Spitzer Sues Universal Life Resources over Broker Pay

November 15, 2004

A California-based company that brokers life, accident and disability policies for leading U.S. companies pocketed millions of dollars a year in hidden payments from insurers and from charges on clients’ unsuspecting workers, New York Attorney General Eliot Spitzer charged Friday.

A civil suit filed by Spitzer in state Supreme Court in Manhattan contended that the activities of Universal Life Resources of San Diego raised the cost of insurance for workers who contributed to coverage they secured through employers.

ULR has brokered coverage since 1999 for 4 million employees of companies including Intel Corp., Eastman Kodak Co., Colgate-Palmolive Company, Marriott International Inc., United Parcel Service Inc., Viacom Inc., Brinker International, Inc. and Dell Inc., according to Spitzer’s office.

“What is particularly egregious in this case is that the cost of ULR’s concealed payments were ultimately borne by individual employees, who were in no position to know about or contest these illegal practices,” Spitzer said Friday.

The attorney general said his latest case is related to a civil suit he filed Oct. 14 against the nation’s largest insurance brokerage, Marsh & McLennan Cos., alleging fraud and anticompetitive practices within the insurance industry. That action has resulted in the ouster of two top executives of Marsh & McLennan, including chairman and chief executive Jeffrey W. Greenberg; two top executives of Marsh Inc., the company’s risk and insurance services unit; and criminal pleas for three insurance executives.

Spitzer said the ULR case “manifests the same conflicts of interests and gaming of the system” that he alleges in the Marsh & McLennan suit.

“This is an industry where some hard questions have to be asked,” Spitzer told The Associated Press. “The insurance industry has not answered some very tough questions about why premiums have been going up, about why there has been a lack of competition. It may be that we are beginning to see some of the answers.”

An aide to Spitzer said the action against ULR is the first time the attorney general can point to additional costs to individual insurance consumers that have occurred because of fraudulent practices in the insurance industry.

A Manhattan-based lawyer representing ULR, Bob Cleary, said Friday he was unaware of the contents of Spitzer suit and could not comment on it.

The civil suit names ULR, its chief executive Douglas Cox and two affiliated corporations. It seeks to end the company’s secret agreements with insurers, the disgorgement of improper payments and restitution for injured parties.

Spitzer’s suit alleges that as much as two-thirds of ULR’s annual revenues of about $25 million came from secret payments from insurers last year.

The complaint alleges that ULR received “override” payments from insurers for awarding them contracts to provide group coverage. The company collected about $11.5 million of its $25 million in revenues last year through such payments, Spitzer’s lawyers estimated.

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

ULR’s customers were never informed about hidden costs built into policies insurers were writing for their employees, Spitzer’s complaint said.

Spitzer said his suit could not be more specific about how much more consumers involved with ULR-brokered policies paid for coverage because it is impossible to say precisely how much the allegedly anticompetitive practices drove up premium costs.

Spitzer’s suit mentions Metlife, Prudential and Unum Provident as among the companies writing policies brokered by ULR. Asked why the insurers weren’t directly charged in Friday’s suit, Spitzer said, “all in due course.”

“We are only in the early stages of this,” he said. “We’ve been at it only for a number of months.”

In a related action, the New York state Insurance Department announced Friday it has issued a citation against ULR, Cox and three affiliates for what state Insurance Superintendent Gregory Serio called “fraudulent, coercive and dishonest business conduct in the New York insurance market which has affected the price of insurance.”

Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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