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Text of Press release February 21, 1997 (#008) from CDI announcing Highest Fine in Nation Against Prudential Insurance
CALIFORNIA INSURANCE COMMISSIONER
CHUCK QUACKENBUSH LEVIES HIGHEST FINE
IN THE NATION AGAINST PRUDENTIAL INSURANCE
Reaches Highest Settlement for Prudential Policyholders
in California and Across the Country
SACRAMENTO -- California Insurance Commissioner Chuck Quackenbush has fined Prudential Insurance Company of America $5.5 million as part of a total settlement amounting to $15.4 million. The fine and settlement are the largest ever imposed by a California Insurance Commissioner against an insurance company.
"The original settlement negotiated by the multi-state task force would have resulted in only $2.3 million for California. Under the terms of settlement reached today, California will get $15.4 million from Prudential Insurance Company.
"We were very tough with Prudential not only to benefit California consumers, but under the terms of the our new agreement, defrauded policyholders across the nation will also be more adequately compensated," said Commissioner Quackenbush.
The settlement resolves a two year long investigation into allegations that Prudential agents in California and other states deceived policyholders when selling them life insurance. This fraudulent sales practice by Prudential -- called "churning" -- persuades policyholders to exchange the cash value of existing policies for new life insurance policies while relying on the agent's promise that the cash value was adequate to purchase the higher-value policy. Later, the customer would receive premium bills for the new policy and learn that the old policy was worthless.
Today's settlement assures that Prudential policyholders who were victimized by the deceptive sales practices will receive fair and proper restitution. The settlement negotiated by Commissioner Quackenbush includes two major improvements to a remediation plan previously agreed to by other insurance commissioners and attorneys representing policyholders in a class action lawsuit.
"One of the improvements we negotiated for our settlement will assure that many more policyholders will receive compensation than was previously planned. The other improvement is expected to provide millions of additional dollars in restitution to policyholders who were victimized but who do not have documentation to prove that they were defrauded. This improvement was the most critical in reaching settlement with Prudential", said Commissioner Chuck Quackenbush. "I said all along that consumers should not have to come hat-in-hand to prove they were defrauded. The enhancements obtained with this settlement ensures that will not occur."
Details of the settlement include the following:
-- $5.5 million fine against Prudential Insurance Company.
-- $3 million of the settlement is designated for consumer protection and outreach programs for life insurance consumers. These funds will also be used to ensure that Prudential policyholders are informed of the restitution program and are treated fairly in the process.
-- $1.4 million of the settlement will be used to reimburse the Insurance Department for its investigative and legal expenses.
The balance of the $15.4 million will be invested in the California Organized Investment Network (COIN). The COIN program is a first-in-the-nation program that seeks to increase the level of insurance industry investment in low income areas in order to further economic development and affordable housing.
The settlement affects approximately 10.5 million policyholders across the nation and 750,000 policyholders in California who purchased life insurance from Prudential during the period from Jan. 1, 1982, thru Dec. 31, 1995. Every policyholder will be afforded an opportunity to receive basic claim relief from Prudential. Policyholders who were defrauded and who want more than the basic claim relief, will be afforded the opportunity to request alternative dispute resolution (ADR). The settlement negotiated by Commissioner Quackenbush ensures that policyholder claims are treated fairly in this ADR process. Policyholders that do not have documentation to prove that they were defrauded, but who present a credible case during the ADR process, will receive a refund of premiums plus full interest as a result of this settlement. Prior to this settlement, such policyholders would have received only one-half of the interest under the terms of the proposed class action settlement.
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