following: (a) state the name of the individuals, partnerships, corporation

associations, or other legal entities, which allegedly constitute the enterprise; (b) a description of the

structure, purpose, function and course of conduct of the enterprise; © a statement of whether any

defendants are employees, officers or directors of the alleged enterprise; (d) a statement of whether

any defendants are associated with the alleged enterprise; (e) a statement of whether plaintiff is

alleging that the defendants are individuals or entities separate from the alleged enterprise or that the

defendants are the enterprise itself, or members of the enterprise; (f) if any defendants are alleged to

be the enterprise itself, or members of the enterprise, an explanation of whether such defendants are

perpetrators, passive instruments, or victims of the alleged racketeering activity.

7. State and describe in detail whether plaintiff is alleging that the pattern of racketeering

activity and the enterprise are separate or have merged into one entity.

8. Describe the alleged relationship between the activities of the enterprise and the pattern o

racketeering activity. Discuss how the racketeering activity differs from the usual daily activities of




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the enterprise, if at all.

9. Describe what benefits, if any, the alleged enterprise receives from the alleged pattern of

racketeering.

10. Describe the effect of the activities of the enterprise on interstate or foreign commerce.11. If the complaint alleges a violation of 18 U.S.C. 1962(a), provide the following: (a) stat

who received the income derived from the pattern of racketeering activity or through the collection

unlawful debt; and (b) describe the use or investment of such income.

12. If the complaint alleges a violation of 18 U.S.C. 1962(b), describe in detail the acquisitio

of maintenance of any interest in or control of the alleged enterprise.

13. If the complaint alleges a violation of 18 U.S.C. 1962(c), provide the following: (a) stat

who is employed by or associated with the alleged enterprise, and (b) state whether the same entity i

both the liable “person” and the “enterprise” under 18 U.S.C. 1962(c).

14. If the complaint alleges a violation of 18 U.S.C. 1962(d), describe in detail the facts

showing the existence of the alleged conspiracy.

15. Describe the alleged injury to business or property.

16. Describe the direct casual relationship between the alleged injury and the violation of th

RICO statute.

17. List the damages sustained by reason of the violation of 18 U.S.C. 1962, indicating the

amount for which each defendant is allegedly liable.

18. List all other federal causes of action, if any, and provide the relevant statute numbers.

19. List all pendent state claims, if any.

20. Provide any additional information that you feel would be helpful to the court in

processing your RICO claims.

DATED:

______________________________

Attorney for Plaintiff(s)




Case No. 14-56140




v.







Exhibit 7




INSTRUCTIONS FOR FILING

CIVIL RIGHTS COMPLAINT UNDER 42 U.S.C. 1983

IN THE UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

1. This complaint must be legibly handwritten or typewritten, and signed by the plaintiff.

All questions must be answered concisely in the proper space on the form. DO NOT

write on the back of any page.

2.

Additional pages are not permitted except with the respect to the facts which you reply

upon to support you grounds for relief. No citation of authorities need be furnished. If

briefs or arguments are submitted, they should be submitted in the form of a separatememorandum.

3. Upon receipt of a fee of $400 your complaint will be filed if it is in proper order. The

$400 fee must be submitted with the complaint, not separately.

4. If you do not have the necessary funds to pay the $400 filing fee or cannot afford to pay

for transcripts, counsel, appeal, or other costs connected with this civil action, you may

request permission to proceed in forma pauperis, in which event you must execute a

separate form provided by the Court, entitled “Motion and Declaration Under Penalty of

Perjury in Support of Motion to Proceed In Forma Pauperis” setting forth information

establishing your inability to pay fees or costs.

IF YOU ARE A PRISONER, you MUST attach a certified copy of your prison trust

account statements for the 6-month period immediately preceding the filing of the

complaint per 28 U.S.C. 1915(a)(2) or your motion to proceed in forma pauperis will be

denied. Even if your motion to proceed in forma pauperis is granted, however, the Court

will assess an initial partial filing fee at the time you action is filed. After the initial

partial fee is assessed, YOU WILL STILL OWE THE BALANCE OF THE FILING FEE

WHICH THE COURT WILL ORDER GARNISHED FROM YOUR PRISON TRUSTACCOUNT.

5. When the complaint is fully completed the original and at least two copies must be

mailed to: Clerk of the U.S. District Court, 333 West Broadway, Suite 420, San

Diego, CA 92101.




§ 1983 SD Form ::ODMA\PCDOCS\WORDPERFECT\22834\1

(Rev. 5/98)

(Name)

(Address)

(City, State, Zip)

(CDC Inmate No.)

United States District Court United States District Court

Southern District of CaliforniaSouthern District of California

_________________________, )

(Enter full name of plaintiff in this action.) ) )

Plaintiff, ) Civil Case No. ___________

) (To be supplied by Court Clerk)

v. )

)

______________________________, ) Complaint Under the

______________________________, ) Civil Rights Act

______________________________, ) 42 U.S.C. § 1983 ______________________________, )

(Enter full name of each defendant in this action.) )Defendant(s). )

_______________________________________________ )

A. Jurisdiction

Jurisdiction is invoked pursuant to 28 U.S.C. § 1343(a)(3) and 42 U.S.C. § 1983. If you wish to

assert jurisdiction under different or additional authority, list them below.

_____________________________________________________________________________.

B. Parties

1. Plaintiff: This complaint alleges that the civil rights of Plaintiff, _______________________(print Plaintiff’s name)

____________________________, who presently resides at _____________________________ (mailing address or place of confinement)

______________________________________________________, were violated by the actions

of the below named individuals. The actions were directed against Plaintiff at_______________

____________________________________ on (dates) _________, _________, and _________.

(institution/place where violation occurred) (Count 1) (Count 2) (Count 3)

2. Defendants: (Attach same information on additional pages if you are naming more than 4 defendants.)




§ 1983 SD Form ::ODMA\PCDOCS\WORDPERFECT\22834\1(Rev. 5/98) 2

Defendant _____________________________ resides in _____________________________,(name) (County of residence)

and is employed as a ____________________________________. This defendant is sued in(defendant’s position/title (if any))

his/her 9 individual 9 official capacity. (Check one or both.) Explain how this defendant was acting

under color of law:




under color of law:




under color of law:




under color of law:





(Rev. 5/98) 3

C. Causes of Action (You may attach additional pages alleging other causes of action and the facts supporting

them if necessary.)

Count 1: The following civil right has been violated:__________________________________ (E.g., right to medical care, access to courts,

_____________________________________________________________________________.due process, free speech, freedom of religion, freedom of association, freedom from cruel and unusual punishment, etc.)

Supporting Facts: [Include all facts you consider important to Count 1. State what happened clearly and in your own words. You need not cite legal authority or argument. Be certain to describe exactly what each defendant, by

name, did to violate the right alleged in Count 1.]

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

_____________________________________________________________________________.





(Rev. 5/98) 4

Count 2: The following civil right has been violated: __________________________________ (E.g., right to medical care, access to courts,


Supporting Facts: [Include all facts you consider important to Count 2. State what happened clearly and in your

own words. You need not cite legal authority or argument. Be certain to describe exactly what each defendant, by

name, did to violate the right alleged in Count 2.] ______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________ ______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

_____________________________________________________________________________.

Count 3: The following civil right has been violated:__________________________________ (E.g., right to medical care, access to courts,





(Rev. 5/98) 5


Supporting Facts: [Include all facts you consider important to Count 3. State what happened clearly and in your

own words. You need not cite legal authority or argument. Be certain to describe exactly what each defendant, by

name, did to violate the right alleged in Count 3.]

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________ ______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

_____________________________________________________________________________.

D. Previous Lawsuits and Administrative Relief

1. Have you filed other lawsuits in state or federal courts dealing with the same or similar facts

involved in this case? 9 Yes 9 No.





(Rev. 5/98) 6

If your answer is "Yes", describe each suit in the space below. [If more than one, attach additional

pages providing the same information as below.]

(a) Parties to the previous lawsuit:

Plaintiffs: ____________________________________________________________________

Defendants: __________________________________________________________________ (b) Name of the court and docket number: _________________________________________

_____________________________________________________________________________.

(c) Disposition: [ For example, was the case dismissed, appealed, or still pending?] _________________

_____________________________________________________________________________.

(d) Issues raised:

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

_____________________________________________________________________________.

(e) Approximate date case was filed: ______________________________________.

(f) Approximate date of disposition: ______________________________________.

2. Have you previously sought and exhausted all forms of informal or formal relief from the

proper administrative officials regarding the acts alleged in Part C above? [E.g., CDC Inmate/Parolee

Appeal Form 602, etc.] ? 9 Yes 9 No.

If your answer is "Yes", briefly describe how relief was sought and the results. If your answer

is "No", briefly explain why administrative relief was not sought.

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

_____________________________________________________________________________.





(Rev. 5/98) 7

E. Request for Relief

Plaintiff requests that this Court grant the following relief:

1. An injunction preventing defendant(s): __________________________________

______________________________________________________________________________

______________________________________________________________________________

_____________________________________________________________________________.

2. Damages in the sum of $ ___________________.

3. Punitive damages in the sum of $ ____________________.

4. Other:____________________________________________________________

_____________________________________________________________________________.

F. Demand for Jury Trial

Plaintiff demands a trial by 9 Jury 9 Court. (Choose one.)

G. Consent to Magistrate Judge Jurisdiction

In order to insure the just, speedy and inexpensive determination of Section 1983 Prisoner casesfiled in this district, the Court has adopted a case assignment involving direct assignment of thesecases to magistrate judges to conduct all proceedings including jury or bench trial and the entry of final judgment on consent of all the parties under 28 U.S.C. § 636(c), thus waiving the right to proceed before a district judge. The parties are free to withhold consent without adverse substantiveconsequences.

The Court encourages parties to utilize this efficient and expeditious program for case resolutiondue to the trial judge quality of the magistrate judges and to maximize access to the court system ina district where the criminal case loads severely limits the availability of the district judges for trialof civil cases. Consent to a magistrate judge will likely result in an earlier trial date. If you requestthat a district judge be designated to decide dispositive motions and try your case, a magistrate judgewill nevertheless hear and decide all non-dispositive motions and will hear and issue arecommendation to the district judge as to all dispositive motions.

You may consent to have a magistrate judge conduct any and all further proceedings in this case,including trial, and the entry of final judgment by indicating your consent below.

Choose only one of the following:

‘ ‘Plaintiff consents to magistrate Plaintiff requests that a district judge judge jurisdiction as set forth be designated to decide dispositive

above. matters and trial in this case.

OR

I declare under the penalty of perjury that the foregoing is true and correct.

_________________ ____________________________________

Date Signature of Plaintiff




Case No. 14-56140


12 Appellants' Motion to Take Judicial Notice

Documents

Transcript of 12 Appellants' Motion to Take Judicial Notice