Citing a Wall Street Journal story, Martin Grace reports that California's Department of Insurance is apparently entering into an arrangement with an outside law firm to pursue claims of bid-rigging and other bad conduct against large insurance brokers, following in the wake of similar action by New York Attorney General Eliot Spitzer. The involvement of a private firm raises several questions in the mind of Professor Grace, such as:
Doesn't California have its own law enforcement division? Doesn't the insurance regulator have an enforcement division? Why do Californians pay taxes? It will be interesting to look at the agreement between the state and the law firm.
We Californians do indeed have a state law enforcement arm. Typically, the sorts of claims being pursued by Mr. Spitzer would fall to our own Attorney General, Bill Lockyer. Lockyer is an interesting figure: he was a long-time friend of the plaintiffs' bar while in the Legislature, but was also the co-author (with Willie Brown, of all people) of the last large-scale reform of California tort law, which included such worthwhile provisions as significantly tightening the proof required in support of a claim for punitive damages. He ran for Attorney General after being term-limited out of the state Senate, and is generally presumed to harbor ambitions of running for Governor. But I digress.
The Attorney General's office is generally available to represent various state agencies, including the Department of Insurance. However, it is not unheard of for the Department to retain private law firms to pursue or defend litigation in which the Department is a party, either in addition to or instead of using the resources of the Attorney General.
What is particularly interesting here is not so much that Commissioner Garamendi is going to outside counsel as it is the counsel he has chosen: unnamed in Professor Grace's note, the San Diego law firm apparently about to be hired is Lerach Coughlin Stoia Geller Rudman & Robbins LLP, the current home of controversial (admired or despised, depending who you ask) class action securities fraud specialist William R. Lerach.
That firm has been busy already in connection with these cases: Even before any official involvement on behalf of the State of California, the Lerach law firm has announced and filed a class action complaint against Marsh & McLennan Companies, Inc., Aon Corporation and Willis Group Holdings Limited, the three largest commercial brokers, alleging civil RICO claims and an array of related wrongdoing. (A copy of the Complaint in that action is available here for the benefit of the curious.)
And there is more: You may have noticed that the stock prices of the various brokerages and insurers involved in AG Spitzer's case have plunged since the case was announced. A longstanding Lerach specialty has been suing publicly traded companies and claiming securities fraud on behalf of shareholders who have lost money when the companies' stock falls in the face of bad news. The firm has already filed suits of that kind against Marsh & McClennan, and against insurers AIG and Hartford Financial. (Again, the firm helpfully provides copies of the complaints in those cases, here [Marsh & McClennan], here [AIG], and here [Hartford Financial].)
To say that this is an interesting choice of outside counsel by Commissioner Garamendi would be an understatement.
More in the mainstream of his regulatory duties, Commissioner Garamendi has also announced today the implementation of new regulations, in the works since this past March, requiring disclosure by insurance brokers of any third-party compensation they are receiving for placing insurance with a given company. More details on those regulations will follow.
Update: If the various Complaints coming out of the Lerach offices aren't enough for you, Insurance Journal helpfully provides a link to the full text of Attorney General Spitzer's Complaint.
Comments