Hartford Lawsuit Accuses Arch of Poaching Employees, Business

In a New York state lawsuit, Hartford Financial Services Group Inc. launched a long and detailed complaint against competitor Arch Insurance Group Inc. -- accusing Arch of raiding its employees and stealing trade secrets.

The lawsuit, filed in New York Supreme Court, also alleges individual complaints against former Hartford executives who helped Arch try to "destroy" the division they had departed -- most notably David McElroy.

The complaint details "egregious, ongoing misconduct orchestrated by a competitor and several former senior executives." Arch is said to have convinced more than 60 of Hartford's 250 financial products employees to join Arch, including "the vast majority" of the division's underwriters, according to the suit.

The "raid" for employees was "characterized by threats, bullying and repeated disparagement," the lawsuit contends. "In a particularly brazen tactic, Arch began soliciting HFP employees with e-mails sent directly to their e-mail address at The Hartford," according to the court papers.

Arch didn't respond to a request for comment.

Many of the lawsuit's accusations revolve around Arch allegedly conspiring with McElroy to steal trade secrets, employees and customers from Hartford, giving the former Hartford executive "a new division evidently created to service the business that Arch and McElroy intended to steal ... by any necessary means."

McElroy spent nine years working at Hartford, retiring as president of its Hartford Financial Products division (BestWire, June 3, 2009). Days later, Arch announced McElroy had joined its executive management team (BestWire, June 8, 2009). And days after that, Arch announced McElroy was heading the new Arch Financial & Professional Liability Group and that another senior Hartford executive, John Rafferty, had come over to work under McElroy (BestWire, June 15, 2009).

Hartford's financial products division had about $720 million in premiums in force at the end of 2008, according to the lawsuit. Its business in the specialty financial arena, though, made up only about 6.8% of overall premiums in 2008, according to the company.

David Snowden, a Hartford spokesman, said the financial products division has weathered the recent the trouble. "Our ability to place appropriate reinsurance for HFP has not been affected," he said. "We filed this lawsuit because we will not tolerate illegal or unethical behavior."

The lawsuit accuses the former executives of breach of contract and Arch of raiding/unfair competition and unjust enrichment and all the plaintiffs of misappropriating trade secrets. It calls for compensatory damage of "many millions of dollars" and also punitive damages in light of "egregious conduct."

Arch has faced similar accusations before. General Reinsurance Corp. was awarded an injunction against Arch on accusations that Arch had deliberately poached 29 employees (BestWire, Oct. 19, 2007).

In 2002, Hartford Life Insurance Co. was on the other side as a defendant against a lawsuit from Bancorp Services LLC in which it lost a $118.4 million judgment for misappropriation of a trade secret and breach of contract (BestWire, March 25, 2002).

Hartford Insurance Group members currently have Best's Financial Strength Ratings of A (Excellent). The members of Arch Insurance Group also have current ratings of A (Excellent).

(Jesse A. Hamilton, Washington Bureau Manager: Jesse.Hamilton@ambest.com)