Prudential Fined for Destroying Records

NEWARK, N.J. — A federal judge fined Prudential Insurance Co. $1 million on Monday for repeatedly destroying documents relevant to a massive life insurance fraud lawsuit, and he criticized the company’s top executives for failing to inform employees of a court order banning such destruction.

The ruling by U.S. District Judge Alfred M. Wolin of Newark came on the heels of mushrooming disclosures of document destruction by the nation’s largest insurer, and it contradicts the company’s repeated public statements that it had clearly warned employees not to destroy records. Wolin found that most employees never received any warnings.

The judge also called into question the company’s claim that it had retained copies of many of the destroyed documents, and he noted that the company had kept no log of the materials that had been destroyed.

The judge’s 52-page opinion cited four separate instances of document destruction in Prudential offices around the country. The documents included allegedly misleading sales materials and records from individual customers’ files.

The judge ruled that the fine was warranted because of “Prudential’s consistent pattern of failing to prevent unauthorized document destruction,” and he said the blame “rests squarely on the shoulders of senior corporate officers.”

Despite the fine and harsh words, Prudential’s top executives had reason to be relieved. With no explanation or discussion, the judge also ruled that there was “no willful misconduct,” and he took no action on a formal request by lawyers for some policyholders that he refer the matter to the Justice Department for a criminal investigation.

In a written statement Monday, Prudential Chairman and Chief Executive Arthur F. Ryan said the proper retention of documents has been “one of the most important issues for us.” He said the company “pledges that no policy owner will be harmed because their records were not properly retained.”

The ruling follows Prudential’s admission Dec. 16 that a large sales office in Cambridge, Mass., had destroyed 80 documents from customer files. The judge then ordered the lead plaintiffs’ lawyer in the class-action suit to conduct an investigation.

The inquiry found that more than 9,000 customer files in that office were purged of potentially damaging material and that considerably more than 80 documents were destroyed, although it said there was no way to give a precise figure. In addition to the Cambridge incident, the judge cited Prudential’s admission that documents had been destroyed in Jacksonville, Fla.; Syracuse, N.Y.; and Des Moines.

The failure to order a criminal investigation drew immediate criticism from several policyholders’ lawyers. Pittsburgh lawyer Michael P. Malakoff noted that Prudential is a mutual insurance company, owned by its policyholders, and that any fine would therefore be borne by them.

In addition to the fine, the judge ordered Prudential to send every employee a copy of the court’s September 1995 order banning document destruction. He also ordered the company to prepare within 30 days a policy manual clearly spelling out guidelines for retaining documents and to set up a telephone hotline for reports of improper discarding of documents.

In response to repeated disclosures in recent months of document destruction, Prudential has said that employees acted despite clear policy statements from the company banning document destruction. Prudential said it had notified all employees of the policy through a series of memos. But the judge found that the memos were sent only by e-mail and were never issued in printed form, and that many Prudential employees don’t even have access to e-mail.

The judge specifically named Ryan as well as other top executives as being to blame for not seeing to it that employees were informed of the order. The ruling also appeared to put particularly heavy blame on James R. Gillen, the company’s general counsel. The judge noted that in a deposition, Ryan had said he had delegated responsibility for preserving documents to Gillen’s department.

But the judge said the evidence showed that “Gillen had little personal involvement in this issue,” and he faulted Gillen for concentrating his efforts instead on discouraging employees from disclosing potentially damaging information about life insurance sales practices to the plaintiffs’ lawyers.

Gillen failed to return a phone call seeking comment.