In the early 1990’s the Prudential Life Insurance Company engaged in deceptive sales techniques that cost thousands of people a great deal of money and a lot of their personal security. Essentially, prudential insurance agents approached existing customers with modest and long standing life insurance policies and convinced them to buy policies that were far more expensive and more than what they needed.
In once case, a gentleman was promised that he could increase his coverage and buy a new, more expensive policy, with no cost to him because the “earnings” from his first three policies would cover the cost of the new premium. Sadly, this deceptive sales tactic was in fact, erroneous, and the gentleman’s original life insurance policy values were severely depleted because their value was used as collateral for a loan that was taken out to pay the new policy premiums.
This sales tactic, called “churning” was used on millions of people over a ten year period of time and many of them lost significant amounts of money and were caused undue stress. In the early nineties a group of life insurance fraud victims banded together and formed a class action lawsuit fixated on getting compensation and redress for what was, essentially, stolen from them and to stop the Prudential Life Insurance deceptive sales tactics and from continuing the nefarious practice on other unsuspecting citizens.
Finally, once the class action was announced, the Connecticut insurance commissioner, and the New Jersey insurance commissioner created a multi-state insurance task force to identify and what kind of bad sales tactics Prudential had engaged in and to develop a plan to compensate any citizens that had been injured by Prudential’s misconduct. They also wanted to prepare for the future and ensure that there was a plan in place to minimize problems in regards to future financed insurance sales.
In March of 1997, the New Jersey district court certified the class of plaintiffs and simultaneously accepted the settlement agreement between the class action plaintiffs and the Prudential Life Insurance Company. Under the terms of the final class action settlement, the Prudential Life Insurance Company agreed to pay at least $410 million to approximately eight million policy-holders who bought life insurance policies between 1982 and 1995. The settlement could have potentially cost Prudential as much as $1.2 billion in direct costs, and could have reached a total value to policyholders of roughly $2 billion. Class action lawsuit plaintiffs were also offered the opportunity to submit their claim to an alternative arbitration panel or take a to take advantage of a basic claim package comprised of several benefits including awards of loans and improved terms on policies.
This case of fraudulent sales tactics victimized some of the most vulnerable people in our society. Many of the victims were elderly and depended on their insurance policies for financial reasons as well as for the security they offered. Thankfully, in this case, the class action lawsuit when coupled with the efforts by the states and insurance commissioners yielded the right results for millions of consumers.