Insurer accepted participants’ premiums then denied hundreds of claims
WASHINGTON – The U.S. Department of Labor today announced a settlement with the Prudential Insurance Company of America — a subsidiary of Prudential Financial Inc. — that will require the financial giant to revise its practices after a federal investigation found the Newark, New Jersey-based company collected life insurance premiums from participants for extended periods, but then denied numerous claims after the participants died, citing the participants’ failure to provide evidence of insurability when they applied for insurance.
The settlement reached by the department’s Office of the Solicitor follows an investigation by the department’s Employee Benefits Security Administration that found that Prudential offered group life insurance policies to businesses that allowed plan participants to permit payroll deductions to pay for additional, supplemental coverage. EBSA found that, from 2017 to 2020, Prudential denied more than 200 claims related to this supplemental coverage, on the grounds that the participant had failed to provide evidence of insurability. Investigators also determined that, going back to at least 2004, Prudential collected premiums for this supplemental coverage from participants despite lacking the evidence of insurability.
Parallel investigations have found that other life insurers also engaged in similar practices.
Revisions To Practices
“This egregious practice left grieving families without the life insurance for which their loved ones had paid, in some cases, for many years,” explained Solicitor of Labor Seema Nanda. “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 prohibits Prudential from denying a beneficiary’s claim based on the lack of evidence of insurability when premiums were collected for more than three months. In addition, the settlement provides existing participants additional protections to ensure that coverage is not denied more than a year after they started paying premiums based on insurability, or based on evidence that they were no longer insurable after they first began making premium payments. Prudential is required to notify all group policyholders of these new processes.
“When workers pay life insurance premiums, they should be confident that their beneficiaries will get the benefits they purchased to provide for their financial security,” said Assistant Secretary for Employee Benefits Security Lisa M. Gomez. “The Employee Benefits Security Administration will take appropriate action against any insurance company that collects regular premium payments from plan participants, and later plays a game of ‘gotcha’ to wrongfully deny benefits based on technicalities like ‘insurability’ after the participant passes away.”
Prudential Financial has advised the department that they will voluntarily reprocess denied claims dating back to June 2019 and provide benefits for the claims previously denied based solely on lack of evidence of insurability.
The settlement also notes that group policyholders, such as employers sponsoring plans, who collect premiums may be liable for claims by beneficiaries for supplemental coverage, if they failed to give notice to the participants that Prudential had not approved their evidence of insurability.
Inside The Settlement
EBSA’s New York regional office conducted the department’s investigation. Attorneys Megan Harris and Andrew Karonis of the department’s regional Office of the Solicitor in New York negotiated the settlement for the department.
Read the settlement here.
Prudential Insurance Company of America is a subsidiary of Prudential Financial Inc., based in Newark, New Jersey. Founded in 1875, the company and its subsidiaries provide insurance, retirement planning, investment management and other products and services to individual and commercial customers in the U.S. and more than 20 other countries. As of Dec. 31, 2022, Prudential had over $4 trillion gross life insurance in force worldwide.