Prudential Financial Inc.’s practice of collecting interest on unpaid veterans’ life-insurance benefits is “unlawful and dishonest,” the American Legion told a judge yesterday.
The American Legion, the largest U.S. veterans’ service organization with 2.5 million members in almost 14,000 posts worldwide, asked permission to file a legal brief supporting a pending case in Springfield, Massachusetts, against Prudential Insurance Co. of America, a unit of Newark, New Jersey-based Prudential Financial.
The pending lawsuit by the families of deceased veterans accuses the insurer of failing to pay beneficiaries in a lump sum as required by U.S. law and the language of the policies. Instead, the lawsuit says that Prudential strongly encourages beneficiaries to keep the money in accounts with the company, which pays them a small amount of interest.
The “practice is unlawful and dishonest,” the American Legion said in its court filing. “It is especially objectionable because sophisticated money managers are making an unwarranted and unlawful profit from the deaths of those who have given the most to preserve our nation’s way of life.”
Bob DeFillippo, a spokesman for Prudential Financial, declined to comment on the filing. He has previously said that the company informs beneficiaries of their payment options and that they may immediately withdraw the money from their Prudential Alliance Accounts and invest it wherever they choose.
Prudential held $662 million of survivors’ money in its corporate general account as of June 30, according to information provided by the Department of Veterans Affairs. Prudential’s general account earned 4.2 percent in 2009, mostly from bond investments, according to regulatory filings. The company has paid survivors holding Alliance Accounts 0.5 percent in 2010.
More than 100 insurance carriers earn investment income on $28 billion owed to life insurance beneficiaries, Bloomberg Markets magazine reported in July. Insurers keep the money in their general account, paying only when the beneficiaries write drafts, or “checks” on the account, Bloomberg reported. The American Legion brief filed yesterday cites the Bloomberg stories.
The American Legion, which Congress chartered in 1919 to represent the interests of veterans, seeks permission in its submission yesterday to join the lawsuit and to file a brief opposing the so-called retained asset accounts used by Prudential. The brief was included as part of the filing.
Prudential’s “disingenuous practices take advantage of the grieving families of America’s fallen heroes,” the American Legion says. “This procedure is morally objectionable and unlawful. It should be stopped.”
Prudential has asked the judge to dismiss the case, saying the insurer’s delivery of a “checkbook” to beneficiaries complies with its legal obligation. Lawyers for beneficiaries who brought the case yesterday filed a separate brief opposing Prudential’s request.
The suit seeks class-action, or group, status on behalf of other beneficiaries.
Prudential is also seeking to transfer this and a similar case in California to the federal court in New Jersey, where the insurer previously won a favorable ruling in another lawsuit over retained asset accounts.
The case is Lucey v. Prudential Insurance Co. of America, 10-30163, U.S. District Court, District of Massachusetts (Springfield).