8 States Want Tougher Deal With Prudential

California and seven other states have decided to demand that Prudential Insurance Co. agree to a settlement much more favorable to wronged customers than one already signed by all other states, insurance regulators said Wednesday.

The action came as the nation’s largest insurer, in an extraordinary development, said it had fired the senior executive in charge of its 18-state Southern territory for allowing the destruction earlier this year of documents relevant to state investigations of the company.

In an internal memo made available to The Times, Prudential Chairman Arthur F. Ryan said he had dismissed Senior Vice President David Fastenberg “for failing to abide by and enforce company directives to preserve documents.”

Prudential’s action was apparently triggered by an investigation of alleged document destruction by Florida regulators, which in turn was touched off by a Times story in June reporting that Fastenberg’s office in 1993 had ordered local offices in the South to destroy life insurance marketing materials that might be of interest to investigators. Fastenberg could not immediately be reached for comment.

The decision by eight states to press for a tougher settlement could mean more and easier compensation for millions of customers in California and throughout the country. Since the settlement was announced July 9 by a multi-state task force investigating Prudential, 42 states and the District of Columbia have signed up.

Mary Keller, senior associate commissioner in the Texas Insurance Department, said that if Prudential agreed to the more costly terms to be proposed by her state and the other holdouts, the company would probably have to grant the same terms to customers in all states.

The issue is reimbursement to life insurance customers who were the victims of misrepresentations and “churning”--the practice of persuading customers to cash in or borrow against existing policies to buy new ones, often on costly terms unfavorable to the customers.

Keller said representatives of the eight states are due to participate in a Boston meeting on Tuesday to craft an alternative proposal. She said these states believed the task force’s settlement didn’t give enough compensation to most of the victims and required victims to meet nearly impossible burdens of proof to qualify for the highest level of reimbursement.

“The harm [done to customers] doesn’t match the relief” offered in the task force settlement, Keller said. She also expressed concern that the task force, led by Prudential’s home state of New Jersey, may not have thoroughly investigated the company.

A spokeswoman for New Jersey Insurance Commissioner Elizabeth Randall declined to comment on Keller’s concern or on the action by the eight states.

Prudential spokesman Robert DeFillippo did not rule out that the company might agree to different settlement terms for customers in different states. But he said the company believed that the plan most states had already signed “is fair to policy owners and will address all policy owners’ concerns.”

Action by the hold-out group of states follows the articles in The Times reporting that Prudential had ordered destruction of documents. Based on a memo leaked to The Times, the paper also reported that senior executives instructed all agents in California and other Western states not to tell victimized customers how to apply for refunds. Prudential has strongly denied that the memo was meant to keep customers who deserved it from getting money back.

Candysse Miller, a spokeswoman for the California Insurance Department, confirmed that California had decided to reject the task force proposal and join the group meeting in Boston. She said the department “has concerns that the [task force] proposal doesn’t provide adequate relief to policyholders.”

Although California does not have an estimate of how many residents were actually victimized, it said notices of an eventual settlement would be sent to 750,000 Prudential life insurance customers in the state.

As reported, the task force, in a report, concluded that Prudential had engaged in a prolonged, nationwide pattern of deceit in the sale of life insurance, often holding out the false promise that customers would not have to pay any premiums on new policies. It also found that the company’s management failed to monitor improper activities and to discipline agents.

The so-called “remediation plan” proposed by the task force included a three-tiered plan for reimbursing customers, ranging from the right to buy new insurance without undergoing a medical exam to a full refund of payments made on new policies.

But Keller said that to qualify for the highest level of reimbursement, customers would have to provide extensive proof that would be difficult to obtain, such as an admission by an agent that he or she lied to a customer.

“You almost have to have an affidavit from the agent saying he lied to you,” Keller said, “and how many people can do that?”

She said one goal of the new proposal would be to place the burden of proof on Prudential that certain categories of customers were not lied to.

Until Wednesday, Prudential had said it was not aware that any documents had been destroyed. DeFillippo said Fastenberg’s dismissal was not related to the 1993 memo one of his employees sent instructing local offices to destroy marketing materials. Fastenberg countermanded that order a few weeks after it went out.

Instead, DeFillippo said that following questions from Florida authorities, the company learned that between April and June of this year, Fastenberg had allowed the destruction of numerous documents as the office in charge of Prudential’s southern territory was moving from Jacksonville, Fla., to New Jersey. He said Prudential had other copies of the destroyed documents that could be made available to regulators.