According to a new report from Bloomberg, the U.S. Department of Veterans Affairs secretly amended Prudential's life insurance contracts for veterans, allowing it to withhold payments to survivors of fallen soldiers. The agency failed to inform six million soldiers and their families of an agreement enabling Prudential Financial Inc. to withhold lump-sum payments 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 so-called retained-asset accounts which allow the company to withhold lump sum payments due to survivors and earn investment income on the money for itself.
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,' says 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 says.
For a decade, until the contract was formally changed, Prudential wasn't fulfilling its obligations to survivors of fallen service members, says Brendan Bridgeland, an insurance lawyer who runs the non-profit Center for Insurance Research in Cambridge, Massachusetts. 'It's very clear they violated the original terms of the contract,' says Bridgeland, who is retained by the National Association of Insurance Commissioners to represent consumers.
The next day, New York Attorney General Andrew 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.
