Opinion
Civil Action No. 01-2079, Section "C" (5).
October 21, 2004
ORDER AND REASONS
This matter comes before the Court on Defendant American Capital Insurance Company's ("AmCap") Motion for Summary Judgment. The Court ordered the motion to be re-filed on July 1, 2004 subsequent to the Fifth Circuit's decision in In re Monumental Life Insurance Co. v. Brachter et al, 365 F.3d 408 (5th Cir. 2004) (" MDL Litigation II"). The parties last filed supplemental briefing on Defendant's motion in January 2003 (Rec. Doc. 60 and 62), prior to the Fifth Circuit's decision in MDL Litigation II. The supplemental briefing was filed pursuant to the Court's request at the December 18, 2002 hearing.
Pending the final outcome of the Fifth Circuit decision, the case had been administratively closed on March 24, 2004. (Rec. Doc. 93). The Court closed this case, which broadly resembles the facts and legal claims of the MDL Litgation, to await the resolution of the appeal of the district court's denial of class certification under Fed.R.Civ.P. 23 (b)(2). It was re-opened on April 28, 2004. (Rec. Doc. 103).
On January 3, 2003, Plaintiffs submitted a brief supplemental memorandum, accompanied by a Second Expert Opinion by Johan Lotter, which confirmed "that they seek to represent a class of individuals that own an industrial insurance policy assumed by AmCaP, regardless of the mortality table used to set reserves for the policy." (Rec. Doc. 59 at 1; Ex. 1 ("Lotter II")).
After considering the parties' briefs, supporting exhibits, expert opinions, and the applicable law, the Court finds that Plaintiffs have demonstrated the existence of genuine issues of material fact regarding (1) the original pricing of the Plaintiffs' "substandard" industrial life insurance policies and (2) the question of Defendant's alleged knowledge of and discriminatory intent to profit from the allegedly race-based mortality table used in pricing premiums under the "substandard policies. Therefore, the Defendant's Motion for Summary Judgment is DENIED.
I. Background
Plaintiff, Susie Brown ("Brown"), an African American woman, originally filed suit in Louisiana state court pursuant to La.R.S. 51:2231 et seq., seeking relief, individually and on behalf of other similarly situated persons from Defendant's alleged discriminatory practices with regard to the sale, marketing and administering of "industrial" life insurance policies. On July 6, 2001, AmCap removed this matter to federal court pursuant to the Court's diversity jurisdiction under 28 U.S.C. § 1332(a). On March 3, 2002, Brown filed a First Supplemental, Amended and Restated Class Action Complaint (the "Complaint") seeking certification of a nationwide class of individuals who were discriminated against by Defendant, dropping the Louisiana state law claims, asserting claims pursuant to 42 U.S.C. § 1981 and § 1982, and adding another plaintiff, Ms. Beatrice Chevalier ("Chevalier"). On September 18, 2002, Plaintiffs were granted leave to file a Second Supplemental Class Action Complaint with additional plaintiffs. Plaintiffs have defined these policies as, "industrial insurance polic[ies] assumed by AmCap, regardless of the mortality table used to set reserves for the policy." (Rec. Doc. 59 at 1). The suit seeks relief for African American individuals who have, or had at the time of policy termination, an ownership interest in one or more policies issued, serviced, or administered on a discriminatory basis by AmCap.
Industrial life insurance policies, also referred to as burial/pre-need or sub-standard policies, typically have a face value of $10,000 or less. See Thompson v. Metro. Life Ins. Co., 149 F.Supp.2d 38, 41-42 (S.D.N.Y. 2001).
Incorrectly docketed as Plaintiffs' Second Supplemental, Amended and Restated Class Action Complaint ( See Rec. Doc. 29).
Added to the Supplemental Compliant are Yvonne Gaspar Jones ("Jones"), Ruby Mae Hill ("R. Hill"), Joseph Hill ("J. Hill"), and Selena Hewitt ("Hewitt") (collectively with Brown and Chevalier, the "Plaintiffs").
A. Historical Background of Industrial Life Insurance and the Substandard Mortality Table
To understand the Plaintiffs' claim, the Court provides a brief overview of the development of industrial life insurance claims and their historical marketing in the African American community. Developed first in the late 19th century, "industrial" policies were marketed to the working class wage earners, who typically could not purchase life insurance, and replaced traditional Friendly Societies and Burial Clubs which operated without using actuarial principles. Mire Report at 6-7. In general, industrial life policyholders paid more over time for these policies, with fewer benefits and less flexibility than "ordinary" life insurance. See Thompson, 149 F.Supp.2d at 41. "Holders of industrial policies could not apply their dividends to the purchase of increased death benefits nor could they hold the dividends in their accounts to accumulate interest." Id.
In addition to the Thompson case, the Court relies on both Plaintiffs' expert, Johan Lotter, and Defendant's expert, Randall Mire, who each provide a historical backdrop on "industrial" life insurance policies. See Rec. Doc. 47 Ex. C, Report by Randall Mire ("Mire Report"); and Ex. B, First Johan Lotter Decl. ("Lotter I").
A prominent provider of industrial insurance was Metropolitan Life Insurance Company ("MetLife"). Id. MetLife developed and published marketing techniques and mortality tables that distinguished between whites and non-whites in the sale and administration of industrial policies, an actuarial methodology which had a pervasive impact on the insurance industry. Mire Report at 43. In MetLife's case, the Thompson court exposed practices whereby the insurance provider classified its industrial policyholders into "standard" and "substandard" categories, into which its agents steered whites and African Americans respectively. Thompson, 149 F.Supp.2d at 42. While actuarial theories of the time were arguably informed by racist preconceptions, the racial division was premised on the belief that African Americans had higher mortality rates than Caucasians, and that Caucasians would be prejudiced by higher insurance rates if they were sold the same insurance policy as African Americans. Id. at 47.
The Thompson court considered evidence demonstrating that MetLife effectuated this racial steering through various means: 1) It paid its agents a full commission for black-owned policies only when the African-American purchased a substandard policy. 2) It conducted "occupational underwriting" whereby people with certain low-wage jobs would be channeled into the substandard policies under the assumption that primarily African Americans had such employment. 3) It performed "area underwriting" whereby MetLife agents recruited for substandard policy buyers in certain areas based on race and socioeconomic indicators. 4) It subjected African Americans to "special applications" that screened for home environment and social practices associated at the time with African Americans. Thompson, 149 F.Supp.2d at 43-46.
See Lotter II at 21-22.
Mortality tables corresponding to the standard and substandard categories of policyholders emerged with the First Evaluation Law of 1941, which became effective as of 1948. Mire Report at 45. For mortality rates, the 1941 law stated that all industrial life insurance should be issued on a standard basis, i.e. under the 1941 Commissioners Standard Interest Mortality Table ("41 SI"). Id. The tables were developed at the request of the New York Insurance Department ("NYID"). Id. at 49. Although the NYID initially considered data from four insurance companies for the 1930-1939 period, it ultimately relied on MetLife's actuarial data. Id.
The valuation law designated a methodology based on mortality and interest assumptions to be used in the calculations of minimum statutory reserves that insurance companies were required to maintain. Id. at 45. There was no specified standard mortality table for "substandard" business under the 1941 law. Id. at 45. However, the 1941 law did provide that "such tables may be approved by the Commissioner." Id. For reasons that are unclear, most companies used the 1941 Commissioners Substandard Industrial Mortality Table ("41 SSI") for substandard policies. Id. Although the two mortality tables did not specifically indicate they were segregated by race, it is commonly accepted that the "standard" 41 SI table was created using "the experience of white risks" and the "substandard" 41 SSI mortality table was "created using African-American risks." Id. at 46. See also Rec. Doc. 47, Transcr. Depo. Dwight Bartlett, 129: 14-130:13, Ex. A. ("[M]ortality tables were developed separately for whites and non-whites.") Indeed, a pivotal dispute in this case is whether historically the 41 SSI table reflected underwriting practices, supported by objective factors, which placed the mortality rate for African Americans significantly higher than whites; or whether these socioeconomic underwriting factors were deployed as a "mask" for racial discrimination. Without resolving the issue definitively, the Thompson court noted with respect to MetLife that "[w]hether the data on which MetLife relied was sound or not, MetLife's documents reflect its apparent concern that white policyholders would be prejudiced by higher insurance rates if they were sold the same type of insurance as blacks." Thompson, 149 F.Supp.2d at 47. In any case, the dual mortality table was abandoned in 1961 in favor of a race-neutral actuarial rubric ("61 CSSI"), which was made mandatory in 1968. Mire Report at 47.
The 1941 law specified the Commissioners Reserved Valuation Method ("CRVM") and a 3.5% maximum interest rate had to be used.
Defendant's expert, Mr. Mire argues that many sources support the proposition that objective data point to the genuine difference in African American and white mortality rates. See Mire Report at 17-19, 43-44, 46-47.
See, e.g., Deposition of William Goodman, Texas Department of Insurance ("TDI"), taken pursuant to Fed.R.Civ.P. 30(b)(6) (Rec. Doc. 71 Ex. G at 14:24-25, 15:1); TDI Letter of Inquiry to AmCap (Rec. Doc. 47 Ex. J).
B. The AmCap-Universal Life Relationship
AmCap is a small insurance company based in Houston, Texas. (Rec. Doc. 40, Ex. 1, Aff. of William Guest, Chief Executive Officer of AmCap at ¶ 3). Effective January 1, 1998, AmCap entered into a Coinsurance Agreement with Universal Life Insurance Company ("Universal Life") a minority-owned insurance company, whereby AmCap co-insured with Universal Life a block of approximately 250,000 individual life insurance policies issued or assumed by Universal Life. ( Id., Ex. 1, Guest Aff. at ¶ 4; see also Ex. A, Coinsurance Agreement). AmCap documents reveal that approximately 30,000 of the Universal Life policies were designated as "Industrial" and issued under the "substandard" 41 SSI mortality table. (Rec. Doc. 47 Ex. D). Moreover, by Plaintiffs' estimate, 90% of these policies were issued prior to the shift to the 61 CSSI race-neutral mortality table. See id.
See Rec. Doc. 59, Ex. 1, Guest Aff. at ¶ 12 ("Universal Life was formed and operated as a minority-owned business and continues to function as a minority-owned insurance company through the present day.").
Future reference to Universal Life and its conduct in relation to the issuance of these policies, includes the conduct of the other issuing insurance companies whose policies Universal Life merely assumed.
The document at issue is entitled "Universal Life: Assumed Reserves by Plan, September 30, 2002."
Effective November 1, 1999, AmCap assumed most, but not all, of the individual life insurance policies it had previously co-insured (collectively, the "Assumed Policies") ( Id., Ex. 1 at ¶¶ 6 7). The Coinsurance Agreement contained an express limitation on AmCap's liability, stating in pertinent part:
[AmCap] "shall not be liable for any actions, inactions, errors, or omissions made by Universal or any of its representatives in the solicitation, sale, servicing, renewal, or processing of any claim under the policies or in communications with the insureds, beneficiaries, or any other third party with respect to the Policies or any account of any event or fact prior to the Effective Date.
(Rec. Doc. 40, Guest Aff., Ex. A, § 2.2, p. 4). Other than the Assumed Policies, AmCap does not own any industrial life insurance policies. ( Id., Ex. 1 at ¶ 9).
As of June 1, 2000, AmCap was on notice that the industrial life insurance policies it had acquired might be tainted with discrimination. The Texas Division of Insurance ("TDI") sent Defendant a letter urging AmCap to exercise a "very high degree of due diligence into the investigation" of insurance policies in-force which had been issued on the substandard basis. (Rec. Doc. 47 Ex. J). TDI underscored the possibility that race might be indirectly implicated in the issuance of these policies by warning that historical discrimination was often "masked by references to 'White Risks Only' or 'substandard'" and "to be extra cautious" where substandard tables were used. Id. In response to TDI's investigation, AmCap CEO William Guest interviewed two employees charged with converting the Universal Life policy files to the AmCap computer system. (Transc. Depo. William Guest 125:21-126:16). Mr. Guest and these employees then signed affidavits to the effect that no discrimination had occurred in the conversion of the policies. ( Id.)
II. Standard of Review
A district court can grant a motion for summary judgment only when the "'pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986) (quoting Fed.R.Civ.P. 56(c)). When considering a motion for summary judgment, the district court "will review the facts drawing all inferences most favorable to the party opposing the motion." Reid v. State Farm Mut. Auto. Ins. Co., 784 F.2d 577, 578 (5th Cir. 1986). The court must find "[a] factual dispute . . . [to be] 'genuine' if the evidence is such that a reasonable jury could return a verdict for the nonmoving party . . . [and a] fact . . . [to be] 'material' if it might affect the outcome of the suit under the governing substantive law." Beck v. Somerset Technologies, Inc., 882 F.2d 993, 996 (5th Cir. 1989) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986)).
"If the moving party meets the initial burden of showing that there is no genuine issue of material fact, the burden shifts to the non-moving party to produce evidence or designate specific facts showing the existence of a genuine issue for trial." Engstrom v. First Nat'l Bank of Eagle Lake, 47 F.3d 1459, 1462 (5th Cir. 1995) (citing Celotex, 477 U.S. at 322-24, 106 S.Ct. at 2552-53, and Fed.R.Civ.P. 56(e)). The mere argued existence of a factual dispute will not defeat an otherwise properly supported motion. See Anderson, 477 U.S. at 248, 106 S.Ct. at 2510. "If the evidence is merely colorable, or is not significantly probative," summary judgment is appropriate. Id. at 249-50, 106 S. Ct. at 2511 (citations omitted).
III. Law and Analysis
A. Clarification of Plaintiffs' Claims
In the Complaint, Plaintiffs seek equitable relief "through a(b)(2) class, including injunctive relief, declaratory relief, restitution, and punitive damages" (Rec. Doc. 29 at ¶ 27) from AmCap, for the sale and administration of certain insurance policies in a racially discriminatory manner. At oral argument Plaintiffs redefined the scope of their claims, limiting their claims only to such relief available as a result of AmCap's conduct after the date that AmCap became entitled to receive premiums on the Assumed Policies, as defined in the Coinsurance Agreement. ( See Rec. Doc. 74, Ex. B at 14-21, Trans. of Hr'g on Summary Judgment). Thus, with respect to AmCap's alleged liability for the activities of Universal Life prior to this date, Plaintiffs claims and arguments are moot. However, the date on which AmCap's alleged liability attached is in dispute.
Specifically, Plaintiffs contend that liability attached on January 1, 1998, the effective date of the Coinsurance Agreement and the date on which AmCap became entitled to receive all premiums collected on certain policies. ( See Rec. Doc. 40, Ex. A at §§ 1.1 3.3). AmCap counters that it "cannot be liable for any act or omission occurring before November 1, 1999, the date on which it assumed the policies at issue." (Rec. Doc. 40 at 12).
In an asset sale transaction, such as the Coinsurance Agreement, "the terms of the contract govern the acquiring company's liability for obligations of the selling company relating to purchased assets." Central States Pension Fund v. PYA/Monarch, 851 F.2d 780, 783-84 (5th Cir. 1988). Here, the Coinsurance Agreement expressly excludes the transfer of any liability "for any actions . . . by Universal and/or any of its representatives in the solicitation, sale, servicing, renewal, or processing of any claim . . . occurring prior to the Effective Date." (Rec. Doc. 40, Guest Aff., Ex. A, § 2.2, p. 4) (emphasis added). Thus, the terms of the Coinsurance Agreement unequivocally exclude all liability on the part of AmCap with respect to Universal Life's conduct before January 1, 1998, the effective date of the Coinsurance Agreement.
Further, AmCap is absolved of all liability "arising out of the marketing, servicing or other relationships between [Universal Life] and [its policyholders]." (Rec. Doc. 40, Ex. A at § 2.1) (emphasis added). Thus, the terms of the Coinsurance Agreement also expressly exclude all liability on the part of AmCap after January 1, 1998, and during the period of coinsurance wherein AmCap was entitled to receive the premiums collected on certain policies administered and serviced by Universal Life. Additionally, with respect to liability in the event AmCap assumed certain reinsured policies, the Coinsurance Agreement provides that "[AmCap's] liabilities shall continue to be limited to the Policy Obligations and liabilities resulting in its role as administrator of the Policies and shall not be enlarged by virtue of the conversion form of reinsurance from coinsurance . . . to assumption reinsurance." ( Id. at § 4.4). Thus, the terms of the Coinsurance Agreement expressly exclude any expansion of liability as a result of assumption and limit AmCap's liability at assumption to only those liabilities resulting from its administrative role. AmCap effectively assumed ownership and administration of the Assumed Policies on November 1, 1999. (Id., Ex. 1 at ¶ 18).
During the coinsurance period, Universal Life administered the policies and tendered the premiums to AmCap. Plaintiffs allege that AmCap began administering certain policies on March 3, 1998. (Rec. Doc. 47 at 13). Although Plaintiffs do not mention § 2.2, ostensibly Plaintiffs are arguing that pursuant to § 2.2 of the Coinsurance Agreement AmCap's liability attached to certain policies administered by AmCap beginning March 3, 1998. However, Plaintiffs fail to support their conclusory allegation that AmCap began administering any of the policies at issue on March 3, 1998, with any evidence.
Accordingly, under the terms of the Coinsurance Agreement and upon review of the evidence presented, the Court holds that any liability on the part of AmCap did not attach until November 1, 1999. Plaintiffs' claims are thus limited to AmCap's conduct after that date and premised on the alleged profits AmCap has received from the allegedly discriminatory and inflated premiums collected since November 1, 1999.
B. Section 1981 and Section 1982
The thrust of Plaintiffs allegations are (1) that the Assumed Policies were priced with intentional discrimination either (a) by being reserved on the 1941 Substandard Industrial Mortality Table ("1941 SSI") or (b) by the presence of unprecedented raced-based gross premium loading ( see Rec. Doc. 60 at 2); and (2) that AmCap knowingly and intentionally continues to administer these allegedly discriminatory policies in violation of Sections 1981 and 1982. Section 1981 of the Civil Rights Act grants "[a]ll persons within the jurisdiction of the United States . . . the right . . . to make and enforce contracts . . ." 42 U.S.C. § 1981. Section 1982 of the Civil Rights Act grants equal rights to all citizens of the United States regardless of race "to inherit, purchase, lease, sell, hold, and convey real and personal property." 42 U.S.C. § 1982.
In an action under § 1981 or § 1982, the Court applies the same analytical burden-shifting framework established for cases alleging Title VII racial discrimination in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802 (1973). See Armstrong v. City of Dallas, 997 F.2d 62, 65 n. 2 (5th Cir. 1993); Simmons v. Rothe Development, Inc., 952 F.Supp. 486, 488 (S.D.Tex. 1997), aff'd without published opinion, 132 F.3d 1465 (5th Cir. 1997)) (applying McDonnell Douglas in § 1981 context); Durham v. Red Lake Fishing and Hunting Club, Inc. 666 F.Supp. 954, 956-57 (W.D.Tex. 1987) (applying McDonnell Douglas in § 1982 context). "Under this framework, the plaintiff may prove race discrimination by direct evidence or by circumstantial evidence." Cantu v. Nocona Hills Owners Ass'n, Civ.A. 7:00-CV-220-R, 2002 U.S. Dist. LEXIS 580, at *8 (citing Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133 (2000).
"To prevail under section 1981, the plaintiff must prove a prima facie case of intentional discrimination." Bellows v. Amoco Oil, 118 F.3d 268, 274 (5th Cir.), cert. denied, 522 U.S. 1068, 118 S.Ct. 739, 139 L.Ed.2d 675 (1998) (citing Wallace v. Texas Tech Univ., 80 F.3d 1042, 1047 (5th Cir. 1996)). "To establish a section 1981 claim, the plaintiff must show that (1) he or she is a member of a racial minority; (2) the defendant had an intent to discriminate on the basis of race; and (3) the discrimination concerned one or more of the activities enumerated in the statute; in this case, the making and enforcing of a contract," and more specifically here, the administration and collection of insurance premiums based on racially discriminatory pricing. Bellows, 118 F.3d at 274 (citing Green v. State Bar of Texas, 27 F.3d 1083, 1086 (5th Cir. 1994).
If established, the plaintiff's prima facie case raises an inference of intentional discrimination. See McDonnell Douglas, 411 U.S. at 802, 93 S.Ct. at 1824. The burden then shifts to the defendant to rebut this presumption by articulating a legitimate, nondiscriminatory reason for the alleged discriminatory action. Olitsky v. Spencer Gifts, Inc., 964 F.2d 1471, 1478 n. 19 (5th Cir. 1992). "[The defendant] may sustain this burden by introducing admissible evidence of an explanation that would be 'legally sufficient to justify a judgment for the defendant.'" Guthrie v. Tifco, Indus., 941 F.2d 374, 376 (5th Cir. 1991) (quoting Texas Dep't of Community Affairs v. Burdine, 450 U.S. 248, 255 (1981)). If the defendant articulates such a reason, the focus then shifts to the ultimate question: whether the plaintiff can prove that the defendant intentionally discriminated against the plaintiff. Burdine, 450 U.S. at 255.
The plaintiff may attempt to overcome the defendant's proffered nondiscriminatory reason by providing evidence that the defendant's legitimate, nondiscriminatory reason is merely pretextual. See St. Mary's Honor Ctr. v. Hicks, 509 U.S. 502, 511 (1993). The plaintiff, therefore, "retains the ultimate burden of persuasion throughout the case." Faruki v. Parsons S.I.P., Inc., 123 F.3d 315, 319 (5th Cir. 1997) (citing Burdine, 450 U.S. at 253). A plaintiff can meet her burden of demonstrating pretext and thereby establish a jury issue to avoid summary judgment "if the evidence taken as a whole (1) creates a fact issue as to whether each of the [defendant's] stated reasons was what actually motivated the [defendant] and (2) creates a reasonable inference that [the plaintiff's protected status] was a determinative factor in the actions of which plaintiff complains." Vadie v. Mississippi State Univ., 218 F.3d 365, 374, n. 23 (5th Cir. 2000) (explaining that this analysis first formulated in Rhodes v. Guiberson Oil Tools, 75 F.3d 989, 994 (5th Cir. 1996), survives the Supreme Court's abrogation of Rhodes in Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133 (2000)). A prima facie case and sufficient evidence of pretext would permit a court or jury to find unlawful discrimination, without additional independent evidence of discrimination, though such a showing will not always be adequate to sustain a jury's finding of liability. See Reeves, 530 U.S. at 142-49.
Here, there is no dispute as to the first and third prongs required by Plaintiffs to establish a prima facie case under § 1981 or § 1982. It is undisputed that Plaintiffs are members of a racial minority (African Americans) and that the complained of discrimination concerns activities addressed in § 1981 and/or § 1982. Disputed is the second prong of the test, whether AmCap intended to discriminate against the Plaintiffs on the basis of their race.
Under § 1981, "it is not sufficient to show that the defendant was aware that [a] particular practice would have a discriminatory impact. Instead, the plaintiff must show that the defendant chose the policy for [the] purpose of engaging in discrimination. Brown v. Am. Honda Motor Co., 939 F.2d 946, 953 (11th Cir. 1991) (citing Forsberg v. Pacific Northwest Bell Telephone Co., 840 F.2d 1409, 1418 (9th Cir. 1988). To avoid summary judgment in favor of AmCap, Plaintiffs must show that there are genuine issues of material fact: (1) that the industrial insurance policies that AmCap assumed from Universal Life were priced in a racially discriminatory manner; (2) that AmCap knew the race of the policyholders and the discriminatory pricing schemes; and (3) that AmCap purchased the Assumed Policies from Universal Life with knowledge of the allegedly discriminatory pricing scheme and knowingly failed to take remedial action to mitigate the injustice for the purpose of profiting from race discrimination.
Plaintiffs allege two purposefully discriminatory pricing schemes; one based on the 1941 SSI and another based on race-based premium loading in connection with any other mortality table. (Rec. Doc. 60 at 2).
As the Court has determined, the temporal period at issue for AmCap's alleged purposeful discrimination is from November 1, 1999 to the present. As AmCap correctly points out, "[i]t is undisputed that AmCap did not market, sell, underwrite or issue any of the Assumed Policies." (Rec. Doc. 40 at 16, citing Guest Aff. at ¶ 15). Nor is it disputed that AmCap had any involvement with the administration or servicing of the Assumed Policies prior to the date that it assumed such administration on November 1, 1999. As such, the initial pricing structure established by Universal Life cannot be attributed to AmCap. To understand the Plaintiffs' claims, however, some discussion of Universal Life's conduct in the context of its issuance of substandard industrial insurance policies is necessary to fully evaluate the extent to which AmCap is liable, if at all, for the continued administration of the Assumed Policies.
The Court has determined that November 1, 1999 is the earliest date that any liability on the part of AmCap attached. See Part III-A, supra.
1. Universal Life
AmCap relies on the affidavit of William Guest to prove that Universal Life never: (1) "charged African-Americans more for life insurance policies than it charged to similarly situated non-African-American policyholders"; (2) "paid its African-Americans policyholders proportionately lower death benefits per dollar of premium paid than it paid to non-African-American policyholders"; (3) "use[d] separate rate charts or mortality tables for African-American and white customers"; or "adopted any procedure or policy whereby its agents and managers were instructed not to offer or sell 'more traditional' life insurance to African-Americans." (Rec. Doc. 40, Guest Aff. at ¶ 20; see also ¶ 20).
Plaintiffs counter that there remain genuine issues of material fact as to: (1) in general, whether the use of 1941 SSI by the insurance industry in the industrial context was primarily a race-based consideration; and (2) for those policies not reserved on the 1941 SSI, whether the gross premium loads calculated by Universal Life are so high as to leave no room for any explanation other than racial discrimination.
See Lotter I at 12-14.
See Lotter II at 10-12.
It is well established that unsupported allegations are insufficient to defeat summary judgment. E.g., Byers v. Dallas Morning News, Inc., 209 F.3d 419, 425 (5th Cir. 2000); Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996). "A district court has broad discretion to rule on the admissibility of expert's affidavits in the summary judgment context." Boyd v. State Farm Ins. Co., 158 F.3d 326, 331 (5th Cir. 1998). To be properly considered, "an expert's affidavit must include materials upon which the expert based his opinion, as well as an indication of the reasoning process underlying the opinion." Id. See also United States v. Cory, 207 F.3d 84, 88 (1st Cir. 2000) (Rule 703 does require that the trial court judge act as an independent 'gatekeeper' to assure that there is sufficient, credible evidence that experts . . . rely on the specified types of sources in formulating opinions.")
The thrust of the opinion by Plaintiffs' expert Johan Lotter is that it was common knowledge in the insurance industry that industrial policies based on the 41 SSI mortality table, in this case to Universal Life, were tainted with race discrimination. Furthermore, any continued administration of such policies, without reformation to reflect race-neutral mortality rates, betrays an intent to profit from these discriminatory policies. See Lotter II at 11-12. The Defendant proffers the expert testimony of Randall Mire, who relies on several studies to support the notion that historical mortality rates for African Americans were in fact dramatically higher than for whites, and that actuarial calculations used to develop the race-based 41 SSI simply reflected objective socioeconomic factors incorporated into underwriting practices. Mire Report at 17-19, 43-44.
Plaintiffs also contend that the race-based 41 SSI table was used in conjunction with the "Valuation Basis Net Premium" method. See Rec. Doc. 47 at 9-10; Lotter II at 12-13. Under this method, the gross premium loads calculated by Universal Life are dramatically higher than calculable under the 41 SI ("white") table, which allegedly evinces a discriminatory intent to profit from African Americans improperly. See Lotter I at 14-15. Defendant argues that the 41 SSI table was used only to calculate statutory reserves, which was not the same calculation to fix premium prices. Rec. Doc. 62 at 6). Moreover, Defendant claims that the calculation of the net premium was only an "intermediate step" in the calculation of reserves among myriad other underwriting factors. See Mire Report at 196.
Plaintiffs' expert demonstrates the concrete basis for the alleged discriminatory intent in the following manner: The base for the Gross Premium was the amount of money to be reserved for the insurance company to cover its liabilities based on valuation/mortality table and other underwriting factors. Lotter I at 14-5. This base premium was called the "net premium" in calculating the gross premium that the insurance company charged the policyholder. Id. The insurance company made additions to the net premium to provide for expenses of administration, commissions, as well as a margin of profits adjusted for the weekly mode of payment. Id. According to Mr. Lotter, it was necessary for insurance companies to maintain adequate amounts through the collection of Gross Premiums to fund actuarial reserves, death and endowment claims, expenses dividends, commissions, and profits. Id. Artificially higher mortality rates for African American would require an insurer to maintain more funds in its statutory reserves, ostensibly to cover its increased liability. Absent the artificially higher mortality rates of 41 SSI, individual African American policyholders would have paid lower premiums because, once readjusted to reflect the actual mortality rate, the insurer's liability would have been lessened. (Rec. Doc. 40, Guest Aff. at ¶ 97-98).
The Court finds that there is a genuine issue of material fact as to the historical rationale for developing the 41 SSI table and its import with respect to premiums collected from "substandard" policyholders. As to the race-based nature of the 41 SSI table, Plaintiffs point to testimony by Defendant's own expert, Mr. Mire, that 41 SSI was developed as a "non-white" mortality table. See Mire Report at 46. Plaintiffs' expert also posits that the 41 SSI was typically used in conjunction with the method of "Valuation Basis Net Premium" whereby mortality tables affect the premium price exacted from policyholders. Lotter II at 12-13. Finally, Plaintiffs' expert argues that the dramatically higher morality rate for Universal Life's African American policyholders is de facto evidence that the "Valuation Basis Net Premium" was discriminatory. Id. at 10-11. With equal force, the Mire Report explains that a racial division in the 41 SI and 41 SSI tables was justified based on objective factors of an historically higher mortality rate among African Americans. Mire Report at 47. Defendants also contend, with the support of the Mire Report, that mortality calculations pertained to statutory reserves and not price structures. (Rec. Doc. 62 at 6).
Mr. Lotter asserts that the illegitimate profits generated when African-Americans are charged significantly inflated premiums based on mortality tables to have been improperly skew to reflect a purportedly higher mortality rate among African-Americans. Lotter II at 11-2.
The Court rejects Defendant's contention that conclusions of Plaintiffs' expert are simply "based on the Plaintiffs' counsel' 'allegations' regarding discrimination." (Rec. Doc. 40 at 18 n. 72). Both experts, Mr. Lotter and Mr. Mire, have extensive experience in the insurance industry and training as actuaries. Moreover, each has demonstrated his reasoning in the respective reports and declarations. Finally, both experts cite several studies and sources that support their opposing theories regarding the import of the 41 SSI table and the use of mortality rate in setting premium prices. These are the chief criteria for admitting expert testimony in support of allegations at summary judgment. See Boyd v. State Farm Ins. Co., 158 F.3d at 331. ("[A]n expert's affidavit must include materials upon which the expert based his opinion, as well as an indication of the reasoning process underlying the opinion.") The Plaintiffs thus have evidentiary support for their allegation that Universal Life used the 41 SSI table with an underlying discriminatory intent.
2. AmCap
Assuming arguendo that the industrial insurance policies assumed by AmCap were discriminatorily priced by Universal Life, in order to satisfy the intent element and establish a prima facie case against AmCap, Plaintiffs must present evidence to show that AmCap: (1) knew the race of the individuals who owned the industrial policies; (2) knew of the discriminatory pricing schemes on which the industrial policies were based; and (3) that AmCap knew that the Assumed Policies allegedly issued under 41 SSI table resulted discriminatory policies, and intentionally failed to remedy the effect of such discrimination.
AmCap submits that it has no knowledge of the race of any of the policyholders included in the Assumed Policies. (Rec. Doc. 47 at 20). In support, AmCap relies on the excerpted deposition testimony of George Michael Rambo, whose qualifications are not provided, to show that AmCap was unaware of the racial composition of Universal Life's policyholders. ( See id., Ex. 3 at 19:16-18, 32:14-16). Further, William Guest testified "that the computer databases and other electronic information provided to AmCap by Universal Life do not indicate or designate in any fashion the race of any policy holder of Universal Life." (Id., Ex. 1 at ¶ 27). Although AmCap admits that Universal Life identified the race of applicants on some application forms, Guest testified that "AmCap has never had the need to or occasion to peruse [these applications] except on a sporadic, as-needed and minimal basis." ( Id.).
Plaintiffs demonstrate that AmCap was aware of the racial composition of the Universal Life policyholders. Plaintiffs contend that Universal Life collected information on the race of applicants prior to issuance of a policy. In support, Plaintiffs provide the application of plaintiff, Yvonne Gaspar, which specifically requests the applicant to include her race. (Rec. Doc. 47, Ex. E). Additionally, Plaintiffs submit that Ms. Gaspar "was placed in a substandard class even though she was in good health at the time," despite the fact that she stated on her application that she did not suffer, at any time, from any of the diseases listed. ( Id. at 11). Furthermore, although Guest's deposition testimony indicates that he did not know if Universal Life only, or primarily marketed to African-Americans, Guest also stated that it was his understanding "that most of the policy owners were black." (Rec. Doc. 47, Ex. I at 140:8-19).
Plaintiffs' allegation that Gaspar was assigned a substandard classification is not supported by any evidence.
With respect to the first prong of the test, Plaintiffs have satisfied their burden to establish a prima facie case as against AmCap. The Court finds there is a genuine issue of material fact as to AmCap's knowledge with respect to the racial composition of the Universal Life policyholders. The fact that AmCap may not have known the racial attribute of a particular policyholder is of no moment. The evidence presented, including the admission of Guest, establishes that AmCap understood that most, if not all of the policyholders at Universal Life, were African-American regardless of the type of policy that they held.
As to the second prong, Plaintiffs' allege that AmCap "knowingly and intentionally assumed the discriminatory policies when [it] failed to perform proper due diligence prior to entering into [the agreement] with Universal Life." (Rec. Doc. at 13). To prevail at trial, Plaintiffs must prove the intent of the allegedly lackadaisical response to the TDI was to profit from the past inequity. It should be noted that negligence does not satisfy the specific intent requirement in an action under Section 1981 or Section 1982. See Gen. Bldg. Contractors, 458 U.S. at 391. For the purposes of summary judgment, the Plaintiffs must produce sufficient evidence to show that the alleged failure to conduct due diligence in response to the TDI investigation supports a reasonable inference that AmCap had a discriminatory intent with respect to the African American holders of the assumed substandard policies. See Vadie, 218 F.3d at 374 n. 23.
Plaintiffs have sufficient evidence that AmCap's due diligence inquiry under the TDI directive was wanting. Given the heightened scrutiny urged by TDI, the alleged failure to conduct a robust inquiry creates a fact issue as to whether the Defendant sought to profit from historical racial inequity of the 41 SSI table. As a threshold matter, the fact that 20% of the Assumed Policies were issued under the substandard mortality table might have raised concerns about race discrimination. While the general notoriety of substandard policies is an open question, AmCap was on notice of possible race discrimination as of June 1, 2000. On this date, TDI sent Defendant a letter urging AmCap to exercise a "very high degree of due diligence into the investigation" of insurance policies in-force in the state which had been issued on the substandard basis. (Rec. Doc. 47 Ex. J). TDI highlighted the possibility that race might be indirectly implicated in the issuance of these policies by warning that historical discrimination was often "masked by references to 'White Risks Only' or 'substandard'" and "to be extra cautious" where substandard tables were used. Id. Plaintiffs thus meet their burden with respect to the second prong.
In response to TDI's investigation, AmCap CEO William Guest interviewed two employees charged with converting the Universal Life policy files to the AmCap computer system. (Rec. Doc. 40, Ex 1 at ¶ 13). Mr. Guest and these employees then signed affidavits to the effect that no discrimination had occurred in the conversion of the policies. ( Id.)
It is immaterial that over 80% of the Assumed Policies issued to African-Americans were non-industrial policies. Unlike the facts in Thompson, the allegation here is not that AmCap had a comprehensive marketing plan, like MetLife, to steer African Americans into industrial policies based on the substandard policies.
The effect of Plaintiffs' successful challenge at summary judgment is that they have made a colorable argument that AmCap's own administration of the industrial policies is discriminatory. However, this is limited to the extent that AmCap had knowledge of the underlying racial discrimination of the assumed substandard policies and failed to take remedial action in the face of the TDI investigation. In addition, AmCap cannot be held liable for any discriminatory acts of Universal Life prior to November 1, 1999 under the Coinsurance Agreement. Significantly, this restriction on liability effects the retrospective remedy available to the Plaintiffs because, for example, they cannot recover inflated premiums paid to Universal Life or seek payment of enhanced death benefits based on what may have been improperly paid to Universal Life.
IV. Conclusion
Plaintiffs have established a prima facie case of intentional discrimination under Sections 1981 and/or Section 1982. Despite AmCap's contention that the simple bulk transaction involving standard and substandard industrial policies was a legitimate, nondiscriminatory reason for the alleged discriminatory action, the Court finds that the Plaintiffs have raised genuine issues of material fact regarding the discriminatory intent underlying the continued administration of the suspect policies allegedly issued under 41 SSI mortality table.
Accordingly, IT IS ORDERED that American Capital Insurance Company's Motion for Summary Judgment is DENIED.