Two affiliated nonprofit retirement associations with over 12 million members have settled a $4 million lawsuit with a former top executive, who claims the organizations were a "cover" for making profit by one of the nation's most lucrative insurance firms.

The damage suit was filed in 1978 in D.C. Superior Court against the American Association of Retired Persons (Aarp) and the National Retired Teachers Association (Nrta), both based in Washington, by the former executive director of AARP, Harriet Miller, who was ousted from her position in October 1977, claimed she had been wrongfully dismissed from her post.

In the lawsuit, which had been scheduled for trial this month before Judge Leonard Braman, Miller accused the AARP and NRTA of being covers for the Colonial Penn Group of Philadelphia, which sells -- overwhelmingly to NRTA-AARP members -- health, life, auto and homeowner insurance policies, as well as travel, employment and other services.

In a statement released last week, NRTA-AARP executive director Cyril F. Brickfield said the two organizations had selected Prudential Insurance Co. to replace Colonial Penn as the insurance carrier for their group health programs, making the "old controversies about our relationship with Colonial Penn irrelevant."

The statement, which said that the organizations continued to "deny the truth of the charges, added that $480,000 will be paid to Miller to settle the case. The bulk of the money, according to the statement, will pay for Miller's "substantial legal fees and costs."

Miller's attorney, Philip Hirschkop, said Miller received about half of the settlement, and "there are still wrongs to be redressed."

Miller's lawsuit contended that there was an improper relationship between the two nonprofit retirement organizations and Colonial Penn. The associations' nonprofit mailing permits were used not only for their own magazines and other materials but also for computerized promotional mass mailings by Colonial Penn to AARP-NRTA members, Miller said.

The company also had exclusive access to the AARP-NRTA membership lists and publications, she said. No other insurer, for example, could advertise or be promoted in "Modern Maturity," the AARP magazine, Miller claimed.

In exchange, Colonial Penn paid the associations millions of dollars a year in so-called "administrative allowances," which enabled the associations to offer low membership fees and thereby achieve phenomenal growth, according to the lawsuit.

Miller was executive director of the AARP from February 1976 until she was ousted in 1977. A spokesman for Colonial Penn denounced some of Miller's charges at the time as "totally without foundation."