Prudential 2012 Annual Report Download - page 220

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
23. COMMITMENTS AND GUARANTEES, CONTINGENT LIABILITIES AND LITIGATION AND
REGULATORY MATTERS (continued)
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 State Department of Financial Services (“NYDFS”) has requested that 172 life insurers (including
the Company) provide data to the NYDFS 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
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and are available to be withdrawn by the beneficiary, in whole or in part, at any time, to settle death benefit claims is in violation of federal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 August 2012, the court
denied plaintiffs’ class certification motion without prejudice pending the filing of summary judgment motions on the issue of whether
plaintiffs sustained an actual injury. In October 2012, the parties filed their summary judgment motions.
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. In February 2012, plaintiffs filed a motion to certify the class. In April 2012, the Court
stayed the case pending the outcome of a case involving another insurer that is on appeal to the Third Circuit Court of Appeals.
In January 2011, a purported state-wide class action, Garcia v. The Prudential Insurance Company of America was dismissed by the
Second Judicial District Court, Washoe County, Nevada. The complaint was brought on behalf of Nevada beneficiaries of individual life
insurance policies for which, unless the beneficiaries elected another settlement method, death benefits were placed in retained asset
accounts. The complaint alleges that by failing to disclose material information about the accounts, the Company wrongfully delayed
payment and improperly retained undisclosed profits, and seeks damages, injunctive relief, attorneys’ fees and pre and post-judgment
interest. In February 2011, plaintiff appealed the dismissal to the Nevada Supreme Court. As previously reported, in December 2009, an
earlier purported nationwide class action raising substantially similar allegations brought by the same plaintiff in the United States District
Court for the District of New Jersey, Garcia v. Prudential Insurance Company of America, was dismissed. In December 2011, plaintiff
appealed the dismissal. In January 2013, the Nevada Supreme Court affirmed the dismissal of the complaint.
In December 2010, a purported state-wide class action complaint, Phillips v. Prudential Financial, Inc., was filed in state court and
removed to the United States District Court for the Southern District of Illinois. The complaint makes allegations under Illinois law,
substantially similar to the Garcia cases, on behalf of a class of Illinois residents whose death benefit claims were settled by retained assets
accounts. In March 2011, the complaint was amended to drop the Company as a defendant and add Pruco Life Insurance Company as a
defendant and is now captioned Phillips v. Prudential Insurance and Pruco Life Insurance Company. In November 2011, the complaint
was dismissed. In December 2011, plaintiff appealed the dismissal.
In July 2010, the Company, along with other life insurance industry participants, received a formal request for information from the
State of New York Attorney General’s Office in connection with its investigation into industry practices relating to the use of retained asset
accounts. In August 2010, the Company received a similar request for information from the State of Connecticut Attorney General’s
Office. The Company is cooperating with these investigations. The Company has also been contacted by state insurance regulators and
other governmental entities, including the U.S. Department of Veterans Affairs and Congressional committees regarding retained asset
accounts. These matters may result in additional investigations, information requests, claims, hearings, litigation, adverse publicity and
potential changes to business practices.
In February 2011, a fifth amended complaint was filed in the United States District Court for the District of New Jersey in Clark v.
Prudential Insurance Company. The complaint brought on behalf of a purported class of California, Indiana, Ohio and Texas residents who
purchased individual health insurance policies alleges that Prudential Insurance failed to disclose that it had ceased selling this type of
policy in 1981 and that, as a result, premiums would increase significantly. The complaint alleges claims of fraudulent misrepresentation
and omission, breach of the duty of good faith and fair dealing, and California’s Unfair Competition Law and seeks compensatory and
218 Prudential Financial, Inc. 2012 Annual Report