Prudential 2011 Annual Report Download - page 269

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
23. COMMITMENTS AND GUARANTEES, CONTINGENT LIABILITIES AND LITIGATION AND
REGULATORY MATTERS (continued)
It is possible that the results of operations or the cash flow of the Company in a particular quarterly or annual period could be
materially affected as a result of payments in connection with the matters discussed above or other matters depending, in part, upon the
results of operations or cash flow for such period. Management believes, however, that ultimate payments in connection with these matters,
after consideration of applicable reserves and rights to indemnification, should not have a material adverse effect on the Company’s
financial position.
Litigation and Regulatory Matters
The Company is subject to legal and regulatory actions in the ordinary course of its businesses. Pending legal and regulatory actions
include proceedings relating to aspects of the Company’s businesses and operations that are specific to it and proceedings that are typical of
the businesses in which it operates, including in both cases businesses that have been either divested or placed in wind-down status. Some
of these proceedings have been brought on behalf of various alleged classes of complainants. In certain of these matters, the plaintiffs are
seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of litigation or a regulatory matter,
and the amount or range of potential loss at any particular time, is often inherently uncertain.
Individual Life and Group Insurance
In January 2012, a qui tam action on behalf of the State of Illinois, Total Asset Recovery Services v. Met Life Inc, et al., Prudential
Financial, Inc., The Prudential Insurance Company of America, and Prudential Holdings, LLC, filed in the Circuit Court of Cook County,
Illinois, was served on the Company. The complaint alleges that the Company failed to escheat life insurance proceeds to the State of
Illinois in violation of the Illinois False Claims Whistleblower Reward and Protection Act and seeks injunctive relief, compensatory
damages, civil penalties, treble damages, prejudgment interest, attorneys’ fees and costs.
In January 2012, a Global Resolution Agreement entered into by the Company and a third party auditor became effective upon its
acceptance by the unclaimed property departments of 20 states and jurisdictions. Under the terms of the Global Resolution Agreement, the
third party auditor acting on behalf of the signatory states will compare expanded matching criteria to the Social Security Master Death File
(“SSMDF”) to identify deceased insureds and contract holders where a valid claim has not been made. In February 2012, a Regulatory
Settlement Agreement entered into by the Company to resolve a multi-state market conduct examination regarding its adherence to state
claim settlement practices became effective upon its acceptance by the insurance departments of 20 states and jurisdictions. The Regulatory
Settlement Agreement applies prospectively and requires the Company to adopt and implement additional procedures comparing its records
to the SSMDF to identify unclaimed death benefits and proscribes procedures for identifying and locating beneficiaries once deaths are
identified. Other jurisdictions that are not signatories to the Regulatory Settlement Agreement are considering proposals that would apply
prospectively and require life insurance companies to take additional steps to identify unreported deceased policy and contract holders.
These prospective changes and any escheatable property identified as a result of the audits and inquiries could result in: (1) additional
payments of previously unclaimed death benefits; (2) the payment of abandoned funds to U.S. jurisdictions; and (3) changes in the
Company’s practices and procedures for the identification of escheatable funds and beneficiaries, which would impact claim payments and
reserves, among other consequences.
The Company is one of several companies subpoenaed by the New York Attorney General regarding its unclaimed property
procedures. Additionally, the New York Department of Insurance (“NYDOI”) has requested that 172 life insurers (including the Company)
provide data to the NYDOI regarding use of the SSMDF. The New York Office of Unclaimed Funds recently notified the Company that it
intends to conduct an audit of the Company’s compliance with New York’s unclaimed property laws. The Minnesota Attorney General has
also requested information regarding the Company’s use of the SSMDF and its claim handling procedures and the Company is one of
several companies subpoenaed by the Minnesota Department of Commerce, Insurance Division. In February 2012, the Massachusetts
Office of the Attorney General requested information regarding the Company’s unclaimed property procedures.
From July 2010 to December 2010, four purported nationwide class actions were filed challenging the use of retained asset accounts
to settle death benefit claims of beneficiaries of a group life insurance contract owned by the United States Department of Veterans Affairs
(“VA Contract”) that covers the lives of members and veterans of the U.S. armed forces. In 2011, the cases were consolidated in the United
States District Court for the District of Massachusetts by the Judicial Panel for Multi-District Litigation as In re Prudential Insurance
Company of America SGLI/VGLI Contract Litigation. The consolidated complaint alleges that the use of the retained assets accounts that
earn interest and are available to be withdrawn by the beneficiary, in whole or in part, at any time, to settle death benefit claims is in
violation of federal law, and asserts claims of breach of contract, breaches of fiduciary duty and the duty of good faith and fair dealing,
fraud and unjust enrichment and seeks compensatory and punitive damages, disgorgement of profits, equitable relief and pre and post-
judgment interest. In March 2011, the motion to dismiss was denied. In January 2012, plaintiffs filed a motion to certify the class.
In September 2010, Huffman v. The Prudential Insurance Company, a purported nationwide class action brought on behalf of
beneficiaries of group life insurance contracts owned by ERISA-governed employee welfare benefit plans was filed in the United States
District Court for the Eastern District of Pennsylvania, challenging the use of retained asset accounts in employee welfare benefit plans to
settle death benefit claims as a violation of ERISA and seeking injunctive relief and disgorgement of profits. In July 2011, the Company’s
motion for judgment on the pleadings was denied.
Prudential Financial, Inc. 2011 Annual Report 267