Update: The Supreme Court upheld the giant class action settlement against Prudential on Jan. 19, 1999. The justices rejected two appeals from policyholders: One challenged the settlement notification sent to policyholders because it was very long and complicated; the other appeal challenged the certification of the class. The Supreme Court said the case does not warrant further review.
Flash back to March 7, 1997. Faced with the possibility of civil racketeering charges for bilking thousands of policyholders with illicit sales tactics (see "Prudential's illicit tactics," below, for details), Prudential Insurance Co. settled a class action suit, agreeing to pay a minimum of $410 million to compensate policyholders. But there was a time limit to participate in the class, and most who didn't meet the deadline have already lost their right to a share of the settlement.
Those who did meet the deadline had to either accept special deals on more insurance (which could cost them another $1,000 out of pocket), accept loans, or fill out a 16-page form (notoriously difficult to complete) and take their chances on being rated 0, 1, 2, or 3 by an accounting firm. Only those rated 2 or 3 could possibly get a check for the damage done to them by the company that sold them "a piece of the rock." To further complicate matters, some policyholder records were shipped to a warehouse that went up in flames. The court ruled that those policyholders may get a higher rating.
Prudential's illicit tactics |
| Prudential was caught bilking customers three ways: |
Churning policies: Misleading policyholders into believing they can "trade up" their policies, getting higher benefits without additional cost. The customer ends up with multiple policies and ends up losing their coverage when they can't pay for all of them — or don't know the premiums aren't being paid. |
Vanishing premiums: Promising customers that the policy will pay for itself after a few years when, in fact, it doesn't. It may take years of paying in to get to the moment of truth when the premiums fail to "vanish." The customer has to keep paying or lose the policy, even if they've retired and cannot afford the premiums. |
Investment schemes: Convincing people that an insurance policy is an investment instrument that it is not. |
Attorney Michael Malakoff, of Malakoff, Doyle, & Finberg in Pittsburgh, saw the settlement as unfair to the victims and appealed the ruling. Ninety million dollars would go to attorneys, and victims who long ago chose to fill out the one-page form for basic claim relief would end up handing a minimum of $1,000 to Prudential for "enhanced" policies.
"That's a lot of money, considering this case was filed to help people who had been harmed and couldn't afford it," Malakoff told INN. And all those cheated who hoped to recover financially had to take definitive action, not simply wait for relief to arrive. The best options were open only to those filling out the 16-page form for Alertnative Dispute Resultion, or ADR. "It took us [lawyers] 6-8 hours to fill one out — I dont think an elderly person could do that," Malakoff said. However, Malakoff's appeal failed.
Of the roughly 11 million people in the class, 492,349 filled out the one-page form and 1,103,914 filled out the 16-page ADR form. Of those, Big Six accounting firm KPMG Peat Marwick rated the claims 0-3. The zeros will get nothing. The 1's should get a product offer that will cost money up-front and could, sources told INN, potentially put a $67 million profit into Prudential's pocket. The 2's and 3's could get checks.
Continue to: But where are the checks?!
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