DOL Settlement with Prudential Highlights Risks for Employers Administering Supplemental Life Coverage

On April 19, 2023, the DOL announced a settlement with Prudential Insurance Company of America (Prudential) following an investigation into the carrier’s group supplemental life insurance claims practices. The DOL investigation found that Prudential, based on the terms of its group life insurance policies, has denied claims for failure to provide evidence of insurability (EOI) after collecting supplemental life insurance premiums from participants (via employer payroll deductions) for extended periods of time.

Specifically, from 2017 to 2020, Prudential denied more than 200 claims related to supplemental coverage on the grounds that the participant failed to produce EOI, despite collecting premiums for many months or even years. The DOL’s announcement noted that parallel investigations found other life insurers also engaged in similar practices.

The Prudential settlement provides protections for participants who have paid premiums for extended periods of time and were thereby led to believe their coverage is in force. First, Prudential is prohibited from denying a death claim based on lack of EOI when premiums were collected for more than three months. Second, Prudential is prohibited from denying continued coverage based on EOI for any participant who has been paying premiums for more than one year. Third, for any participant who has not submitted EOI as required under the group life policy terms but has been paying coverage for less than one year, Prudential can only require EOI as of the date of the participant’s first premium payment. Meaning, Prudential cannot request nor consider information regarding a medical issue, diagnosis, new prescription, or any other relevant insurability fact arising after Prudential’s receipt of the participant’s first premium payment. Fourth, Prudential must notify all group policyholders of these new protections and corrective premium collection procedures going forward. Finally, separate from the settlement agreement, Prudential advised the DOL they will voluntarily reprocess and pay any claims denied for lack of EOI since June 2019.

Importantly, for employers sponsoring group life insurance plans, the DOL settlement affirms that employers may be liable for claims if they collected premiums without first confirming that Prudential approved the employee’s or eligible dependent’s EOI. This is consistent with federal courts across the country that have found employers liable for breach of fiduciary duty under ERISA when collecting premiums on life insurance coverage that is not in force. Two of these cases were recently featured in Compliance Corner: Gimeno v. NCHMND, Inc. and Skelton v. Radisson Hotel Bloomington.

Employers should work with their life insurance carriers to maintain a safeguarded system for verifying enrollment and collecting premiums. Any discrepancies should be reviewed with legal counsel.

DOL and Prudential Settlement Agreement »