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A history of bias by MetLife?

Files may show it sidestepped race-data ruling

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The letter from MetLife Inc. to the New Jersey insurance department in 1964 didn't mince words. Arguing against a proposal to stop insurers from collecting race data on customers, MetLife said it had good reason to do far more rigorous background checks on minorities wanting to buy life insurance than on whites.

"Non-whites present special insurance problems traceable to their generally less favorable living conditions and greater instability of the family among them," the company's letter said.

MetLife lost the battle. But records show it simply adopted another way to screen out the minority customers it considered bad risks: "area underwriting." This was designed to curtail business in inner-city and poorer neighborhoods around the country, according to company memos. MetLife had begun planning for area underwriting after its chief actuary sounded an alarm about the changing racial composition of cities.

"I am concerned about the likelihood that if we continue to write business extensively in certain portions of cities, such as Washington, Baltimore, Detroit, Chicago and New York, where the proportion of the total population that is colored is increasing, we may, say in ten years time, wind up with a serious handicap" in terms of increasing payouts on life insurance because of higher death rates, wrote the actuary, Edward A. Lew, in a memo dated Oct. 15, 1959.

This and many other documents from the 1940s through the mid-1970s have emerged as MetLife faces a federal suit in Manhattan and a New York state investigation of whether it systematically discriminated against non-white customers. MetLife is the nation's largest publicly held life insurer, tracing its history back to 1863, when a predecessor called National Union Life & Limb insured Civil War soldiers.

To comply with evidence requests, MetLife has had to dredge thousands of pages of material from boxes warehoused decades ago. The documents still matter legally because millions of older policies remain in effect, and African-American policyholders are seeking damages for financial harm they say they still suffer. The suit recently passed a key hurdle when the court rejected the company's bid to dismiss it.

MetLife said last year that it began phasing out race-based underwriting in 1948, and that the last vestiges were gone by 1960. The new documents show, however, that race-based practices remained in effect years longer, and applied to a much wider range of policies. The memos also spell out techniques not disclosed before, such as subjecting non-whites to a more complicated application process, which tended to limit them to smaller policies costing more and carrying fewer benefits.

Aside from their potential legal impact, the newly unearthed documents offer a rare look inside a leading life insurer's policies toward blacks before and during the civil rights movement. Unlike many competitors, MetLife solicited African-American customers. But it didn't do so on equal terms. The documents show that well into the 1960s, even as the nation's consciousness was being raised about racial inequality, the company opposed giving blacks free access to standard-rate policies. Its executives feared this would unacceptably increase payouts and other costs. The result, one 1950 memo argued, would be "unfair discrimination against white policyholders."

The disclosures come as state regulators nationwide examine more than 70 life-insurance companies for possible continuing effects of past discrimination. Private suits are pending against many companies as well. Sparking the inquiries was Florida's discovery 18 months ago that some insurers operating mainly in the South had continued to collect higher premiums from blacks on policies written many years before. One of those insurers, Houston-based American General Corp., agreed last year to a $215 million settlement.

The suit against MetLife has progressed further than the suits against other leading companies, resulting in the most detailed disclosure so far of internal discussions of race. MetLife also appears to have the most black customers with policies dating from before the 1970s. It stated in a 1964 letter that "we insure a far larger number of non-white persons than any other insurance company."

The company declines to comment on the newly unearthed documents, saying the issues are "the subject of ongoing litigation, and MetLife does not intend to litigate these matters in the press." Last December, The Wall Street Journal reported that at least into the 1950s, MetLife restricted its African-American business by means that included questionable lists of "hazardous occupations" in which blacks were heavily represented. The article said that as a result, many older blacks received fewer shares when MetLife doled out stock to policyholders last year as it converted into a public company. MetLife denied this.

MetLife has maintained it is being singled out unfairly, given its history of soliciting African-American customers, albeit on different terms. One leading competitor, the life-insurance unit of what is now John Hancock Financial Services, barred its agents from soliciting any black business until about 1960.

MetLife has said its race-based practices for selling life insurance didn't reflect prejudice but simply the fact that blacks, on average, died sooner. Blacks' life expectancy was much shorter than whites' in the first half of the 20th century. It remains shorter, though the gap has narrowed to about six years. Most health experts and actuaries attribute this largely to factors such as poverty and access to medical care rather than inherent racial traits. But the Supreme Court in 1976 made clear that federal law bars taking race into account when setting the terms of contracts.

Records show that beginning in the 1940s, MetLife actuaries acknowledged that blacks' shorter life expectancy might be due to poverty. They resolved to keep race as a criterion anyway, reasoning that this was cheaper than ordering detailed evaluations of all applicants. A 1950 report explained: "For our purposes, the fact that higher mortality exists is sufficient. Whether an applicant is a Negro or not can be readily determined and if, as some say, the higher mortality is due to poor grade occupations, low incomes, etc., then the use of race automatically takes all such factors into account in a simple, inexpensive way."

Other documents make clear, moreover, that shorter life expectancy wasn't the only reason for the company's desire to control the amount and type of insurance sold to blacks. For example, in a 1951 memo, F.M. Smith, a vice president, told MetLife President Leroy Lincoln that "our experience through the years has indicated that unless there is careful selection of the business, colored people will apply for more insurance than they can pay for." The company feared losing money on policies that lapsed early, because it had to pay out sales commissions upfront.

In responding to the federal lawsuit, MetLife hasn't denied using race as a basis for charging higher rates to non-whites through the first half of the 20th century. Instead, it based its defense on a claim that discrimination was common knowledge at the time, and any suit challenging it should have been filed decades ago. U.S. society was segregated, so when the plaintiffs bought insurance they "knew or should have known that they were unlikely to receive the same treatment as Caucasians," a MetLife brief said. The judge, for the time being at least, has rejected that argument.

And certainly Karl Thompson rejects it. He is the lawsuit's lead plaintiff, based on a MetLife policy on his life that his mother bought in 1943, when he was 4.

Thompson says he grew up in a middle-class black neighborhood in New Orleans, and by the standards of the time, his family was prosperous. Both parents had finished high school, and his father had a college degree and his own construction business. Thompson believes his parents had no inkling MetLife was selling blacks a different, more costly product because of their race. In a declaration filed in court, he said, "Had my parents known about MetLife's discrimination, my mother would not have bought anything from them."

MetLife replied in court that Thompson had no way of knowing what was in his mother's mind then, since he was a small child at the time.

But as long ago as the 1930s, the newly uncovered documents show, MetLife was growing concerned about liability. Executives worried about initiatives by several states, including MetLife's home state of New York, to enforce antidiscrimination laws, some on the books since the 19th century. In a 1940 study of its potential liability, MetLife estimated that, beyond any possible penalties, refunds to non-white customers could cost as much as $120 million "if it were to be held that the Company had violated the racial discrimination statutes" in seven states. That would be about $1.5 billion in today's dollars.

Even so, MetLife retained a strict policy of recording race on applications. Its 1945 "Manual of Instructions" to sales agents admonished: "Colored includes not only the Negro, but the Mulatto and all other persons having colored blood. Only persons of pure Caucasian blood are designated as white."

MetLife's main life-insurance policies had long been small ones with weekly premiums, collected in person. They were known as "industrial life" because this type was first sold in the 19th century to England's "industrial classes." The weekly-premium policies were divided into two classes, officially "standard" and "substandard." With some exceptions, this meant white and non-white, the records make clear. The substandard policies carried higher premiums and fewer benefits, and MetLife executives referred to them as "weekly colored" policies, memos by senior actuaries show.

In 1948, MetLife abolished the substandard category and created a single class of weekly-premium policies. From then on, the company said last year, it moved to phase out its remaining racial distinctions. But the newly uncovered documents show this move was by no means a retreat from efforts to control the "colored" business. MetLife imposed hurdles making it harder for some blacks to get coverage at all.

These obstacles are spelled out in documents with headings such as "Controls on Volume and Quality of Colored Business." They included supplementary application forms to be used in predominantly non-white neighborhoods. They required information about employment and income of all family members living at one address. A 1947 memo by Lew said the company had decided to require additional "special questions designed to bring out poor environment, moral hazards, or bad habits," adding that questions were to be worded so that they were "more likely to elicit an answer on the basis of which the case may be declined."

MetLife also imposed new limits on commissions paid to agents for selling policies to blacks. And just before the new single-standard category of industrial life took effect, the chief actuary said in a 1947 memo that MetLife must impress on its agents "that the volume of business written on colored lives should not be allowed to increase."

By the 1950s, MetLife's business had shifted toward larger policies known as "ordinary" life insurance. Documents show the company used race-based underwriting practices on these as well.

In 1960, it brought out two new series of ordinary policies: Metropolitan and Tower. The Metropolitan series, which soon replaced industrial life, consisted of smaller policies, initially under $5,000. For the customer, they weren't priced nearly as well. Rate tables show premiums on Metropolitan policies were about one-third higher than Tower policies per $1,000 of insurance.

Non-whites bought more than 16 percent of Metropolitan policies in 1961 but less than 6 percent of Tower policies, one document shows. They faced extra hurdles in buying these larger and better-priced policies. Agents were told to conduct a detailed background check, known as a "mercantile report," on all Tower-policy applicants whose "race is other than white." For whites, a report was required only if the applicant was in a certain age range or sought a certain size policy.

A 1963 MetLife memo explained, "The things disclosed on mercantile reports not otherwise available involve moral hazard, past difficulties with the law in one way or another, reckless driving of automobiles, and sometimes an indication of previous medical history not otherwise disclosed."

Filed with the federal court is a 1960 mercantile report on Charles L. Kellar, an African-American lawyer in Brooklyn, N.Y., who was in his early 50s. He sought a policy for $25,000, an amount that would have required a mercantile report for a white applicant as well. An investigator interviewed neighbors, bankers and business acquaintances about Kellar's habits.

The report found nothing to criticize: The applicant "was not considered to be a drinking man," it said. "He does no entertaining and is not given to extravagance or excess. He behaves in a normal manner, gets along well with neighbors and is well regarded. Informant knows of no criticisms to his personal reputation." The report also noted that Kellar had a prosperous real-estate practice, his driving habits were "not criticized," and he wasn't involved in aviation. MetLife sold him a $25,000 policy.

Kellar, now 92 and living in Long Beach, Calif., remembers little about the application process but says that at the time, he was just glad he could obtain the coverage. In 1976, Kellar sued MetLife claiming it wasn't honoring a feature allowing a waiver of premium for disability. The suit, which alleged racial discrimination, eventually was dismissed.

The documents make clear that into the mid-1960s, MetLife officials considered the collection of race data on customers vital and fought state efforts to end it. In 1961, a MetLife manager wrote to California officials opposing a bill to bar insurers from keeping records on customers' race. "We have millions of such records with a race designation," he wrote, "applications, punched card records, listings, and almost every conceivable form upon which individual policy data has been kept. It would be a practical impossibility to delete all race designations from these records." California didn't ban collection of race data until a dozen years later.

In 1964, a different MetLife vice president wrote to the New Jersey insurance commissioner opposing that state's pressure to halt collection of race data. He wrote that any race information the company collected was "not used for any discriminatory practices." But in 1966, both New Jersey and MetLife's home state of New York barred the collection of data on customers' race.

The company was ready with its alternative plan. "Area underwriting can be put into practice before the introduction of the revised application forms which will not have a question on race," noted an internal memo dated Oct. 9, 1965.

MetLife researchers drew up detailed maps of dozens of cities. For instance, a map of Manhattan listed 108 neighborhoods in which a mercantile report had to accompany any life-insurance application. Researcher Paul H. Jacobson said in a memo that the map was based on factors other than race, such as housing quality and how many residents held unskilled jobs. But he noted that three-fifths of residents of the neighborhoods were "non-white" or "Puerto Rican," and included tables listing each district's racial composition.

By the early 1970s, MetLife was using area underwriting in more than 90 cities, according to internal memos and a New York Insurance Department examination report. Sales offices all had "reference directories showing the addresses by street and number which lie within these areas," the New York report said in 1971.

A current MetLife vice president, Lawrence A. Vranka, denied in a lawsuit deposition that rules requiring mercantile reports for black applicants disadvantaged these customers. Once the "reports were ordered and the information given to an underwriter, the underwriter underwrote that case without regard to race," he testified.

Andrew S. Friedman, a lawyer for policyholders in the suit, says area underwriting amounted to "racial profiling," subjecting non-whites to detailed background checks that included subjective questions giving the company grounds to reject them.

The newly unearthed documents also show instances in which MetLife, whether intentionally or not, misled state regulators about its practices. For example, Delaware in 1987 surveyed insurers about possible discrimination on older policies. A MetLife vice president gave Delaware an affidavit stating that since the late 1800s, the company had never charged premiums on a racially discriminatory basis.

MetLife now is concerned about fallout from the lawsuit allegations beyond any possible judgment or state penalty. MetLife currently emphasizes marketing to "what we characterize as a multi-ethnic community, which would include African-Americans," a company spokesman, Kevin Foley, said in a deposition. He added that "much of MetLife's new business is in that area of American society."