Labor Dept. Sues Executives of Unlicensed Health Insurer

By John Hillman, associate editor, BestWeek

CHICAGO October 31 (BestWire) - The U.S. Department of Labor filed suit against the executives of an unlicensed health plan, accusing them of failing to prudently manage the plan and diverting funds for personal use.

The lawsuit against executives of TRG Marketing LLC of Indianapolis alleges the executives failed to properly manage the firm's health plan, resulting in million of dollars in unpaid health claims owed to plan participants nationwide, and that executives diverted assets from the plan to pay personal expenses for themselves and family members, the department said.

"The TRG defendants blatantly disregarded the health benefit needs of small business employers and their workers," Secretary of Labor Elaine L. Chao said in a statement. "At a time when employers are finding it hard to obtain health coverage, these defendants schemed to rob small businesses and workers, leaving workers with $17.5 million in unpaid health claims."

The lawsuit alleges that TRG's executives violated the Employee Retirement Income Security Act--ERISA--when they retained assets of the health plan with those of the marketing firm; failed to charge adequate premiums; and didn't establish appropriate underwriting procedures to ensure sufficient assets were available to pay benefits, the department said. As a result, participants were left with between $5 million and $17.5 million in unpaid claims, according to the department.

The Nevada Department of Insurance hit TRG Marketing in April 2002 with an order to stop selling unlicensed health insurance policies. The plans were sold as ERISA plans, which would be exempt from state regulation and would allow employers to offer the plans to workers at greatly discounted premiums.

The action followed similar moves by regulators in Florida, Kentucky and Hawaii to shut down TRG's activities, the Nevada department said at the time. While TRG Marketing and TRG Administration listed their principal place of business as Indiana, the companies were registered as Nevada corporations, the department said.

The Labor Department alleges the defendants diverted money targeted to pay health benefits for their personal enrichment, including paying for European family vacations, personal lines of credit, charitable contributions, brokerage commissions and corporate distributions to themselves and spouses.

The lawsuit--filed in U.S. District Court in Indianapolis--seeks to require TRG's executives to pay all health claims filed by participants and beneficiaries under the TRG health plan and to restore any losses sustained by the plan with interest, as well as any undue profits received by them, the Labor Department said. The suit also asks that the defendants undo any prohibited transactions with the plan, be removed from their positions with the plan and be barred permanently from serving as fiduciaries to any ERISA-covered plan, the department said.

The TRG plan was a multiple-employer welfare arrangement designed to protect participants and their dependents by providing reimbursement for catastrophic health expenses, the department said. The plan was funded by premium payments made by employers on behalf of their employees, by employees through payroll deduction and by individual participants who weren't associated with any employers, the department said. When terminated in November 2001, the TRG plan had about 11,000 participants nationwide, according to the department.

Last April, the Florida Department of Financial Services filed felony charges against the executives of TRG Marketing, accusing them of racketeering and selling insurance without a license, with a possible sentence as long as 60 years if they were convicted. In addition, 25 Florida agents faced disciplinary action for selling TRG's products and could lose their licenses. More than 30,000 people in Florida reported being left with unpaid claims after buying coverage from the unlicensed entities (BestWire, April 15, 2003).