Legion files Amicus Brief in Prudential SGLI case

Do the Scales of Justice tip to a large corporation, or to the grieving parents of America's fallen heroes? Bloomberg lays out the basics:

Prudential Financial Inc.’s practice of collecting interest on unpaid veterans’ life-insurance benefits is “unlawful and dishonest,” the American Legion told a judge yesterday. The American Legion, the largest U.S. veterans’ service organization with 2.5 million members in almost 14,000 posts worldwide, asked permission to file a legal brief supporting a pending case in Springfield, Massachusetts, against Prudential Insurance Co. of America, a unit of Newark, New Jersey-based Prudential Financial. The pending lawsuit by the families of deceased veterans accuses the insurer of failing to pay beneficiaries in a lump sum as required by U.S. law and the language of the policies. Instead, the lawsuit says that Prudential strongly encourages beneficiaries to keep the money in accounts with the company, which pays them a small amount of interest.

I took Insurance Law in Law School, but to be honest, I don't really know the issues all that well. I took it because the professor was young and attractive, and it fit into my schedule, which was largely focused on spending as little time at the law school as humanly possible. I did a paper on War Clause Exemptions in Insurance Policies, and I got a B+, which marked the only non-A I received on a paper. (Which still only brought my cumulative to a point to graduate almost exactly in the middle of my class. Damn essay questions.) Anyway, here is some of the pertinent parts of the Amicus:

The Legion believes that a large percentage of the families of fallen servicemembers will not take action when given the Prudential “checkbook.” Therefore, in many cases, Defendant is able to invest money and earn unjustifiable income when that money should have been under the complete control of the beneficiary. Defendant’s practice is unlawful and dishonest. It is especially objectionable because sophisticated money managers are making an unwarranted and unlawful profit from the deaths of those who have given the most to preserve our nation’s way of life.

I like the second argument about the "sophisticated money managers" versus the Beneficiaries better than the "unlawful" argument, simply because I don't know what law was broken. Here is some more on that aspect though:

The Servicemembers’ Group Life Insurance Act (“SGLIA”) and the life insurance policy do not allow Defendant to retain the money at all. In all of the other cases where courts have addressed similar situations (Garcia v. Prudential, 2009 U.S. Dist. LEXIS 120834 (D.N.J. 2009); Clark v. Met Life, 2010 U.S. Dist. LEXIS 95097 (D. Nev. 2010)), the policies expressly allowed the insurer (including Prudential in Garcia) to place the benefits in an Alliance Account-type retained-asset account. That is not the case here, because the statute specifically provides that Prudential may only pay proceeds via a lump sum or in 36 equal monthly pyments.2 In these cases, the servicemember/veteran specifically indicated that a lump sum payment be sent to his beneficiary. Nonetheless, Prudential ignored the specific language of the statute and the specific instructions from the servicemember/veteran and created Alliance Accounts for the purpose of keeping the beneficiary’s money for Defendant's investment purposes. Such behavior, in a society that places great value on the virtue of military service, is simply not acceptable.

Again, I don't know as much as I should about this, as I don't have the statute in front of me. I'm sure the judge will of course, but I don't know what the statute said. It would be interesting to read any Amicus briefs submitted by Members of Congress.

It is clear that Alliance Accounts (which are a type of retained asset account) are specifically created to make additional profits for the insurance company. As Gerry Goldsholle, a former president of Met Life Marketing Corp. who invented such retained asset accounts, stated, “I looked at this and said this is crazy.... What are we doing to retain some of this money? It’s very expensive to bring money in the front door of an insurance company. You're paying very large commissions and sales expenses.... [With retained-asset accounts, t]he company would win because we would make a nice spread on the money....”

That does seem to be the money quote, no pun intended. And then the Amicus closes with the sophistication argument again:

Defendant is able to unlawfully make money from Alliance Accounts because it knows that many Plaintiffs are highly unlikely to take the money out of the accounts for some time.4 Defendant takes advantage of the fact that most Plaintiffs are at one of the most vulnerable times in their lives. Defendant knows that many Plaintiffs are busy mourning their loved ones’ deaths and handling all of the details that come with such tragedies; therefore a significant percentage of beneficiaries will not promptly act to remove their money from the Alliance Account. The most difficult time in Plaintiffs’ lives is not the time when Defendant should be asking Plaintiffs to jump through additional hoops or fill out additional paperwork in order to receive what is rightfully owed them. In fact, the deceased servicemember or veteran presumably chose the option of having his or her family paid in one lump sum payment to save his or her family from having to do further negotiations at that tragic time.

To me this case is all about who the beneficiary is going to be: the bottom line of Prudential and their stockholders, or the grieving parents of a hero? If Prudential doesn't want to give up that income, Congress or the SGLI folks should go and find another company.