Prudential collected life insurance premiums, later told claimants they were ineligible

Prudential for years has collected life insurance premiums from customers and later denied claims on the basis that they were ineligible for coverage, according to a settlement the insurer recently signed with the Department of Labor.

Between 2017 and 2020, Prudential Insurance Co. of America turned down such life insurance claims filed by more than 200 families, the DOL said in an announcement Wednesday. The policies in question, which would have paid out an estimated total $3 million to $7 million, were part of employer-sponsored insurance that included supplemental coverage that some workers opt for.

The insurer denied claims in cases where workers opted for Prudential coverage in plans that used another company as the record keeper, according to the DOL. Participants in those plans, going back as far as 2004, continued paying premiums for life insurance that Prudential would later determine they were ineligible for, as they never submitted documentation that they were in good health.

When Prudential is a group plan’s record keeper, it determines whether employees meet criteria for supplemental coverage. But when an unaffiliated company is the record keeper, it doesn't necessarily ensure that workers are eligible for those policies, even while collecting premiums that are sent to Prudential, according to the settlement agreement.

“This egregious practice left grieving families without the life insurance for which their loved ones had paid, in some cases, for many years,” Seema Nanda, the DOL's solicitor, said in the announcement. “Following our investigations, Prudential has agreed to address this practice and ensure that beneficiaries are not harmed in the event employers fail to verify that participants’ evidence of insurability was approved prior to collecting premiums. We would urge all insurers to examine their practices to ensure that they aren’t engaged in similar conduct.”

The settlement marks "the beginning of the end" of such practices in the insurance business, where they are common, DOL staff said during a call with the media Wednesday.

"Participants were paying premiums for life insurance policies that never existed," Nanda said during the call. "The DOL will continue to work to end this disturbing practice, and we urge all insurers to examine their practices to ensure they do not engage in similar conduct."

The DOL stated that “parallel investigations have found that other life insurers also engaged in similar practices,” but it did not name any other companies.

However, in 2021 the regulator filed two amicus briefs, or friend-of-the-court letters, in other private lawsuits with similar allegations against other insurance companies. It argued in cases against United of Omaha Life Insurance Co. and Reliance Standard Life Insurance Co. that fiduciaries with discretion to determine eligibility for supplemental life insurance have an obligation to make sure policy holders can have coverage around the time they start accepting premiums.

While the outcome of those cases showed that insurers do have such an obligation, other insurance companies not named in the litigation have continued to deny claims on the same basis, Nanda said.

The settlement with Prudential, signed April 13, does not include a monetary component meant to penalize the firm, as the DOL's Employee Benefits Security Administration can only pursue corrective actions for the alleged violations. The agreement prohibits Prudential from denying life insurance claims on the basis of ineligibility for coverage if it has collected premiums for more than three months. For existing policy holders, the company can similarly not deny claims for that reason in certain cases, such as if they had been paying premiums for at least a year.

The insurer is required to provide notice of the change to its group policyholders.

“Constructive engagement with our regulators is an important component of doing business the right way, which is foundational to our approach to delivering for our customers, while fulfilling our regulatory obligations," a Prudential spokesperson said in a statement. "We have worked with the DOL to resolve this matter. We are addressing this with supplemental group life insurance customers that are impacted and providing clear guidance to our customers regarding the responsibilities for maintaining evidence of insurability.”