Prudential Wins Ban on ‘Defamatory’ Ads

NEW YORK — With a June 1 deadline looming for California victims of a massive alleged insurance fraud to apply for restitution, Prudential Insurance Co. obtained a court order banning the state of California from using what Prudential called “defamatory” language in television and radio advertisements notifying consumers of the restitution program.

Just as the ads were set to run this week, Newark, N.J.-based Prudential obtained a restraining order from a federal judge in Newark on Monday ordering the state Insurance Department to halt the ad campaign and remove the offending language, Insurance Commissioner Chuck Quackenbush said in a statement Thursday.

Instead, new ads will air with “softer language” dictated by Prudential, Quackenbush said.

The restitution program is part of a $15.4-million class-action settlement that Prudential signed with California in February to resolve claims that it had defrauded as many as 750,000 Californians through a dishonest insurance sales practice called “churning.”

The settlement package included a record $5.5-million fine.

Similar settlements were reached in all 50 states. Nationally, holders of up to 10.7 million Prudential policies--virtually all of the company’s whole-life policies sold from 1982 to 1995--may have been victimized by churning and related fraud, investigators have said.

California policyholders who were misled by sales agents are entitled to a cash refund or other compensation, but to obtain restitution, they must complete and return a claim form to Prudential by June 1.

“This is more than a debate over language. This is an attempt by Prudential to interfere with the consumer outreach program,” Quackenbush said in his statement Thursday.

Prudential fired back that it is Quackenbush’s office that has delayed the restitution program by refusing to modify the ads and forcing the insurer to go to court to block language that U.S. District Judge Alfred M. Wolin found “erroneous, defamatory [and in] conflict with the terms, language and purpose” of Prudential’s settlement.

Moreover, California is not doing as much as other states to help consumers understand their rights, Prudential spokesman Bob DeFillippo said.

Massachusetts and Florida, for example, are conducting seminars to walk consumers through the restitution process, he said, while California is mainly using “television and radio commercials prominently featuring Mr. Quackenbush.”

Wolin also issued an order sealing the record so that Insurance Department officials were barred from supplying transcripts of the original ads or even discussing the language that Prudential found objectionable, according to Kenneth Gibson, Quackenbush’s chief deputy.

Prudential refused to provide a transcript or describe the language, except to note that in the original ads, Quackenbush referred to the insurance as “worthless.” DeFillippo said that was erroneous because the policies in question do have value, even if they were sold improperly.

“If a consumer as a result of misrepresentation obtains a policy he can’t afford, that policy has no value to him,” Gibson countered in a telephone interview.

Quackenbush has appealed Wolin’s order to the U.S. 3rd Circuit Court of Appeals.

“It is clear from Prudential’s latest action that they are attempting to inhibit the effectiveness of the department’s efforts to alert the public to just and fair compensation owed to them,” Quackenbush said in his statement.

According to authorities who investigated Prudential’s alleged fraud, here is how churning worked:

Prudential sales agents targeted mainly older customers with paid-up life insurance policies--and persuaded them to take out much larger policies, promising that it would cost them nothing.

However, the customers were not told that their old policies were being drained of cash value, often as a result of signatures forged on authorization forms.

When the cash value dried up, the customers were hit with large, unexpected bills for the remaining premiums on the new policies. Many customers couldn’t pay the premiums and lost their coverage entirely.

Prudential agents, meanwhile, pocketed commissions on the sales.