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UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY
IN RE THE PRUDENTIAL INSURANCE COMPANY OF AMERICA SALES PRACTICES LITIGATION
THIS DOCUMENT RELATES TO: ALL ACTIONS LISTED ON EXHIBIT A
MASTER DOCKET NO. 95-4704 (AMW) MDL NO. 1061
1. WHEREAS, numerous actions that have been filed against defendant The Prudential Insurance Company of America, and certain employees, officers and directors of the foregoing, have been centralized by the Judicial Panel on Multidistrict Litigation in the United States District Court for the District of New Jersey as In re The Prudential Insurance Company of America Sales Practices Litigation. MDL Docket No. 1061 before the Honorable Alfred M. Wolin (the "Centralized Proceeding");
2. WHEREAS, the named plaintiffs in several of the constituent putative class actions to the Centralized Proceeding filed a Consolidated Amended Class Action Complaint on October 24, 1995, integrating the claims raised in several of the original complaints which were filed in the actions beginning in February, 1995;
3. WHEREAS, the Defendants moved to dismiss the Consolidated Amended Complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6), and the Court, by Order dated May 10, 1996 (as amended June 10, 1996), dismissed portions of the aforesaid complaint without prejudice;
4. WHEREAS, on April 25, 1995, in part in response to allegations made in the Actions, the New Jersey Commissioner of Insurance formed a Multi-State Task Force on Life Insurance Practices (the "Task Force") to examine the sales and marketing practices in the life insurance industry, in general, commencing with a market conduct examination of Prudential, the largest life insurer in the United States;
5. WHEREAS, thirty states and jurisdictions agreed to participate on the Task Force;
6. WHEREAS, in connection with its examination, the Task Force stated it reviewed and analyzed: (i) numerous documents; four (4) electronic data bases created by Prudential at the Task Force's request consisting of millions of complaint, policy transaction, agent discipline and commission recapture data records; and (ii) market conduct examinations of Prudential from other individual state Task Force members that had been conducted during the period under review; and further, they also stated they interviewed 283 Prudential agents and 27 Vice Presidents of Regional Marketing or Executive Directors;
7. WHEREAS, the Task Force issued a report on July 9, 1996, setting forth the findings of its market conduct examination (the "Report");
8. WHEREAS, as part of its Report and in accordance with one of its stated objectives, the Task Force also developed, with Prudential, a remediation plan which both the Task Force and Prudential determined would provide fair and appropriate relief to Policyholders who may have been harmed by misrepresentations made in the sale of their Policies (the "Task Force Remediation Program"), and also fined Prudential in the amount of $35 million;
9. WHEREAS, forty-three states and the District of Columbia have executed consent orders adopting the Report and directing Prudential to implement the Task Force Remediation Program (the "Consent Orders"), and have received payments of fines from Prudential in accordance with the Report;
10. WHEREAS, during the pendency of the Task Force examination, and continuing to date, counsel for the putative class action plaintiffs in the Centralized Proceeding (i) have conducted an extensive investigation of Prudential's sales practices throughout the United States, including interviews of Policyowners as well as former and present Prudential employees; (ii) were provided all documentation, electronic data, and other information produced to the Task Force in connection with its examination and used in the development of its Report; (iii) were provided additionally with over 800,000 pages of documents, 160 computer diskettes and cartridges, and 450 video and audiotapes, concerning a wide variety of matters and business functions at Prudential, pursuant to their requests which were made periodically throughout the pending litigation; and (iv) have conducted depositions and interviews of Prudential executives, senior management and other personnel;
11. WHEREAS, on September 20, 1996, plaintiffs in the constituent actions identified in Exhibit A (collectively, the "Actions") filed a Consolidated Second Amended Class Action Complaint in the Centralized Proceeding (the "Consolidated Complaint") against Prudential and the Individual Defendants reflecting both the Court's prior rulings on substantive issues and the knowledge obtained by counsel for plaintiffs through the formal and informal discovery they have conducted;
12. WHEREAS, the Consolidated Complaint was brought on behalf of a purported class of persons who purchased permanent life insurance policies from Prudential during the period January 1, 1982 through December 31, 1995;
13. WHEREAS, the Consolidated Complaint asserts claims relating to the Defendants' sales practices during the Class Period and contains allegations, among other things, concerning: (i) the use of an existing policy's cash value or dividend stream to purchase or maintain a new Policy or other policy by means of a surrender, withdrawal/partial surrender or loan; (ii) representations regarding the number of out-of-pocket cash premium payments required to be paid for a policy and/or the benefits to be realized or paid based on a particular number of cash premium payments; and (iii) representations that the product being sold was solely an investment or savings vehicle rather than a life insurance policy and/or the relative appropriateness of permanent life insurance versus other financial services products;
14. WHEREAS, the Defendants make no admissions respecting the merits of the allegations made in the Actions nor any facts or claims that have been or could have been alleged against them in the Actions, but consider it desirable for the Actions to be dismissed because this Agreement will, among other things, (i) further Prudential's objective to fully and fairly remedy any legitimate claims of policyowners, (ii) provide substantial benefits to Prudential's present and former policyowners in addition to those provided in the Task Force Remediation Program, (iii) finally put Plaintiffs' claims (including claims that were or could have been asserted against other officers and directors other than the Individual Defendants) and the underlying matters to rest, and (iv) avoid the substantial expense, burdens and uncertainties associated with continued litigation of those claims, including indemnification obligations and expenses;
15. WHEREAS, based upon Lead Counsel's extensive discovery and investigation through the date of this Agreement, and its evaluation of the facts and law relating to the matters alleged in the pleadings, Lead Counsel and the Defendants have agreed to settle the Actions pursuant to the provisions of this Settlement Agreement (hereinafter referred to as this "Settlement Agreement" or this "Agreement"), after considering such factors as (i) the substantial additional benefits to Plaintiffs and the Class provided under the terms of this Agreement, (ii) the risks of litigation, including the defenses of the Defendants to the Consolidated Complaint, (iii) the desirability of consummating settlement of these disputes promptly, and (iv) the benefits provided in the Settlement to Plaintiffs and the Class; and
16. WHEREAS, Plaintiffs and Lead Counsel have concluded that this Settlement Agreement is fair, reasonable and adequate because it provides substantial benefits to the Class and is in the best interests of the Class;
NOW, THEREFORE, IT IS HEREBY SETTLED AND AGREED, by, between and among Plaintiffs (individually and in their respective capacities as representatives of the Class) and the Prudential Insurance Company of America, by and through its duly authorized counsel, and the Individual Defendants, that the Actions and the matters raised by the Actions hereby are settled, compromised and dismissed on the merits and with prejudice on the following terms and conditions, subject only to the conditions specified herein and the approval of the Court.
1. As used in this Agreement and the annexed Exhibits (which are an integral part of this Agreement and are incorporated in their entirety by reference), the following terms shall have the following meanings (unless a part or subpart of this Agreement or its Exhibits otherwise provides):
a. "Action" or "Actions" shall mean the Consolidated Complaint and the Consolidated Policyholders Class Actions in In re The Prudential Insurance Company of America Sales Practices Litigation, Master Docket No. 95~704(AMW), MDL No. 1061, pending for pre-trial purposes in the United State District Court for the District of New Jersey, as further described in Exhibit A hereto.
b. "ADR Guidelines" shall mean the "Prudential Alternative Dispute Resolution Guidelines" attached hereto as Exhibit B.
c. "ADR Manual" or "Manual of Procedures" shall mean the "Manual of Procedures for Resolving Claims Under the Prudential Alternative Dispute Resolution Guidelines" attached hereto as Exhibit C.
d. "Agent" shall mean any agent or other representative of Prudential in respect of the sale, delivery and/or service of the Policy or Policies which is/are the subject of the Claim.
e. "Agreement" or "Settlement Agreement" shall mean this Settlement Agreement and the attached Exhibits.
f. "Alternative Dispute Resolution Process" or "ADR Process" shall mean the procedures for presentation to and evaluation of Claims by the Claim Evaluation Staff, the Policyholder Representative, the Claim Review.Staff and the Appeals Committee, as described in the ADR Guidelines and the ADR Manual taken together.
g. "Appeals Committee" or "APCOM" shall have the meaning set forth in the ADR Manual.
h. "Attorneys' Fees" shall mean such funds as may be awarded to Lead Counsel and all other plaintiffs' counsel in the Actions to compensate them for their fees and expenses in connection with the Actions.
i. "Basic Claim Relief" shall mean, as more particularly described in the "Guidelines for Prudential Basic Claim Relief," attached as Exhibit D hereto, that relief comprising the following: Optional Premium Loans, Enhanced Value Policies and Enhanced Value Annuities.
Company of America.
j. "Claim" shall mean a claim by a Claimant submitted to the ADR Process and meeting the criteria for eligibility set forth in Exhibits B and C hereto..
k. "Claim Evaluation Staff" shall mean the qualified professional and administrative staffs established by Prudential, wholly independent from Prudential's marketing or sales functions, composed solely to perform the evaluation of Claims, and to score and determine the level of relief of all Claims, all as described in the ADR Manual.
l. "Claim Form" shall mean the form submitted by each Claimant to establish his, her or its Claim pursuant to the ADR Guidelines.
m. "Board" shall mean the Board of Directors of The Prudential Insurance
n. "Claim Resolution Factor" shall have the meaning set forth in Section I.B. of the ADR Guidelines.
o. "Claim Review Staff" shall mean the qualified professional and administrative staffs established by Prudential, wholly independent from Prudential's marketing or sales functions, composed to perform the oversight functions, all as described in the ADR Manual.
p. "Claimant" shall mean all such Policyholder(s) having, individually or together, a complete ownership interest in a Policy which is the subject of a Claim.
q. "Claimant Group Administrator" shall mean any third party, agent or administrator, including Boston Financial Data Services, Inc., which may be retained by Prudential and must be approved by Lead Counsel and the Regulatory Oversight Staff, to help implement the ADR Process Basic Claim Relief and the terms of the Settlement.
r. "Claimant Support Team" shall mean that wholly independent entity designated and retained by Prudential, and approved by the Regulatory Oversight Staff and Lead Counsel to provide administrative assistance to Claimants in the preparation of their respective Claims, including providing aid in completing Claim Forms and responding to inquiries respecting the ADR Process during the time prior to the submission of the Claim Form. Lead Counsel and the Regulatory Oversight Staff shall monitor from time to time the Claimant Support Team's training and telephone calls.
s. "Class" and "Class Members" shall mean, individually or collectively, all persons or entities who are Policyholders, as defined herein.
t. "Class Notice" shall mean the notice mailed to Class Members informing them of the Proposed Settlement.
u. "Class Period" shall mean the period commencing January 1, 1982 and terminating on December 31, 1995, inclusive.
v. "Defendants" shall mean, individually or collectively, The Prudential Insurance Company of America and the Individual Defendants.
w. "Defendants' Counsel" shall mean the law firm of Sonnenschein Nath & Rosenthal.
x. "Department" shall mean those state insurance departments set forth on Exhibit 1 to the ADR Guidelines.
y. "Election Form" shall mean the form on which each Policyholder elects (i) Basic Claim Relief or (ii) participation in the ADR Process.
z. "Enhanced Value Annuity" or "EVA" shall mean a currently issued, non-qualified single premium deferred fixed annuity with the characteristics described in Section D of this Agreement and the Guidelines for Prudential Basic Claim Relief.
ea. "Enhanced Value Policy" or "EVP" shall mean an Enhanced Value Whole Life Policy, made available pursuant to the terms and conditions set forth in Section D of this Agreement and the Guidelines for Prudential Basic Claim Relief.
ate. "Existing Policy" shall mean an insurance policy issued by Prudential which funds, in whole or in part, a New Policy issued by Prudential.
act "File" shall mean all documents submitted by or on behalf of the Claimant (including the Claim Form), the Agent and Prudential to the Claim Evaluation Staff in connection with the Claim.
ad. "Final Order and Judgment" shall mean the order approving the Proposed Settlement and the judgment entered pursuant to that order.
ae. "Final Settlement Date" shall mean the date on which the Final Order and Judgment approving the Proposed Settlement becomes final. For purposes of the Proposed Settlement: (1) if no appeal has been taken from the Final Order and Judgment, Final Settlement Date means the date on which the time to appeal therefrom has expired; or (2) if any appeal has been taken from the Final Order and Judgment, Final Settlement Date means the date on which all appeals therefrom, including petition for rehearing or reargument, petition for rehearing en bane and petitions for certiorari or any other form of review have been finally disposed of in a manner that affirms the Final Order and Judgment.
aft "Hearing Order" shall mean the order entered by the Court concerning Notice, Settlement Hearing and Administration, unless otherwise agreed by the parties.
ag. "Individual Defendants" shall mean, in their official capacities as officers and/or directors of The Prudential Insurance Company of America, Robert A. Beck, Ronald D. Barbaro and Robert C. Winters.
ah. "Individualized Relief" shall mean that relief to be received by Claimants in the ADR Process, as described in Section C herein.
se. "Lead Counsel" shall mean the law firms of Milberg Weiss Bershad Hynes & Lerach LLP and Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C.
aj. "Misstatement" shall mean in respect of any Claim Resolution Factor.
(a) An untrue statement of material fact; or
(b) The failure to disclose a material fact necessary to make the
statements made not materially misleading, under the circumstances.