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August 05, 2001 at 08:00 PM
Lawsuits Seek To Change Prus Demutualization Plan
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Attorneys have filed a federal class-action lawsuit in Newark, N.J., the home town of Prudential Insurance Company of America, charging the insurers demutualization plan dilutes the stake of longtime policyholders.
The suit, filed by three law firms, alleges that Prudentials plan dilutes the ownership interests of participating policyholders by giving shares to nonparticipating policyholders. Prudential has sold variable policies, which are nonparticipating, through a stock subsidiary, Pruco Life, a company spokesperson says.
The lawsuit was filed on behalf of a policyholder in New York City and another in Yreka, Calif., and seeks court authorization as a class action on behalf of Prudentials approximately 10 million policyholders in the U.S. as of Dec. 15, 2000.
It charges that Prudentials inclusion of nonparticipating policyholders in distribution of stock is unfair to participating policyholders.
“These nonparticipating contract holders have never owned a piece of the rock and should not be allowed now,” the attorneys stated in court papers.
Participating contracts, the suit argues, pay premiums that are usually higher than for nonparticipating contracts, with the understanding that excess premiums be returned to them as dividends. Participating contracts thus give owners vested rights in the company, the attorneys argued in papers filed with the state superior court in Newark.
The suit notes that the demutualization plan also would allocate shares to other nonparticipating contracts, including certain annuities and Prudential HealthCare contracts sold to Aetna in 1999.
The attorneys say they may also file suit later against New Jersey Commissioner of Banking and Insurance Karen Suter if she approves Prudentials plan in its current form.
According to the papers the attorneys filed with the court, Prudential admits that the plan would reduce the total compensation to participating policyholders by 11.8%, with a value estimated at $1 billion.
