States representing more than 86 percent of the American General policyholders that paid race-based life insurance premiums have ratified a multi-million-dollar penalty and restitution settlement negotiated by Florida Insurance Commissioner Bill Nelson.
Ratification of the settlement by insurance regulators from 26 states and the District of Columbia completes the first of two steps needed before $206 million in refunds and other relief will be distributed by American General Life and Accident Insurance Company to millions of victimized policyholders or their heirs.
Still neededand anticipated later this summeris approval by a federal court judge in Tennessee of a related settlement of a class-action lawsuit against the Nashville-based insurance company.
“We are well on our way to giving millions of people the relief they deserve,” said Nelson, who executed the regulatory settlement last month and needed approval within 15 days from states representing 67 percent of the policyholders in order to make it binding. “We’ve exceeded our goal, and we expect many more states to join in this settlement before we’re done.”
On top of the $206 million in restitution to policyholders, the settlement imposes a $7.5 million penalty against American General to be split among participating states. The company, which says it unknowingly acquired the racially priced policies in its acquisition of Jacksonville-based Gulf Life and Independent Life and several other smaller life insurance companies, will also make a $2 million contribution to the National Association for the Advancement of Colored People. Overall, the settlement involves about 9.1 million so-called industrial life, or “burial insurance,” policies sold door-to-door to low-income and minority consumers, mostly during the 1950s and 1960s. Agents typically visited the customers on a weekly basis, collecting small premiums that in many cases would ultimately exceed the low value of the policy.
About 4.9 million of the policies acquired by American General had premiums based on race, charging African-American customers more than whites for the same insurance. Although the industry stopped selling racially-discriminatory insurance after enactment of new civil rights laws in the ’60s, investigators for Nelson turned up evidence that American General continued collecting the higher premiums on existing policies until he issued a “cease and desist” order last April. That discovery was central to the settlements separately reached on June 21 by Nelson and private attorneys for policyholders in the class-action lawsuit.
The National Association of Insurance Commissioners had authorized Nelson to seek a regulatory resolution with American General on behalf of all 50 states and the District of Columbia. Under terms of both the regulatory and class-action settlements, American General will provide several different types of policyholder relief, including cash refunds, increased death benefits and significant premium reductions.
In addition to the 4.9 million race-based policies, the settlements cover several million more industrial life policies that were sold without race being a factor. Many involved payment of premiums that over time far exceeded the face value of the policy. Meanwhile, Nelson is continuing his investigation of four other insurers that, along with American General, carry most of the industrial life policies in Florida. They are: United Insurance Company of America, Monumental Life Insurance Company, Liberty National Life Insurance Company, and Life Insurance Company of Georgia.
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