The story focuses on a bereaved mother, Cindy Lohman. After her 24-year-old son Ryan was killed by a bomb in Afghanistan, she received a letter from Prudential saying, according to the story, “that the full amount of her payout would be placed in a convenient interest-bearing account, allowing her time to decide how to use the benefit.”
But then, she says, two retailers rejected the insurance company’s drafts when she tried to use them, and later she learned the account wasn’t FDIC-insured.
The story effectively lays out her perspective and the problems with the accounts. But it also quotes DeFillippo giving the company’s view:
“For some families, the account is the difference between earning interest on a large amount of money and letting it sit idle,” he says.By quoting DeFillippo, Bloomberg makes it clear that beneficiaries could get their money using the drafts and that they were paid interest. So the text of the story provides that information, rather than withholding it. Indeed, the fact that it was so clear that beneficiaries could get their funds via the drafts is why I think the phrase in the headline—“denied cash”—crossed the line (and was not fair). In contrast, and tellingly, the story never uses that phrase.
”We fully and regularly disclose the nature and terms of the account to account holders,” DeFillippo says. “We make it clear that the money can be withdrawn at any time by simply writing a draft.”
Reading the story, it is clear that beneficiaries could get their hands on the lump sum, but not without going to extra trouble—writing a draft for the total amount and taking it to a bank. According to a subsequent Wall Street Journal story on the accounts, a banking consultant said that drafts can sometimes take two to three days longer to clear than checks. And, crucially, as the story makes clear, beneficiaries and even VA officials, often didn’t understand the terms of the deal.
“Delayed cash” isn’t as sexy as “denied cash.” A better headline might have been, “Fallen Soldiers’ Families Snared in Red Tape as Insurers Profit,” or some such.
Subsequent decisions by the VA to require Prudential to improve disclosure underscore that the process wasn’t as clear as it should have been. In dealing with the recently bereaved, you probably want to err on the side of too much disclosure rather than too little. It is worth noting that confusion here would tend to benefit Prudential.
The other problem with the program, which Bloomberg properly flags, is that it required the bereaved to opt out of the “checkbook” alternative. And, as every marketer knows, a program that requires action to get out of means that a higher percentage of participants will stay in the program. On September 14, the VA said that it “will provide better clarity of payment options by using new document that asks the beneficiary to choose one payment option, including a lump sum check, or a lump sum Alliance Account (retained asset account) that allows beneficiaries the option to immediately write a check for the entire payment or any lesser amount.”
So, Bloomberg did some good here.
The legal status
From DeFillippo’s complaint:
Several judges have rejected claims against accounts like the Alliance Account, concluding that beneficiaries are in virtually the same position they would be in had the insurer sent them a check because consumers can immediately withdraw the full proceeds. On Friday, Sept. 10, a federal judge in Nevada threw out a lawsuit against MetLife that alleged the insurer misled beneficiaries over the use of such an account. Last December, Judge Joseph Greenaway Jr., in federal court in Newark, N.J., asked a plaintiff’s lawyer, “What am I missing here? Your client has the ability to get all of her money from day one.”
But Bloomberg, in its July 28 story, did discuss the state of litigation, and it’s not as simple as DeFillippo makes out:
A few people have sued insurers over the use of retained-asset accounts. Prudential won a lawsuit in 2009 in which a survivor complained about the Alliance Account. MetLife has a case pending in which a survivor says that she was cheated by the retained-asset account. In court-filed papers, MetLife denies any wrongdoing.
There has been only one ruling by a federal appellate court on the substance of such accounts —and it went against an insurance company.”
As for the Nevada case, although a win for MetLife, it was not an endorsement of the accounts. Bloomberg dealt with the ruling by U.S. District Judge Larry Hicks, in Reno, in a story on September 28 (although that story had not run when DeFillippo complained to The Audit):