Court Orders Insurance Consultant to Pay $2.4 Million

     Court orders former employee benefits consultants to pay school district over $2.4 million for concealing commissions they received from Blue Cross.
May 10, 2011 7:06 PM

SANTA ANA – A Superior Court judge has ordered former Santa Ana Unified consultants to repay the school district about $2.5 million from commissions they concealed while negotiating employee benefit contracts.

Judge Dallas Holmes ruled that consultant Kirk Montgomery, through his firm KM Employee Benefits Services, and his associate Bridget Sirkegian hid from Santa Ana Unified millions of dollars in commissions they were paid by Blue Cross and other carriers while working for the district over a 39-month period, from 2001 to 2004.

Commissions, totaling more than $3.6 million, paid by Blue Cross and other carriers to the consultants caused Santa Ana Unified to be charged millions in higher insurance premiums, school district officials said.

The judge ordered Montgomery to repay $2 million and Sirkegian to repay $481,399.

“These were private consultants who consciously deceived the district about commissions that they were receiving,” Santa Ana Unified Trustee Audrey Yamagata-Noji said. “There was a pattern of deception that went on for years.”

Montgomery and Sirkegian could not be immediately reached for comment. Montgomery’s attorney Dale Gronemeier said Tuesday that he would review all legal options currently available and declined further comment.

District officials said the court may eventually order the consultants to pay another $1.2 million in accrued interest dating back to 2004.

The district hired KM Employee Benefits Services in 2000 as a consultant to manage health benefit plans. District staff had ranked Montgomery’s firm fifth out of six applicants during a competitive bidding process. But Montgomery persuaded three of five trustees – Nativo Lopez, John Palacio and Nadia Davis – to vote for his firm because he could save the district more money. Currently, only John Palacio remains on the school board.

Montgomery’s three-year contract paid him $60,000 annually. It acknowledged that some insurance companies build commissions into their rates. In those cases, the contract required Montgomery to reimburse the district if the insurance providers awarded commissions, district officials said.

How the Deception Worked – AR-M280_20110602_105534

In 2003, Montgomery refused to reveal during a school board meeting whether his firm had received commissions from district insurance carriers. The district later filed the lawsuit.

The judge ruled that Montgomery “doctored” billing worksheets from Blue Cross that listed commissions to conceal payments to Montgomery’s firm.

“Mr. Montgomery snookered the district…, lied to its representatives by revising tables from Blue Cross to hide those commissions,” Holmes said in his ruling.

In response to the lawsuit, state Assemblyman Jose Solorio, D-Santa Ana, authored a bill in 2008 that would require insurance carriers to document to public agencies the fees or commissions paid to any agent or broker relating to agency’s group insurance policy. The bill passed and was later signed into law.

“We believe this was the right thing to do in going after this issue,” said Trustee Rob Richardson. “It’s taken seven years to get to this point.”

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Santa Ana Unified School District Press Release:

Editor’s Note: Unfortunately, this is not an isolated case. Wall Street Journal – Insurance Consultants