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November 01, 2004

Insurance broker scandals: Calif. to hire Lerach

According to the Wall Street Journal ($), California Insurance Commissioner John Garamendi is hiring Lerach Coughlin, the San Diego law firm of celebrated class-actioneer Bill Lerach, to sue insurance brokers and insurers in the developing scandal over contingent commissions and bid-rigging. Interestingly, per the San Diego paper, "The crackdown [on insurance-broker practices] was kicked off by a suit filed by San Diego's Lerach Coughlin Stoia Geller law firm against Marsh and several other major brokerages in August" -- that is to say, well before Eliot Spitzer's enforcement actions landed the issue on the front page.

We would very much like to know, but have not been able to discover in the coverage, whether Lerach Coughlin is going to be charging hourly fees for representing the state or instead is going to be into the claims for a contingency share. In either case a pertinent question remains, as Martin Grace puts it (Oct. 20; see also Declarations & Exclusions, Oct. 20): "Doesn't California have its own law enforcement division? Doesn't the insurance regulator have an enforcement division? Why do Californians pay taxes?".

It would also be interesting to explore whether any tension arises between Lerach's prospective representation of California as a public entity and the private suits his firm is pressing, which continue to pile up, as with the following:

On October 14, 2004, Lerach Coughlin, on behalf of United Policyholders, a policyholders’ organization, filed a civil action against Universal Life Resources, Inc., an insurance broker specializing in employee benefit plans offering life, accidental death and disability insurance, and various insurance companies, including MetLife, Prudential, Inc. and CIGNA Corporation. The action was filed under California’s "public attorney general" statute, which allows virtually anyone to file a lawsuit on the public’s behalf. Universal Life Resources allegedly breached its duty to clients by failing to disclose contingent commissions and to act in the best interests of its employer clients. It is also alleged that employees unwittingly paid higher premiums for supplemental life and long-term disability insurance because of fees collected by Universal Life Resources from insurers.
(Angela R. Thompson, "Insurance Industry Under Fire Over Bid-Rigging And Contingent Commissions", Jorden Burt LLP/Mondaq, Oct. 28).

Posted by Walter Olson at 03:29 PM | TrackBack (1)

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