California Insurance Corruption Probe Advances

Universal Life Settles, Agrees to Cooperate With Prosecutors

Audio Version

November 18, 2004
California probe of insurance industry corruption advanced today when Universal Life Resources, a large California-based employee benefits brokerage firm, entered into a consent decree and agreed to cooperate with prosecutors, the lead attorney for the state Insurance Commissioner said.

Insurance Probe • • Connecticut Files Antitrust Suit Against Reinsurance Broker • The Hartford Settles Illegal Trading Charges • Zurich American Implements Reforms, Pays Consumers Millions • Liberty Mutual Sued in Bid-Rigging Investigation • Insurance Executives Indicted for Bid Rigging, Fraud • Aon Settles For $190 Million • Marsh & McLennan to Pay $850 Million • Universal Life Settles with California • Florida Subpoenas Insurers • Zurich American Insurance Executives Plead Guilty • NY Insurance Broker Charged With Fraud, Antitrust Violations • Fremont Investment Advisors Settle Market Timing Case • Florida Opens Insurance Probe • Oregon Joins Insurance Probe • California Joins Insurance Crackdown • Widespread Insurance Corruption, NY Charges

"Now that Universal Life Resources has agreed to cooperate, the state can focus more specifically on the illegal practices of the insurance firms, with full assistance from the insiders at ULR," said John Stoia. "This is a huge breakthrough."

Stoia was hired by California Insurance Commissioner John Garamendi to assist in breaking up a longstanding pattern of hidden deals and commissions paid by the companies to companies like ULR and Marsh & McLennan, who advanced the companies' products while pretending to perform objective brokerage services for employers who hired them to assemble employee benefits.

Stoia is filing suit on behalf of the state of California and Garamendi against ULR and its chairman along with MetLife, Cigna, Prudential and UnumProvident to enjoin them from violating California insurance laws and regulations.

The consent agreement and permanent injunction excludes ULR from further prosecution or fines but requires them in writing to "fully and timely cooperate" in the state's investigation.

The agreement also requires ULR to no longer "put their own financial interests ahead of their clients' financial interests," to disclose fully their income and commission arrangements and to stop paying or receiving kickbacks and other hidden fees. ULR did not admit to guilt or liability as part of the agreement.

In the lawsuit filed in state Superior Court in San Diego, where ULR is headquartered, the Insurance Commissioner charged that the brokerage and the insurance companies participated in a scheme to steer clients to buy insurance products from the insurors and others who provided undisclosed compensation to ULR.

"Defendants use a number of euphemisms for these improper steering agreements," the complaint noted, such as "special compensation service agreements," "direct vendor marketing agreements" and "preferred broker compensation plans."

This revenue came to ULR in addition to standard fees or commissions from the companies and amounted to profit-sharing between the insurance firms and the broker at the expense of the broker's clients, the suit charges.

The suit also singles out a practice known as "low-hanging fruit," in which the insurance companies push their clients with whom they have direct contracts to ULR, in exchange for ULR steering their clients to the insurers. The result was millions of dollars in undisclosed fees for ULR and hundreds of millions of dollars in premiums to the insurance companies, even as ULR positioned itself as providing "independent and unbiased advice to their clients," the lawsuit charged.

The suit seeks to permanently stop these practices.

Stoia's firm filed the first of the now numerous cases uncovering insurance industry kickback practices, suing Marsh and McLennan, the world's largest insurance brokerage, in federal district court in New York City last August. In October, New York Atty. Gen. Eliot Spitzer initiated a major investigation into the same practices.

Stoia also filed a separate class action civil RICO case in federal court in San Diego last month against Universal Life Resources, MetLife Inc., Prudential Financial Inc., Cigna Corporation and UnumProvident.

The New York suit, also a class action civil RICO case, names Aon and its related companies and The Willis Group of companies, in addition to Marsh and McLennan.

Stoia is a partner in Lerach Coughlin Stoia Geller Rudman & Robbins LLP, a San diego firm.

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