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June 16, 2005 at 08:00 PM
A UnumProvident Corp. unit and an insurance brokerage unit of Hilb, Rogal & Hobbs Company have settled a civil suit filed by Massachusetts Attorney General Tom Reilly.[@@]
The settlement, approved earlier this week by a state court judge in Boston, resolves allegations that UnumProvident’s Unum Life Insurance Company of America subsidiary may have violated a state life insurance purchasing contract in 2000 and 2001 by paying hundreds of thousands of dollars in undisclosed commissions.
Unum Life and the Hilb brokerage unit, O’Neill, Finnegan and Jordan, Boston, have agreed to pay a total of $1.3 million in damages, Massachusetts officials say.
Hilb, Glen Allen, Va., acquired O’Neill, Finnegan along with O’Neill, Finnegan’s parent company, Hobbs Group L.L.C., in 2002. Hilb says the Massachusetts suit deals with allegations about events that occurred before the Hobbs Group acquisition.
Hilb is “happy to settle the matter without an admission of wrongdoing” and looks forward to continue working with the state of Massachusetts, Hilb says in a statement.
At UnumProvident, “we chose to settle, but we did dispute a number of contentions,” says M.C. Guenther, a spokeswoman for the Chattanooga, Tenn., insurer.
The Massachusetts Group Insurance Commission, the agency that buys benefits for Bay State employees and retirees, hired O’Neill, Finnegan in the first half of 2000, when a group life contract issued by a unit of CIGNA Corp., Philadelphia, was about to expire. O’Neill, Finnegan rounded up 5 bids for a program that would provide basic group life, supplemental life, and accidental death and dismemberment coverage. The broker helped the Massachusetts Group Insurance Commission make Unum and CIGNA the finalists. The group insurance commission chose Unum, and the Unum group life plan took effect July 1, 2001.
The group insurance commission has a policy of refusing to let its brokers collect commissions, both to hold down costs and to avoid actual or potential conflicts of interest, according to the state’s complaint.
The state alleges in the complaint that Unum and O’Neill, Finnegan entered into a general special producer agreement shortly before the group insurance commission picked Unum to help it buy group life coverage.
The contract tied O’Neill, Finnegan’s compensation to the purchase of Unum insurance policies by O’Neill, Finnegan clients, the state alleges. The premium schedule called for Unum to pay commissions starting at 3% of premiums and stepping down to 0.5% as volume increased if O’Neill, Finnegan brought in 5 new business lines totaling $1.5 million, the state adds. Unum also paid block-management compensation that depended on persistency. Block-management commissions ranged from 0% to 2.3%, the state says.
During the first year the group insurance commission policy was in effect, O’Neill, Finnegan received $456,000 in commissions in $25 million in premium revenue, and the state estimates the broker could have received up to $575,000 per year for 5 years.
O’Neill, Finnegan collected a total of only $658,962 in commissions because the group insurance commission received a tip about the special producer agreement in January 2003, while fielding a sales pitch from an insurance broker., the state alleges.
