Court OKs Prudential’s Offer in Class-Action Lawsuit

A federal judge on Monday approved an offer by Prudential Insurance Co. of America to pay at least $410 million to policyholders to settle a class-action dispute over the insurer’s sales practices.

In his decision, U.S. District Judge Alfred Wolin in Newark, N.J., directed Prudential to begin notifying class members of the approval no later than Saturday.

Under the settlement, people who purchased as many as 10.7 million permanent life insurance policies between 1982 and 1995 will be eligible for restitution.

The settlement could cost Prudential as much as $1.2 billion and have a total value to policyholders of nearly $2 billion.

Prudential will begin repaying customers who bought new life insurance unnecessarily, convinced by agents intent on boosting their own commissions in a practice called “churning.”

The settlement helps Prudential put an end to a case that dragged on since July, when the largest U.S. insurer agreed to pay $35 million in fines to regulators from 30 states and to pay at least an estimated $100 million for a restitution program.

That $100 million, the minimum cost estimate of what Prudential initially agreed to in its settlement last year with regulators, has now ballooned to as much as $2 billion or more, depending on how many policyholders actually file requests for damages. Prudential has agreed to pay at least $410 million to settle with customers.

“We look forward to implementing the settlement and resolving the concerns of all affected policy owners,” Chairman Arthur F. Ryan said.

Although company executives regard the settlement approval as an important milestone, they said they still have a way to go before the firm’s sales practice problems are resolved.

The settlement still faces challenges from a number of plaintiffs’ attorneys who say its terms are so complicated they may discourage many legitimate claimants from filing claims. A number of lawyers have also petitioned to have Judge Wolin removed from the case on the grounds he met privately with Prudential lawyers and executives in an attempt to fashion a settlement without the input of plaintiffs’ attorneys.

“We’re disappointed but not surprised,” said Michael Malakoff, a Pittsburgh attorney for policyholders who opposed the settlement. He said he expects to appeal the decision after the court renders its full opinion.

But by crossing this hurdle, Prudential will now be able to turn its attention to other strategic issues. “Business-wise, the company has been operating in more of a defensive posture,” said Larry Mayewski, an analyst with A.M. Best Co.