Ripples from the broker fee investigation are spreading

By Jim Connolly

A number of state attorneys general are continuing their investigation of the life and health insurance industry even as a class action RICO suit was filed in U.S. District Court and the California insurance department said it might file its own civil suits in the very near future.

In Connecticut, Attorney General Richard Blumenthals list of subpoenaed insurers grew to 35 companies, including Anthem, Indianapolis. Blumenthal said in a recent interview with National Underwriter that letters of inquiry were issued in July and subpoenas were issued in mid-October to property-casualty, health, auto and employee benefits insurers. Blumenthal had declined to say what action, if any, would be taken.

The subpoena was sent to Anthem on October 25 and includes “standard questions on commission and bonus structure,” according to James Kappel, an Anthem spokesman.

California Attorney General Bill Lockyers office continues a “preliminary” internal look at brokerage practices within the insurance industry, says Tom Dresslar, a spokesman for Lockyers office. An internal team of lawyers are looking at issues including broker payments and bid-rigging, he adds.

Dresslar says the attorney generals team includes lawyers in the following areas: antitrust, securities fraud, special crimes unit, and the section representative for the California insurance commissioner.

“It is premature to say there is a formal investigation at this point. It is at a preliminary stage. We want to see what role, if any, we will play,” says Dresslar.

A decision should be made fairly soon, he adds. “We do not want to tarry too long.”

The attorney general is working with California Insurance Commissioner John Garamendi, he adds.

The insurance department is still investigating the matter, says department spokesman Norman Williams. Civil suits could be filed in the “very near future,” according to Williams.

In New York, Attorney General Eliot Spitzer, who initiated an investigation that swept in companies including American International Group, New York; Ace, Hamilton, Bermuda; and, insurance broker Marsh & McLennan, New York, issued a statement on action by the Marsh board of directors that led to the resignation of Jeffrey Greenberg, Marshs CEO, on Oct. 25.

Spitzers statement said the boards action “permits Marsh and this office to move forward toward a civil resolution of our lawsuit.

“We are persuaded that the goals that would have been advanced by a criminal prosecution of the corporationpunishment, restitution, general deterrence and industry reformwill be better accomplished by criminal prosecution of individuals, adoption by the company of dramatically new business procedures, installation of new leadership, a full examination of prior wrongdoing, and a pledge of restitution to those harmed,” Spitzers statement said.

Companies responded to a class action suit charging violations of the Racketeer Influenced and Corrupt Organizations Act. The suit, Ronald Scott Shirley vs. Universal Life Resources, ULR Insurance Services, Inc., Doug P. Cox, Metlife, Inc., Prudential Financial, Inc., CIGNA Corp., Life Insurance Company of North America, Aetna, Inc., and UnumProvident, was filed on October 20 in U.S. District Court in San Diego.

“We will vigorously defend ourselves against this action,” said Met Life spokesman John Calagna.

Wendell Potter, a CIGNA representative in Philadelphia, said, “We are an ethical company and conduct our business according to the law and all applicable regulations. We do not believe that there is a factual basis for any claims that we have violated the law.”

“The suit appears to be without merit. We will cooperate fully with the courts,” said M.C. Gunther, a UnumProvident spokewoman in Chatanooga, Tenn.

Prudential Financial, Newark, N.J., declined comment, said spokesman Bob DeFillippo.

A representative from Aetna, Hartford, Conn., did not return calls requesting a response.

Cox issued a press statement after the suit was filed “categorically denying any such allegations” and asserting that it maintains “proper relationships” with its clients. “We look forward to continuing to serve our clients ethically and honestly as we have done in the past.”

The suit states that ULR “secretly conspired” with the defendant companies to steer business under arrangements that permitted ULR to collect undisclosed fees and kickbacks. The agreements, according to the complaint, were based on factors such as volume of insurance, renewal business and profitability of that business. “Such agreements are akin to a profit-sharing arrangement between ULR and the insurance defendants,” the complaint says.

It states that the broker, ULR, has a fiduciary duty to find the best coverage for its customers and fully disclose all sources of income. The insurance defendants concealed these agreements from ULR customers and their policyholders, the complaint says.

The plaintiff, Ronald Scott Shirley, is a resident of Chandler, Ariz., who is employed by Intel, Inc. in Arizona. Intel offered an employee benefit plan through UnumProvident, a carrier that was placed with ULR, according to the complaint. The plaintiff purchased a dependent group life contract as well as a supplemental and a dependent accidental death and dismemberment contract.


Reproduced from National Underwriter Edition, October 28, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.