Suit Traces Roots of Insurance Scandal

Updated from Dec. 23

Six years ago, American International Group(AIG Quote) had a problem.

Rival insurers were offering brokers sky-high commissions on a type of policy designed to shield corporate officers and directors from business liability, a trend AIG feared was costing it business in California's Silicon Valley. The solution, newly unsealed court papers show, was a system of incentive payments to the brokers that became the basis of New York Attorney General Eliot Spitzer's investigation into insurance industry kickbacks.

"We felt that the gap between what we pay as commission on average and what our competitors pay in commission for essentially the same type of policy was so great that it would cost us a fair amount of business," said Stephen Gold, the AIG executive, in a deposition taken last year in a pending California civil lawsuit. "We needed to narrow the gap somewhat." ...