N.Y., Calif. Split on Broker Deal

New York Atty. Gen. Eliot Spitzer’s suit against San Diego insurance broker Universal Life Resources Inc. will continue despite the decision by California Insurance Commissioner John Garamendi to settle with the firm, a Spitzer deputy said Thursday.

In separate lawsuits, Spitzer and Garamendi have alleged that Universal forced insurers to pay it millions of dollars in kickbacks for getting corporate business funneled to them.

Announcing a settlement with Universal at a San Diego news conference, Garamendi said he and Spitzer were working closely together.

“This is an East Coast-West Coast, knockout-punch plan,” Garamendi said, adding that he expected Spitzer to reach a deal with Universal soon.

Deputy New York Atty. Gen. Kermitt J. Brooks, however, said Spitzer’s case was not affected by Garamendi’s actions. Universal has neither settled with New York nor agreed to cooperate, Brooks said.

“The settlement California entered into today doesn’t represent any coordination with this office,” Brooks added.

Spitzer sued Universal last week. On Thursday, Garamendi filed his own suit against Universal that also named major insurers MetLife Inc., Prudential Financial Inc., Cigna Corp. and UnumProvident Corp.

At the same time, Garamendi said Universal had signed a settlement agreement. The state will drop its suit against Universal in return for its cooperation in the investigation and its agreement to “not put their own financial interests ahead of their clients’ financial interests in connection with providing brokerage or other insurance services,” he said.

The insurers declined to issue a detailed response to the suit, saying they had not had a chance to review it carefully.

But Paul Salvaty, partner at O’Melveny & Meyers and outside counsel for Cigna, questioned why a settlement was reached with Universal at what appeared to be an early phase of the investigation.

“We don’t know how Commissioner Garamendi can enter into a consent degree with ULR given Eliot Spitzer’s allegations against the company and before Commissioner Garamendi has completed his investigation and learned the facts,” Salvaty said.

Garamendi said he agreed to settle with Universal because he thought it was the best way to quickly stop insurance brokers from collecting hidden fees from insurers in exchange for steering business in their direction.

Garamendi credited his outside law firm, Lerach, Coughlin, Stoia, Geller, Rudman & Robbins, with providing the expertise needed to move rapidly to stop the improper practices. Lerach, before contracting with the state, filed its own lawsuits against Universal and the insurers in state and federal courts.

Garamendi conceded that the law firm, a leader in filing shareholder class-action suits against corporations, also has a profit incentive.

“It’s doing what it’s supposed to do. It found a wrong and set out to right it,” he said.

Fordham University law professor James Cohen said the relationship between Garamendi and the Lerach firm wouldn’t pose a conflict of interest because “the interests of the state are aligned with those of the private plaintiffs.”

“The notion is that the private firm may have greater expertise than the state in some areas and that the profit motive might inspire private lawyers to work harder than salaried state employees,” he said.

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Times staff writer Kathy M. Kristof contributed to this report, and Reuters was used in compiling it.