updated 3/19/2006 6:57:28 PM ET 2006-03-19T23:57:28

Zurich American Insurance Co. has agreed to pay $171 million in a deal with nine states to settle allegations of bid-rigging and price-fixing in the commercial insurance market, state officials said Sunday.

With the settlement, policyholders in the nine states will receive more than $150 million in refunds, the attorneys general in Texas and Massachusetts said Sunday.

The U.S. unit of Zurich Financial Services will pay at least $20 million in investigative costs to the states, Texas Attorney General Greg Abbott’s office said in a statement.

The settlement is the latest in a broad investigation by state authorities into the practice of “contingent commissions” insurers paid brokers. Regulators say the commissions were part of a scheme between the companies and brokers to inflate premiums and overcharge commercial policyholders.

The states in the Zurich settlement are: California, Florida, Hawaii, Maryland, Massachusetts, Oregon, Pennsylvania, Texas and West Virginia.

Keith Owens, a spokesman for Zurich American, on Sunday confirmed a settlement “to resolve inquiries related to insurance business practices.” He said he had no further details.

Marsh & McLennan Cos. Inc., the nation’s largest insurance broker, agreed in January 2005 to pay $850 million in restitution to settle a New York state investigation into bid-rigging, price-fixing and the use of hidden incentive fees. Marsh publicly apologized for “shameful” and “unlawful” conduct.

A spokesman for Marsh & McLennan declined comment Sunday.

Eight people have been indicted on criminal charges of bid rigging between November 1998 and September 2004. Previously, 17 executives at five companies pleaded guilty to criminal charges related to the investigation.

Abbott said Zurich participated in such a scheme with Marsh.

“Businesses shopping for commercial insurance were deceived into believing they were getting the best deals available,” Abbott said in a statement. “The whole anticompetitive scheme was an intentional smoke screen by several insurance players to artificially inflate premiums and pay improper commissions to those who brokered the deals.”

Added Massachusetts Attorney General Tom Reilly: “Insurance companies will not get away with deceiving their customers, inflating prices, or manipulating the insurance marketplace.”

The final terms of the settlement are subject to court approval.

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