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The Prudential Insurance Co. has more marketing problems in New York.

The New Jersey-based company, still negotiating a settlement with thousands of policy holders, including some Western New Yorkers from a class action lawsuit, was fined $1.5 million by the New York State Insurance Department Tuesday.

The fine is the largest levied against a company by the regulatory department this year.

Prudential was cited for a number of violations, including misleading advertising. The company failed to disclose in its marketing materials an administrative fee for a life insurance living needs benefit rider, according to the insurance department.

In addition to paying the fine, the company has agreed to correct each failure cited by state regulators.

Prudential is still settling with as many as 640,000 policy holders from a 1997 class-action lawsuit settlement over deceptive sales practices. The company was sued for tactics that included churning, an industry term for enticing policy holders to use the value of paid up life insurance to purchase additional policies.

The settlement process has been extremely slow and numerous local residents have still not been compensated, according to Judith A. Biltekoff, an Amherst-based attorney who represents local Prudential customers.

"They have either not yet had their arbitration, or they have selected one of the settlement options available to them and have not received their relief, be it cash or reinstatement of a policy," Ms. Biltekoff said, in describing the status of the local cases.

Prudential has set aside more than $2 billion for the settlement.

The state fine appears to be another black eye for Prudential, but a company spokesman said the department's action is unrelated to the lawsuit concerning prior sales practices.

Sales improvements the company identified through the lawsuit have been put in place, Prudential spokesman Bob DeFillippo said. The Insurance Department citation is largely an administrative and record keeping issue, he said.

In addition to violating advertising regulations, the state also cited Prudential for failing to produce documents the department requested, failing to comply with annual reporting requirements and using unapproved forms.

"It was and always will be important for Prudential to cooperate with state insurance departments. Any sense by the New York State Insurance Department that we were not cooperating is regretable and inadvertent," DeFillippo said.

He said Prudential will provide additional training for employees with reporting responsibilities to improve its regulatory compliance.

The class action suit concerned Prudential sales practices from 1982 through 1995. The fine levied Tuesday cites Prudential for conduct from Jan. 1, 1996 through Dec. 31, 1997.

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