VA sanctioned Prudential's withholding of insurance payments to soldiers' survivors
Saturday, September 18, 2010; 6:19 PM
The Department of Veterans Affairs failed to inform 6 million soldiers and their families of an agreement enabling Prudential Financial to withhold lump-sum payments of life insurance benefits for survivors of fallen service members, according to records made public through a Freedom of Information request.
The amendment to Prudential's contract is the first document to show how VA officials sanctioned a payment practice that has spurred investigations by lawmakers and regulators.
Since 1999, Prudential has used retained-asset accounts, which allow the company to withhold lump-sum payments owed to survivors and earn investment income on the money for itself.
The Sept. 1, 2009, amendment to Prudential's contract with the VA ratified another unpublicized deal that had been struck between the insurer and the government 10 years earlier - one that was never put into writing. This oral agreement in 1999 provoked concern among top insurance officials of the agency, according to the documents released in the FOIA request.
For a decade, until the contract was formally changed, Prudential wasn't fulfilling its obligations to survivors of fallen service members, said Brendan Bridgeland, an insurance lawyer who runs the nonprofit Center for Insurance Research in Cambridge, Mass.
"It's very clear they violated the original terms of the contract," said Bridgeland, who is a funded consumer representative for the National Association of Insurance Commissioners.
"Every veteran I've spoken with is appalled at the brazen war profiteering by Prudential," said Paul Sullivan, who served in the 1991 Persian Gulf War as an Army cavalry scout and is now executive director of Veterans for Common Sense, a nonprofit advocacy group based in Washington. "Now vets are upset at the VA's inability to stop Prudential's bad behavior."
That the VA allowed Prudential to issue retained-asset accounts for 10 years while the contract required lump-sum payouts is "more evidence that the VA was asleep at the wheel for a decade," said Sullivan, who was a project manager and analyst at the VA from 2000 to 2006.
"When grieving families check the box that they want a lump sum, they should get it. We remain disappointed and irate at the VA's failure to provide advocacy for veterans," he said.
Since July 28, when it was first reported that Prudential sent checkbooks instead of checks to survivors requesting lump-sum payouts, state and federal officials have demanded that the retained-asset system be investigated and reformed. The VA itself launched a probe of its life insurance program the day the first story was published.
The next day, New York Attorney General Andrew M. Cuomo launched what he called a "major fraud investigation" of Prudential and other life insurers over their use of retained-asset accounts. Since then, Cuomo's office has issued subpoenas to Prudential and at least 12 more insurance companies.
The insurance departments in Georgia and New York have also opened probes. The U.S. House Oversight and Reform Committee plans to hold hearings into Prudential's use of retained-asset accounts to pay money owed to fallen soldiers' survivors.