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Part 1: Proving a Case of Insurance Deception

First of two articles

NEW YORK -- If you've been misled by your life-insurance agent, how do you prove it? Prudential Insurance thinks it has answered this question, as part of the huge class-action lawsuit it agreed to settle last week. If Pru follows through, it could establish a model for other insurers.

Pru was sued for permitting disreputable sales techniques. The settlement promises at least $410 million to customers who were misled. You can file a claim if you bought cash-value life insurance from Prudential any time from 1982 through 1995, even if you let it lapse or if the original policyholder died.

As written, however, the agreement limits your access to proof. For full restitution, you normally need written evidence that the agent lied. But this evidence is narrowly defined as a misstatement on a limited number of documents -- the insurance application, sales materials, a letter from Prudential or one of its agents, or your policy illustration (that's the page with the columns of numbers, purporting to show how the policy works).

But "many of these policies were sold in the 1980s and people did not save the paperwork," says Assistant Attorney General Joanna Connolly of Massachusetts.

Prudential has, or should have, a raft of information in your customer file. Under the current agreement, however, any misstatements there don't necessarily prove your case.

"That clearly wasn't our intent," says New York attorney Melvyn Weiss of Milberg Weiss Bershad Hynes & Lerach, lead counsel in the lawsuit, who thinks such misstatements should indeed be proof. Weiss said the language of the agreement isn't final.

Pru spokesperson Robert DeFillippo says, "if asked, we would send the complete file." He says Prudential will look at all available evidence when determining a remedy -- a promise one hopes will turn up in final agreement.

Florida insurance commissioner Bill Nelson objects to the need for written proof. "In most cases, the deception was oral," he says.

But you might have written proof without realizing it, especially if you were a victim of churning or piggybacking.

You're churned when an agent persuades you to give up a decent cash-value policy and buy something else. The agent earns a sales commission and you lose cash value.

You piggyback when an agent for your present insurer offers you another policy "free" or at reduced cost. But the policy isn't really cheap. Without your knowledge, the full premium is being paid by tapping your older policy for dividends and loans. Eventually, that older policy may be wiped out.

When you applied for the new insurance, a question on the application ran roughly like this: "Do you intend to borrow against, surrender or discontinue any existing insurance?" Or, "is this replacement insurance?" The agent who answered the question for you should have said "yes."

A cheating agent may answer "no," in order to duck disclosure rules. A "no" answer is evidence of fraud, says Rick Sabo of Money Concepts in Gibsonia, Pa., who helps bilked life-insurance policyholders win restitution.

If you've been piggybacked, your Prudential file will also contain the document that authorized the loans or withdrawals against your older policy.

Get that document and examine what purports to be your signature. If you don't remember signing, the agent may have forged it. Or the handwriting may suggest that you signed it in blank and the agent filled in the loan instructions.

The company should also have your policy's withdrawal and loan statements, which would show money coming out of one policy and being applied to another.

Sales managers in some Prudential offices have allegedly destroyed key documents. Weiss adds that Pru's records are spotty for the earlier years covered by the settlement. But under the class-action agreement, your bid for restitution may improve if it's shown that Pru removed documents improperly.

Your best shot at showing you were misled is to request your customer file and consult an expert, who can look at your paperwork and frame a pointed claim letter. But don't send your claim until Pru notifies you (at your last known address) that the agreement has been approved by the court.

Be cautious when soliciting advice. Some insurance agents or financial planners will look at your problem, shake their heads and advise you to dump the policy. If you do, you've been churned all over again.

If you handle your own claim, request your file to check for accuracy. Your claim letter should tell your story, point out any mistakes in the file, and include copies (not originals) of your policy and any sales material you had at home. A third-party arbitrator will be assigned to your case, whose job it is to see that Pru properly reviews your claim.

NEXT TIME: How to prove a case against any insurer.

Jane Bryant Quinn welcomes letters on money issues and problems but cannot offer individual financial advice.

© Copyright 1996 Washington Post Writer's Group