Class Claims Prudential Cheats on Interest

     LOS ANGELES (CN) – Prudential Insurance applies an “arbitrary and unreasonably low interest rate” to delayed death benefits it pays to life insurance beneficiaries, a class action claims in Superior Court.
     Lead plaintiff Beverly Burton lost her son to cancer 32 years ago. She was the beneficiary on a Prudential policy her husband took out on their late son, Roderick, in 1958.
     Though Roderick died of cancer in 1981, Burton says it took Prudential 32 years to confirm the death benefits, which it did in May this year.
     Two months later, Prudential sent her a check for $5,040.11. It told her in a letter that the money was for the $1,000 death benefit, plus interest.
     Burton claims Prudential did not explain how it calculated its annual interest rate of 2.5 percent.
     When she sought clarification, she says, she received a “vague and grammatically ambiguous” reply.
     “‘Please note that California law requires payment of interest from the date of death at a rate not less than the current rate of interest,'” Prudential wrote her, according to the lawsuit.
     But Prudential cheated, taking advantage of today’s low interest rates to alter the language and meaning of the law, Burton claims: “The ‘California law’ that Prudential referred to is presumably Insurance Code section 10172.5, which requires insurers to pay interest ‘at a rate not less than the then current rate of interest on death proceeds left on deposit with the insurer computed from the date of the insured’s death.’
     “In its explanation to Beverly – and apparently in its determination of interest due under both the policy and California law – Prudential substituted the ‘current rate of
     Interest’ for the code’s ‘then current rate of interest,’ dramatically altering the applicable interest rate in its favor.
     “When Roderick died in 1981, the current interest rates were at record highs.
     Upon information and belief, the then-current rate of interest on death proceeds left on deposit with Prudential was far higher than 2.5 percent. Prudential thus grossly underpaid Beverly under California law and the policy.”
     (Interest rates hit double digits in 1980-81, and were a major factor in making Jimmy Carter a one-term president.)
     Burton wants Prudential enjoined from paying interest “untethered” to interest rates at the time of death. She also seeks class certification, restitution and damages for violation of the Business and Professions Code, breach of covenant of good faith and fair dealing, and breach of contractual duty to pay a covered claim.
     She is represented by William Shernoff with Shernoff Bidart Echeverria Bentley, of Beverly Hills.
     Prudential spokesman Bob DeFillippo said he could not comment on pending litigation.

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