Broker in Probe Had Big Clients
Universal Life Resources Inc. operates in what was a little-known corner of the insurance business, negotiating life and disability coverage for corporate titans with big payrolls.
That corner isn’t as obscure as it used to be. The Del Mar, Calif., company is being probed by state officials as the insurance industry is coming under the scrutiny of New York Atty. Gen. Eliot Spitzer.
California authorities decline to publicly discuss the probe. But a recently filed civil lawsuit claims ULR sent clients to insurers who paid kickbacks.
“Rather than putting the interest of its customers and their employees first -- as it is required to do -- ULR puts its interest first by maximizing the kickbacks it receives,” says the racketeering and conspiracy suit filed Oct. 20 in U.S. District Court in San Diego. The suit says secret agreements with the insurers prevented ULR from “properly performing its duties to provide unbiased brokering services” and resulted in a “clear breach of duty to its clients.”
The allegations in the suit echo claims leveled recently against insurance broker Marsh & McLennan Cos. by Spitzer, who accused that company of faking bids to trick clients. Spitzer said the practice of brokers steering bids to favored insurers was widespread and that more charges were expected.
ULR executives have declined requests for interviews since The Times reported Oct. 16 that the company was under investigation by the state.
In a statement, ULR President Douglas P. Cox said the company “has done nothing wrong and has nothing to hide.”
“ULR acknowledges that the insurance industry, including the major insurance companies, brokerages and benefits consulting houses, is being broadly investigated,” the statement said. “ULR will fully cooperate with this probe and provide whatever information regulators may request in connection with their industrywide inquiry.”
For employers, medical insurance for workers is a huge expense, and life and disability coverage is a secondary consideration for most, said Roger Arlen, founder of Arlen Group, a regional brokerage in the San Francisco Bay Area.
Clients of companies like ULR are typically large employers, he added, because smaller outfits don’t spend enough on life and disability policies to make it worth their while to call in a specialist.
ULR says on its website that its customers are “among the largest corporations in America,” citing such giants as Time Warner Inc., Lucent Technologies Inc. and UAL Corp.’s United Airlines.
A United Airlines spokeswoman said ULR was still its “broker of record” for life and disability, but Time Warner and Lucent representatives said their companies no longer used the broker’s services.
The federal lawsuit against ULR was filed by law firm Lerach Coughlin Stoia Geller Rudman & Robbins on behalf of Ronald Scott Shirley, an Intel Corp. employee. The suit says the Santa Clara, Calif., chip maker, at the recommendation of ULR, had hired UnumProvident Corp. to provide insurance policies to its staff.
The suit contends that Shirley was victimized when he purchased supplemental life insurance and accidental death and dismemberment insurance at inflated prices. It seeks class- action status to represent workers throughout Intel and at other ULR clients allegedly defrauded by the scheme.
Shirley couldn’t be reached for comment. John Stoia, an attorney for the plaintiff, said he couldn’t comment beyond the suit because he had been retained by the state Insurance Department to pursue potential actions against insurance companies and brokers. Insurance Department spokesman Norman Williams also declined to comment.
Unum Provident spokeswoman Mary Clark Guenther said the company believed the suit was without merit. Other insurers mentioned in the suit -- MetLife Inc., Aetna Inc. and Prudential Financial Inc. -- said they would vigorously defend themselves in court.
According to the federal suit, ULR would steer its clients to companies that paid “contingent commissions” -- special payments for bringing in or retaining large volumes of business. Then it collected undisclosed “communication fees” from insurers when employees bought additional life or disability coverage, the suit said.
Insurers passed these costs on to employees through higher premiums, the suit alleges. Although the fees consisted only of a few dollars per worker, the suit said, the revenues were significant “considering that each of ULR’s customers [has] tens of thousands of employees.”
One customer was Brinker International Inc., the No. 2 casual-dining restaurant company, whose chains include Chili’s Grill & Bar, Romano’s Macaroni Grill and Maggiano’s Little Italy.
Brinker, which provides benefits to thousands of employees at its Dallas headquarters and at more than 1,000 restaurants, had employed ULR in February 2003 to place its group life and optional life plans with an insurer.
In soliciting Cigna Corp. to submit a proposal, ULR directed the insurer not to disclose to Brinker or its employees that it was paying the so-called communications fees to ULR, the lawsuit alleges.
“The communications fees ... should not be communicated to the client without ULR’s prior consent,” the suit quotes the company as telling Cigna in a memo. “The cost for this project can be factored into the Optional Life plan overhead or in the carrier’s general overhead.”
Cigna spokeswoman Gwyn Dilday declined to comment about specific allegations in the suit but said: “We are an ethical company and conduct our business according to the law and all applicable regulations. We do not believe there is a factual basis for any claims that we violated the law.”
Brinker spokesman Louis Adams declined to provide details of the restaurant company’s relationship with ULR, which he described as a “former vendor.” Brinker has not taken any legal action in the case, Adams said, “but we’re certainly reviewing our options.”
