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Prudential's Plan to Settle Class Action Hits Major Snag

Insurance: Regulators are seeking added benefits immediately.


NEW YORK — Prudential Insurance Co.'s plan to settle a class-action lawsuit affecting 10 million customers has run into major problems, including an expected demand by state insurance regulators that the company immediately pay added compensation to customers rather than waiting up to a year for court approval of the settlement.

Prudential announced Tuesday that it had agreed to settle a private federal class-action lawsuit brought on behalf of life insurance policyholders who were the victims of deceptive sales practices. Up to 750,000 Californians could be affected by the settlement.

Under it, Prudential would pay at least $410 million in addition to what it agreed to give under a separate accord reached with 43 states in July.

Sources said many state regulators are irate, and embarrassed, that Prudential agreed to a better deal in negotiations with private class-action lawyers than they did with the states. As a result, they are expected within the next few days to demand that Prudential give the added benefits immediately or face action by the states that could cause the class-action settlement to collapse completely, the sources said.

Prudential spokesman Robert DeFillippo declined to comment on negotiations with the states. Melvyn I. Weiss, the lead class-action lawyer, didn't respond to calls seeking comment.

The class-action suit is pending in federal court in Newark, N.J. But an additional complication was added Thursday when it became known that a state court judge in Alabama certified a separate nationwide class-action suit in his court against Prudential. Alabama juries are notorious for giving huge awards to consumers in lawsuits against major corporations.

Legal experts said there is at least a possibility that the Alabama case could take priority over the federal case. That is because U.S. District Judge Alfred Wolin in Newark had not yet officially certified the federal case as a class action, which would officially give the court jurisdiction over all 10 million customers. The Alabama judge did so in a rider signed Wednesday, and the law generally gives priority to the case certified first. But the Alabama ruling could be overturned on appeal, lawyers said.

DeFillippo said the company would not comment until it received a copy of the Alabama ruling.

Prudential has been eager to reach a final settlement of claims by its customers to put a cap on the amount of money it will have to pay out. The claims stem from allegations that Prudential used high-pressure sales tactics to get customers to trade in or borrow against existing policies to buy new ones of dubious benefit.

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