BOSTON—Insurance brokerage Hilb Rogal & Hobbs Co. and Unum Life Insurance Co. of America have agreed to pay a total of $1.3 million to settle allegations that Unum paid and an HRH subsidiary accepted hundreds of thousands of dollars in undisclosed commissions in violation of procurement contracts with the Commonwealth of Massachusetts.

In a complaint filed Monday in Suffolk Superior Court in Boston, Massachusetts Attorney General Tom Reilly also alleges that the HRH subsidiary—Boston-based O’Neill, Finnegan & Jordan—improperly steered the Massachusetts’ group life contract in question to Unum by giving the insurer detailed information on another insurer’s bid.

Neither company admitted any wrongdoing in agreeing to the settlement, which requires each to pay $650,000.

OFJ was hired by the Commonwealth of Massachusetts’ Group Insurance Commission in 2000 as a consultant to help select an insurer to provide basic life, accidental death and dismemberment, and supplemental life insurance to state employees and retirees for a term of five years. At the time, OFJ was owned by Hobbs Group, which HRH acquired in 2002.

To protect against conflicts of interest and to avoid paying unnecessary marketing costs, GIC’s contract with OFJ prohibited the receipt of “direct or indirect” commissions from insurers, the suit states.

Despite contractual prohibitions, Unum and OFJ negotiated a “special producer agreement” whereby Unum ultimately agreed to pay OFJ $450,000 for “new business” in 2001 and then up to $575,000 annually for the next four years based on a $25 million premium from the GIC, the suit charges.

At the same time Unum and OFJ were negotiating the “special producer agreement,” OFJ was providing information that assisted Unum in preparing its bid, its “best and final” offers and its presentations to the GIC, including detailed pricing information on the principal competing bid, the suit states.

“This case highlights the inherent conflict of interest when a consultant or broker takes money from insurers for placing business with them, and never reveals the financial incentives that they stand to gain,” Mr. Reilly said in a statement.