PEABODY — The owners of a Peabody insurance firm and a former broker who specialized in high-risk insurance policies have been ordered to pay more than $5 million in restitution and interest to business owners who were overcharged for policies in order to hide exorbitant commissions, the attorney general’s office announced Thursday.
The final judgment, entered earlier this month by a Suffolk Superior Court judge against Kilgore Insurance Agency and its owners, as well as broker Andrew Crowther Jr., caps nearly a decade of litigation.
Attorney General Maura Healey announced the order Thursday.
It requires Kilgore Insurance Agency, the agency’s owners — Cyrus and Jeffrey Kilgore — and Crowther, whose relationship with Kilgore ended in 2010, to pay nearly $5.2 million in restitution and interest.
“Kilgore Insurance and its owners orchestrated a scheme to charge consumers millions in undisclosed, excessive, and illegal agency fees,” Healey said in a release announcing the judgment. “We are pleased that with this action, overcharged consumers will receive restitution.”
The case revolves around a lesser-known area of the insurance industry, so-called “surplus lines,” which are sold to businesses with unusual liability, including detective agencies and firms that provide private security.
The policies are usually sold through brokers, who normally take about a 10 percent commission.
Kilgore, which is on Centennial Drive, was a general insurance agency co-owned by brothers Cyrus Kilgore of Beverly and Jeffrey Kilgore of Marblehead.
In the 1990s, Crowther, of Lynnfield, began an arrangement with the Kilgores in which he used Kilgore’s offices and staff to work as a broker selling the surplus line policies, court papers say. He would then split his fees with Kilgore, keeping 60 percent and paying 40 percent to Kilgore.
But the AG alleged, and a judge later found, that Crowther was actually taking commissions averaging 47 percent — in a few cases, commissions were even higher than the policy cost, court papers say.
To accomplish this, Crowther would get quotes from carriers, which would typically include a standard 10 percent commission, then would alter the premium amounts shown on documents sent to customers to boost the amount he was being paid, prosecutors said.
The methods he used were simple: Whiting out lines on the actual policies and replacing them with different numbers, forging signatures of customers, and withholding other documents from customers altogether.
In 2008, one client, a security firm, realized what was going on and filed its own lawsuit, which was later settled. But the Attorney General’s office began its own investigation and filed a civil suit in 2009 over the allegations.
After a 22-day jury-waived trial and subsequent proceedings, Judge Carol Ball ruled mostly in favor of the Attorney General, finding that Crowther had violated the state’s consumer protection law in hundreds of transactions with 92 different customers by misrepresenting the cost of policies.
She went on to find that Kilgore was also liable for Crowther’s conduct. Ball ordered $2.1 million in restitution to be paid, plus interest.
The Attorney General appealed several aspects of the decision, contending that in ordering restitution based on 80 percent of the overbilled amounts, she was allowing the firm to profit from wrongdoing, that she should have also assessed costs, and that she should not have absolved one Kilgore employee who assisted Crowther in the scheme.
But Kilgore also appealed, arguing that their relationship with Crowther was not that of an employer and Crowther was simply using office space, equipment and staff at Kilgore in exchange for 40 percent of his fees.
Crowther also appealed, contending that the statute of limitations had run out on the claims.
Last year, in an unpublished decision, the Appeals Court upheld Ball’s decision. In November, the Supreme Judicial Court declined to hear a further appeal.
Messages seeking comment from an attorney for the Kilgores were not returned Thursday.
Courts reporter Julie Manganis can be reached at 978-338-2521, by email at email@example.com or on Twitter at @SNJulieManganis.