Wells Fargo says it plans to appeal a Connecticut court ruling against its insurance brokerage, Acordia, regarding improper disclosure of contingent commissions.

Richard Blumenthal

Recently, Connecticut Attorney General Richard Blumenthal lauded the Superior Court ruling as a “first-in-the-nation court victory” declaring that insurance broker Acorida broke the law when if failed to tell consumers about “hidden kickbacks” it paid in exchange for favoring a group of preferred insurers.

In 2007, Acordia Inc., then the nation’s fifth-largest brokerage, changed its name to Wells Fargo Insurance Services.

Blumenthal said the court agreed with his contention that Acordia had a fiduciary duty to be open and honest with its clients, “and that it violated that trust,” he said in a statement.

The state court ruled that Wells Fargo, through Acordia, should have disclosed when it accepted contingent commissions from insurers because such payments constituted a conflict of interest. Blumenthal said Connecticut’s case is the first in the United States to go to trial on the issue of whether an insurance broker owes a fiduciary duty to its clients to disclose contingent commissions.

“This case is a significant victory for insurance consumers – and honest, competitive businesses that were illegally shut out of the market by Wells Fargo’s exclusive pay-to-play club,” Blumenthal said. “This victory is the first of its kind in the country – a resounding message to insurance brokers about their legal duty to be open and honest with clients.”

‘Partnership’ problems

According to Blumenthal’s office, in 1999, Acordia initiated the “Millennium Agency System Partnership” to obtain financial support to offset the costs with launching its new agency management system “AMS Segetta.” That system would directly link its offices online with a few “partner” insurers, providing an “inside track” for future business with Acordia. Under the partnership, certain insurers were offered various ways to aid Acordia in meeting its financial objectives, including grants and other incentives over and above standard contingent sales bonuses, officials said.

Insurers Atlantic Mutual, Chubb, The Hartford, Travelers and Royal SunAlliance all agreed to participate in the plan, Blumenthal said.

A Connecticut Superior Court judge ruled the partnership constituted a conflict of interest between Acordia and its clients because the insurance broker received more money when Millennium insurer products were sold to its clients.

The court agreed with the attorney general’s position, according to Blumenthal, that Wells Fargo broke the law when it concealed these partnerships from clients.

Katie Ellis, a spokeswoman for Wells Fargo, told IFAwebnews.com that Blumenthal “mischaracterized” the court ruling and the company believes the decision is based on an incorrect interpretation of Connecticut’s Unfair Insurance Practices Act.

“As a result, Wells Fargo will appeal the court’s decision and is confident that it will be reversed,” Ellis said.

She added that the court order specifically states that Wells Fargo’s brokers, through Acordia, “acted in the best interests of their customers, that no customer suffered any financial detriment, and that all customer premiums were the same regardless of the contingent commissions.”

Ellis said that in 2005, the Connecticut General Assembly rejected the attorney general’s office requirement to disclose contingent commissions and since that time. “Wells Fargo has voluntarily been disclosing all compensation it receives, including contingent commissions,” she said.