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Life Health > Life Insurance

Garamendi: More Suits In Pipeline

By Allison Bell

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A top West Coast regulator says he is working with a San Diego lawyer to investigate insurance broker compensation problems.[@@]

California Insurance Commissioner John Garamendi brought the lawyer, John Stoia Jr., to a press conference today to speak about investigations against Universal Life Resources, San Diego, an employee benefits broker, and 4 large insurers that had override commission arrangements with Universal Life.

Garamendi said at the press conference that he has reached a settlement agreement with Universal Life that establishes a detailed, nationwide injunction prohibiting Universal Life from taking undisclosed commission overrides or other hidden payments from insurers.

Garamendi said he continues to move ahead with the suit against the insurers. The insurers named are CIGNA Corp., Philadelphia; MetLife Inc., New York; Prudential Financial Inc., Newark, N.J.; and UnumProvident Corp., Chattanooga, Tenn.

Representatives for the companies named in the Garamendi suit said they could not comment on the allegations because they had not seen the complaint. But they said their companies have cooperated and will continue to cooperate with the investigations.

Universal Life said it settled with the California department without making an admission of guilt and welcomes the resolution of the compensation disclosure issue.

It’s not yet clear whether future suits will name additional brokers or insurers as defendants, Garamendi said.

“There are other investigations under way,” Garamendi said. “We’ll see what we find.”

Garamendi’s current suit asks only for injunctive relief from Universal Life and the other defendants, not for monetary damages. But “this is not the only action against ULR,” Garamendi said.

Future suits filed on behalf of the commissioner and the people of California will seek restitution for victims and disgorgement of ill-gotten gains, Garamendi and Stoia said.

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

The Universal Life suit and settlement should create a “big red stop sign” to discourage other brokers and insurers from hiding broker compensation arrangements from customers, Garamendi said.

Garamendi also talked about the relationship between the California department’s investigation and that of Stoia. Both the California department and Stoia started investigating broker compensation issues about a year ago, Garamendi said.

The department has hired Stoia to help it with its own investigation, but any compensation for Stoia will come from the defendants, not from the people of California, Garamendi said.

The department is working with Stoia because “John Stoia has done the job,” Garamendi said.

Garamendi did not say what actions his department took to talk to insurers about hidden override commissions and other broker compensation problems before Stoia filed his suits, but he said he has filed a regulation seeking to clarify compensation rules since Stoia went to court.

“A lawsuit against inappropriate, illegal activity is always appropriate,” Garamendi said.

The oldest compensation strategy questioned, the commission override, has existed for decades, Garamendi said.

But Garamendi said he believes the commission override system has changed in the past few years, shifting the emphasis away from rewarding brokers for specific accomplishments to inducing brokers to place business with particular insurers.

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