California sues 4 big insurers in kickback investigation

By Elliot Spagat
Associated Press
November 19, 2004

SAN DIEGO Four major insurance companies paid a broker tens of millions of dollars in hidden kickbacks to win contracts with some of the largest U.S. companies, California Insurance Commissioner John Garamendi charged yesterday.

A lawsuit filed in San Diego Superior Court names MetLife, Prudential Financial, Cigna and UnumProvident. The suit also names Universal Life Resources, which brokers employee-benefit plans and insurance coverage on behalf of companies such as Safeway, Intel, Northrop Grumman and other blue-chip names.

Garamendi said he has agreed to drop the charges against San Diego-based Universal Life in exchange for "full and timely" cooperation in the investigation.

Paul Salvaty, an attorney for Cigna, said he does not believe the company violated any laws or regulations. He questioned why Garamendi agreed to cut a deal with Universal Life before completing his investigation.

Prudential spokesman Bob DeFillippo said the company has not been served with papers and has no comment. The other companies and Universal Life did not immediately return phone calls seeking a response.

The legal salvo comes less than a week after New York Attorney General Eliot Spitzer sued Universal Life, alleging it pocketed millions of dollars a year in hidden payments from insurers and from charges on clients' unsuspecting workers.

Garamendi characterized the San Diego lawsuit as an early step in an investigation of the insurance industry that involves regulators across the country.

"We are in the opening pages of a very long and very sordid story," Garamendi told reporters. "We're going right up the ladder and we'll see where it ends."

According to the lawsuit, Universal Life charged insurance companies exorbitant hidden fees sometimes more than 3 percent of annual premiums for steering business their way.  The suit also alleges Universal Life charged up to $20 per employee to print brochures that cost only a few dollars to produce.

Spitzer's suit said Universal Life got more than $11.5 million last year in hidden payments from UnumProvident, MetLife, Prudential and others for steering business their way and hiding the payments from customers.

The company got another $5.6 million last year through the collection of "communication fees" from insurers that were passed on to insurance consumers without their knowledge, the Spitzer complaint said. The fees typically totaled $10 on each supplemental life-insurance policy and $5 on supplemental disability policies.

Asked last week why the insurers weren't charged in his suit, Spitzer said, "all in due course."

Copyright 2004 The Seattle Times Company

Click here to return to our homepage