Marsh & McLennan in $850 Million Insurance Settlement

In the third quarter of last year, Marsh took a charge to set up a $232 million legal reserve to pay for the settlement. The company said its fourth-quarter earnings will include an additional $618 million charge to cover the remainder of the deal.

The investigation centered around hundreds of millions dollars in so-called contingent commissions that Marsh collected each year from big insurers such as American International Group(AIG Quote) and ACE(ACE Quote). The commissions, which Spitzer calls kickbacks, were incentive payments to reward Marsh for directing insurance contracts to the carriers.

Spitzer additionally found that Marsh employees had engineered a price-fixing scheme that resulted in insurers submitting fictitious price quotes for insurance contracts. Since the filing of the civil charges in October, a number of Marsh employees and insurance executive have pleaded to criminal charges in the bid-rigging probe.

In announcing the settlement, Marsh also released the results of an internal investigation conducted by its outside counsel, the New York law firm Davis Polk & Wardwell. The lawyers said they found "relatively limited" evidence of illegal bid-rigging in the insurance brokerage division. Most of the wrongdoing was confined to employees working in Marsh's excess property and casualty and workers compensation groups.

"While the number of such instances that we have identified at this point is relatively limited, the individuals have pleaded guilty to date have state that such discussion took place regularly," the lawyers said. "We anticipate that additional examples of this type of conduct may well be identified in these and other product lines as the government investigations continues."

Indeed, Spitzer, who is running for governor of New York in 2006, is continuing to pursue his investigation into the insurance industry. The New York Democrat has said he's interested in bringing additional criminal cases in the matter.