ianstone
08-30-2010, 04:57 PM
Families of Dead Soldiers Sue Insurer Over Its Handling of Survivors’ Benefits
http://graphics8.nytimes.com/images/2010/08/30/us/PRUDENTIAL/PRUDENTIAL-articleLarge.jpgMichal Czerwonka for The New York Times
Jorge and Vickie Castro, with a photograph of their son, Jonathan, at their home in Corona, Calif. They are among the families who have filed a lawsuit against Prudential Insurance.
Vickie Castro’s only child was killed six years ago just before Christmas, when a suicide bomber blew himself up inside an Army mess tent in Mosul, Iraq, killing more than 20 people.
In those dizzying days after the death of her son, Jonathan Castro, Ms. Castro vaguely remembers getting a letter and a draft checkbook from the Prudential Insurance Company of America, which provides life insurance to American soldiers and veterans on behalf of the federal government.
The letter informed Ms. Castro that she was entitled to $250,000 from her son’s military life insurance policy. Whenever she wanted the money, she could simply deposit one of the checks into a special account that had been set up in her family’s name, the letter said.
Still grieving over her son’s death, Ms. Castro finally brought herself to look at the account’s monthly statements a year later and noticed that the money was yielding an interest rate of just 1.2 percent. She quickly transferred the funds into a certificate of deposit at her local credit union, where the interest rate was considerably higher.
Now, the Castros and five other military families are suing Prudential, accusing it of profiting off dead service members by keeping their life insurance benefits in the company’s own general account to earn interest for itself, instead of immediately handing them over to the families.
The lawsuit, which was first reported by Bloomberg News (http://www.nytimes.com/2010/07/29/business/29insure.html) last month, was filed in federal court in Springfield, Mass., on July 29. An amended version of the suit, a draft of which was obtained by The New York Times, will be filed in federal court on Monday, lawyers say. It has additional plaintiffs and also accuses Prudential of committing fraud by pretending to put the money of military families into personal interest-bearing accounts, called Alliance Accounts.
Instead, according to the new claim, Prudential held the money in its own coffers and earned an investment profit estimated at 5 percent to 6 percent. Only when families wanted to withdraw funds would the company shuttle money into the Alliance Accounts, and then pay out the benefits with a markedly lower interest rate that varied from 0.5 to 1.5 percent, the suit says.
Prudential has made an estimated half-billion dollars off this practice over the last 11 years, the plaintiffs’ lawyers say. Though that may amount to only a few thousand dollars less in interest payments per beneficiary, some military families like the Castros say they are aghast at the idea of a business making money off dead military members.
“That they would dishonor my son, who died serving his country, that Prudential would use his insurance policy to make a higher profit — it can’t be true, but it is,” said Ms. Castro, who lives in Corona, Calif.
Prudential would not comment on the lawsuit but has vigorously defended the military life insurance policies.
A Prudential spokesman, Bob DeFillippo, said that services like the Alliance Accounts had become the industry standard, and that they provided a safe, reliable place for military families to keep their money in trying times.
The accounts are administered much the same way a bank runs any conventional on-demand money service, like a checking account, Mr. DeFillippo said. He said that the funds were readily available to the beneficiary and that interest rates were on par with similar banking setups.
“The notion that we’re taking something away from the beneficiaries is completely wrong and one of the worst, most misleading facts that has come out,” Mr. DeFillippo said. “We’ve been doing this for 40 years. We don’t consider this a business; it’s more of a service. It’s the beneficiary’s money, and they have access to it whenever they want.”
Prudential has been administering life insurance plans for soldiers since 1965, when Congress created Service Members’ Group Life Insurance and later a similar program for veterans. When a soldier or veteran dies, beneficiaries can receive up to $400,000 in benefits. Federal law requires Prudential to pay out either in a lump sum or in 36 monthly installments.
Families of Dead Soldiers Sue Insurer Over Its Handling of Survivors’ Benefits
If a soldier’s family wants to collect the lump sum, the Alliance Account is set up for them. Until they actually withdraw money, it sits in Prudential’s general account, of which military benefits make up only a small fraction, Mr. DeFillippo said.
Prudential says the account yielded 4.1 percent interest over the last six months. The interest on money paid to military beneficiaries through the Alliance Accounts over a similar time period was 0.5 percent — a rate Prudential sets based on comparable banking options, it says.
Mr. DeFillippo says it is unfair to compare the two rates because the military life insurance benefits are placed in short-term investments with little return and must be liquidated quickly if a family withdraws money.
“This is a complete fabrication to say that we’re earning a lot of money,” he said, adding that out of about $200 billion in the general account, about 2 percent came from the Alliance accounts.
But lawyers representing the plaintiffs in the lawsuit, Jacqueline Scott Corley, Michael von Loewenfeldt and Cristóbal Bonifaz, say that from the day a claim is made on a soldier or veteran’s death, the money is no longer Prudential’s. Therefore, the company has no right to invest or profit from it at all — particularly without giving the beneficiary a choice, the lawyers contend.
The suit is premised on a basic point: transferring money into the Alliance Account only after a family seeks to withdraw it, the lawyers say, is not the same as making a lump-sum payment, which is required by the federal law that set up the program.
“Our clients trusted Prudential — they didn’t know Prudential was using the money for its own benefit,” Mr. von Loewenfeldt said. “It would be like if I went to your house and stole a check out of your mailbox, invested it and then sent you a letter saying: ‘I have your money. Let me know when you want it, and in the meantime I’ll pay you a little bit of interest.’ ”
The lawsuit seeks the return of a half-billion dollars that it says Prudential has made off the benefits.
Responding to news reports about the carrier, New York’s attorney general, Andrew M. Cuomo (http://topics.nytimes.com/top/reference/timestopics/people/c/andrew_m_cuomo/index.html?inline=nyt-per), began an investigation into the life insurance industry, and members of Congress are looking into Prudential’s handling of the military insurance program. The Department of Veterans Affairs (http://topics.nytimes.com/top/reference/timestopics/organizations/v/veterans_affairs_department/index.html?inline=nyt-org), which oversees the program, is reviewing how Prudential manages the Alliance Accounts.
Mr. DeFillippo said Prudential was cooperating with the investigations and working with the veterans agency.
Ms. Castro says her lawsuit is less about money than the fact that Prudential has somehow earned profits — whatever the amount — from her son’s death in Iraq.
“To think that these people are so unfeeling, so heartless that they would put profit above the honor that should be guaranteed to our servicemen and women who die in the line duty,” she said. “How could anybody think this is just another way to make a buck?”
http://graphics8.nytimes.com/images/2010/08/30/us/PRUDENTIAL/PRUDENTIAL-articleLarge.jpgMichal Czerwonka for The New York Times
Jorge and Vickie Castro, with a photograph of their son, Jonathan, at their home in Corona, Calif. They are among the families who have filed a lawsuit against Prudential Insurance.
Vickie Castro’s only child was killed six years ago just before Christmas, when a suicide bomber blew himself up inside an Army mess tent in Mosul, Iraq, killing more than 20 people.
In those dizzying days after the death of her son, Jonathan Castro, Ms. Castro vaguely remembers getting a letter and a draft checkbook from the Prudential Insurance Company of America, which provides life insurance to American soldiers and veterans on behalf of the federal government.
The letter informed Ms. Castro that she was entitled to $250,000 from her son’s military life insurance policy. Whenever she wanted the money, she could simply deposit one of the checks into a special account that had been set up in her family’s name, the letter said.
Still grieving over her son’s death, Ms. Castro finally brought herself to look at the account’s monthly statements a year later and noticed that the money was yielding an interest rate of just 1.2 percent. She quickly transferred the funds into a certificate of deposit at her local credit union, where the interest rate was considerably higher.
Now, the Castros and five other military families are suing Prudential, accusing it of profiting off dead service members by keeping their life insurance benefits in the company’s own general account to earn interest for itself, instead of immediately handing them over to the families.
The lawsuit, which was first reported by Bloomberg News (http://www.nytimes.com/2010/07/29/business/29insure.html) last month, was filed in federal court in Springfield, Mass., on July 29. An amended version of the suit, a draft of which was obtained by The New York Times, will be filed in federal court on Monday, lawyers say. It has additional plaintiffs and also accuses Prudential of committing fraud by pretending to put the money of military families into personal interest-bearing accounts, called Alliance Accounts.
Instead, according to the new claim, Prudential held the money in its own coffers and earned an investment profit estimated at 5 percent to 6 percent. Only when families wanted to withdraw funds would the company shuttle money into the Alliance Accounts, and then pay out the benefits with a markedly lower interest rate that varied from 0.5 to 1.5 percent, the suit says.
Prudential has made an estimated half-billion dollars off this practice over the last 11 years, the plaintiffs’ lawyers say. Though that may amount to only a few thousand dollars less in interest payments per beneficiary, some military families like the Castros say they are aghast at the idea of a business making money off dead military members.
“That they would dishonor my son, who died serving his country, that Prudential would use his insurance policy to make a higher profit — it can’t be true, but it is,” said Ms. Castro, who lives in Corona, Calif.
Prudential would not comment on the lawsuit but has vigorously defended the military life insurance policies.
A Prudential spokesman, Bob DeFillippo, said that services like the Alliance Accounts had become the industry standard, and that they provided a safe, reliable place for military families to keep their money in trying times.
The accounts are administered much the same way a bank runs any conventional on-demand money service, like a checking account, Mr. DeFillippo said. He said that the funds were readily available to the beneficiary and that interest rates were on par with similar banking setups.
“The notion that we’re taking something away from the beneficiaries is completely wrong and one of the worst, most misleading facts that has come out,” Mr. DeFillippo said. “We’ve been doing this for 40 years. We don’t consider this a business; it’s more of a service. It’s the beneficiary’s money, and they have access to it whenever they want.”
Prudential has been administering life insurance plans for soldiers since 1965, when Congress created Service Members’ Group Life Insurance and later a similar program for veterans. When a soldier or veteran dies, beneficiaries can receive up to $400,000 in benefits. Federal law requires Prudential to pay out either in a lump sum or in 36 monthly installments.
Families of Dead Soldiers Sue Insurer Over Its Handling of Survivors’ Benefits
If a soldier’s family wants to collect the lump sum, the Alliance Account is set up for them. Until they actually withdraw money, it sits in Prudential’s general account, of which military benefits make up only a small fraction, Mr. DeFillippo said.
Prudential says the account yielded 4.1 percent interest over the last six months. The interest on money paid to military beneficiaries through the Alliance Accounts over a similar time period was 0.5 percent — a rate Prudential sets based on comparable banking options, it says.
Mr. DeFillippo says it is unfair to compare the two rates because the military life insurance benefits are placed in short-term investments with little return and must be liquidated quickly if a family withdraws money.
“This is a complete fabrication to say that we’re earning a lot of money,” he said, adding that out of about $200 billion in the general account, about 2 percent came from the Alliance accounts.
But lawyers representing the plaintiffs in the lawsuit, Jacqueline Scott Corley, Michael von Loewenfeldt and Cristóbal Bonifaz, say that from the day a claim is made on a soldier or veteran’s death, the money is no longer Prudential’s. Therefore, the company has no right to invest or profit from it at all — particularly without giving the beneficiary a choice, the lawyers contend.
The suit is premised on a basic point: transferring money into the Alliance Account only after a family seeks to withdraw it, the lawyers say, is not the same as making a lump-sum payment, which is required by the federal law that set up the program.
“Our clients trusted Prudential — they didn’t know Prudential was using the money for its own benefit,” Mr. von Loewenfeldt said. “It would be like if I went to your house and stole a check out of your mailbox, invested it and then sent you a letter saying: ‘I have your money. Let me know when you want it, and in the meantime I’ll pay you a little bit of interest.’ ”
The lawsuit seeks the return of a half-billion dollars that it says Prudential has made off the benefits.
Responding to news reports about the carrier, New York’s attorney general, Andrew M. Cuomo (http://topics.nytimes.com/top/reference/timestopics/people/c/andrew_m_cuomo/index.html?inline=nyt-per), began an investigation into the life insurance industry, and members of Congress are looking into Prudential’s handling of the military insurance program. The Department of Veterans Affairs (http://topics.nytimes.com/top/reference/timestopics/organizations/v/veterans_affairs_department/index.html?inline=nyt-org), which oversees the program, is reviewing how Prudential manages the Alliance Accounts.
Mr. DeFillippo said Prudential was cooperating with the investigations and working with the veterans agency.
Ms. Castro says her lawsuit is less about money than the fact that Prudential has somehow earned profits — whatever the amount — from her son’s death in Iraq.
“To think that these people are so unfeeling, so heartless that they would put profit above the honor that should be guaranteed to our servicemen and women who die in the line duty,” she said. “How could anybody think this is just another way to make a buck?”