Insurance Fees Were Inflated, Spitzer Alleges

Times Staff Writers

New York Atty. Gen. Eliot Spitzer accused a California insurance broker Friday of illegally pushing up premiums for thousands of people who bought life and disability coverage through their employers.

In a civil suit, Spitzer alleged that Universal Life Resources Inc. of Del Mar forced insurers to add hidden fees to employee policies, and to give it the extra revenue.

The suit also accused Universal and its founder, Douglas P. Cox, of taking payoffs known as “override” fees from insurers to steer business to them. That allegation is similar to the charge that Spitzer leveled last month against brokerage Marsh & McLennan Cos.

But unlike the Marsh case, in which the alleged victims were mostly big companies, Spitzer said Universal’s actions directly harmed individuals.


“What is particularly egregious in this case is that the costs 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 in a statement.

The overpayments by each employee were small -- typically $10 apiece for life insurance and $5 each for disability insurance -- but the cumulative take for Universal was huge, Spitzer said. Of its $25.3 million in revenue last year, $5.6 million came from the extra life and disability fees, according to the suit.

“When you add up all the individuals who were affected by this, they total in the thousands, if not in the hundreds of thousands,” said David Steuber, an insurance lawyer at Howrey Simon in Los Angeles.

An attorney for Universal had no immediate comment.

The Times reported last month that Universal Life was also being scrutinized by California regulators. State Insurance Commissioner John Garamendi plans to file a civil lawsuit against Universal and others Monday, spokesman Norman Williams said.

Also Monday, California Atty. Gen. Bill Lockyer is expected to file subpoenas in his own probe of alleged bid-rigging and anti-trust violations by brokers and insurance companies, spokesman Tom Dresslar said.

Large employers, including Dell Inc. and Viacom Inc., have hired Universal to help negotiate life, disability and other insurance for employees, who typically pay a portion of the costs.

But according to Spitzer’s suit, Universal based its recommendations on the secret override payments made by insurance companies. Universal conspired with insurers to keep the payments secret from clients and regulators, and, in some cases, to block clients from hiring insurers that refused to pay overrides, the suit said.


Overrides made up more than $11.5 million of ULR’s revenue last year, according to the complaint. Combined with the $5.6 million in extra life and disability premiums, more than two-thirds of Universal’s 2003 revenue came from improper fees, the suit said.

The insurers named, but not charged, were UnumProvident Corp., MetLife Inc. and Prudential Financial Inc.

“MetLife has been fully cooperating and will continue to fully cooperate with the attorney general’s investigation,” spokesman John Calagna said.

UnumProvident “intends to cooperate in any way we can, but I can’t speak to any of the specific issues raised at this point,” spokeswoman Mary Clark Guenther said.


“We have been and will continue to cooperate with the attorney general,” said Bob DeFilippo, spokesman for Prudential.

The extra payments that life and disability insurers assessed on employees were known as “communication fees,” and ostensibly reimbursed Universal for administrative costs such as mailing benefit information to customers.

Universal often required insurers to pay the fees -- and to recoup them through higher premiums -- as a condition of winning business, the suit said.

In a separate development, Hartford Financial Services Group Inc. said it had fired two employees who it determined “were not fully cooperating” with Spitzer’s probe of Marsh.


The employees, whom Hartford declined to identify, worked in the firm’s Los Angeles office at 777 S. Figueroa St., the same downtown skyscraper where Marsh has its regional office.

According to Spitzer’s initial Oct. 14 complaint, Marsh employees had asked Hartford workers to provide inflated quotes almost daily.

Times staff writer Marc Lifsher in Sacramento contributed to this report.