Life, Disability Broker Charged With Fraud, Antitrust Violations
Attorney General Spitzer today sued a leading consulting firm specializing in life, accident and disability insurance, alleging that the company steered business to insurers in exchange for lucrative payoffs and that this practice raised premiums for individual employees.
The action against Universal Life Resources, Inc. (ULR) is part of the Attorney General's ongoing investigation into fraud and anti-competitive practices in the insurance industry. The investigation has already led to a civil suit against Marsh & McLennan Companies, Inc., and the criminal pleas of three insurance company executives.
In a related development, the New York State Insurance Department today issued citations against ULR for violations of state insurance law.
"Today's case demonstrates that the corrupt practices first laid bare in the Marsh suit are present in additional sectors of the industry," Spitzer said. "Secret payoffs and conflicts of interest that infected the market for property and casualty insurance have taken root in the employee benefits market as well."
"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," he added.
The civil complaint filed today in State Supreme Court in Manhattan alleges that ULR had undisclosed agreements with some of the country' s largest life insurance companies, including MetLife, Prudential and Unum Provident, under which millions of dollars were paid to ULR in exchange for steering the business of ULR's clients. Further, the complaint alleges that ULR imposes secret fees for "communication services," such as printing of informational materials, which are far above market rate, and which employees ultimately pay through higher premiums. These secret payments accounted for more than two-thirds of ULR's revenue in 2003.
The complaint further alleges that ULR hides these agreements from its clients by falsely representing its compensation, omitting its fees from mandatory government filings, and refusing to deal with insurers who will not go along with its concealed arrangements.
The complaint gives numerous examples of ULR's improper practices. In one instance, ULR obtained an insurer's agreement to artificially list service prices at three times their normal rate, so ULR could falsely tell a client, Viacom, Inc., that its insurance costs would be no cheaper if the insurer provided in-house the same services that ULR was providing. In another case, ULR solicited a fictitious bid in order to block a disfavored insurer from reaching the final round of a bidding process for group life coverage at Marriott International, Inc.
Spitzer's suit names ULR, its Chief Executive Officer Douglas Cox and two affiliated corporations -- Universal Life Resources and Benefits Commerce. The suit seeks an end to the secret agreements, disgorgement of improper payments, restitution for injured parties and punitive damages.
The State Insurance Department today issued citations against ULR, Cox and several affiliates, alleging that they used fraudulent, coercive and/or dishonest practices and demonstrated untrustworthiness in violation of the New York State Insurance Law.
Superintendent Gregory V. Serio said: "The New York State Insurance Department has charged the defendants with fraudulent, coercive and dishonest business conduct in the New York insurance market which has affected the price of insurance. This is part of the department's ongoing effort to root out improper practices that have adversely impacted so many consumers."
Since 1999, ULR, based in San Diego, has brokered life, accident and disability insurance coverage for more than four million employees. Major clients include: Intel Corp.; Colgate-Palmolive Co.; Eastman Kodak Co.; Marriott International, Inc.; United Parcel Service; Inc.; and Dell, Inc.
The investigation underlying today's lawsuit was led by Deputy Attorney General Kermitt J. Brooks with Assistant Attorneys General Anita Fisher Barrett, John F. Carroll and Gaurav Vasisht of the Investment Protection Bureau and David A. Weinstein of the Antitrust Bureau.
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