Prudential Insurance Co. policyholders who were eligible to join the class action lawsuit against the company back in 1996 and 1997 may have been told incorrectly by their insurance agents that the suit didn't pertain to them. Some, indeed, may have been told by their agents to throw away the settlement claim forms they received in the mail. This is a snag in Prudential's attempt to settle all claims arising from allegations that the company illegally "churned" life insurance policies.
Insurance agents who "churn" policies convince a customer to use an older policy's cash value to pay for a newer, unnecessary policy. Agents churn because they earn a commission for each new policy they sell. (For more on how that works, see Anatomy of a misleading salespitch.)
Prudential policyholders whose agents interfered in their decision about joining the class action lawsuit have an unprecedented opportunity.
Prudential learned about agent interference from policyholders who reported having such talks with their agents — talks that led customers to dismiss the class action notice and thus waive their right to reimbursement for churned policies. In order to rectify the situation, the company voluntarily mailed notices the week of May 10, 1999, to folks whose agents might have interfered. But how does Prudential know who was discouraged from joining the lawsuit? The company is essentially acting on hunches: In cases where it has heard that an agent discouraged a policyholder from joining the class, the company is attempting to contact all of the agent's customers.
In an unprecedented move, such customers will be able to seek a chunk of settlement money at this late date. (Prudential has reserved a little over $2.4 billion for settlement participants.) "They represent a voluntary effort on our part," says Robert DeFillippo, spokesperson for Prudential. In fact, nothing in the rules of the settlement require the company to seek out such policyholders.
DeFillippo notes that Prudential made clear the rules of the settlement: Agents were specifically instructed not to advise clients on the class action notices. The company sent its agents written instructions and held mandatory, ongoing, in-person training sessions on this matter. Yet some agents did take it upon themselves to dissuade policyholders from joining the lawsuit — perhaps because, as agents, they had played a pivotal role in the widespread, illegal churning practices.
Prudential policyholders who received the "agent interference" letters this month have a deadline for responding and initiating a settlement claims process. "Depending on their response," DeFillippo says, "there's a possibility that we could let them into the ADR [Alternative Dispute Resolution] process at this point." He did not disclose the number of "agent interference" letters that were sent, but says it is a "small" number.