Insurer The Chubb Corp. has reached a $239,011 settlement with Attorney General Martha Coakley’s office resolving allegations that Chubb offered improper incentives and enabled Boston-based insurance brokerage firm William Gallagher Associates Insurance Brokers, Inc. ("WGA") to direct business to Chubb.

The Attorney General’s Office filed a lawsuit against WGA on December 19, 2007, in Suffolk Superior Court, alleging that WGA defrauded its customers by charging undisclosed fees and deceiving customers concerning its compensation practices.

According to the complaint, Chubb loaned WGA in excess of $3 million, but offered to forgive this loan and any accrued interest if WGA directed enough profitable business to Chubb. Chubb also invited WGA to invest in a Chubb-sponsored reinsurance company through which WGA insured a portion of numerous insurance policies belonging to WGA’s clients.

"WGA’s participation in Chubb’s reinsurance program turned WGA into a reinsurer with a financial interest in keeping its customers’ highly profitable insurance policies with Chubb. Chubb also provided WGA with a "trust fund" that WGA could utilize to lower Chubb’s quoted premiums. Chubb allegedly maintained the trust fund so that WGA could draw against it to offer Chubb’s insurance policies at lower prices in situations in which Chubb’s premium quotes were higher than the quotes issued by other insurers. The Attorney General’s Office believes that WGA utilized this trust fund to distort competitive bidding processes," Coakley’s office said in a statement.