80 Californians Reject Deal, Sue Prudential

Rejecting a nationwide legal settlement, about 80 Californians who say they were defrauded by Prudential Insurance Co. filed a class-action lawsuit against the giant insurer in Los Angeles County Superior Court on Thursday.

The California plaintiffs are among the 20,000 Prudential policyholders who have decided against joining a class-action settlement agreed upon by the firm and insurance regulators in each of the 50 states. The plaintiffs, who say they fell prey to deceptive sales tactics practiced by Prudential agents, are seeking an unspecified amount in actual and punitive damages.

Plaintiffs’ attorney Kenneth R. Chiate of Pillsbury Madison & Sutro in Los Angeles said his clients did not want to be “treated like sheep” by being forced to accept the nationwide settlement in which they had no involvement.

In unusually blistering language for a legal document, the suit, which also involves about 30 policyholders outside of California, blasted Prudential for participating in the “largest, greediest and most irresponsible corporate scheme of this century.”

A Prudential spokesman would not comment directly on the Los Angeles suit but said the nationwide class-action settlement approved in March by U.S. District Judge Alfred Wolin is “a fair and equitable way for people to receive remedies.”

Hundreds of thousands of Prudential customers have filed claims under the terms of that class-action settlement, which requires all claims to be filed by Sunday. A lawyer for policyholders declined to give exact figures on the number of claims filed to date except to say the number is “well above” 330,000, according to a report by Associated Press.

The legal battles are related to allegations that Prudential agents used a practice known as churning to defraud as many as 10.7 million policyholders and virtually everyone who purchased whole life coverage from the company between 1982 and 1995.

The customers were persuaded to take out new, larger policies that they were told would not cost them anything. However, the customers were not told that the cash value of their old policies would be reduced to fund the new policies.

Policyholders then faced unexpected bills for higher premiums once their cash value had dried up. Meanwhile, sales agents earned commissions on the new policies.

The settlement agreement and process approved by Wolin has been criticized by plaintiffs’ attorneys as too complex and hard for policyholders to follow. The total value of the settlement ranges from $410 million to $1.9 billion.

The lawsuit filed Thursday is one of several that are expected on the behalf of policyholders, according to attorneys at Pillsbury Madison and the Beverly Hills-based firm of Wilner, Klein & Siegel.