For a century, it was standard practice at many American insurance companies: When it came to burial insurance, blacks were charged more than whites for the same coverage.
The policies were small, paying out just enough for a modest funeral, but millions of them were sold, many to poor black families in the South. Now, the industry is being called to account.
Insurance regulators in many states have filed complaints. Lawyers representing black families have brought class-action suits. And companies with policies sold by scores of insurers, unwilling to defend what is now viewed by society as indefensible racial discrimination, are settling out of court.
Between 2000 and 2004, 16 major cases were settled, according to interviews with insurers, state regulators, and lawyers for policyholders. Those cases covered 14.8 million policies sold by 90 insurance companies between 1900 and the 1980s.
Together, the settlements require the companies to pay more than $556 million — most of it in restitution to policyholders or their survivors, but some of it in fines, legal costs and charitable contributions.
The two biggest settlements: American General Life and Accident Insurance Co., of Nashville, Tenn., agreed in 2000 to pay $250 million in a case involving 9.1 million policies. Metropolitan Life Insurance Co. of New York agreed in 2002 to pay $157 million for 1.9 million policies.
In one of the most recent cases, Mutual Savings Life Insurance Co., of Decatur, Ala., agreed in June to a settlement valued in federal court papers at $11.6 million. It awaits final approval by a judge.
More cases are still being adjudicated, but they involve relatively small numbers of policies. The settlements don’t threaten the stability of the life insurance industry, which has resources to cover $25 trillion worth of policies.
As of 2002, more than 21 million old burial policies worth $16 billion remained in force, according to the rating firm AM Best Co. But by the 1980s, the small policies had become unprofitable and few new ones were being sold. Openly discriminatory insurance rates faded out with them, the insurance industry and most critics agree.
“We believe in our heart of hearts that this practice is a thing of the past,” says Jose Montemayor, a Texas regulator who chaired a committee on this type of insurance for the National Association of Insurance Commissioners.
The settlements are part a larger societal discussion over redressing historic wrongs against minorities. Courts have recognized the rights of some Indian tribes to land under old treaties. Some newspapers have printed apologies for once accepting slave-trade advertising. And reparations for the descendants of slaves continues to be a hotly debated topic.
Jack Dolan, spokesman for the American Council of Life Insurers, a trade group, said the insurance industry settlements are best understood “in the context of America’s complex history of race relations.”
Burial insurance, also known as industrial insurance, was originally developed in Britain for sale to factory workers. Introduced in America in 1875, it spread nationwide, taking especially strong hold in black neighborhoods in the Southeast.
There, insurance agents peddled the policies door-to-door, promoting them as a way for people to ease the financial burden that would otherwise fall on surviving family members. Some families skimped on food to pay the premiums, the Federal Trade Commission said in a 1979 report.
Typically, agents stopped by weekly to collect the premiums — often a dollar or less. Through these regular visits, the agents could see when families were growing and press to insure each new member.
Bessie Jones, 75, a retired domestic worker in Sarasota, Fla., says she bought a policy because “I had no money to bury myself.” Eventually, she said, she bought at least a dozen more for her children and grandchildren.
Instead of consolidating multiple policies into a single one at a better rate, black customers were encouraged to keep buying individual ones, policyholder lawyers say.
By 1955, the high-water mark for burial insurance, American insurance companies held more than $40 billion worth in 155 million policies, according to the Federal Trade Commission. Some industry behemoths, including Metropolitan Life, built their business largely on profits from burial insurance in the late 19th and early 20th centuries, according to government and corporate accounts.
That racial bias was built into these policies was long an open secret in the insurance industry. Insurance forms asked the applicant’s race, and black were routinely charged more than whites for the same coverage, the insurance industry now publicly acknowledges.
Typically, it was one third more, according to lawyers representing black policy holders.
Throughout the 20th century, an occasional government report, lawsuit, or news article questioned the morality or legality of this practice, but until recently there were no organized challenges.
For decades, the insurance industry defended the discriminatory practice, arguing that blacks on average didn’t live as long as whites, making them a worse insurance risk.
“At that point, discrimination was considered an actuarial science,” says Joanne Stone Morrissey, president of the insurance researcher Firemark Group in Morristown, N.J.
However, attorneys for black policyholders say, many insurers continued the practice long after it became known that it was poverty, poor medical care and risky jobs — not race — that contributed to shorter life spans. That meant blacks continued to pay more than whites who faced similar risks.
In many cases, industry critics say, premiums paid over the years greatly exceeded the payout value of the policies. One couple, for example, spent $585 in premiums for a policy that paid a benefit of only $60, according to one lawsuit. Another policyholder paid $728 in premiums over 20 years for a $500 benefit.
That didn’t necessarily break the law, said Mario Parcella, a lawyer for policyholders. But, he added, “it’s part and parcel of what we consider a scheme to take advantage of African-Americans.”
Lawyers for black policyholders say that in the end, there was a final indignity: Some were cheated out of their benefits.
For example, Henry James, a black railway worker and truck driver, paid premiums regularly for more than a half century, according to his son, Cornelius, of Darlington, S.C. Yet the insurer eventually told the father that some family policies, including the one on his own life, had somehow lapsed, his son says.
“That was kind of ridiculous, you paying premiums all your life, but you don’t have no coverage? What were you buying?” asks the son. “He felt kind of hurt, down. He felt like he was misled and done wrong.”
Giving up on insurance, James prepaid his $4,800 funeral from savings and died of throat cancer in 2001. His son has joined a class action suit pending against Liberty Life Insurance Co.
Bill Free, a spokesman for Liberty Life, of Greenville, S.C., acknowledged the company did charge more to blacks “based on differences in mortalities.” He declined to discuss details of James’ policies, citing confidentiality of policyholders.
The first whiff of legal action against the discriminatory practices came in the late 1980s. The National Association of Insurance Commissioners surveyed insurers and turned up 52 who acknowledged having set race-based premiums in the past and 22 who were still collecting them in 1988.
South Carolina wrested a quick settlement from Atlantic Coast Life Insurance Co., but most states soon lost interest.
“Let’s just say it fell between the cracks,” says South Carolina’s former insurance commissioner, Ernst Csiszar, who now heads the Property and Casualty Insurers Association of America.
Complaints kept piling up, though; and in 1999, lawyers representing policyholders sued American General, which had taken over many burial policies from other insurers it had acquired. Florida state regulators joined in, subpoenaing the company’s records.
“Our eyes just popped out,” recalls Dan McLaughlin, who was an aide to the state’s insurance commissioner. “Everyone who had a burial policy over all those years was still paying the race-based rates.”
Pointing to the shorter average life span of blacks, American General initially claimed the “right to practice fair discrimination based on sound actuarial principles” — like charging a sick person more for health insurance. Insurers also said the policies cost more because they had to field a network of traveling agents.
Today, American General is “absolutely opposed to any form of illegal discriminatory behavior,” said Joseph Norton, a spokesman for the parent company, American International Group.
Some insurers accuse regulators of hypocrisy in coming after them for racial pricing. For decades, regulators “were aware of it, they blessed it, they told them use it; then here a number of years later, the departments of insurance go after the companies for using it,” says Scott Cipinko, director of the Atlanta-based Life Insurers Council.
By settling cases out of court, insurers have avoided possible guilty verdicts and a public relations debacle in a society with evolved views on race.
In a curious twist, though, insurers who once shunned black business escaped liability.
“When many other life insurers in the first half of the 20th century refused to sell to African-Americans, MetLife sold policies that performed as promised,” Metropolitan Life’s chairman, Robert H. Benmosche, said when his company settled.