A benefits broker has escaped the full wrath of state regulators by agreeing to help them investigate insurers.[@@]
California Insurance Commissioner John Garamendi today filed a lawsuit in a state court in San Diego that accuses the broker, Universal Life Resources, San Diego, of participating in hidden compensation arrangements, such as hidden commission override agreements.
The defendants include Universal Life; CIGNA Corp., Philadelphia; MetLife Inc., New York; Prudential Financial Inc., Newark, N.J.; and UnumProvident Corp., Chattanooga, Tenn.
The suit seeks an injunction prohibiting hidden broker compensation arrangements.
Although the suit names Universal Life as a defendant, Universal Life already has agreed to a proposed settlement that would establish a nationwide injunction prohibiting it from taking hidden payments from insurers, Garamendi says.
The Complaint
The lawsuit complaint, filed on behalf of the people of California through Garamendi, accuses Universal Life and the insurer defendants of hiding broker compensation arrangements from employee benefits customers.
The complaint accuses brokers who have flat-fee or standard commission arrangements with clients of accepting commission overrides, communication fees, free trips and other compensation from insurers without telling clients about that compensation.
Universal Life tried to charge $10 to $20 per employee for brochures and other materials that cost only a few dollars per employee to produce, the complaint alleges.
Universal Life failed to report fees it received from insurers on benefit plan tax forms, and it advised one employer to shift business to UnumProvident Corp., from CIGNA, "solely to earn a $1.5 million communication fee," the complaint alleges.
The suit filed today, which includes charges based on allegations of violations of California insurance laws, seeks court injunctions prohibiting hidden compensation arrangements and other business practices that Garamendi believes to be unfair or deceptive.
The California department plans to file other suits in the future that will call for restitution for victims and other monetary damages, Garamendi said.
The Broker Consent Decree
The proposed Universal Life consent decree forbids Universal Life from taking any form of compensation, including overrides and communication fees, without "written consent of the client after full, complete and adequate disclosure to the client regarding all material facts," according to a copy of the proposed decree provided by the California Department of Insurance.
When obtaining clients' written consent for compensation arrangements, Universal Life "shall fully and conspicuously disclose in writing the existence and relevant terms of all agreements with any insurer, entity, and/or other party involved in the client's transaction," according to the copy of the decree.
The California department stipulates in the introduction to the consent decree that it entered into the decree in part because of Universal Life's agreement to provide "full and complete response" to investigators' requests for information.
