Suit Traces Roots of Insurance Scandal

"They knew it was improper and they wanted to keep the consumer from knowing about,'' says Finley Harckham, an attorney with Anderson Kill.

The court filings show just how lucrative incentive fees could be for brokers. AIG's standard incentive contract paid a 3.5% bonus on top of a standard 12.5% commission. Chubb paid an added commission of 4.5%. Allianz and Hartford were more generous, paying incentive bonuses of 8% to participating brokers.

Marsh previously said it raked in $845 million in revenue last year from contingent payments, or 11% of the firm's total revenue.

The unsealed court papers also reveal just how mercenary the insurance business is when it came to incentive payments, which have been around in some fashion or other for at least half a century. The documents show that insurers were as much a driving force behind the spread of contingent commissions as were fee-hungry brokers.

David Swanson, a Hartford executive, testified in his deposition that the Connecticut insurer first began making incentive payments "back in the late '50s.'' Swanson, who joined the firm in 1976, said incentive payment deals were not signed with all brokers and were used to maximize profits in specific types of insurance.

"The goals of the program are to retain and grow our business ... but what I would say is it is not all-inclusive of what business Hartford writes,'' Swanson said. "Again, understanding that not all agents receive a contingency agreement.''

A Hartford spokesman declined to comment.

A Chubb internal memo, describing the firm's "contingent commission point program,'' says the goal was to put more money "into the hands of the most profitable Chubb producers and those whose business grows in accordance with our targets.'' Contingent commissions should be used to "better drive desirable producer behavior.''

Gold, meanwhile, testified that AIG only signed special commission deals with a "handful'' of the 5,000 brokers that were doing business with his San Francisco office. The insurer was only interested in inking deals with brokers that specialized in selling director and officer, or "D&O," policies.

At the time, AIG was facing growing competition from insurers paying fat commissions to brokers for selling D&O policies to Silicon Valley start-ups and dot-com darlings.