since withdrawn the submission, the Court addresses Oscher's analysis because other objectors have incorporated his conclusions by reference. Oscher's conclusions are not persuasive because his assumptions are mistaken.
208. For example, Oscher erroneously assumed a 4% interest rate. Id., Ex. A, at 4-5. This interest rate is substantially less than the Interest Rate under the Proposed Settlement. The Proposed Settlement calculates interest at a variable rate, the actual rate in effect between the date the policy was issued and the date of award, plus 1.5%. Stipulation of Settlement, Ex. B., at 6, P I.C. (defining "Interest Rate"). The applicable Interest Rate from 1982 through 1995 ranges from 5.04% to 9.97%. Weiss Supp. Aff. at P 54. Oscher concludes that his hypothetical claimant is not made whole in reliance on his own incorrect assumed rate.
209. In addition, Oscher misstates the function of the Financial Guarantees. Oscher complains that there is no logical reason that the first 330,000 policyholders should receive a greater remediation amount than subsequent remediated policyholders. Oscher Aff., Executive Summary, at 6 & Ex. D. This statement reflects a misunderstanding of the Proposed Settlement. If there are more than 330,000 claims remediated, the Financial Guarantees do not benefit the first 330,000 claimants to the detriment of later claimants. Rather, as is clear from a careful reading of the Stipulation of Settlement, the difference between the amount actually spent and $ 780 million will be allocated proportionally to all claimants, not merely the first 330,000 remediated claims. Stipulation of Settlement at C.5.a. and Ex. B, at 39, VI ("Allocation of Additional Remediation Amount").
210. Oscher also misunderstands Prudential's position in the ADR process. According to Oscher, the Financial Guarantee will result in Prudential skewing the scores of all claims exceeding the first 330,000. Oscher Aff., Executive Summary, at 5. The process is unquestionably designed, however, to prevent misscoring.
5. The Proposed ADR Scoring Provisions Adequately Determine Whether Prudential Misled Individual Class Members
211. The ADR procedures provide relief without regard to a policyholder's ability to establish materiality, causation, damages, or any other of the requirements that would apply in formal litigation. Nevertheless, California, the Florida AG, the Florida DOI, and Massachusetts argued that a score of "3" is too difficult to obtain. Cal. at 4-5; Fla. DOl at 6-8; Fla. AG at 13. Beauvias argues that the scoring system is "stacked" against individual class members. Beauvias at 17.
The Court finds, however, that the score of "3" is available to all claimants who establish that they are entitled to full relief.
212. For example, a "3" will be awarded whenever the producing agent confirms the allegation that a misstatement occurred in connection with the underlying sale of insurance.
And if an agent refuses to cooperate in the ALR process, the policyholder's score will also be enhanced.
213. Additionally, a "3" will be awarded whenever "Company Documentation" expressly supports the conclusion that a misstatement occurred.
"Company documentation" broadly includes correspondence from Prudential or its agents, policy illustrations, applications, and sales materials. Stipulation of Settlement, Ex. B, at 5, P I.C. The materials would encompass, for example, misleading vanishing premium illustrations,
retirement plan sales materials, and application materials reflecting replacement policy sales. These materials also would encompass commonplace handwritten notations confirming contemporaneous or prior misstatements.
214. Also, the ADR procedures incorporate several factors, "positive considerations," that may increase a score of "2" to a "3."
These considerations may afford relief to a policyholder if any of several circumstances surrounded the sale of the policy at issue. For example, if the agent without authority executed the policyholder's signature on a transaction document, the claimant automatically will receive a score of "3." Additionally, a claimant who normally would score a "2" may score a "3" if, for example: (1) the agent used unauthorized or altered sales materials or illustrations in connection with the sale, (2) the agent was terminated or otherwise disciplined or fined due to improper sales practices; (3) the agent refused to cooperate with the claim investigation; (4) the sale or servicing of the policy violated applicable state or federal regulations; or (5) documents relevant to the claim have been improperly destroyed or removed. Stipulation of Settlement, Ex. B, at 9, P ID.
215. In addition to understating a claimant's ability to score a "3," some of these objectors understate the quality of relief available to those who score a "2." Claimants awarded a "2" will receive compensatory relief equal to more than 50% of their actual damages, plus possibly a share of the Additional Remediation Amount. E.g., Id., Ex. B, at 19, P II.C.1.b. As Massachusetts has conceded, this is "meaningful relief." Mass. at 12. Moreover, this relief is not diminished by attorneys' fees or costs as would be the case in an ordinary civil proceeding. Absent the Proposed Settlement, the policyholders somehow able to secure representation on a contingent fee basis would pay 30% to 40% of their recovery, plus litigation costs, to their counsel.
6. The ADR Process is an Appropriate Mechanism to Assess Whether Class Members Were Affected by Prudential's Deceptive Sales Practices
216. Treadway objectors argue that there should be an independent audit to initiate and remediate claims, so that individual class members need not act to receive relief. Treadway Supp. at 3. According to the Treadway objectors, the victimized policyholder demographics--injured policyholders were often elderly or uneducated--mandate automatic remediation. Id. at 5. Treadway objectors argue that the need for an automatic auditing system also is supported by Prudential's deliberate destruction of damaging evidence. Id.
217. Treadway errs. Courts widely have recognized that it is generally appropriate to require each class member to demonstrate his or her entitlement to relief under the ADR. See, e.g., Franks v. Kroger Co., 670 F.2d 71, 72-73 (6th Cir. 1982) (affirming employment action settlement requiring class members to prove they were subjected to discrimination before receiving relief); Carbone v. Gulf Oil Corp., No. 85-361, 1989 U.S. Dist. LEXIS 8805, at *5-10 (E.D. Pa. July 27, 1989) (approving settlement requiring claimants to submit substantiated proofs of claim demonstrating entitlement to relief).
218. Moreover, the ADR process does in effect presume that claimants are entitled to relief unless Prudential proves otherwise. A policyholder will be entitled to no relief only where the evidence, on balance, shows that no misrepresentation occurred. Where evidence is evenly divided policyholders will receive a "1," which may in many cases be enhanced to a "2" by the positive considerations discussed above.
219. And the Proposed Settlement must be assessed as a whole; the Court cannot extricate an individual provision from the plan. Plaintiffs achieved minimum guarantees, additional remediation amounts, and other benefits under the Proposed Settlement that may benefit policyholders more than the provisions that the objectors request.
7. The ADR Process Adequately Identifies Churning Cases
220. According to some objectors, the Proposed Settlement unfairly requires each class member to initiate and prove his or her right to compensation through the ADR Process. Treadway Supp. at 3-4. These objectors argue that Prudential policyholders who were churned should be identified objectively through an independent audit using the "exact match" system and should be automatically compensated. E.g., id. The Court rejects the argument that the "exact match" system is preferable to the ADR procedures. To presume that all of Prudential's financed sales were wrong, ignores the reality that financing can be in the best interest of the consumer. The consumer may desire to meet increased life insurance needs without any immediate cash outlay, for example. Lautzenheiser Aff. at P 3. Neither the "exact match" system, nor any presumption that a financed transaction is fraudulent, is an appropriate replacement for the ADR, which appropriately discerns whether a given transaction was improper and affords the affected policyholder adequate relief.
221. The "exact match" system isolates all new policies issued for which the premiums equal the amount of disbursements from old policies where the disbursement was made within 90 days of the issuance of the new policy. Treadway Supp. at 4. This system can be used whether or not the original policy was from Prudential, because Prudential's files contain records of disbursements of both Prudential and non-Prudential policies. Id. at 4 n.3.
222. The "exact match" system is unnecessary, because the ADR adequately remediates policyholders who believe that they were induced through deceptive sales practices to buy their policies. And the "exact match" system is inappropriate because it detects as "matches" replacement transactions that are not illegal, fraudulent, or otherwise improper. All states permit replacement sales to occur and experts agree that financed life insurance sales may be in the best interest of the policyholders. Lautzenheiser Aff. at PP 13-24. No states have prohibited financed insurance or replacement sales; nor have they found that these practice are misleading or improper per se. Id. at P 3. Rather, states have prescribed appropriate safeguards to ensure that policies are financed properly, with clear and complete disclosure, and in a manner that protects the consumer against fraud and misrepresentation.
Id. at P 14.
223. Indeed, federal and state regulators, life insurance industry associations and consumer advocates have long recognized that financing or replacements may be in the best interest of a policyholder. Id. The laws only prohibit misleading or deceptive practices. Id. at PP 19-24. The Task Force, for example, found that when interest rates were high in the 1980s financing new policies with values from older policies may have been a sound financial decision for some policyowners:
When interest rates were high and universal life and "interest-sensitive" whole life products were being developed, the replacement of old life policies sold at rates based upon old mortality tables and offering low interest rates could have been viewed as a sound financial decision for many policyowners. These new products were designed to compete with banks, money market funds and newly founded life insurers that could offer new money interest rates that were at an all-time high.
Task Force Report at 7.
224. Moreover, the ADR process is preferable to the "exact match" system, because the ADR process incorporates the actual protections afforded by state laws as they have existed over time. A violation of any state law or regulation applicable at the time of sale, whether replacement or otherwise, is deemed evidence that the policyholder was misled, and directly factors into the scoring of his or her claim. Stipulation of Settlement, Ex. B, at 11, P I.F.1.e (including as a positive consideration a violation of state insurance statutes or regulations).
Additionally, if the available evidence does not include executed forms required to be retained under state law, the Company is deemed to have violated applicable regulations and the claimant receives no less than the rescission remedy for a claim attaining a score of "2" without any deduction for term insurance costs. Id., Ex. C, at 10, P II.A.5.
8. The ADR Process Adequately Identifies Cases in Which Prudential Sold Life Insurance Policies as Investment Vehicles
225. Objectors argue also that an "even premium/odd face amount" test should be used to detect life insurance policies sold as investment vehicles and to provide automatic relief to class members. Fla. DOI at 14-15; Treadway at 4. The "even premium/odd face amount" test is inferior to the current ADR process, however.
226. According to these objectors, ordinary life insurance policies are sold to achieve a face value of even increments, e.g., $ 1,000 investments. Treadway at 4. The premium payments on these policies are calculated to achieve the desired face amount, and rarely result in premium payments equaling round numbers, i.e. multiples of $ 5. Id. The Florida DOI system detects policies for which premium payments are in unusually round numbers, such as $ 50, $ 55, or $ 75, and the face value of the policy is not in $ 1,000 increments. Id. Because people who desire to save often desire to save in multiples of $ 5, where an agent sells a policyholder a policy for investment purposes, according to these objectors, the agent begins with a round numbered monthly payment or premium, e.g., $ 25 per month, and then backtracks to determine the face value of the policy, which often involves dollars and cents, e.g., a face value of $ 65,243.23. Id. According to Treadway and the Florida DOI, locating so-called "even premium/odd face amount" policies is tantamount to locating insurance policies sold as an investment vehicle and qualifying polices should receive full relief. Id.; Fla. DOI at 14-17.
227. But, there is no basis to presume that a policy having a face value that is not a multiple of $ 1,000 was sold as an investment and not a life insurance policy. Indeed, using the presumption would likely identify legitimate VAL sales, rather than solely improper transactions, because it was a common practice for Prudential representatives to work out an even premium schedule dictated by a client's ability to make regular payments. Fiandaca Decl. at P 8. And, this sort of premium-driven transaction often results in a policy having a face value that is not a multiple of $ 1,000. Id. Consequently, it would be unreasonable to impose the requested presumption on these Prudential transactions.
228. The Court finds that the existing ADR provisions adequately identify transactions in which life insurance was sold as an investment plan. The ADR process weighs the available evidence, including policyholder statements, available documents, and agent complaint histories. These are more accurate indicia of whether a policyholder was misled than the proposed "even premium/odd face amount" test.
229. Consequently, the Court rejects the argument that the ADR process should be replaced with the proffered "even premium/odd face amount" test.
9. The Proposed Presumptions for APP Claims Are Unnecessary and Inappropriate
230. Massachusetts argued and Beauvias argues that beginning in 1984, Prudential improperly used the "Investment Generation Approach" ("IGA") to set the dividend scales that appeared in Prudential's illustrations without fully disclosing the implications of the IGA change in the illustrations. Mass. at 13-15; Beauvias at 8-10. Massachusetts argued that the ADR should include additional evidentiary considerations to increase a policyholder's score where these illustrations were used in a sale. Mass. at 13-15. Additionally, California proposed five additional factors that it believed should be considered in evaluating claims involving APP claims. Cal. at 10-11.
231. The Court finds that the ADR process adequately addresses and remedies the damages flowing from Prudential's decision to adopt the IGA. First, if the class member was misled, the ADR scoring provisions will score the class member so that the class member will be entitled to significant relief. Second, the ADR damages formula adequately accounts for any losses stemming from Prudential's IGA. Vanishing premium scheme victims may obtain the difference between the premium payments and policy values illustrated at the time of sale and those that occurred in the wake of falling interest rates. Stipulation of Settlement, Ex. B, at 28-31, PP III.C.1.a, III.C.2.a. To the extent that claimants were paid dividends lower than those Prudential projected at sale, thus, they may recoup the resulting damages under the ADR process. Under any measure, this is fair and adequate relief.
10. No Additional Evidentiary Considerations Are Necessary