In 2004, as then NY Attorney General Elliot Spitzer focused his efforts to root out fraud in an insurance brokerage giant, Marsh & McLennan, two Marsh executives, William Gilman and Edward McNenney, were caught in his crosshairs. When asked by Marsh to cooperate with its internal investigation of the AG’s claims of ‘fixed’ or illegal commission arrangements and bid-rigging by insurance brokers, the two declined to speak to Marsh’s outside lawyers. This refusal was probably with good reason, as the two executives had just been named as co-conspirators by executives of insurance carrier AIG, who had just pled guilty to conspiracy. Thus, they were faced with the prospect of criminal charges, and were likely concerned that the company lawyers would turn over their statements to the AG’s office.
Marsh, faced with this refusal, took the decisive step of firing the two executives, based on their refusal to cooperate with the internal investigation.
Fast forward to 2010, and after being convicted and then later absolved of criminal wrongdoing, the two men sued Marsh for lost severance and other benefits, under their employment agreements. The overall theory of the case was that Marsh’s lawyers were acting as an agent of the government when conducting their internal investigations, and that their terminations violated their constitutional right not to incriminate themselves.
A recent decision by the Second Circuit just upheld a lower court decision that we had reported on in February of last year which had found that these firings were lawful. In so doing, the Court of Appeals confirmed several key principles that should strengthen the rights of all companies when conducting internal investigations.