DOL: Prudential improperly denied group life insurance claims

A federal investigation found that Prudential Insurance Co. improperly denied more than 200 claims made on its group life insurance policies from 2017 to 2020, the Department of Labor announced today.

The DOL reached a settlement with Prudential that prohibits the insurer from denying a beneficiary’s claim based on the lack of evidence of insurability when premiums were collected for more than three months.

“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 in a news release.

"Essentially, in many instances, participants were paying premiums for life insurance policies that never existed," Nanda added in a conference call with journalists.

The Prudential policies that should have been paid come to $3 million to $7 million, DOL officials said. Parallel investigations have found that other life insurers also engaged in similar practices, the DOL said.

It is on the employer to ensure that employees complete the process to meet insurability, DOL officials said, but Prudential also had a responsibility to make sure that had taken place.

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 insurer sent the following statement to InsuranceNewsNet:

"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. We have worked with the Department of Labor 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."

Long practice by Prudential

The settlement follows an investigation by the 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.

The settlement also 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.”

The Employee Retirement Income Security Act of 1974 law that governs the investigation does not permit monetary penalties, DOL officials said. Therefore, no fines were levied on Prudential.

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.

Prudential Insurance Company of America is a subsidiary of Prudential Financial Inc., based in Newark, N.J. 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.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.