In a first-of-its-kind victory for a state attorney general, the office of Connecticut Attorney General Richard Blumenthal won its case against an insurance brokerage whom the court found to have failed to disclose to consumers the contingent commissions it received from certain insurers.

Contingent commissions are legal payments that brokers receive from insurers on top of the commission compensation approved by state insurance regulator. Contingent commissions are often paid to brokers based on the strength of the broker’s book-of-business. The more profitable the book, the higher the contingent commission. However, according to the Attorney General’s allegations, a conflict-of-interest occurs when the broker is incentivized to place insurance with a particular insurer because it pays a higher contingent commission rather than with the insurer who is in the client’s best interest.

The Attorney General’s case was built around the failure of the broker to meet its fiduciary duty to be “open and honest with its clients” as reported in a press release by Blumenthal’s office. Such contingent commissions, the Attorney General contends, are a conflict-of-interest, worthy of disclosure to consumers. Therefore, failure to make such disclosure would result in a breach of the broker’s fiduciary duty its clients.

In the instant case, at the corporate level, the brokerage entered into separate agreements with a few select insurers that would allow those insurers to get a “first shot” at the broker’s clients in exchange for an undisclosed commission. These separate agreements were not known to the broker's clients.

Prior to the outcome of the case, the brokerage was sold to a national bank. The court’s decision did not assess a fine or penalty, but rather ordered the bank to identify and eventually disgorge its profits associated with the business practices the court found to violate Connecticut law.

However, the bank has announced that it intends to appeal the decision by the Connecticut Superior Court as a misinterpretation of the Connecticut Unfair Insurance Practices Act. Depending on the outcome of the appeal, this decision could lay the ground work for future cases against brokers that fail to disclose contingent commissions to clients.

To see a copy of the Memorandum of Decision and the appeal filing, click here.