Close Close

Life Health > Life Insurance

Compensation Suit Names 4 Insurers; Broker Settles

Your article was successfully shared with the contacts you provided.

A benefits broker has escaped the full wrath of state regulators by agreeing to help them investigate insurers.[@@]

California Insurance Commissioner John Garamendi today filed a lawsuit in a state court in San Diego that accuses the broker, Universal Life Resources, San Diego, of participating in hidden compensation arrangements, such as hidden commission override agreements.

The defendants include Universal Life; CIGNA Corp., Philadelphia; MetLife Inc., New York; Prudential Financial Inc., Newark, N.J.; and UnumProvident Corp., Chattanooga, Tenn.

The suit seeks an injunction prohibiting hidden broker compensation arrangements.

Although the suit names Universal Life as a defendant, Universal Life already has agreed to a proposed settlement that would establish a nationwide injunction prohibiting it from taking hidden payments from insurers, Garamendi says.

The Complaint

The lawsuit complaint, filed on behalf of the people of California through Garamendi, accuses Universal Life and the insurer defendants of hiding broker compensation arrangements from employee benefits customers.

The complaint accuses brokers who have flat-fee or standard commission arrangements with clients of accepting commission overrides, communication fees, free trips and other compensation from insurers without telling clients about that compensation.

Universal Life tried to charge $10 to $20 per employee for brochures and other materials that cost only a few dollars per employee to produce, the complaint alleges.

Universal Life failed to report fees it received from insurers on benefit plan tax forms, and it advised one employer to shift business to UnumProvident Corp., from CIGNA, “solely to earn a $1.5 million communication fee,” the complaint alleges.

The suit filed today, which includes charges based on allegations of violations of California insurance laws, seeks court injunctions prohibiting hidden compensation arrangements and other business practices that Garamendi believes to be unfair or deceptive.

The California department plans to file other suits in the future that will call for restitution for victims and other monetary damages, Garamendi said.

The Broker Consent Decree

The proposed Universal Life consent decree forbids Universal Life from taking any form of compensation, including overrides and communication fees, without “written consent of the client after full, complete and adequate disclosure to the client regarding all material facts,” according to a copy of the proposed decree provided by the California Department of Insurance.

When obtaining clients’ written consent for compensation arrangements, Universal Life “shall fully and conspicuously disclose in writing the existence and relevant terms of all agreements with any insurer, entity, and/or other party involved in the client’s transaction,” according to the copy of the decree.

The California department stipulates in the introduction to the consent decree that it entered into the decree in part because of Universal Life’s agreement to provide “full and complete response” to investigators’ requests for information.

Investigators expect to use information from Universal Life’s files and personnel in their work, Garamendi said at a press conference held to discuss the suit and the consent decree.

“We’re specifically looking at employee benefits,” Garamendi said.

Universal Life says it settled with the California department without making an admission of guilt.

Universal Life “is pleased that the California Department of Insurance has chosen to work with the firm to reach an agreement on how ULR does business, particularly in the state where it’s headquartered, and to resolve the issue of how compensation is disclosed,” David Gabianelli, a San Francisco lawyer who is representing Universal Life, said in a statement.

Representatives for the insurers named in the Garamendi suit said they could not comment on the suit because they had not seen the complaint. All emphasized that their companies have cooperated and will continue to cooperate with Garamendi and other investigators.

Other Investigations

In October, John Stoia Jr., a San Diego trial lawyer, filed a pair of suits similar to Garamendi’s suit in state and federal courts in San Diego.

The Stoia suits name Universal Life, CIGNA, MetLife and Prudential as defendants.

The California department has hired Stoia to help with its own broker compensation investigation, but all of Stoia’s compensation will come from the defendants, Stoia said at the press conference.

Earlier this month, New York Attorney General Eliot Spitzer filed a suit in a state court in New York that names Universal Life as a defendant but does not name any insurance companies as defendants. One source speculated that Spitzer left several insurers off the list of defendants because they had agreed to cooperate with his investigation.

California Attorney General Bill Lockyer announced in October that he is launching his own investigation of allegations of bid-rigging and other possible anti-trust violations at insurance companies and insurance brokers.

The Leak

The New York Times and other major newspapers printed stories based on Garamendi’s complaint before Garamendi filed the complaint in court, sent the complaint to the defendants or released the complaint to the public.

Some insurance company representatives interviewed said they wondered about the early release of the complaint.

“We learned about it from the media,” says CIGNA spokesman Wendell Potter.

Last Updated 5:52 p.m. EST


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.