Garamendi Sues 4 Life Insurers In Broker Case

Mr. Garamendi said he has reached a settlement agreement with Universal Life. The company has agreed to cooperate fully with investigators, he said. Under the settlement agreement the broker is barred from taking undisclosed commission overrides or other undeclared payments from insurers.

Universal Life was hit with a suit along similar lines last week by New York Attorney General Eliot Spitzer. That suit did not name insurers as defendants. No settlement has been announced in that case.

The new California suit, filed in Superior Court in San Diego, seeks an injunction against all hidden broker compensation arrangements.

According to the complaint, Universal Life and other brokers who have flat-fee or standard commission arrangements with clients accept commission overrides, communication fees, free trips and other compensation from insurers without telling clients about that compensation.

It states that Universal Life tried to charge $10 to $20 per employee for brochures and other materials that cost only a few dollars per employee to produce.

Universal Life failed to report fees it received from insurers on benefit plan tax forms, and it advised one employer to shift business to UnumProvident Corp., from CIGNA, "solely to earn a $1.5 million communication fee," the complaint alleges.

The suit alleges the hidden compensation violated California insurance laws and seeks court injunctions prohibiting hidden compensation arrangements and other business practices that Mr. Garamendi believes to be unfair or deceptive.

The California department plans to file other suits in the future that will call for restitution for victims and other monetary damages, Mr. Garamendi said.

"We're specifically looking at employee benefits and insurance policies for disability insurance policies, life insurance policies and others," Garamendi said.

Universal Life says it settled with the California department without making an admission of guilt.

Representatives for the insurers named in the Garamendi suit said they could not comment on the suit because they had not seen the complaint. All emphasized that their companies have cooperated and will continue to cooperate with Mr. Garamendi and other investigators.

In October, John Stoia Jr., a San Diego trial lawyer, filed a pair of suits similar to Mr. Garamendi's suit in state and federal courts in San Diego.

The Stoia suits name Universal Life, CIGNA MetLife and Prudential as defendants. The California department has hired Mr. Stoia to help with its own broker compensation investigation, but all of his compensation will come from the defendants, Mr. Stoia said at the press conference announcing the suit.