Prudential cheated the families of dead American soldiers and Marines out of more than $100 million in interest on their life-insurance policies, according to a lawsuit filed Thursday in a Massachusetts federal court.
The suit, brought by the parents of two veterans who committed suicide after returning home from Iraq, came as the Pentagon, the Department of Veterans Affairs and New York Attorney General Andrew Cuomo all announced investigations into the allegations, first disclosed by Bloomberg Markets magazine this week.
"We want the government and the business world to understand that they need to stop the policy of profiting off the deaths of our loved ones," said one of the plaintiffs, Kevin Lucey, whose son, former Lance Cpl. Jeffrey Lucey, hanged himself on June 22, 2004, after returning home from his first tour.
"They sacrificed their lives," Lucey said. "No one should profit from that."
The lawsuit cites VA reports showing that Prudential, as the administrator of government-backed veterans' policies, earned interest of more than 5.69 percent on life-insurance funds that it held for beneficiaries.
Meanwhile, Prudential paid beneficiaries just 1 percent interest, the suit said.
That means, on an average death benefit of $400,000, Prudential stood to earn $22,760 in interest over the course of a year, while paying survivors just $4,000.
Lucey's attorney, Cristobal Bonifaz, said the interest "doesn't belong to Prudential."
"It belongs to the families," he said.
According to the lawsuit, Prudential paid more than $1.2 billion in death and traumatic injury claims in 2009 alone, earning interest income on nearly every claim. The plaintiffs say Prudential has kept more than $100 million that should have gone to veterans' families.
This practice is made possible because rather than paying a lump sum to survivors when a policyholder dies, Prudential keeps the money in its own accounts and issues checks to the beneficiaries that draw on those funds.
According to Bloomberg, which also made similar charges against MetLife, the practice is now widespread in the insurance industry, affecting military and non-military families alike. But what's unique about the veterans' life insurance program, Bonifaz said, is that Prudential is administering a program of the federal government.
"Every government contract requires fair dealing," he said.
The VA did not respond to repeated requests for comment. But in a statement, Mike Walcoff, acting undersecretary for the Veterans Benefit Administration, said, "The possibility that life insurance companies are profiting inappropriately from these service members' sacrifice is completely unacceptable."
Prudential spokesperson Bob DeFillippo refused to comment on the lawsuit, but said there's nothing wrong, or illegal, about Prudential keeping the death benefits of the bereaved in its portfolio or holding onto a portion of the interest.
"It's like a checking account with a bank," he said. "You deposit your money, and the bank pays you a fixed rate of interest. The bank is then free to make money on your deposit by investing it somewhere else."
But families of the fallen say there's a big difference between opening a checking account at a bank and receiving a life insurance payment when your loved one dies.
When his son, Jeffrey, died, "money was the last thing I was thinking of," Kevin Lucey said.
"Families assume that these people are protecting us and would never take advantage of us," he added. "That's where a lot of the anger comes from."
Lucey said he is not seeking to enrich himself by the lawsuit and said he hopes any settlement money goes to charities and organizations that help other families of other dead soldiers and Marines.