Panel’s Settlement With Prudential Could Be Delayed

Plans by the New Jersey Insurance Department to finalize a multi-state settlement with Prudential Insurance Co. early next week appeared to be unraveling Wednesday as some states called for more investigation of the company and said the proposed settlement might not adequately compensate customers.

A 30-state task force, including California and led by Prudential’s home state of New Jersey, has been investigating allegations of fraud in Prudential’s sale of life insurance. New Jersey had planned to release a final investigative report and settlement agreement as early as Monday.

The move to reconsider the settlement came as additional evidence surfaced that Prudential, the nation’s biggest life insurance company, might have concealed documents from investigators.

The Times has learned that documents may have been destroyed and hidden in the Prudential office in Alton, Ill., as recently as April.

Prudential strongly denied that any documents were withheld from investigators. But Illinois officials who inquired in late April about the removal of documents just before state investigators arrived apparently were falsely told by Prudential that the documents were still in Alton.

Terms of the proposed settlement were not disclosed, although sources said it would provide for fines of up to $50 million to be paid to the states and a formula for reimbursing customers that, by some estimates, would cost the company up to $1 billion.

Officials in several states said a number of insurance commissioners on the task force were unlikely to agree to the settlement without significant changes. Sources said New Jersey might make the task force’s investigative report and proposed settlement public next week.

Some task force members reportedly expressed concern about recent reports of alleged destruction of documents by the company, and they have complained that the task force made little effort to assess whether senior managers were involved in misdeeds. They also said they wanted more time to determine whether the proposed settlement was adequate.

Deborah Senn, Washington state insurance commissioner and a member of the task force, said in an interview that she was concerned by recent news reports, including an article in The Times last week, reporting that an internal Prudential memorandum in 1994 ordered the destruction of documents by offices in 14 states in anticipation of a state investigation. (Prudential denied that the intent was to destroy evidence.)

Senn also cited a recent news report that Prudential managers in some instances were warned of wrongdoing but failed to take action.

“I do not believe that any final agreement should be instituted until the question about Prudential’s participation at the management level [in any wrongdoing] is addressed,” Senn added.

Candysse Miller, a spokeswoman for the California Insurance Department, said more time was needed to examine whether the settlement would adequately compensate customers. Brian K. Atchinson, the Maine insurance superintendent and president of the National Assn. of Insurance Commissioners, confirmed that a number of states had reservations about the settlement.

In a written statement, Kathleen Bird, spokeswoman for the New Jersey department, said in response to questions about the thoroughness of the task force’s investigation that its “report will speak for itself when it is released.” She declined to comment on when that would be or when a settlement would be announced.

Prudential spokesman Robert DeFillippo confirmed earlier this week that on April 23, just before Illinois insurance department investigators working for the task force were to arrive at the Alton office, a Prudential employee from the Chicago area arrived at dawn with a van and removed at least 10 boxes of documents. (Sources in the office contend that at least 30 boxes were removed.)

The office is alleged in lawsuits to have been a center of “churning”--the improper sale of additional life insurance policies, often with false promises and with money borrowed against existing policies. DeFillippo confirmed that some churning occurred there.

He said that on April 23, the employee, Barbara Blakeslee, removed the boxes and took them to a regional headquarters office in Oakbrook, Ill., about 225 miles away. DeFillippo contended that the purpose was to consolidate records in Oakbrook, not to deceive state investigators.

However, Michael W. Hessler, assistant deputy director for market conduct in the Illinois insurance department, said his office received a telephone tip in late April that documents had been removed from the Alton office. He said Prudential headquarters in Newark, N.J., told his investigators that the documents were simply being moved from one office in Alton to another.

“One of the things we were concerned about was if they were moving records out of Alton,” he said.

DeFillippo also confirmed that a paper shredder was used in the office in 1994 and ’95.