Settlement of Prudential Class Action Proposed
Prudential Insurance announced a tentative class-action settlement Tuesday under which it has agreed to pay at least $410 million to victims of life insurance fraud. But the pact received a chilly reception from state insurance regulators whose opposition could force further changes.
The proposed settlement would apply to 10 million customers nationwide, Prudential said, although it was unclear how many would qualify for cash payments under the arrangement. About 750,000 Prudential customers in California potentially are covered by the pact, state regulators said.
Many regulators are angry that Prudential, the nation’s biggest insurance company, negotiated a private settlement with attorneys representing plaintiffs in the class-action lawsuit and appeared to be trying to force states to go along, sources said.
Prudential spokesman Robert DeFillippo strongly denied that the company is attempting to threaten or pressure the states.
The settlement would guarantee payment of at least $410 million in cash and benefits to Prudential customers who can show they were victims of deceptive sales practices. The $410-million figure would apply if up to 110,000 customers are found to have been defrauded.
Under a sliding formula, the payout could rise to more than $1 billion if the number of claims deemed legitimate reaches 330,000.
Sources said Prudential estimates that the average payment to customers who qualify would be $2,364.
The benefits distributed under the class-action settlement would be in addition to steps that Prudential agreed to take in a separate settlement negotiated in July with a task force of state insurance regulators. The state agreement has been signed by 43 states and calls for refunds of premiums and free reinstatement of some policies that expired.
In July, state regulators accused Prudential of engaging in deceptive sales practices, luring customers to cancel or borrow against existing policies to buy new ones of dubious benefit, and falsely promising customers that they wouldn’t have to pay premiums on new policies.
The proposed class-action settlement would make it slightly easier than the state accord for customers to prove that they were victimized by Prudential. But it must be approved by a federal judge in New Jersey, and sources said the deal is likely to be canceled unless most states agree to go along with it.
Prudential has been eager to reach a swift settlement of the class action. Unlike the state pact, the class-action agreement would be legally binding on the majority of its customers, establishing one limit on the amount of money Prudential must spend to settle customers’ claims. Prudential customers would still have the right to pursue individual lawsuits against the company, but only if they take steps to formally “opt out” of the class-action settlement, something few are expected to do.
Prudential briefed regulators from about 30 states on the terms of the settlement in a conference call Tuesday, according to sources who participated. The sources said many of the regulators expressed irritation with Prudential because procedures proposed by the company could delay compensation to victimized customers by as much as a year.
Some states charged that Prudential appears to be trying to violate an oral agreement with state regulators. Under that agreement, they say, Prudential was expected to automatically bestow on the states any improved terms reached in the class-action proceedings.
The sources said Prudential is now contending that it can withhold those added benefits unless the states agree to approve the class-action pact in its entirety. Some states consider certain portions of the pact to be unacceptable, sources said, including a provision that would give the class-action lawyers an equal role to that of the states in overseeing how benefits are paid to customers.
California and six other states that never signed the original state pact have been pressing Prudential to agree to more favorable terms for customers, including putting a greater burden on the company to determine who qualifies for cash payments. They have complained that the pact signed by the other states imposes too great a burden on customers, many of whom are elderly, to supply documents proving that they were defrauded.
