Insurance brokerage makes deal

Universal Life will help state regulators

By Mike Freeman
San Diego Union-Tribune Staff Writer
November 18, 2004

San Diego insurance broker Universal Life Resources has reached a settlement with state regulators, who say they will now pursue insurers that allegedly paid the company secret fees and commissions to steer business their way.

State Insurance Commissioner John Garamendi plans to file a lawsuit today in San Diego Superior Court against insurance giants MetLife, Cigna, Prudential Financial and UnumProvident, which allegedly violated state insurance law by engaging in bid rigging.

The lawsuit also will name Universal Life Resources and its principal owner, Douglas Cox, but Garamendi said he has already reached a settlement with the company and Cox. To settle the case, Universal Life agreed to "assist us in our ongoing investigation of the insurance companies," Garamendi said yesterday.

Brokers are supposed to provide clients with unbiased advice for a flat fee or standard commission. But regulators have been investigating alleged cases of bid rigging, in which brokers enter secret deals with insurers who pay much larger sums on the side to get business steered their way.

Garamendi said the settlement with Universal Life came about after Cox learned of Garamendi's planned lawsuit and approached the commissioner's office asking "what do we need to do to make this right?"

David Gabianelli, a lawyer in San Francisco representing Universal Life, said in a written statement that the company "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 in which it is headquartered, and to resolve the issue of how compensation is disclosed."

The allegations of rampant back-door deals between brokers and insurers first came to light last month when New York Attorney General Eliot Spitzer filed a lawsuit against the brokerage unit of Marsh & McLennan Cos.

Last week, Spitzer expanded his probe by filing a lawsuit in state court in New York against Universal Life and Cox.

Spitzer's lawsuit makes many of the same allegations included in Garamendi's civil action, which was prepared by San Diego securities litigation firm Lerach, Coughlin, Stoia, Geller, Rudman & Robbins.

Spitzer, however, stopped short of naming the insurance companies as defendants in his case.

Universal Life will pay no monetary damages or fines as part of the settlement of the California suit, Garamendi said.

The lawsuit does seek to create a trust for allegedly ill-gotten gains that insurance companies received from secret deals if it is proven in court that the arrangements violated state insurance laws.

Garamendi's lawsuit alleges that the undisclosed commissions and fees paid to ULR resulted in higher premiums to consumers.

California companies that were Universal Life's clients include Carlsbad-based Callaway Golf, Warner Bros., Northrop Grumman, Intel, Sun Microsystems and Safeway.

"These practices only benefit the brokerages and the insurance companies at the expense of their clients," Garamendi said. "We are going to aggressively continue these (investigations), because this kind of activity has a very profound and negative impact on consumers."

Calls late yesterday to Cigna, Prudential and MetLife were not returned.

UnumProvident spokeswoman Mary Clarke Guenther said her company hadn't seen the suit and couldn't comment. UnumProvident Chief Executive Thomas Watjen said in a written statement last month that the company supported telling clients how much brokers were being paid.

"In addition to promoting full disclosure, we will further review our compensation policies and procedures to be sure that we appropriately compensate our brokers but do not create any actual or perceived conflict between the broker and the customer," Watjen said.

  Copyright 2004 Union-Tribune Publishing Co.



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