UPDATE: Marsh & McLennan Settles Class-Action Suits For $435 Million

Insurance broker Marsh & McLennan Cos. (MMC) agreed Friday to pay $435 million to settle two of the largest remaining shareholder lawsuits triggered by a 2004 investigation into payments by insurance companies to brokers.

"We are happy to put it behind us," Brian Duperreault, Marsh & McLennan's chief executive, said of the settlements. He was speaking on the sidelines of an insurance conference Friday in New York.

Marsh & McLennan agreed to pay $400 million to settle a securities suit and $35 million to settle another suit related to charges under the Employee Retirement Income Security Act. Of the total, $230 million will be covered by insurance. The remainder will be come from cash on hand. Duperreault said the settlement will have an impact on the company's fourth-quarter results as well as a tax effect.

The 2004 scandal, uncovered by then-New York Attorney General Eliot Spitzer, started out as an examination of so-called contingent commissions that insurers pay to brokers based on the profitability or volume of business they bring in. It evolved into a criminal investigation after evidence was uncovered of active bid rigging in order to steer customers to favored insurers.

Spitzer's October 2004 civil complaint charged Marsh & McLennan with setting up fake bids to steer customers to favored insurers. The company settled the civil complaint, agreeing to pay $850 million in settlement and customer restitution charges.

Criminal charges were also filed against some insurer and broker employees. The charges led to a shake-up of the industry and dozens of shareholder and state lawsuits.

Debt analyst Kathleen Shanley of GimmeCredit upgraded Marsh & McLennan to stable from deteriorating, an acknowledgment that the broker "has finally put the contingent commission scandal behind it," she said in a Friday note.

Marsh & McLennan shares recently traded unchanged at $23.99. The stock is trading down 1.2% year to date.

Another lasting side effect of the scandal--a ban on insurer-paid commissions to the largest brokers based on profitability or the volume of business they bring in-- may also come to an end this year, as regulators consider setting new rules for disclosure of the commissions.

Marsh & McLennan and rival brokers Aon Corp. (AOC), Willis Group Holdings Ltd. (WSH) and Arthur J. Gallagher & Co. (AJG), all agreed to stop taking the commissions after the 2004 investigation.

That ban has already been lifted for Arthur J. Gallagher and may be lifted by the end of the year for the other three. Smaller brokers were never required to give up the commissions, and Willis Group Holdings has vowed to forgo the payments even once they are allowed.

Marsh & McLennan's securities class action settlement is still subject to court approval in the Southern District of New York.

-By Lavonne Kuykendall and Joan E. Solsman, Dow Jones Newswires; [phone]; [e-mail]

(Serena Ng in New York contributed to this story.)