In a settlement with the U.S. Department of Labor, Prudential Financial has pledged to no longer deny claims on life insurance policies after collecting premiums from policyholders it later determined had failed to prove “insurability” to qualify for coverage.

DOL’s Employee Benefits Security Administration had investigated Prudential Financial after more than 200 beneficiaries were denied claims between 2017 and 2020 over questions of whether deceased policyholders actually qualified for coverage through employer-based supplemental life insurance programs — only after Prudential had collected premiums on those policies.

Prudential agreed to honor the “face value” of those denied policies, which DOL estimated were between $3 million and $7 million. DOL did not break out the affected policyholders by state. The settlement carries no penalty against Prudential.

Seema Nanda, U.S. solicitor of labor, called it a “troubling” practice that has been going on for decades, and said employers should check eligibility of employees who are enrolled in supplemental life insurance programs. DOL stated that parallel investigations show that other life insurance carriers engaged in similar practices, without identifying them by name, and that in some instances policyholders paid thousands of dollars for coverage.

“Today, we are announcing the beginning of the end of a troubling, deeply flawed practice that the American life insurance industry has engaged in for decades,” Nanda said during a Wednesday news conference. “Essentially, in many instances, participants were paying premiums for life insurance policies that never existed.”

Prudential has its headquarters in Newark, N.J., with more than $13 billion in premiums from Connecticut policyholders as of 2020, including $518 million from its Prudential Life Insurance Co. of America subsidiary on which DOL focused its investigation.  That exceeded the direct written premiums for the rest of the top 20 life insurers combined, according to the Connecticut Insurance Department’s most recent annual report.

Under the settlement, Prudential is prohibited from denying a beneficiary’s claim based on the lack of evidence of insurability when premiums were collected for more than three months.

Additional protections are kicking in to ensure coverage is not denied based on insurability more than a year after a policyholder starts paying premiums; or based on evidence that they were no longer insurable after they first began making premium payments.

In response to a CT Insider query, a Prudential spokesperson forwarded a corporate statement addressing the settlement.

“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,” the Prudential statement read. “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.”

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