Veterans Agency Okayed Deal to Withhold Benefits
The New York Times reports:
The Department of Veterans Affairs agreed in September 2009, without telling six million soldiers and their families, to allow Prudential Financial to withhold lump sum payments of life insurance benefits owed to survivors of service members, according to documents made public through a request under the Freedom of Information Act.
The amendment to Prudential’s contract is the first document to show that department officials sanctioned a practice that has prompted lawmakers and regulators to call for investigations. Since 1999, Prudential has used so-called retained-asset accounts that keep death benefits in its general corporate account, earning investment income for itself, instead of paying out a lump sum immediately.
The Sept. 1, 2009, amendment to Prudential’s contract with the veterans’ department ratified another unpublicized deal 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.
Under Prudential’s original 1965 contract with the government and a 2007 revised contract — both of which were released as part of the response to the Freedom of Information Act request — the insurer is required to send lump sum payouts to survivors who request them. The contract covers six million active service members, their families and veterans.
Instead, Prudential sends to survivors so-called checkbooks that are tied to what it calls its Alliance Account. The checkbooks are made up of drafts, or i.o.u.’s, and are not insured by the Federal Deposit Insurance Corporation. Prudential invests the survivors’ money in its general corporate account.
Prudential held $662 million of survivors’ money as of June 30, according to information provided by the department. Prudential’s general account earned 4.2 percent interest in 2009, mostly from bond investments, according to regulatory filings. The company has paid survivors holding Alliance Accounts 0.5 percent in 2010.
For a decade, until the contract was formally changed, Prudential was in breach of its obligations to survivors of service members, said Brendan M. Bridgeland, an insurance lawyer who runs the nonprofit Center for Insurance Research in Cambridge, Mass. “It’s very clear they violated the original terms of the contract,” said Mr. Bridgeland, who is retained by the National Association of Insurance Commissioners to represent consumers.
Families that were supposed to receive lump sum payments under the terms of the contract before it was amended in 2009 may be able to successfully sue Prudential for lost interest, he said. “Survivors would have a very strong claim for interest earned by Prudential on their money.”
Since July 28, when Bloomberg Markets reported on the retained-asset accounts, state and federal officials have called for investigations into the practice. The Veterans Affairs Department began an internal investigation.
Attorney General Andrew M. Cuomo of New York announced a “major fraud investigation” into Prudential and other life insurers over their use of retained-asset accounts and has issued subpoenas to Prudential and at least 12 more insurers.
The insurance departments in Georgia and New York have also begun investigations. The House Oversight and Reform Committee plans to hold hearings on the matter.
Click here to read more.
