California Insurance Commissioner Files Lawsuit Against Employee Benefits Broker and Major Insurers

Strategic Insights -

California Insurance Commissioner John Garamendi said he has filed a lawsuit against a San Diego-based employee benefits broker, Universal Life Resources (ULR), and four major insurers - MetLife Inc., Cigna Corp., Prudential Financial Inc., and UnumProvident Corp. - over "secret" commissions and "kickback schemes" that allegedly took in millions of dollars and caused financial harm to California consumers. The lawsuit alleges that ULR and the insurers concealed hundreds of millions of dollars in undisclosed or inadequately disclosed fees, commissions, and other compensation paid to ULR in return for steering clients to purchase insurance policies and services from the insurers.

Key Takeaways:

  • The lawsuit alleges that ULR, with the help of the four major insurers, engaged in "secret" commissions and "kickback schemes" that took in millions of dollars and caused financial harm to California consumers.
  • The complaint charges the defendants with violating state law by withholding from clients information about "secret deals" struck with ULR.
  • ULR and its CEO, Douglas P. Cox, agreed to a consent decree and a permanent injunction to stop their alleged violations of California law and to refrain from their practices by making full, fair, and complete disclosures to clients.
  • The lawsuit was the result of many months of investigation and details a corrupt system of undisclosed kickbacks and payoffs between ULR and the four major insurers.
  • The complaint specifically mentions MetLife, Prudential, and UnumProvident as taking part in the arrangements with clients such as Intel Corp., Colgate-Palmolive Co., Eastman Kodak Co., Marriott International Inc., United Parcel Service Inc., and Dell Inc.
  • New York state Attorney General Eliot Spitzer filed a similar lawsuit against ULR on November 12, accusing the group life and disability broker of steering business on the basis of undisclosed fees paid by some of the nation's largest life insurers.
  • ULR previously had been named in a California suit brought by consumer group United Policyholders that also charged the national group life, accident and disability consultant with failing to adequately disclose override commissions and communications fees on the placement of group benefit plans.

Statistics:

  • The lawsuit alleges that ULR and the four major insurers concealed hundreds of millions of dollars in undisclosed or inadequately disclosed fees, commissions, and other compensation paid to ULR in return for steering clients to purchase insurance policies and services from the insurers.
  • The complaint specifically mentions that the defendants withheld from clients information about "secret deals" struck with ULR, causing financial harm to California consumers.

Sources:

  • California Insurance Commissioner John Garamendi (Nov. 18, 2004)
  • A. M. Best Company, Inc. (Nov. 18, 2004)
  • COMTEX (http://www.comtexnews.com)
  • New York state Attorney General Eliot Spitzer (Nov. 12, 2004)
  • United Policyholders (Oct. 14, 2004)