The U.S. Department of Veterans Affairs failed to inform 6 million soldiers and their families of an agreement enabling Prudential Financial Inc. to withhold lump-sum payments of life insurance benefits for survivors of fallen service members, according to records made public through a Freedom of Information request. The amendment to Prudential‘s contract is the first document to show how VA officials sanctioned a payment practice that has spurred investigations by lawmakers and regulators. Since 1999, Prudential has used so-called retained-asset accounts, which allow the company to withhold lump sum payments due to survivors and earn investment income on the money for itself. The 1 SEP 09, amendment to Prudential‘s contract with the VA ratified another that had been struck between the insurer and the government 10 years earlier one that was never put into writing, Bloomberg Markets magazine reports in its November issue. This verbal agreement in 1999 provoked concern among top insurance officials of the agency, the documents released in the FOIA request show.
For a decade, until the contract was formally changed, Prudential wasn‘t fulfilling its obligations to survivors of fallen service members, says Brendan Bridgeland, an insurance lawyer who runs the non-profit Center for Insurance Research in Cambridge, Massachusetts. It‘s very clear they violated the original terms of the contract, says Bridgeland, who is retained by the National Association of Insurance Commissioners to represent consumers. ―Every veteran I‘ve spoken with is appalled at the brazen war profiteering by Prudential, says Paul Sullivan, who served in the 1991 Gulf War as an Army cavalry scout and is now executive director of Veterans for Common Sense, a nonprofit advocacy group based in Washington. ―Now vets are upset at the VA‘s inability to stop Prudential‘s bad behavior. That the VA allowed Prudential to issue retained-asset accounts for 10 years while the contract required lump-sum payouts is ―more evidence that the VA was asleep at the wheel for a decade, says Sullivan, who was a project manager and analyst at the VA from 2000 to 2006. When grieving families check the 3 box that they want a lump sum, they should get it. We remain disappointed and irate at the VA‘s failure to provide advocacy for veterans, he says.
The language of both the 1965 contract and the 2009 amendment make clear that Newark, New Jersey-based Prudential was required to adhere to the original terms until 2009, regardless of any handshake agreements in 1999, insurance lawyer Bridgeland says. The 1965 contract says any alterations must be made in writing. ―No change in the Group Policy shall be valid unless evidenced by an amendment thereto, it says. ―No Agent is authorized to alter or amend the Group Policy. The VA and Prudential signed a revised contract in 2007, saying it was ―amended in its entirety. That contract, with the exact same words as the 1965 agreement, required that Prudential pay survivors with lump sums. The 2007 revision included the same procedures in the 1965 agreement requiring any changes be made in writing. It contained no mention of the retained-asset system, or of the verbal agreement struck in 1999.
It wasn‘t until 24 SEP 09, that the changes agreed to by VA official Lastowka and Prudential in 1999
were put into writing. The 2009 amendment allowing Prudential to hold onto death benefit payouts
was made retroactive to 1 SEP 09, not back to 1999. By putting in writing a change that was verbally
adopted 10 years earlier, the VA is effectively trying to backdate the amendment, says Jeffrey Stempel,
an insurance law professor at the William S. Boyd School of Law at the University of Nevada, Las Vegas,
who wrote Stempel on Insurance Contracts‘ (Aspen Publishers, 2009). They‘re trying to reinvent
history, Stempel says. You really can‘t do that. This is a blatant giveaway by the VA with nothing for
the agency or the people in uniform. Nine of every 10 survivors ask Prudential for lump-sum payments,
the VA says. Prudential sends those families checkbooks instead of checks. Documents released in the
FOIA request show some signs of concern within the VA after Prudential proposed the retained- asset
accounts in 1998. Lastowka, the official who allowed Prudential to introduce the Alliance Accounts, said
that the insurer‘s ―checkbook system wasn‘t protected by the FDIC.
[Source: Bloomberg David Evans article 14 Sep 2010 ++]
Vet Insurance Life Update 06:
A lawsuit, originally filed in Springfield MA on behalf of deceased veterans‘ families and others, accuses Prudential of improperly collecting interest on unpaid veterans‘ life insurance benefits. The lawsuit has also been expanded to include claims of fraud. The plaintiff‘s attorneys are seeking to have the case certified as a class action on behalf of 60,000 beneficiaries of military life insurance policies. The suit claims Prudential fails to pay beneficiaries in a lump sum as required by U.S. law and the language of the policies, instead encouraging them to leave the money in accounts with the company, which pays them a small amount of interest. Bob DeFillippo, a spokesman for Newark, New Jersey-based Prudential Financial Inc., declined to comment on the suit. He said the company informs death-benefit beneficiaries of their payment options and that they can immediately withdraw all the money from their Alliance Account. The plaintiffs claim that Prudential ―fraudulently informs beneficiaries that this Alliance Account scheme constitutes a ‗lump-sum‘ payment as required by law.‖ Instead, the company keeps the money in its general account, paying only when the beneficiaries write drafts on the account, they claim. More than 100 insurance carriers earn investment income on $28 billion owed to life insurance beneficiaries..
In another lawsuit, a woman named Jasmine Williams is suing MetLife Inc. She claims that Metlife told her that her $101,819 in life insurance benefits were safe and was sent what the company called a guaranteed money market ―checkbook‖ in 2002. The next year, Williams, then 19, told MetLife that a cousin had taken $48,900 by forging her name on 12 checks. Williams, of Rougemont, North Carolina, sought reimbursement. The insurance company and Pittsburgh-based PNC Bank NA, which processed MetLife checks, refused to cover Williams‘ losses. The bank claimed that the insurer owed her the money, and the insurer claimed that only the bank could reimburse her. The reason they could do that is because Metlife, like Prudential, retains the assets instead of depositing them in a bank. Had Williams‘ money been in a bank, instead of an account managed by an insurance company, federal and state law would have required the bank to verify signatures on checks and cover losses. Williams‘ predicament spotlights the uncertainties people face by accepting so-called retained-asset account checkbooks from insurers. [Source: Bloomberg News Bob Van Voris article 30 Aug 2010 ++]