NEWARK, N.J. -- A federal judge approved a $2 billion settlement yesterday between Prudential Insurance Co. of America and the millions of customers it misled through a practice known as "churning" over 13 years.
Prudential will repay customers who bought new life insurance unnecessarily, persuaded by agents intent on boosting their own commissions, from 1982 to 1995.
U.S. District Judge Alfred M. Wolin said that "after a careful review and consideration," the court in Newark found that the settlement met standards of "fairness, reasonableness and adequacy" for 10.7 million policyholders.
The settlement helps the nation's largest insurer put to rest a case that has dragged on since July, when Prudential agreed to pay $35 million in fines to regulators from 30 states and to set up a $100 million restitution program.
That $100 million has ballooned into at least $2 billion, depending on how many policyholders file requests for damages.
"It puts the settlement in place and allows us to move forward in resolving any problems that our policyholders have," said Prudential spokesman Dick Riley.
In addition to restitution, Prudential agreed to pay the largest fines ever levied against an insurance company. Prudential last month made separate settlements with five other states, adding $35.2 million to the fines already paid jointly to other states.
The fines against Prudential, which counts one in five Americans among its customers, exceed the $20 million penalty paid in 1994 by Metropolitan Life Insurance Co., the second-largest U.S. life insurer. New York-based Met Life also agreed to pay $76 million in refunds in a settlement with more than 40 state insurance regulators.
Prudential said it has taken steps to prevent future abuses by training its sales force and has fired more than 800 agents and managers in the past two years.
A report by a group of state insurance regulators looking into the company's practices in July 1996 found that the company's managers were more concerned about policyholders' claims than about monitoring agents. "Agents were more consistently disciplined for misstatements about the applicant's smoking habits than about improper" sales, the report said.
Judge Wolin rejected calls for a jury trial and promised to deliver a "more formal and complete opinion" soon.
Attorneys for some Prudential policyholders who want to appeal the ruling must wait until Wolin files the opinion.
Wolin scheduled a March 17 hearing on the $90 million in fees expected to be paid to lawyers representing the class of policyholders.
Attorneys representing some policyholders objected to the plan, saying that it provided insufficient compensation or that it would treat customers in some states better than those in others.
Mike Malakoff, a Pittsburgh lawyer representing about 20 Prudential customers, said he was likely to appeal the ruling after Wolin issues his opinion. He also criticized a form policyholders must complete as too complex.
Pub Date: 3/11/97