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Prudential employees tell of settlement-claim abuses and discrimination

Prudential Insurance Co. has historically been battered by forces from the outside — specifically, lawsuits alleging fraudulent sales practices such as "churning." Now the company is being torn from the inside by current and former employees in Minnesota who have stepped forward with individual lawsuits alleging not only rampant race, gender, and age discrimination, but also wild violations in the company's Alternative Dispute Resolution (ADR) process, a system that resulted from the company's 1996 $2 billion class action settlement.

How churning works

A whole life policy builds up cash value after you've paid into it for a while. Some agents convinced their customers to use the built-up cash value of existing policies to buy new policies.

However, once you use the built-up cash value to purchase a new policy, you start all over in building up cash value in the new policy. This practice is called churning (and sometimes twisting). It's unethical and illegal. Agents churn because they earn a commission for each new policy they sell.

Prudential is still in the process of paying out claims from that settlement and expects to be done with all payments and appeals by Dec. 31, 1999. Eligible policyholders had two options for seeking payment from the settlement pot: ADR or basic claim relief (the lowest level of payment). ADR claimants had to demonstrate that they were cheated by Prudential by submitting documention, and could seek higher monetary awards or policy enhancements. These claims — and all their related documentation — then began moving through one of three Prudential ADR-claim processing centers: Jacksonville, Fla., Fort Washington, Penn., or Minneapolis. In these offices, employees examine each claim individually and then issue a score of 0 to 3. Zero is the lowest, meaning the claim is unsubstantiated.

But the tales some employees are telling depict not a company striving to rectify past misdeeds and honor obligations, but rather a diseased corporate culture that rewards illegal acts and lets harrassment and discrimination prevail in the workplace. So far, more than 25 lawsuits have been filed in U.S. District Court in Minnesota, and the plaintiffs' legal counsel, Neff Law Firm in Bloomington, Minn., promises about 40 similar suits in the end. (They are not seeking class action status at this time.)

All of the complainants are past and present Prudential employees who were brought in as temporary employees to handle the river of settlement claims reviews. (They were subsequently promoted to regular staff.) Prudential spokesman Robert DeFillippo notes that the company's tight settlement deadlines required it to bring in an outside workforce.

Prudential managers allegedly held contests where ADR examiners were graded on how fast they could score claims.

The complaints filed with the Minnesota court depict an atmosphere of negligent haste — of workers under such time pressure to close settlement claims that the process spun out of control. For example, plaintiff Pamela Muldoon, who has worked at Prudential since 1996 and is still an employee, alleges that "Prudential set about a fraudulent plan to further defraud policyholders and avoid paying them out what was due them. This was done in a number of ways, including teaching and coercing ADR employees to never give a 3, which was the highest rating, and having people in management such as supervisors and/or team leaders arbitrarily and unfairly change scores downward."

According to plaintiffs, managers made contests out of time pressure and held secret training sessions where they taught illegal conduct in reviewing settlement claims. Muldoon alleges that "Prudential sponsored contests where teams of ADR examiners were graded on how fast they could score and how many claims could be done in a period of time."

Proper examination of any one claim could take hours, however, especially if there are multiple policies in question. ADR reviewers are supposed to comb through the paperwork describing how each policy was funded to determine if it has been churned, and that's not an easy task.

Mark Cardenas, a current claims team leader in the ADR unit and a plaintiff, was hired to train new staff to process ADR claims. He says that working an eight-hour day on typical claims, one could properly process about two to three cases a day — "and I'm being generous," he says. Yet Cardenas claims he saw some reviewers processing more than 50 cases a week, all the while being praised and receiving bonuses. These bonuses to employees who tore through reviews included vacation time, gift certificates, and hundreds of dollars in cash. Cardenas further alleges that, in many cases, reviewers were not allowed access to the full file of customer documentation and thus could not award the highest score.

The mangled ADR claims-review process

Here's how Prudential Claims Team Leader Mark Cardenas describes what he saw in Prudential's ADR claims unit in Minneapolis:

The reviewers examine settlement claims and assign a score of 0 to 3, even though they often don't have access to the full documentation that could demonstrate the policy was churned.

Scores of 3 (the highest award) are automatically examined by a manager, who often marks them back down to 2.

The score goes to Prudential headquarters in Newark, N.J., where an offer letter is sent — but often with the wrong score, alleges Cardenas — and an initial estimate of the relief amount.

The policyholder receives the letter and is instructed to call for a final quote of relief.

A final relief amount is given over the phone. Unless the policyholder disputes the amount, the claim is processed, although Cardenas says that there are often mix-ups in processing, so, for example, people who elected to receive enhancements to their policy might instead get a refund and cancellation.

"The whole process is set up so that policyholders are confused," says Cardenas. "They've received three, four, or five values on what their claim is worth, and then it changes again. I've seen policyholders receive an offer letter saying they'll get $1,000. They call and are quoted $2,000. Then they have to pay in $2,000 [for a policy enhancement]. I've seen $50,000, $60,000 swings from offer letter to processing. A $3,000 swing is nothing."

The plaintiffs also say there were meetings with state regulators where employees were given correct instructions on claims reviewing, only to have an unethical set of guidelines imposed outside the presence of those officials. Cardenas says that employees were "told they were going to do the right thing no matter what it took in front of regulators. What happened afterwards was a different story." Cardenas' complaint includes allegations that an ADR trainer held a training session in 1997 in the presence of a regulator. But when that regulator left the room, the trainer allegedly said, "Now I can really tell you how to review a claim."

Muldoon further alleges that employees who went along with the contests and false scoring were promoted to management so that they could spread their fraudulent schemes to other employees.

Cardenas' opinion based on his experience: "They lie to employees, consumers, regulators, insurance commissioners, and the public."

According to attorney Theresa Freeman of Neff Law Firm, the plaintiffs say that when honest employees complained about the way ADR claims were being handled, they were further discriminated against and saw promotions pass them by. Cardenas notes that those who insisted on reviewing claims the proper way were sometimes put on probation or terminated for "low production." Many of the complaints go on to accuse Prudential of totally disregarding employee complaints of harrassment and discrimination. Freeman points to the court-approved structure of the settlement as partly at fault, because it allowed a guilty Prudential to review its own misdeeds. "In this screwball process, the fox gets to supervise the henhouse," she says.

It's all in sharp contrast to Prudential's recent award from Working Mother magazine as one of the Top 100 best companies for working mothers. In fact, Prudential has made that list for 10 years and this year was cited for family-friendly programs that reduce absenteeism.

Spokesman DeFillippo of Prudential says the complaints also don't explain how the company could ultimately benefit from assigning scores of only 2 or lower to the settlement claims. He says, "If you didn't get a 3, you were automatically entitled to an appeal, which would have cost the company money because we would have had to provide counsel and third-party arbitration [at Prudential's own expense]. There's simply no incentive for the company not to have given a fair and equitable review of each of the cases."

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