BRIEF OF AMICI CURIAE IN SUPPORT OF MOTION FOR …€¦ · in the united states district court for the district of columbia american insurance association, et al., plaintiffs, v

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

AMERICAN INSURANCE ASSOCIATION, et al.,

Plaintiffs,

v.

UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, et al.,

Defendants.

Case No. 1:13-cv-00966

BRIEF OF AMICI CURIAE

IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT FILED BY THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

NATIONAL FAIR HOUSING ALLIANCE

LAWYERS’ COMMITTEE FOR CIVIL RIGHTS UNDER LAW

NATIONAL LOW INCOME HOUSING COALITION

POVERTY & RACE RESEARCH ACTION COUNCIL

NATIONAL HOUSING LAW PROJECT

LATINOJUSTICE PRLDEF

Stephen M. Dane Glenn Schlactus RELMAN, DANE & COLFAX PLLC 1225 Nineteenth Street, N.W., Suite 600 Washington, D.C. 20036 (202) 728-1888 (202) 728-0848 (fax)

Joseph D. Rich LAWYERS’ COMMITTEE FOR CIVIL RIGHTS UNDER LAW 1401 New York Avenue, N.W., Suite 400 Washington, D.C. 20005 (202) 662-8600 (202) 783-3113 (fax)

Case 1:13-cv-00966-RJL Document 24 Filed 02/12/14 Page 1 of 32

TABLE OF CONTENTS

TABLE OF AUTHORITIES ........................................................................................................ i-v

I. INTRODUCTION AND INTERESTS OF AMICI .......................................................2

II. THIS CASE LACKS THE NECESSARY RIPENESS REQUIRED FOR REVIEW OF HUD’S DISPARATE IMPACT REGULATION, ESPECIALLY IN LIGHT OF THE McCARRAN-FERGUSON ACT .................................................5

A. The Attack on the Disparate Impact Regulation Is Not Fit for

Judicial Decision ............................................................................................................6

B. Withholding Consideration of This Case Will Not Cause Hardship to Plaintiffs .....................................................................................................................9

III. HUD’S DISPARATE IMPACT RULE IS NOT A SUBSTANTIVE PROHIBITION OF ANY SPECIFIC INSURANCE CONDUCT, BUT IS MERELY A METHOD OF PROVING A DISPARATE IMPACT CLAIM. ACCORDINGLY, IT DOES NOT CONSTITUTE “FINAL AGENCY ACTION” WITHIN THE MEANING OF THE APA ...............................10

IV. BECAUSE THE McCARRAN-FERGUSON ACT APPLIES ONLY IN SPECIAL CIRCUMSTANCES, THE COMPLAINT DOES NOT ALLEGE FACTS SUFFICIENT TO COMPLY WITH FED. R. CIV. P. 8(a) ........................................................................................12

V. THE McCARRAN-FERGUSON ACT IS NOT AN AUTOMATIC

BAR TO APPLICATION OF DISPARATE IMPACT TO INSURERS ....................15

A. The Fair Housing Act Has Been Enforced Against Homeowner’s Insurers for Decades ....................................................................................................15

B. The McCarran-Ferguson Act Is Not An Automatic Bar to Disparate Impact Fair Housing Act Enforcement Against Insurers .............................................18

C. Insurance “Risk Analysis” Is Not Inconsistent With HUD’s Disparate Impact Rule. HUD Has Applied Disparate Impact to Insurers for Decades, and All Federal Administrative Agencies With FHA Enforcement Authority Have Adopted and Applied Disparate Impact Principles to Risk Analysis .................21

VI. CONCLUSION ................................................................................................................... 25


i

TABLE OF AUTHORITIES

Cases Abbott Laboratories v. Gardner, 387 U.S. 136 (1967) ................................................................5, 9 Arthur v. City of Toledo, Ohio, 782 F.2d 565 (6th Cir. 1986) .........................................................5 Ashcroft v. Iqbal, 556 U.S. 662 (2009) ....................................................................................13, 15 Atl. States Legal Found. v. E.P.A., 325 F.3d 281 (D.C. Cir. 2003) ...............................................10 Barnett Bank of Marion Cnty. v. Nelson, 517 U.S. 25 (1996) .......................................................20 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) ...................................................................13 Bennett v. Spear, 520 U.S. 154 (1997) ..........................................................................................10 Breen v. Peters, 474 F. Supp. 2d 1 (D.D.C. 2007) ........................................................................11 Connecticut v. Teal, 457 U.S. 440 (1982) (Powell, J., dissenting) ................................................11 DeHoyos v. Allstate Corp., 345 F.3d 290 (5th Cir. 2003) .................................................... passim Devia v. Nuclear Regulatory Comm’n, 492 F.3d 421 (D.C. Cir. 2007) ....................................7, 10 Dunn v. Midwestern Indem. Mid-Am. Fire & Cas. Co., 472 F. Supp.

1106 (S.D. Ohio 1979) .......................................................................................................16 Graoch Assoc. #33, L.P. v. Louisville/Jefferson Cnty. Metro Human Relations

Comm’n, 508 F.3d 366 (6th Cir. 2007) ..............................................................................20 Griggs v. Duke Power Co., 401 U.S. 424 (1971) ..........................................................................11 Halet v. Wend Inv. Co., 672 F.2d 1305 (9th Cir. 1982) ...................................................................5 Hallmark Developers, Inc. v. Fulton Cnty., 466 F.3d 1276 (11th Cir. 2006) ..................................6 Hanson v. Veterans Admin., 800 F.2d 1381 (5th Cir. 1986)............................................................5 Havens Realty Corp. v. Coleman, 455 U.S. 363 (1982) ..................................................................3 Humana Inc. v. Forsyth, 525 U.S. 299 (1999) ...........................................................................9, 20 Huntington Branch, NAACP v. Town of Huntington, 844 F.2d 926

(2d Cir. 1988), aff’d in part, 488 U.S. 15 (1988) .................................................................4


ii

Cases In Re Interbank Funding Corp. Sec. Litig., 629 F.3d 213 (D.C. Cir. 2010) ..................................13 Jackson v. Okaloosa Cnty., Fla., 21 F.3d 1531 (11th Cir. 1994) ....................................................5 Langlois v. Abington Hous. Auth., 207 F.3d 43 (1st Cir. 2000) ......................................................4 Lindsey v. Allstate Ins. Co., 34 F. Supp. 2d 636 (W.D. Tenn. 1999)....................................... 15-17 Lumpkin v. Farmers Grp., Inc., No. 05-2868 Ma/V., 2007 WL 6996777

(W.D. Tenn. July 6. 2007) ..........................................................................................15, 19 Mackey v. Nationwide Ins. Cos., 724 F.2d 419 (4th Cir. 1984) .....................................................18 McDiarmid v. Econ. Fire & Cas. Co., 604 F. Supp. 105 (S.D. Ohio 1984) ..................................16 Metro. Hous. Dev. Corp. v. Vill. of Arlington Heights, 558 F.2d 1283 (7th Cir. 1977) ..................5 Metro. Life Ins. Co. v. Ward, 470 U.S. 869 (1985)........................................................................20 Meyer v. Holley, 537 U.S. 280 (2003) ...........................................................................................22 Moore v. Hughes Helicopters, Inc., a Div. of Summa Corp.,

708 F.2d 475 (9th Cir. 1983) .............................................................................................11 Moore v. Liberty Nat’l Life Ins. Co., 267 F.3d 1209 (11th Cir. 2001) ....................................14, 18 Mount Holly Gardens Citizens in Action, Inc. v. Twp. of Mount Holly,

658 F.3d 375 (3d Cir. 2011), cert. dismissed, 134 S. Ct. 636 (2013) ..................................6 Mountain Side Mobile Estates P’ship v. Sec’y of HUD,

56 F.3d 1243 (10th Cir. 1995) .............................................................................................5 NAACP v. American Family Mut. Ins. Co., 978 F.2d 287 (7th Cir. 1992) ............................ passim Nat’l Ass’n of Home Builders v. U.S. Army Corps of Eng’rs,

417 F.3d 1272 (D.C. Cir. 2005) .........................................................................................10 Nat’l Ass’n of Home Builders v. U.S. Army Corps of Eng’rs,

440 F.3d 459 (D.C. Cir. 2006) .............................................................................................5 Nat’l Fair Hous. Alliance v. Allstate Ins. Co.,

Case No. 03-94-0529-8 (HUD) ............................................................................................4


iii

Cases Nat’l Fair Hous. Alliance v. Prudential Ins. Co. of Am.,

208 F. Supp. 2d 46 (D.D.C. 2002) ............................................................................. passim Nat’l Fair Hous. Alliance v. State Farm Ins. Cos.,

Case No. 05-94-1351-8 (HUD) ............................................................................................4 Nat’l Fair Hous. Alliance et al. v. Travelers Ins. Co., No. 1:00-cv-1506

(D.D.C. filed June 26, 2000) ................................................................................................4 Nat’l Park Hospitality Ass’n v. Dep’t of Interior, 538 U.S. 803 (2003) ..........................................5 Nationwide Mut. Ins. Co. v. Cisneros, 52 F.3d 1351 (6th Cir. 1995) ..............................................8 Nevels v. W. World Ins. Co., 359 F. Supp. 2d 1110 (W.D. Wash. 2004) .............................. passim Ojo v. Farmers Grp., Inc., 356 S.W.3d 421 (Tex. 2011)...............................................................19 Ojo v. Farmers Grp., Inc., 600 F.3d 1205 (9th Cir. 2010) .................................................... passim Patton Boggs LLP v. Chevron Corp., 683 F.3d 397 (D.C. Cir. 2012) ...........................................13 Peoples Nat’l Bank v. Office of the Comptroller of the Currency of

the U.S., 362 F.3d 333 (5th Cir. 2004) ...............................................................................11 Putnam Family Partnership v. City of Yucaipa, Cal.,

673 F.3d 920 (9th Cir. 2012) .............................................................................................23 Resident Advisory Bd. v. Rizzo, 564 F.2d 126 (3d Cir. 1977) ..........................................................4 Saunders v. Farmers Ins. Exch., 537 F.3d 961 (8th Cir. 2008) .................................................9, 19 Smith v. Town of Clarkton, N.C., 682 F.2d 1055 (4th Cir. 1982) ................................................ 4-5 Strange v. Nationwide Mut. Ins. Co., 867 F. Supp. 1209 (E.D. Pa. 1994) ....................................16

Texas v. United States, 523 U.S. 296 (1998) .................................................................................10 Toilet Goods Ass’n, Inc. v. Gardner, 387 U.S. 158 (1967). .................................................. passim Toledo Fair Hous. Ctr. et al. v. Nationwide Ins. Co.

et al., 704 N.E.2d 667 (Ohio Com. Pl. 1997) ................................................................2, 19 United Farm Bureau Mut. Ins. Co. v. Metro. Human Relations

Comm’n, 24 F.3d 1008 (7th Cir. 1994) ...................................................................... passim


iv

Cases United States v. Am. Family Mut. Ins. Co. and NAACP v. Am. Family Mut.

Ins. Co. (Dep’t of Justice July 13, 1995) (consent decree) (online at http://www.justice.gov/crt/about/hce/documents/amfamsettle.php) ...................................2

United States v. City of Black Jack, 508 F.2d 1179 (8th Cir. 1974) ................................................5 United States v. Nationwide Mut. Ins. Co. et al., No. C2-97-291

(Dep’t of Justice Mar. 10, 1997) (consent decree) (online at http://www.justice.gov/crt/about/hce/documents/nationsettle.php).....................................2

Wis. Cmty. Servs., Inc. v. City of Milwaukee, 465 F.3d 737 (7th Cir. 2006) .................................11 Regulations 12 C.F.R. § 202.6 ...........................................................................................................................24 24 C.F.R. § 100.70 .........................................................................................................................17 24 C.F.R. § 100.500 .................................................................................................................12, 20 76 Fed. Reg. 70,921 (Nov. 16, 2011).............................................................................................23 78 Fed. Reg. 11,460 (Feb. 15, 2013) ..................................................................................... passim 42 U.S.C. § 3604 ............................................................................................................................16 42 U.S.C. § 3614 ............................................................................................................................22 Fed. R. Civ. P. 8 .............................................................................................................................12 Other Authorities Arwine, Barbara, Comments of Lawyers’ Committee for Civil Rights Under Law

Regarding Docket No. FR-5508-P-01, Implementation of the Fair Housing Act’s Discriminatory Effect Standard (2012), http://www.regulations.gov/#!documentDetail;D=HUD-2011-0138-0075 .......................22

FEDERAL HOUSING ADMINISTRATION, THE,

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory (last visited Feb. 10, 2014) .................................................................................................24


v

Other Authorities Greenspan, Alan, Economic Challenges in the New Century, Remarks

Before the Annual Conference of the National Community Reinvestment Coalition (Mar. 22, 2000) (online at http://www.federalreserve.gov/boarddocs/speeches/2000/20000322.htm) ................... 24-5

Heimer, Carol, The Racial and Organizational Origins of Insurance Redlining,

10 J. INTERGROUP RELATIONS 42 (1982) .............................................................................3 Interagency Fair Lending Examination Procedures, at Appendix 26-28 (online at

http://www.federalreserve.gov/boarddocs/caletters/2009/0906/09-06_attachment.pdf) ...23 Interagency Task Force on Fair Lending, Policy Statement on Discrimination

in Lending, 59 Fed. Reg. 18,266 (Apr. 15, 1994) (online at www.occ.treas.gov/news-issuances/federal-register/94fr9214.pdf) ..................................23

Kaersvang, Dana, The Fair Housing Act and Disparate Impact in Homeowners

Insurance, 104 MICH. L. REV. 1993 (2006) .........................................................................3 Smith, Shanna, Comments of National Fair Housing Alliance and Other Civil Rights

Organizations Regarding Docket No. FR-5508-P-01, Implementation of the Fair Housing Act’s Discriminatory Effect Standard (2012), http://www.regulations.gov/#!documentDetail;D=HUD-2011-0138-0076 .......................22

Smith, Shanna & Cathy Cloud, Documenting Discrimination by Homeowners

Insurance Companies Through Testing, in INSURANCE REDLINING: DISINVESTMENT, REINVESTMENT, AND THE EVOLVING ROLE OF FINANCIAL INSTITUTIONS (Gregory Squires ed., Urban Institute Press 1997) .......................................3

Squires, Gregory, Racial Profiling, Insurance Style: Insurance Redlining and the Uneven Development of Metropolitan Areas, 25 J. URBAN AFFAIRS 4 (2003) .................................................................................................................3


2

I. INTRODUCTION AND INTERESTS OF AMICI1

Over the past two decades the homeowner’s insurance industry has been the subject of

significant private and public enforcement actions under the Fair Housing Act (“FHA”).

Virtually all of the major carriers, and several smaller ones, have been the subject of fair housing

enforcement actions based on claims of race discrimination in the underwriting, marketing,

advertising, and sale of their products.

The results have been dramatic. Many historical homeowner’s insurance underwriting

and pricing policies have been successfully challenged under the Fair Housing Act on disparate

impact grounds, including age of the dwelling, minimum dwelling value, the ratio of a

dwelling’s market value to its replacement cost, and credit scoring.2 As a result, the largest

homeowner’s insurers no longer use dwelling age or minimum market value as part of their

underwriting processes. Many have also eliminated restrictions on the availability of full and

guaranteed replacement cost policies, with companies finally making such policies available in

1 Full Statements of Interest for each of the Amici are set forth in the Unopposed Motion for Leave to File a Brief Amicus Curiae. 2 See, e.g., United States v. Nationwide Mut. Ins. Co. et al., No. C2-97-291 (Dep’t of Justice Mar. 10, 1997) (consent decree) (online at http://www.justice.gov/crt/about/hce/documents/nationsettle.php) (Department of Justice (“DOJ”) DOJ settlement with Nationwide Insurance under the Fair Housing Act eliminating age of dwelling as an underwriting criterion); United States v. Am. Family Mut. Ins. Co. and NAACP v. Am. Family Mut. Ins. Co. (Dep’t of Justice July 13, 1995) (consent decree) (online at http://www.justice.gov/crt/about/hce/documents/amfamsettle.php) (DOJ settlement with American Family Mutual Insurance Company under the Fair Housing Act eliminating age of dwelling as an underwriting criterion); Toledo Fair Hous. Ctr. et al. v. Nationwide Ins. Co. et al., 704 N.E.2d 667, 674-76 (Ohio Com. Pl. 1997) (plaintiffs survived summary judgment because Nationwide did not provide sufficient business justification in response to the racially disparate impact of age of dwelling standard demonstrated by plaintiffs’ statistical expert; minimum dwelling value, ratio of dwelling market value to replacement cost); DeHoyos v. Allstate Corp., 345 F.3d 290 (5th Cir. 2003) (credit scoring); Nat’l Fair Hous. Alliance v. Prudential Ins. Co. of Am., 208 F. Supp. 2d 46 (D.D.C. 2002) (market value of home, ratio between replacement cost and market value, credit scoring).


3

African-American and minority neighborhoods. Insurers have abandoned explicitly race-based

and geographically-based marketing plans.3

These challenges to traditional underwriting and marketing practices have been supported

both by testing of agents conducted by fair housing organizations4 and by statistical analyses

demonstrating the racial impact of certain facially neutral criteria. Many of the challenged

underwriting criteria were not supported by any company or industry empirical loss or claims

data, so could not be justified by business necessity.

Amici are committed to making sure that insurance markets operate correctly and fairly in

under-served communities and neighborhoods that have historically experienced redlining

practices. For example, identifying and eliminating discrimination in the availability and

marketing of homeowner’s insurance has been one of the National Fair Housing Alliance’s

(“NFHA”) highest priorities for almost two decades. NFHA has dedicated significant resources

to the study of the homeowner’s insurance market and has received grants and contracts with the

U.S. Department of Housing and Development (“HUD”) to investigate homeowner’s insurers.

NFHA has also been a complainant or a plaintiff in many cases involving racial discrimination in

3 For a historical discussion of the intersection between race discrimination and homeowner’s insurance, see Carol Heimer, The Racial and Organizational Origins of Insurance Redlining, 10 J. INTERGROUP RELATIONS 42 (1982), and Gregory Squires, Racial Profiling, Insurance Style: Insurance Redlining and the Uneven Development of Metropolitan Areas, 25 J. URBAN AFFAIRS 4, 391-410 (2003). For a broader discussion of the many issues surrounding race discrimination and disparate impact claims brought under the Fair Housing Act against insurers, see Dana Kaersvang, The Fair Housing Act and Disparate Impact in Homeowners Insurance, 104 MICH. L. REV. 1993 (2006). 4 “Testers” are individuals who, without an intent to purchase homeowner’s insurance, pose as potential purchasers for the purpose of collecting evidence of unlawful discrimination. Havens Realty Corp. v. Coleman, 455 U.S. 363, 373 (1982). See generally Shanna Smith & Cathy Cloud, Documenting Discrimination by Homeowners Insurance Companies Through Testing, in INSURANCE REDLINING: DISINVESTMENT, REINVESTMENT, AND THE EVOLVING ROLE

OF FINANCIAL INSTITUTIONS (Gregory Squires ed., Urban Institute Press 1997).


4

the availability and marketing of homeowner’s insurance. For example, NFHA was the plaintiff

in Prudential, 208 F. Supp. 2d, and in National Fair Housing Alliance et al. v. Travelers

Insurance Company, No. 1:00-cv-1506 (D.D.C. filed June 26, 2000). NFHA was the lead

complainant in National Fair Housing Alliance v. State Farm Insurance Companies, Case No.

05-94-1351-8 (HUD), and National Fair Housing Alliance v. Allstate Insurance Company, Case

No. 03-94-0529-8 (HUD). NFHA has filed amicus briefs in several insurance discrimination

cases, including United Farm Bureau Mutual Insurance Company v. Metropolitan Human

Relations Comm’n, 24 F.3d 1008 (7th Cir. 1994), and Ojo v. Farmers Group, Inc., 600 F.3d

1205, 1208 (9th Cir. 2010).

At the same time, amici have actively used disparate impact analysis in fair housing

enforcement in all aspects of the housing market. In the 45 years since the Fair Housing Act was

passed, and especially after the Fair Housing Act Amendments of 1988, the federal courts, the

federal government, and fair housing plaintiffs have successfully enforced the Fair Housing Act

on the basis of disparate impact principles. Long before HUD formally promulgated its

Disparate Impact regulation in 2013 – the subject of this Administrative Procedure Act (“APA”)

challenge – courts struck down facially neutral housing practices because they were based on no

legitimate business justification, yet operated to deprive minorities, persons with disabilities,

families with children, and other protected classes of the full range of housing products and

services available to others. Amici have participated extensively in these enforcement efforts

through disparate impact claims and for forty years, every court of appeals to examine such

claims has found them cognizable under the Fair Housing Act.5

5 See Langlois v. Abington Hous. Auth., 207 F.3d 43, 49 (1st Cir. 2000); Huntington Branch, NAACP v. Town of Huntington, 844 F.2d 926, 934-35 (2d Cir. 1988), aff’d in part, 488 U.S. 15 (1988); Resident Advisory Bd. v. Rizzo, 564 F.2d 126, 146-47 (3d Cir. 1977); Smith v. Town of


5

Amici respectfully submit that their unique experiences at the intersection of the

homeowner’s insurance industry and fair housing compliance based on disparate impact

principles make their views particularly valuable to this Court. They file this brief in support of

the Defendants’ Motion to Dismiss or, In the Alternative, For Summary Judgment.

II. THIS CASE LACKS THE NECESSARY RIPENESS REQUIRED FOR REVIEW OF HUD’S DISPARATE IMPACT REGULATION, ESPECIALLY IN LIGHT OF THE McCARRAN-FERGUSON ACT.

The ripeness doctrine “prevent[s] the courts, through avoidance of premature

adjudication, from entangling themselves in abstract disagreements over administrative policies”

like the one at issue here. See Nat’l Park Hospitality Ass’n v. Dep’t of Interior, 538 U.S. 803,

808 (2003) (quoting Abbott Laboratories v. Gardner, 387 U.S. 136, 148-49 (1967)) (evaluating

pre-enforcement ripeness based on “(1) the fitness of the issues for judicial decision and (2) the

hardship to the parties of withholding court consideration.”). See also Nat’l Ass’n of Home

Builders v. U.S. Army Corps of Eng’rs, 440 F.3d 459, 463 (D.C. Cir. 2006) (applying same two

part test).

Plaintiffs attempt to characterize their challenge to HUD’s disparate impact regulation as

a pure legal issue: whether disparate impact claims are cognizable under the Fair Housing Act.

While “courts have occasionally dealt [with such situations] without requiring a specific attempt

at enforcement or exhaustion of administrative remedies,” such an approach may be “outweighed

by other considerations” and not be ripe for review. Toilet Goods Ass’n, Inc. v. Gardner, 387

Clarkton, N.C., 682 F.2d 1055, 1065 (4th Cir. 1982); Hanson v. Veterans Admin., 800 F.2d 1381, 1386 (5th Cir. 1986); Arthur v. City of Toledo, Ohio, 782 F.2d 565, 575 (6th Cir. 1986); Metro. Hous. Dev. Corp. v. Vill. of Arlington Heights, 558 F.2d 1283, 1288-89 (7th Cir. 1977); United States v. City of Black Jack, 508 F.2d 1179, 1184-85 (8th Cir. 1974); Halet v. Wend Inv. Co., 672 F.2d 1305, 1311 (9th Cir. 1982); Mountain Side Mobile Estates P’ship v. Sec’y of HUD, 56 F.3d 1243, 1250-51 (10th Cir. 1995); Jackson v. Okaloosa Cnty., Fla., 21 F.3d 1531, 1543 (11th Cir. 1994).


6

U.S. 158, 162 (1967). That is the situation here, and the complaint in this case should be

dismissed because it is not ripe for resolution.

A. The Attack on the Disparate Impact Regulation Is Not Fit for Judicial Decision

The Complaint by the American Insurance Association (“AIA”) and the National

Association of Mutual Insurance Companies (“NAMIC”) contains none of the necessary

elements to put their claim in the factual context required for a broad declaratory judgment or

injunction. And factual context is key here, because no one can predict how the Disparate

Impact Rule will be applied in the abstract. It is merely a method of proof, the application of

which requires concrete facts. Those facts are lacking here. The Complaint alleges no factual

circumstance in which the Disparate Impact Rule is alleged to be causing injury or threat of

injury to Plaintiffs or their members. There is no allegation that HUD is currently applying the

Rule to any insurance company. There is no allegation that HUD has initiated any enforcement

action against any insurer based on the Disparate Impact Rule. There is no allegation of what

business practice is at risk of being subject to disparate impact analysis. There is no allegation of

which state’s law is being impaired or violated by application of the Disparate Impact Rule.

HUD’s Final Rule is consistent with the courts’ refusal to dictate any exclusive test for

establishing a discriminatory effect.6 HUD declined to codify “how data and statistics” should

be used in the application of the disparate impact standard, because “[g]iven the numerous and

varied practices and wide variety of private and governmental entities covered by the Act, it

6 See, e.g., Mount Holly Gardens Citizens in Action, Inc. v. Twp. of Mount Holly, 658 F.3d 375, 382 (3d Cir. 2011), cert. dismissed, 134 S. Ct. 636 (2013) (“‘[N]o single test controls in measuring disparate impact.’” (quoting Hallmark Developers, Inc. v. Fulton Cnty., 466 F.3d 1276, 1286 (11th Cir. 2006))).


7

would be impossible to specify in the rule the showing that would be required to demonstrate a

discriminatory effect in each of these contexts.”7

Moreover, Plaintiffs ignore the actual operation of the standard, which always allows a

defendant an opportunity to prove that any discriminatory effect is justified by legitimate, non-

discriminatory objectives, so long as there are no effective alternative practices that have less of

a disparate impact. In rejecting a proposal that insurance practices be completely exempted,

HUD explained that such an argument “[p]resumes that once a discriminatory effect is shown,

the policy at issue is per se illegal. This is incorrect.”8 Precisely because the establishment of a

prima facie case of disparate impact, by itself, is not enough to establish liability under the FHA,

but instead simply triggers a more searching inquiry into a specific business practice, disparate

impact liability cannot be determined in the abstract. More concrete facts are required than are

presented here.

Plaintiffs’ claim here rests on the possibility that some state laws might conflict with the

HUD rule and some of Plaintiffs’ members might have to alter their practices. R.1, Complaint

(“Compl.”) ¶¶ 52, 59. Such a speculative claim, without any concrete action for a court to

consider, is not fit for review. See Toilet Goods Ass’n v. Gardner, 387 U.S. at 164 (holding a

trade association’s challenge on behalf of all its members was not ripe despite final agency

action because “judicial appraisal . . . is likely to stand on much surer footing in the context of a

specific application of this regulation.”); Devia v. Nuclear Regulatory Comm’n, 492 F.3d 421,

7 78 Fed. Reg. 11,460, 11,468 (Feb. 15, 2013). 8 Id. at 11,475; see also id. at 11,476 (disparate impact liability does not preclude a defendant from denying credit or any other housing-related product or service to unqualified individuals); id. at 11,478 (emphasizing that a showing of adverse impact in the lending context is only the beginning of a disparate impact analysis).


8

424 (D.C. Cir. 2007) (finding that the case was not ripe because it was unclear whether and when

regulatory power would be used).

This is the exact problem the plaintiff insurer faced in Nationwide Mutual Insurance Co.

v. Cisneros, 52 F.3d 1351 (6th Cir. 1995). Like the plaintiffs here,9 Nationwide challenged

HUD’s application of the disparate impact theory of liability to its underwriting and pricing

practices. But HUD argued that “any application of the disparate impact analysis would depend

on the practices alleged to violate the Act and the business necessity put forth to justify them.”

Id. at 1362-63. The court agreed with HUD and held that the challenge to HUD’s application of

disparate impact analysis to insurers was not ripe for adjudication. Id.

The importance of a concrete factual context for examining HUD’s Disparate Impact

Rule is especially apparent in Plaintiffs’ repeated assertion here that the Rule “flies in the face of

the McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et seq.,” Compl. ¶ 5, and that “Congress . . . did

not intend that the FHA be construed in a way that would invalidate, impair, or supersede any

law enacted by any State for the purpose of regulating the business of insurance. 15 U.S.C. §

1012(b).” Compl. ¶ 49 (internal quotation marks omitted). Plaintiffs devote an entire section of

their Motion for Summary Judgment to the argument that the McCarran-Ferguson Act protects

insurers from disparate impact analysis. R. 16-1, Plaintiffs’ Motion for Summary Judgment

(“MSJ”) at 30-38. But in light of the limited applicability of McCarran-Ferguson’s special pre-

emption provisions, which only concern insurance, Plaintiffs, who represent only the interests of

insurance companies, cannot present the necessary “ripeness” for federal court review of HUD’s

Disparate Impact Rule.

9 Nationwide Mutual Insurance Company is a member of Plaintiff National Association of Mutual Insurance Companies.


9

The insurance pre-emption constraints of the McCarran-Ferguson Act are triggered only

when a federal law is construed in a way that would “invalidate, impair, or supersede” a specific

state law regulating the business of insurance. See Humana Inc. v. Forsyth, 525 U.S. 299, 308-

09 (1999) (rejecting a field pre-emption reading of the McCarran-Ferguson Act in favor of a

detailed analysis of whether federal law conflicts directly or frustrates the purpose of a specific

state law); see also Dehoyos, 345 F.3d at 294-95 (Fair Housing Act claim, noting that the

Humana court’s test requires analysis of “a particular state law” that regulates insurance)

(emphasis added). Such an analysis can only be conducted on a state-by-state basis, with a

particular business practice identified, and a specific state law examined. See, e.g., Saunders v.

Farmers Ins. Exch., 537 F.3d 961, 968 n.7 (8th Cir. 2008) (McCarran-Ferguson barred disparate

impact challenge to specific insurance pricing practices under Missouri law, but did not

necessarily bar other disparate impact claims under Missouri law); Ojo, 600 F.3d at 1204-05

(whether McCarran-Ferguson preempted insurance scoring discrimination claim could only be

determined after Texas interpreted its own state law; question therefore certified to Texas

Supreme Court). HUD’s Disparate Impact Rule cannot be challenged, in the abstract, for all 50

states and all possible insurance company practices, as Plaintiffs would have the court do here,

because there is not the necessary concreteness required for judicial review.

B. Withholding Consideration of This Case Will Not Cause Hardship to Plaintiffs

Plaintiffs also cannot meet the hardship prong of the ripeness doctrine in the

circumstances of this case. This is not a case like Abbott Laboratories, where the regulation at

issue had a “direct effect on the day-to-day business” of the plaintiffs and drug manufacturers

were facing immediate, uncontroverted, and costly criminal and civil penalties from a regulation.

387 U.S. at 152-53. Moreover, Plaintiffs are not “required to engage in, or to refrain from, any


10

conduct,” Atl. States Legal Found. v. E.P.A., 325 F.3d 281, 285 (D.C. Cir. 2003) (quoting Texas

v. United States, 523 U.S. 296, 300 (1998)), nor do they allege that they would suffer any

hardship were the court to hold its petition in abeyance. Devia, 492 F.3d at 427.

Rather, this is a situation in which (1) HUD has interpreted the Fair Housing Act as

prohibiting discriminatory practices relating to property and hazard insurance for 35 years prior

to promulgating of the Disparate Impact Rule, and (2) eleven circuit courts of appeals have

unanimously recognized disparate impact claims in Fair Housing Act cases over the course of

40 years. See discussion infra at 23-24. There is no imminent threat of “hardship” when HUD

has merely adopted a method of proof for disparate impact claims to which insurers have already

been subject for decades. Given this background, “no irremediable adverse consequences flow

from requiring a later challenge to this regulation.” Toilet Goods Ass’n, Inc., 387 U.S. at 164.

III. HUD’S DISPARATE IMPACT RULE IS NOT A SUBSTANTIVE

PROHIBITION OF ANY SPECIFIC INSURANCE CONDUCT, BUT IS

MERELY A METHOD OF PROVING A DISPARATE IMPACT CLAIM. ACCORDINGLY, IT DOES NOT CONSTITUTE “FINAL AGENCY ACTION”

WITHIN THE MEANING OF THE APA.

Before agency action will be considered “final” for purposes of judicial review, the action

must be one by which “rights or obligations have been determined” or from which “legal

consequences will flow.” Bennett v. Spear, 520 U.S. 154, 177-78 (1997). A substantive rule –

i.e., a rule that creates legal obligations – constitutes final agency action. Nat’l Ass’n of Home

Builders v. U.S. Army Corps of Eng’rs, 417 F.3d 1272, 1285-86 (D.C. Cir. 2005).

But HUD’s Disparate Impact Rule is not final agency action under the APA because it

does not determine rights or obligations and no “legal consequences” flow from it. It does not

regulate any specific conduct. It does not compel an insurer or housing provider to adopt any

specific rule, practice, or procedure. It does not prohibit an insurer or housing provider from


11

adopting any specific rule, practice, or procedure. See Peoples Nat’l Bank v. Office of the

Comptroller of the Currency of the U.S., 362 F.3d 333, 337 (5th Cir. 2004) (“[A] non-final

agency order is one that does not of itself adversely affect complainant but only affects his rights

adversely on the contingency of future administrative action.”) (internal quotation marks

omitted).

Instead, the Disparate Impact Rule articulates a method of proving a disparate impact

claim by which liability under the Fair Housing Act may be established – depending on the facts.

Federal courts have consistently regarded disparate impact analysis as merely one of several

possible methods by which discrimination may be proved. The precedent on disparate impact as

a method of proof comes from a range of civil rights laws including Title VII of the Civil Rights

Act of 1964, the Americans with Disabilities Act (“ADA”), and the Age Discrimination in

Employment Act (“ADEA”). See, e.g., Connecticut v. Teal, 457 U.S. 440, 458-59 (1982)

(Powell, J., dissenting) (“Title VII jurisprudence has recognized two distinct methods of proof.”);

Moore v. Hughes Helicopters, Inc., a Div. of Summa Corp., 708 F.2d 475, 482 (9th Cir. 1983)

(analyzing Title VII claim “under the disparate impact method of proof”); Wis. Cmty. Servs., Inc.

v. City of Milwaukee, 465 F.3d 737, 753 n.14 (7th Cir. 2006) (“We understand the City to be

using ‘disparate impact’ to signify the method of proof under [ADA] anti-discrimination laws.”);

Breen v. Peters, 474 F. Supp. 2d 1, 4 (D.D.C. 2007) (“Plaintiffs plead both disparate treatment

and disparate impact as alternative methods to prove their age discrimination claim.”). In these

cases, disparate impact is seen as a separate path by which to prove discrimination against

protected classes and to “remove barriers” that prevent equal opportunity. See Griggs v. Duke

Power Co., 401 U.S. 424, 430-31 (1971) (employing disparate impact theory to Title VII).


12

HUD regards disparate impact in the same manner here. It unambiguously regards its

Disparate Impact Rule as a method of proving a disparate impact violation of the FHA. See 24

C.F.R. § 100.500 (“Liability may be established under the Fair Housing Act based on a practice’s

discriminatory effect . . . .”) (emphasis added). The Executive Summary accompanying the rule

makes this clear: “This rule . . . establish[es] a consistent standard for assessing claims that a

facially neutral practice violates the Fair Housing Act . . . .” 78 Fed. Reg. 11,460 (Feb. 15, 2013)

(emphasis added). See also id. (“This rule formally establishes the three-part burden-shifting

test for determining when a practice . . . violates the Fair Housing Act.”) (emphasis added).

Because the Disparate Impact Rule is nothing more than a procedural method for

assessing liability under the Act, there has been no final agency action for purposes of judicial

review under the APA. The relief Plaintiffs seek – a declaratory judgment and an injunction –

will not affect Plaintiffs or their members or the way they conduct business. Plaintiffs are really

asking for an advisory opinion as to how HUD may weigh or assess evidence during an

administrative investigation. This is not sufficient to invoke the Court’s jurisdiction for judicial

review.

IV. BECAUSE THE McCARRAN-FERGUSON ACT APPLIES ONLY IN SPECIAL CIRCUMSTANCES, THE COMPLAINT DOES NOT ALLEGE FACTS SUFFICIENT TO COMPLY WITH FED. R. CIV. P. 8(a).

The Complaint contains many dire assertions about how the Disparate Impact Rule will

“impair state laws that prohibit discrimination,” will “violat[e] principles of sound actuarial

practice,” and will “create . . . significant burdens” on its members who will have to comply with

it. Compl. ¶¶ 50-64.


13

These allegations do not contain the necessary factual concreteness to satisfy the

requirements of Rule 8(a). They are merely speculations and are not “provable” in the abstract,

without some concrete factual context in which the Disparate Impact Rule is being applied.

To adequately state a claim for relief, a complaint “requires more than labels and

conclusions.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Factual allegations

must be substantial enough to raise a right to relief above the speculative level, id., and Rule 8

requires a complaint with enough factual matter (taken as true) to suggest that a violation of law

has occurred, or is about to occur. Id.; see also Patton Boggs LLP v. Chevron Corp., 683 F.3d

397, 403 (D.C. Cir. 2012) (dismissing complaint as “much too vague” on who was harmed and

how to suggest a plausible scenario for relief). It is not enough that a plaintiff might later

establish some “set of [undisclosed] facts” to support its claim. Twombly, 550 U.S. at 561.

“Nor does a complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual

enhancement.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A court considering a motion to

dismiss can choose to begin by identifying pleadings that, because they are no more than

conclusions, are not entitled to the assumption of truth. See In Re Interbank Funding Corp. Sec.

Litig., 629 F.3d 213, 221 (D.C. Cir. 2010) (“[T]he tenet that a court must accept as true all of the

allegations contained in a complaint is inapplicable to legal conclusions.”) (quoting Iqbal, 556

U.S. at 678). “While legal conclusions can provide the framework of a complaint, they must be

supported by factual allegations.” Iqbal, 556 U.S. at 679.

Courts have rejected assertions made by other insurers that are similar to the allegations

in this complaint as overly “sweeping,” Prudential, 208 F. Supp. 2d at 60, and even “fanciful.”

Dehoyos, 345 F.3d at 297 n.5.

Essentially, [Prudential’s] argument turns on the purportedly unique nature of the insurance industry, which must “discriminate” based on an assessment of risk.


14

However, this argument is unavailing in light of the availability of the "business justification" defense. Plaintiffs do not challenge Prudential's right to evaluate homeowners’ insurance risks fairly and objectively. Rather, plaintiffs allege that the underwriting policies and practices employed by Prudential are not purely risk-based. Furthermore, defendants cannot point to anything in the FHA itself that would justify this Court in carving out an exception for a particular type of organization.

Prudential, 208 F. Supp. 2d at 60. The Fifth Circuit similarly observed that the insurance

industry’s “ominous” description of how disparate impact will force federal courts to act as

“super actuaries” by substituting their judgment for the judgment of each of the 50 states

“although colorful, is incorrect.” DeHoyos, 345 F.3d at 297 n.5. This is because courts are

regularly called upon to evaluate whether a practice with a disparate impact is nevertheless

justified by a business necessity. “[Allstate’s] attempt to distinguish the business of insurance

from other businesses is unpersuasive.” Id. Moreover, supposed conflicts between disparate

impact theory and state insurance laws “are entirely conjectural.” Id. at 299, n.7.10

The Seventh Circuit made the same observations in NAACP v. American Family.

Insurers are no different from lenders when it comes to risk assessment. Like insurers, lenders

must evaluate risks, such as whether to extend credit in the first instance, and if so at what rate of

interest. NAACP v. American Family Mut. Ins. Co., 978 F.2d 287, 298 (7th Cir. 1992). The Fair

Housing Act indisputably applies to lenders, so “it is difficult to see risk classification as a

principled ground to exclude insurers” from disparate impact analysis. Id. 11

10 See also Moore v. Liberty Nat’l Life Ins. Co., 267 F.3d 1209, 1220-23 (11th Cir. 2001) (“Liberty National argues that racial discrimination is acceptable in the Alabama . . . insurance context so long as those racial distinctions have an actuarial basis . . . . Absent more convincing evidence that racial discrimination in the insurance context is an integral part of Alabama’s regulatory scheme, Liberty National’s argument must fail.”).

11 American Family Mutual Insurance Company is also a member of Plaintiff National Association of Mutual Insurance Companies. See supra n.7.


15

Plaintiffs’ allegations about the ominous ramifications of HUD’s Disparate Impact Rule

do not contain the factual concreteness necessary to satisfy the requirements of Rule 8, in light of

Iqbal and Twombly and McCarran-Ferguson. On this ground alone, then, the Complaint must be

dismissed for failure to state a claim.

V. THE McCARRAN-FERGUSON ACT IS NOT AN AUTOMATIC BAR TO APPLICATION OF DISPARATE IMPACT TO INSURERS.

As noted previously, in order to be ripe for review, a complaint raising the limited

application of the McCarran-Ferguson Act, and its special reverse-preemption provisions for the

business of insurance, requires a certain level of specificity and concreteness that is lacking in

this complaint filed by insurance trade industry representatives. Nevertheless, Plaintiffs argue

that the McCarran-Ferguson Act presents an absolute bar to any disparate impact enforcement

against insurers, under any circumstances. MSJ at 30-38; Compl. at ¶¶ 65-73.

This argument must fail, as it has failed in the past.

A. The Fair Housing Act Has Been Enforced Against Homeowner’s Insurers for Decades.

Since the Fair Housing Act was amended in 1988, every court to consider the issue has

held that the Fair Housing Act prohibits acts of discrimination by homeowner’s insurers. See,

e.g., Ojo, 600 F.3d at 1208 (9th Cir. 2010); Nationwide, 52 F.3d at 1360; United Farm Bureau,

24 F.3d at 1016; American Family, 978 F.2d at 301; Lumpkin v. Farmers Grp., Inc., No. 05-2868

Ma/V., 2007 WL 6996777, at *2 (W.D. Tenn. July 6. 2007); Nevels v. W. World Ins. Co., 359 F.

Supp. 2d 1110, 1117-1122 (W.D. Wash. 2004); Prudential, 208 F. Supp. 2d at 55-59; Lindsey v.


16

Allstate Ins. Co., 34 F. Supp. 2d 636, 641-43 (W.D. Tenn. 1999); Strange v. Nationwide Mut.

Ins. Co., 867 F. Supp. 1209, 1212, 1213-15 (E.D. Pa. 1994).12

Most of these decisions have gone no further than the language of section 3604(a), which

makes it unlawful “[t]o refuse to sell or rent after the making of a bona fide offer, or to refuse to

negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any

person because of race. . . .” 42 U.S.C. § 3604(a) (emphasis added). This is due, in part, to the

link between the ability to obtain insurance and the ability to obtain housing – adequate

insurance is necessary to the ownership or rental of housing. Nationwide, 52 F.3d at 1360

(“[T]he availability of property insurance has a direct and immediate effect on a person’s ability

to obtain housing.”); Nevels, 359 F. Supp. 2d at 1119 (“Plaintiffs . . . , without liability

insurance, face significant financial risk, and their ability to provide housing for disabled

individuals is threatened.”).13

Section 3604(b) has also been interpreted to prohibit homeowner’s insurance

discrimination. This provision makes it unlawful “[t]o discriminate against any person in the

terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or

facilities in connection therewith, because of race . . . .” 42 U.S.C. § 3604(b) (emphasis added).

12 Even before the Fair Housing Amendments Act of 1988, federal district courts had so held. See, e.g., McDiarmid v. Econ. Fire & Cas. Co., 604 F. Supp. 105, 107 (S.D. Ohio 1984); Dunn v. Midwestern Indem. Mid-Am. Fire & Cas. Co., 472 F. Supp. 1106, 1109 (S.D. Ohio 1979). 13 See also American Family, 978 F.2d at 297-98, 300 (“No insurance, no loan; no loan, no house; lack of insurance thus makes housing unavailable.”); United Farm Bureau, 24 F.3d at 1014 n.8 (“This undoubtedly could make owning and retaining real property unavailable . . . .”); Lindsey, 34 F. Supp. 2d at 641-43 (FHA prohibits discriminatory refusal to underwrite homeowner’s insurance); United States v. Mass. Indus. Fin. Agency, 910 F. Supp. 21, 27 (D. Mass. 1996) (“Few, if any, banks make home loans to uninsured borrowers. Thus, property insurers in effect have the power to make housing unavailable to potential buyers.”); Strange, 867 F. Supp. at 1214.


17

As the 1989 HUD regulations state, this provision makes illegal the act of “[r]efusing to provide

. . . property or hazard insurance for dwellings or providing such services or insurance differently

because of race. . . .” 24 C.F.R. § 100.70(d)(4). The Sixth, Seventh, and Ninth Circuits and

several lower courts have all determined that homeowner’s insurance is clearly and simply a

“service” rendered “in connection” with the sale or rental of a dwelling. See, e.g., Ojo, 600 F.3d

at 1208; American Family, 978 F.2d at 298; Lindsey, 34 F. Supp. 2d at 642-43 (claims of

discrimination by insurers in setting premiums and failing to renew policies are also covered by

the Fair Housing Act, even though they do not directly affect the “availability” of housing).

The 1988 amendments to the Act also substantially rewrote 42 U.S.C. § 3605 so that it,

too, includes homeowner’s insurance transactions. Prior to 1988, § 3605 prohibited

discrimination in mortgage “loan transactions,” even those engaged in by insurers. When

Congress passed the Fair Housing Amendments Act of 1988, it completely rewrote § 3605 so

that it is no longer limited only to loan transactions. That section now makes it unlawful to make

unavailable, or to discriminate in the terms or conditions of, a “residential real estate-related

transaction,” which includes “the making or purchasing of loans or providing other financial

assistance for . . . purchasing, constructing, improving, repairing, or maintaining a dwelling.”

Id. (emphasis added). The new definition14 makes clear that Congress intended to prohibit

discrimination in transactions, like insurance, that provide financial assistance for “repairing” or

“maintaining” a dwelling. Under the plain language of the current version of § 3605,

14 Under the new § 3605, it is unlawful for a defendant to not “mak[e] available” a residential real estate related transaction because of race or any other prohibited basis. 42 U.S.C. § 3605(a). There is no implication of intent or motive in this phrase. A housing transaction can be “made unavailable” to an individual by operation of facially neutral rules just as much as by operation of rules that express their discriminatory intent. Clearly the language Congress used in the new § 3605 could encompass practices with a disparate impact.


18

homeowner’s insurance constitutes “financial assistance” for one or more of the purposes listed

in the statute. Accordingly, several courts have held that homeowner’s insurance falls within the

scope of § 3605’s protections because it “provides the financial assistance necessary” to

maintain, repair, or construct a dwelling. Prudential, 208 F. Supp. 2d at 58; Nevels, 359 F. Supp.

2d at 1121-22. As this court noted in Prudential:

It is undisputed that individuals are often unable to purchase or to maintain financing for homes without homeowners insurance. Without property insurance, most homeowners are unable to repair their homes when and if disaster should strike. For these reasons, insurance provides the financial assistance necessary to maintain a dwelling. As such, it is reasonable to conclude the Congress intended that homeowners insurance fall within the scope of section 3605’s protections.

208 F. Supp. 2d at 58. This is also HUD’s view of § 3605.15

B. The McCarran-Ferguson Act Is Not An Automatic Bar to Disparate Impact Fair Housing Act Enforcement Against Insurers.

Most courts have concluded that the McCarran-Ferguson Act does not preclude Fair

Housing Act claims from going forward against insurers on the ground that no state insurance

law would have been “invalidated, impaired, or superseded” by a finding of liability under the

Fair Housing Act. Nationwide, 52 F.3d at 1363 (Ohio); United Farm Bureau, 24 F.3d at 1016

(Indiana); American Family, 978 F.2d at 296 (Wisconsin); Mackey v. Nationwide Ins. Cos., 724

F.2d 419, 421 (4th Cir. 1984) (North Carolina). Accord, Moore, 267 F.3d at 1220-23 (Alabama

insurance law would not be impaired if insurance discrimination claims under § 1981 and § 1982

were successful). This is so even if the claims against an insurance company are based on a

15 See Letter from Elizabeth K. Julian, HUD Acting Ass’t Secretary for Policy and Initiatives, to Richard D. Rogers, Deputy Director, Illinois Dep’t of Insurance (Jan. 26, 1996) (“Julian 1/26/96 Letter”) (attached hereto as Exh. A).


19

disparate impact theory of liability. Dehoyos, 345 F.3d at 298-99 (Florida and Texas);

Prudential, 208 F. Supp. 2d (Ohio); Lumpkin 2007 WL 6996777, at *2 (Tennessee).16

These decisions collectively stand for the proposition that McCarran-Ferguson is not, as

Plaintiffs allege, an automatic and nationwide bar to disparate impact Fair Housing Act

enforcement. If McCarran-Ferguson does not prohibit the courts from enforcing the Fair

Housing Act in these litigation settings, then neither does it prohibit HUD from using the

Disparate Impact Rule method of proof in the administrative setting.

McCarran-Ferguson may occasionally reverse preempt fair housing claims, but only in

those situations where the specific insurance practice being challenged is permitted by state law.

See, e.g., Ojo v. Farmers Grp., Inc., 356 S.W.3d 421, 434 (Tex. 2011) (Texas law permits race-

neutral credit scoring that has a racially disparate impact, and permitting a challenge to such a

practice “would frustrate the regulatory policy of Texas.”); Saunders, 537 F.3d at 968

(Missouri’s law would be “frustrated and interfered with” if a plaintiff could challenge insurance

prices under the FHA).

Moreover, Plaintiffs undercut their own argument by alleging (Compl. ¶¶ 24-26) that

state laws and codes often do in fact prohibit insurers from “treating similar risks differently”

and from differentiating among individuals or risks “because of . . . race, color, religion, or

national origin.” Such prohibitions are entirely consistent with the Fair Housing Act, and so

would not be “invalidated, impaired or superseded” by HUD’s enforcement of the Act in states

with such prohibitions. McCarran-Ferguson would not be triggered in those states.

16 According to at least one state court, “the disparate-impact approach does not unduly undermine the business of selling insurance [and] does not conflict with Ohio insurance law.” Toledo Fair Hous. Ctr., 704 N.E.2d at 670-71. Similar holdings in other states would also bar this court from issuing the relief Plaintiffs seek here.


20

In short, in the absence of knowing what specific underwriting practice is being

challenged, and, without knowing which state law might preempt application of disparate impact

analysis, it is impossible to grant the relief Plaintiffs seek.

The Supreme Court has repeatedly interpreted the McCarran-Ferguson Act in the context

of an act of Congress being applied in a specific state and in relation to a specific insurance

business practice. See e.g., Humana, 525 U.S. at 303 (considering federal RICO charges in light

of Nevada state policy on insurance fraud); Barnett Bank of Marion Cnty. v. Nelson, 517 U.S. 25

(1996) (interpreting federal statute on national bank’s sale of insurance in the context of Florida

state law prohibiting banks from selling most types of insurance); Metro. Life Ins. Co. v. Ward,

470 U.S. 869, 880-81 (1985) (examining whether McCarran-Ferguson protected Alabama

preferential insurance tax statute). We have not located any Supreme Court decision, or that of

any other federal court, interpreting the McCarran-Ferguson Act to invalidate a federal act or

administrative rule in all 50 states. Yet that is what Plaintiffs seek in this action for declaratory

and injunctive relief.

Finally, Plaintiffs completely overlook a key component of the disparate impact analysis

– the “business justification” component – which HUD has embraced in its Disparate Impact

Rule. Specifically, a business practice that has a disparate impact on a protected group is

nevertheless legal under the FHA if it “is necessary to achieve one or more substantial,

legitimate, nondiscriminatory interests.” 24 C.F.R. § 100.500(b). “Not every housing practice

that has a disparate impact is illegal. We use [the disparate impact framework] to distinguish the

artificial, arbitrary, and unnecessary barriers proscribed by the FHA from valid policies and

practices crafted to advance legitimate interests.” Graoch Assoc. #33, L.P. v.

Louisville/Jefferson Cnty. Metro Human Relations Comm’n, 508 F.3d 366, 374-5 (6th Cir. 2007).


21

HUD has stated that “nothing in the [FHA] requires or encourages any practice that is

inconsistent with sound actuarial and underwriting principles . . . .” Julian 1/26/96 Letter, supra,

n.15. But “when distinctions are drawn on the basis of subjective perception, inaccurate

stereotypes, or overt prejudice then such practices do violate the Act.” Id. See also Prudential,

208 F. Supp. 2d at 60 (insurers’ ability to assess risk on legitimate grounds is preserved in light

of the “business justification” element of disparate impact analysis) (internal quotation marks

omitted).

Disparate impact is not a “gotcha” standard of liability intended to trap unwitting

defendants; nor does it require quotas or set-asides. When a defendant, using evidence that is

neither hypothetical nor speculative, can establish a legitimate, non-discriminatory justification

for a practice that may have a discriminatory effect, that defendant can prevail unless the plaintiff

then demonstrates the existence of a less discriminatory alternative practice that achieves the

same objective. If, as Plaintiffs contend, any of their challenged insurance practices are based on

legitimate risk-based underwriting or pricing, then they will suffer no liability under the FHA.

C. Insurance “Risk Analysis” Is Not Inconsistent With HUD’s Disparate Impact Rule. HUD Has Applied Disparate Impact to Insurers for Decades, and All Federal Administrative Agencies With FHA Enforcement Authority Have Adopted and Applied Disparate Impact Principles to Risk Analysis.

Plaintiffs contend that when HUD promulgated its Disparate Impact Rule after the

required notice and comment period, it “offered only cursory responses” to Plaintiffs’ objections

to the draft rule, MSJ at 7, and ignored Plaintiffs’ ardent contention that disparate impact

analysis is “fundamentally inconsistent” with risk-based analysis, the cornerstone of insurance.

MSJ at 5.

Contrary to Plaintiffs’ suggestion, HUD considered many competing views in the notice-

and-comment process, making changes to the November 16, 2011 proposed rule in response to


22

many comments.17 The resulting Rule represents the agency’s carefully considered and

authoritative interpretation of the scope of the statute it is charged with enforcing, and it

establishes a practical analytical framework for evaluating disparate impact claims.

Moreover, HUD has significant prior experience in applying the Fair Housing Act to a

wide range of housing contexts, including insurance. As the Court noted in Nationwide, 52 F.3d

at 1354: HUD “has interpreted the Fair Housing Act as prohibiting discriminatory practices

relating to property and hazard insurance . . . since at least 1978.” Furthermore, in 1988, the Fair

Housing Act was amended to authorize HUD to issue rules to implement the Act. 42 U.S.C. §

3614a. At that time, HUD issued a regulation reflecting its interpretation of the Act and its

application to insurance companies.18 This informal agency interpretation, even if not

formalized into a statutorily authorized regulation, is entitled to substantial deference by the

courts. See Meyer v. Holley, 537 U.S. 280, 287 (2003) (HUD is “the federal agency primarily

17 See 78 Fed. Reg. 11,460, at 11,460 (“This final rule follows a November 16, 2011, proposed rule and takes into consideration comments received on that proposed rule.”); id. at 11,463 (summarizing changes from the proposed rule); id. at 11,475 (addressing why policies with a disparate impact are legal if supported by a legally sufficient business justification, and why an exemption for insurance practices would be contrary to Congressional intent). Indeed, many commenters took positions opposite to Plaintiffs, and specifically addressed how the proposed Disparate Impact Rule should apply in cases against insurance companies. See, e.g., Shanna Smith, Comments of National Fair Housing Alliance and Other Civil Rights Organizations Regarding Docket No. FR-5508-P-01, Implementation of the Fair Housing Act’s Discriminatory Effect Standard (2012), http://www.regulations.gov/#!documentDetail;D=HUD-2011-0138-0076 (discussing less discriminatory alternative in the context of insurance litigation); Barbara Arwine, Comments of Lawyers’ Committee for Civil Rights Under Law Regarding Docket No. FR-5508-P-01, Implementation of the Fair Housing Act’s Discriminatory Effect Standard (2012), http://www.regulations.gov/#!documentDetail;D=HUD-2011-0138-0075 (highlighting usefulness of disparate impact analysis in “a wide variety of homeowners insurance cases” and citing specific examples of objectionable insurance practices). 18 See also Julian 1/26/96 Letter (attached hereto as Exh. A); Letter from Henry Cisneros, HUD Secretary, to Sen. Christopher S. Bond, U.S. Senate (June 27, 1996) (attached hereto as Exh. B).


23

charged with the implementation and administration of the [Fair Housing Act]” and the Court

“ordinarily defer[s] to an administrating agency’s reasonable interpretation of a statute.”);

Putnam Family Partnership v. City of Yucaipa, Cal., 673 F.3d 920, 928 (9th Cir. 2012) (“We

routinely defer to HUD’s reasonable interpretation of the FHA.”) (internal quotation marks

omitted).

Furthermore, when HUD proposed the Disparate Impact Rule, it explicitly found that the

disparate impact standard of proof was already “well established,” noting that starting almost

forty years ago, all eleven courts of appeals that have addressed the issue have adopted the

standard, 76 Fed. Reg. 70,921, 70,923, n.16 (Nov. 16, 2011), and that the standard had been

applied uniformly by HUD in its administrative enforcement of the Fair Housing Amendments

Act of 1988 starting over twenty years ago. Id. at 70,922, n.11. Thus, HUD’s Disparate Impact

Rule is merely a formal adoption of the courts’ and HUD’s own long-held interpretation of the

Fair Housing Act.

HUD is not the only federal regulatory agency to adopt and apply the disparate impact

standard of liability to financial institutions that regularly assess financial risk. Other federal

agencies charged with implementing and administering the FHA have embraced the use of

disparate impact analysis. Since at least 1994, all five federal financial regulatory agencies have

used disparate impact analysis to assess liability under the various federal anti-discrimination

laws they enforce, including the Fair Housing Act. See, e.g., Interagency Task Force on Fair

Lending, Policy Statement on Discrimination in Lending, 59 Fed. Reg. 18,266 (Apr. 15, 1994)

(online at www.occ.treas.gov/news-issuances/federal-register/94fr9214.pdf). See also

Interagency Fair Lending Examination Procedures, at Appendix 26-28 (online at

http://www.federalreserve.gov/boarddocs/caletters/2009/0906/09-06_attachment.pdf).


24

Indeed, the disparate impact doctrine has been an integral part of Regulation B, which

prohibits discrimination in underwriting and pricing in lending transactions, since it was

promulgated in 1985. 12 C.F.R. § 202.6, n.2. Plaintiffs’ assertion that application of disparate

impact to insurance risk assessment would require an insurer to “disregard legitimate risk-related

factors” and would be “wholly inconsistent with well-established principles of actuarial practice”

(Compl. ¶ 5) is therefore patently false.

HUD itself runs an extensive insurance program. The National Housing Act of 1934

created the Federal Housing Administration to provide mortgage insurance on loans made by

Federal Housing Administration-approved lenders throughout the United States and its

territories. The Federal Housing Administration insures mortgages on single family and

multifamily homes including manufactured homes and hospitals. It is the largest insurer of

mortgages in the world, insuring over 34 million properties since its inception in 1934.19 To

suggest that HUD does not understand principles of insurance, or the analysis of insurance risk,

is utterly disingenuous.

As a matter of public policy, open markets that are free of discrimination are critical to

maintaining a healthy, robust real estate industry. Conversely, markets tainted by discrimination

are inefficient and adversely affect all market participants. For more than 50 years, economists

have studied the negative impacts of discrimination on free markets. Alan Greenspan, while

Chairman of the Federal Reserve, observed that discrimination is bad for business:

Discrimination is against the interests of business — yet business people too often practice it. To the extent that market participants discriminate, they erect barriers to the free flow of capital and labor to their most profitable employment, and the distribution of output is distorted. In the end, costs are higher, less real output is

19 THE FEDERAL HOUSING ADMINISTRATION, http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory (last visited Feb. 10, 2014).


25

produced, and national wealth accumulation is slowed. By removing the non-economic distortions that arise as a result of discrimination, we can generate higher returns to both human and physical capital.

Alan Greenspan, Economic Challenges in the New Century, Remarks Before the Annual

Conference of the National Community Reinvestment Coalition (Mar. 22, 2000) (online at

http://www.federalreserve.gov/boarddocs/speeches/2000/20000322.htm).

Plaintiffs’ members have been operating profitably for decades in a world where every

circuit court that has addressed the issue, as well as HUD, has found that disparate impact

liability exists under the FHA – without the calamitous results predicted by Plaintiffs. The

McCarran-Ferguson Act, therefore, is not an automatic bar to application of disparate impact to

homeowner’s insurers.

VI. CONCLUSION For the above reasons, the Court should grant the government’s motion and dismiss

Plaintiffs’ complaint in its entirety.


26

Respectfully Submitted,

/s/ Stephen M. Dane Stephen M. Dane Glenn Schlactus RELMAN, DANE & COLFAX PLLC 1225 19th Street, N.W., Suite 600 Washington, D.C. 20036 Telephone: (202) 728-1888 Fax: (202) 728-0848 /s/ Joseph D. Rich Joseph D. Rich LAWYERS’ COMMITTEE FOR CIVIL RIGHTS UNDER LAW 1401 New York Avenue, N.W., Suite 400 Washington, D.C. 20005 Telephone: (202) 662-8600 Fax: (202) 783-5113 Attorneys for Amici Curiae The National Fair Housing Alliance, Lawyers’ Committee for Civil Rights Under Law

National Low Income Housing Coalition Poverty & Race Research Action Council

National Housing Law Project LatinoJustice PRLDEF


EXHIBIT A

Case 1:13-cv-00966-RJL Document 24-1 Filed 02/12/14 Page 1 of 5

1 • - · ····-··· -· • • ---·••::;, u.uu Vt wuu ""''CVt::IUtJIIU:::"III,

OFFICE OF THE ASSISTANT SECRETARY FOR FAIR HOUSING AND EQUAL OPPORTUNITY

Mr. Richard D. Rogers Deputy Director

Washington, D.C. 2041 0-2000

February 26, 1996

Illinois Department of Insurance 320 West Washington Street Springfield, IL 62767-0001

SUBJECT: National Fair Housing Alliance v. State Farm Insurance Comoany, Case Number 05-94-1351-8

Dear Mr. Rogers:

Thank you for your letter of January 18, 1996. The Depart111ent of __ t!Ol!__f?i.Jl_g__an..d_Urban .. De:velopment. is--- i-n-- t-he --pr-eees-s-e-f -

-- Irivesi::-:i.gating a complaint filed with this office against the above insurance company to determine whether illegal discrimination did in fact take place. The Federal Fair Housing Act {FHAct, Act), current regulations, and case law reauire that HUD investigate and adjudicate matters pertaining to discrimination in the provision of property insurance. The Department recognizes the interest state insurance regulators have in insurance redlining issues, but because this investigation is ongoing, as in the case of your market conduct examinations, we are unable to release complaint related informa-tion until the case has been closed. The Department has~ however, informed the Ohio Insurance Commissioner of our

. invf?st~gg,t:_~qn,~whi.ch , is __ the_. state .where the alleged ·-~·~-·-~~~------~~~- ·- ·"-~'"'"-·-·--·~

~- ~iscrimination took place.

It appears from your letter that you may not fully understand HUD's responsibilities as the primary Federal fair housing law enforcement agency. The FHAct and its regulations have a very different purpose and content from codes promulgated by state insurance ~-OJJ.1IDis_sioner.s. ______ Unlike --insuran-G9- GGdesr- &he-~--- - -- ---- ··----

- 'A.cE cioe's-not_ r .egulate the insurance industry. Therefore I HUD does not and will not approve rate filings or underwriting guidelines, establish solvency reg':l~EE:~§!l~, __ _g_:r_p§:r-fo_r;n any o_f ____ _ the standa-rd fUnct-iOns curre:iifly provided by state regulators to assure competition, availability and affordability of insurance. HUD is concerned solely with discriminatory policies or practices as prohibited by the Act.

~---~--loart~ 8~~~~~~~f~~ -~~~~ ,....-,.....,...-_ ·· . ..,_,.:trrs1Trarfce~=on -;r pron:li51Ted l5asis effectively makes housing

unavailable in violation of Section 3604{a). Similarly, because insurance is a service clearly connected with purchasing a


·.,

2

dwelling, discrimination in the provision of this service on a prohibited basis violates Section 3604(b). Property insurance is also required to maintain a dwelling, and, thus, enjoy the full benefits and privileges of homeownership. Therefore, discrimination in the provision of property insurance constitutes discrimination in residential real estate-related transactions in violation of Section 3605.

Several Administrations, both Republican and Democratic, beginning with a HUD General Counsel opinion in 1978, have concluded that the Fair Housing Act prohibits: (1) insurance redlining and other policies and practices that deny insurance or make it unavailable on the basis of race or any other protected status, and (2) discrimination in the terms, conditions, costs or other aspects of insurance coverage. HUD, in its capacity as the nation's chief fair housing law enforcer, promulgated regulations implementing the Fair Housing Amendments Act of 1988 defining a s prohibited conduct "Refusing to provide municipal services or ····- ·--· ---·.

_________ property or .ha-za-Ed--insurance· for-dwell i"ngs· ·o-r ··=providTn_g_ such--services or insurance differently because of race, color, religion, sex, handicap, familial status, or national origin" (24 C.F.R. Section 100.70(d)(4)).

Case precedents such as Dunn v. Midwestern Indemnitv Mid American Fire & Casualty Co. , 4 72 F. Supp, 1,106 . (S.D. Ohio 1979) and McDiarmid v. Economy Fire & Casualty Co., 604 F. Supp. 105 (S.D. Ohio 1984) established the applicability of the Fair Housing Act to discriminatory insurance practices. More recent precedents, N. A .A .C. P. v. .American Family Mutual Insurance Co. , --9~8 F.2d 287 (7th Cir. 1~92), cert. denied, 113 8. Ct. 2335 ( 19 9 3) , Nationwide Mutual Insurance Co. v. Cisneros, No. C3-~'"~-=-~~.2 ..... -~- - ..

__ (S .. D .. OhioFeh, 24 r 1994} 1 and · strano E:t" v- ~ NafiOnwide--Mutual · Insurance Co., No. 93-6585 (E.D. Pa. 9-22-94) reaffirmed this principal, according deference to HUD's substantive regulation promulgated in 1989 under standards established in Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). But see Mackey v. Nationwide Insurance Co., 724 F. 2d 419 (4th Cir. 19 84) . While the Fourth Circuit held to the __________ ________ _

____ c:;;_on.trary., ... that decision was --renderedpr i ·a-r · to ·the ··nepa rtm.e nt' sregulation stating that insurance is covered by the Act. The Seventh Circuit in the 1992 American Familv case, in finding that insurance is f_ove~E!d, found the reasoning of--- that 1984 · ctecisicH1 _______ ·· ·

·uripersuaiive stating that "events have bypassed Mackey" and found the regulations to be controlling, based upon the Department's statutory authority to issue them and the weight such regul a tions are accorded.

~---···-- · .. . .. __ , ___ }p . Tfi~ .. mR .. $~~- ~- :l£:_eg_c:;~t ;e~P~~'"la~~cif:l #:'?~.9:~c,--,.~~.; :t:scsue'T c:c~6n_: --~~-=-~ --~2.:_~_, - -_.::..Ma_y.:__, _-:-_1 9.2..2~l ..... ;~h.~~c:.S.4~h::..~cUJ<,kcf.0-J±eweEl=trihe~,severrttr=cire1fiT- ·ana - --······

-------.,.--::rained -the long line of courts that have upheld the Department's jurisdiction and found that the Fair Housing Act complements rather than conflicts with state laws or the McCarran - Ferguson ___ _


....

3

Act. In a suit filed by the Nationwide Insurance Company contesting HUD's authority to investigate an allegation of insurance discrimination under the Act, Nationwide Mutua l Ins. Co. v. Cisneros, No: 94-3296 (6th Cir. May 1, 1995), the court stated, 11 we conclude that HUD's inte rpretation of the Fair Housing Act is consistent with goals of the Fair Housing Act and a reasonable interpretation of the statute . . . we hold that the McCarran-Ferguson Act does not preclude HUD's interpretation of the Fair Housing Act."

Neither the Act nor the regulation require insurers to take all comers and offer the same product at the same price for any applicant. Selection of markets, products, prices, and other terms and conditions are not affected by HUD's regulation, except to the extent that any practice constituted unlawful discrimination under the Fair Housing Act. Nothing in the Act requires or encourages any practice that is inconsistent with sound actuarial and underwriting princiiJ.le_~_j,ncl.u.ding._ b.ut ... no.t--------·--··

--1-imited·-- to ·-·the-requrr~ment ____ tnaE -prTce·s·--not be excessive, inadequate, or unfairly discriminatory.

It is true that, depending on the facts of the specific case, a HUD investigation may examine the practices of particular insurers who are alleged to have engaged in discriminatory practices, including u:nder:writing activities and pricing of partic~lar insurance policies, but only to the extent that such practices are alleged to constitute unlawful discrimination in violation of the Fair Housing Act. This is so because discrimination undt==r the Fair Housing Act i-s not restricted sbl~ly to the issue of refusing to write policies in minority neighborhoods. As in every other area o:E,.J:!oJJ.s.ing that .fallsunder ·the jurisdi'ction of t.h~ Act, -cli.s c r l mination that occurs in the terms and conditions under which products and services are made available is also prohibited.

Discrimination on the basis of risk constitutes sound business practice that does not conflict with the Fair Housing Act. But when distinctions are drawn on the .Q_fl_;?_is .. . of_suhj.ec..tive -- ----··· pa.rce~tion-, -inaccurate ster eotypes-;·o:r · ·o-ver""t- .prejudice then such practices do violate th~ Act.

HUD has no desire to usurp Ill±noJ s'; or ·any- oEhe£st a t e-'s jurisdiction when it comes to the regulation of the business of insurance. The Department will not ignore the input nor the cooperation of state insurance regulatory agencies. This agency does have jurisdiction and required by the Fair-Housing Act to investJ.g~ t ~ . _a ll ..... .. compl a i o t.r.o .. i.~~?~Y:~~g e.;1J:eg~d. . £IJS'Cr1rn:r,:q~.Emr~JJ.: ·•·· ·· · - .. ; ""'"\~

,.,;~_ : ,;~~~~"~f>:J:;OV:J.Sl,QP :,.-~~'::t:~.~flf:7;~r-t¥?~~~ -.... -~- ____ :: .. :: .... ·: .. -~: .:: ~:: _ ·· - -- - -~:- ·=:::~ -~--~ ••'o •• ••••••>•"" .. '''~' •• ~·• •••- ~ ••·''~'""'''' .. '''' ' ' ... '"''''~''~'' ''''"- '-"~'0-''-'''''""''_'_'0_., __

-·-------·- --··-- ----------- - -·--·---------·-····--- ·------------··-·•"·- -··"'"'


If you would like to discuss this further, or you require additional assistance, please contact Peter Kaplan, Director, Office of Regulatory Initiatives and Federal Coordination at (202) 708-2904. Thank you for your interest in this matter.

for

4

- -- -----------~---- --------:--- ·----------· --------·-·--- ----------------------··· · ··-···------------ ··- --·· ... ··- · · - ···----~-· - ···········-

~~-· _nr:_~-·--=-·· -~-- ·.::a


EXHIBIT B


U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT THE SECRETARY

WASHINGTON, D.C. 20410

June 27, 1996

Honorable Christopher S. Bond United States Senate Washington, DC 20510-2503

Dear Senator Bond:

Thank you for your letter of April 23, 1996, regarding your continuing interest in discrimination and the devastating effects it has on our inner cities. I am pleased to respond to your questions regarding procedures HUD utilizes in applying the Federal Fair Housing Act (the Act) to the property insurance industry. _____________ ··-·--· ··--·· ·-- ·-----

- ---~------------- ------- ---------------

Your letter raises four related areas of concern: 1) application of the Fair Housing Act to property insurance; 2) state insurance laws that address discrimination in property insurance; 3) procedures for investigating complaints; and 4) if the Department has considered eliminating or reducing Federal regulati_on of property insurance discrimination. The Department is undertaking the careful examination of contracts and records to assure an accurate response to your request for information regarding reports and studies, both completed and underway, and will send t .hat information to you shortly- in a supplementary response.

~Appl·tcation·~"of~- th'Ef '·Fa1r -Housinci"A.C:tt=to~-P~;~,;;;:rty.· Insurance . - - ~ - - - - - -~~~.!;;,..-.-,- ·:.:,:.;:::: . .:."-"""-=:.-~

As the Department has consistently stated, HUD does not intend to regulate the property insurance industry. The Department does not propose to approve rate filings or underwriting guidelines, set licensing procedures, establish solvency standards or perform any of the servic~~9_bttipely_. _ __ . . ~-- . _____ . provided· by -- st-ate -regulators-·:_- HCiwey~r, :_ uift> Ts legal ly obligated to enforce·· the Fair Housing Act which has been consistently interpreted as applying to property insurance discrimination.

__ 1In_l ike ___ s .. ta .. te ...... r.eg.u .. la-t --i-G-n-s-T-- ----HtJB·----r -egu-l-a·t ·i-·on·s· .. ·····an·ct-····e·n-r·c,-r ·ce-rnei1t ________ ................ ---- · ·--------- ---------- ----·--responsibilities are intended solely to implement the Act.

Both Republican and Democratic Administrations, beginning with a HUD General Counsel opinion in 1978, have concluded that the Fair Housing Act p robi hjJ s · (;!., ) _;i,asur,emee r e dlining a:pq - · ··. : ·:%~;\'?7"::-- ":"':

,,, ,"7 -~~~£1~t.i~~~z~::~~i=~t~~;:±~~,~:~~;~.T~!~:;~~a~-~~·~r~;~-~;:v~-- ~-~~~~-~-: .. ~ .. ~-----~-and (2) discrimination in the terms, conditions, costs or other aspects of insurance coverage. In 1988 President Reaga n signed the Fair Housing Amendments Act, stre ngthening the original 1968

-·· ·--. ------- ---------~---------- -·· · ----···· - -------~- ---- ---------- -------------------------- ---- ---------- · ---


0 '

2

Act. In 1989 President Bush issued regulations implementing the Amendments explicitly applying the Fair Housing Act to discrimination in property insurance. Those regulations define as prohibited conduct "Refusing to provide municipal services or property or hazard insurance for dwellings or providing such services or insurance differently because of race, color, religion, sex, handicap, familial status, or national origin" (24 C.F.R. Section 100.70(d) (4)).

While it is true that in the course of considering amendments to the Act, Congress has rejected provisions that would explicitly cover property insurance discrimination, the Department testified in hearings that explicit mention of property insurance was not necessary because insurers were already covered by the Act as were others, such as landlords, apartment managers, title insurance companies, contractors,

.. ___________ housing- developers-,- -gFoup --home --oper-ators,- -employers-wtro- ·proviae __ __ financing, and state and local governments.

Furthermore, case precedents have clearly established the applicability of the Fair Housing Act to discriminatory insurance practices. Dunn v. Midwestern Indemnity Mid-American Fire & Casualty Co., 472 F. Supp. 1106(S.D.Ohio 1979) andMcDiarm~dv. Economy Fire & Casualty Co; I 604 F. su:pp: 105 (S .D: Ohio 1984). More recent precedents, reaffirmed this principal. N.A.A.C.P. v. American Family Mutual Insurance Co., 978 F.2d 287 (7th Cir. 1992), cert. denied, 113 S. Ct. 2335 (1993), Nationwide Mutual __ __ Insurance Co. v. Cisneros, No. C3- 9 2-52 ( s: D. Ohio Feb. 2 4, 1994), and Strange v. Nationwide Mutual Insurance Co., No. 93-

.. __ 6 58,5 .. (E.~ D . ... Ea •... 9_,., 22., 94 ) -.-~--~--~-~-·=~·-· ~-· -~-~~~,~-~==·~-=~·-·-·--~-=·~-~- '~--~--~·····=· =~=-= ·~=- --=~·--=

While the Fourth Circuit held to the contrary in Mackey v. Nationwide Insurance Co., 724 F. 2d 419 (4th Cir. 1984), that decision was rendered prior to HUD's regulation stating that insurance is covered by the Fair Housing Act. HUD believes this case would be decided differently today. The Seventh Circuit in the 1992 American _. Family .. ca.se,. _in .. finding .. that - i -nsuranee --is -- ---·covered; found the reasoning of that 1984 decision unpersuasive stating, in part due to the 1989 rule, that "events have bypassed Mackey." ____ ________ ____ _ _ _________ _

In the most recent appellate decision on the issue, the Sixth Circuit followed the Seventh Circuit joining the long line of courts that have upheld HUD's jurisdiction and, on May 1, 1995, found that the Fair Housing Act complements rather than

............... aoa:t:-1-i~~~o.:r----_rhe MCCarran-F'erg_us on .Act_._-----.I_n.._a ·• - ---~·--·.;,..-- ~~- ~-· .,

0~- ~q;;~:r:±:t':::tt~t:e~cV1Jy:-:·cne::N,aftonwiae- "Tnsu~~~n~c~~~offi.pari'-I'-~grrf~itw.s;]rw;..~§~:=~~-=--~ : - - ~ -· __ , _____ .. - --- authorf·t-y"=t;c-=:thvesEfgat:e=an ""'a"lTE?ga t fOn - oi- LrisurariCe--- .

discrimination under the Fair Housing Act, Nationwide Mutual Ins. Co. v. Cisneros, No. 94-3296 (6th Cir. May 1, 1995), the court


3

stated, "we conclude that HUD's interpretation of the Fair Housing Act is consistent with goals of the Fair Housing Act and a reasonable interpretation of the statute . . . we hold that the McCarran-Ferguson Act does not preclude HUD's interpretation of the Fair Housing Act." On February 20, 1996, the Supreme Court denied the petition from Nationwide Insurance Company seeking the court's review of the May 1, 1995, decision. The Supreme Court had previously denied certiorari on a petition to review the Seventh Circuit decision in the American Family case.

The Department of Justice made clear its agreement with HUD when it recently applied the Fair Housing Act to property insurance discrimination in settling a complaint filed under the Act against the American Family Mutual Insurance Company (American Family). On March 30, 1995, the Department of Justice announced a consent decree that obligated American Family to take actions totalling $16 million. --- -----------------·--·--···---------------State Insurance Laws that Address Discrimination in Property Insurance

Most state insurance codes address issues pertaining to unfair discrimination. But these state insurance laws generally lack the protection provided by the Fair Housing Act. Often, the Federal law provides· · broader coverage, different procedural rights (e.g., private right of action in the Federal courts, an investigation by HUD to determine if there is reasonable cause to believe that a violation has occurred , representation by the Federal government in an administr·axi ve hearing-or be1.6re a ·· Federal court), and more comprehensive remedies (e.g. civil pena.+t:.ie~. and. punitive .. ,damages.) ..... than -are---ava·il·able - under- st·ate-· · law. Clearly the Federal Fair Housing Act provides additional protection, rather than duplication of state laws. Moreover, the Justice Department argued in its brief to the Supreme Court in the Nationwide case that the mere fact that a state regulates insurance does not prevent the application of a general federal statute to insurance practices.

---------- ---- ------- - -- . ... -- ----~-------- --·-· -· - ---. -- . .. -· -

--- ---- ---Even -In s -tat-es whose civil rights -laws address discrimination in property insurance, protection equal to the Fair Housing Act is all too often lacking. ~Q..J;:±:.~n.tJ, y, __ only . .29 ___________ _ stateshave · ra:ws -a.n.a-· enforcemenf -rnech-anisms ___ that have been certified as substantially equivalent to the Federal Fair Housing Act.


The document 11 State Laws Governing Unfair Discrimination in Insurance" which was inserted in the record of the Senate Appropriations Subcommitte e on VA/HUD and Independent Agencies hearing on May 19, 1995, further reveals critical gaps in state law. Although 17 states list various protecte d groups, each excludes one or some of the groups covered by the Federal Fair Housing Act. For example, familial status is excluded in 16 states, and handicap is excluded in 15. In 3 of the 17 states, discrimination is prohibited if the adverse action is base d "solely" on protected class membership. Under the Fair Housing Act, discrimination against a protected class member is prohibited even where that is not t he only reason for the challenged practice.

Procedures for Investigating Complaints

4

When a complaint is received by HUD, it is analyzed to detemine whether it falls withi n__the_ aut.hor_it_y_ .. o.LHUD --und~:r=--E-fl-e----

.. · --------·FaTr·--Housing Act. If the alleged violation occurs in a state whose laws a r e substantially equivalent to the Fai r Housing Act HUD will refer the matter to the appropriate state entity for processing, as required by the Federal Act. Otherwise, HUD conducts the investigation.

As . part of our investigative procedures, HUD contacts the state insurance commissioner, as well as the National Association of Insurance Commissioners. To date , the Department has contacted insurance commissioners in Georgia, Illinois, Ohio, and Wisconsin . .. Most of- t -he --insurance commissioners have been very cooperative with our investigations. HUD has also received an inquiry fromthe _Illinois D~part!ll~n,t of _In.surance=_regarding .our .

- investigat i On -o f a 'c -on1pl-aint. ·against an insurance company domiciled in that state. Copies of the letter from the Illinois Department of Insurance and our response are enclosed.

HUD does not enforce, nor does HUD have jurisdiction to enforce, state insurance laws. Nor do the state ins urance commissioners have authority to enforce fai_r. __ hot!:_si :n_g __ J ,_9,'W _ . ---'--- ------ ___________ _ requireme-nt:s-:---Hun--1s -op:J.:tga:t ed _··· fo-: Tnvest]::gat.e discrimination under the Fa.fr Housing Act and if a state were to request our investigation of an alleged violation of Federal law, it would be treated -.. as -any- ot::-her-- eompla±nt -~ - -To··da t ·e-, ·-no--st·a-ee· i"risTLranC:e ____ ----commissioner has filed a complaint with HUD.

If the Department Has Considered Eliminating or Reducing Federal Regulation of Property Insurance Discrimination

~ ~~a · · ~~a-:anQ.~~}r ,i-::77~li9~~~s:ictentci::Gli_nt6n:- :~._s s-u.eu:.~:g~ean::IV:e~~.:::-_ __ "~ · .,..., ~- -· ·-·-··· l"'fr·a-·e· ,....--- ~C 2 -I'H'\"-..,- ovp-,-J:.,·"'-:1~ -;_.:_..,.;e·· -~ .,....,...1' ··n·g·- +-o···pr o· p·er· .. c'\T-'.oo-i=-.>.•-<-i-U···o-r-a-,-n''c--,-e- -·--·-···· ········-·-------·-·--·· .... .. _,_.... -·- .. ~- ... · . . ~--:-:-:---...1.:.~ :-o-::7.~~-~~ ·· .:L~ ·, -~.;,,;::~~~y- .. ·- -.L.~ · ".lo"· ~ -:.1..-.~:,·· · ... ·· .. .. .... c- ·- ·· · · . .. · \... .1 ..L..LJ.o

discrimination and directing the Department to promulgate f urther regulations applying the Fair Housing Act to property insurance.


In August 1995, the Office of Fair Housing and Equal Opportunity announced it would not pursue further work towards the promulgation of a property insurance regulation providing additional guidance on property discrimination prohibited by the Act. At that time the Department stated that instead it will await further development of the law and use future court decisions to evaluate the need for additional rulemaking. In so doing, HUD made clear that it would continue to carry out existing regulations as they define discrimination in insurance under the Fair Housing Act, and will continue to provide protection to those whose rights have been violated.

Again, I want to thank you for your expressed concern on a serious matter of mutual interest. I look forward to working with you in developing appropriate responses to this critical problem.

5

---···· ~- --·· ·····- ··· ----·-·---· ·-·~· -·~· · . - ---~ ---·· .... · ·-· ----· ····--·--------------------~------- - -- -- - - ---------------·- - --- -·

I hope the information provided is helpful.

Sincerely,

/L-A~ --- -~--H:n~y-;~lcisneros

Enclosures

cc: __ Senator Hi kulski " "- - -

---- ------·-·--- -------~~-~- ----~~-,_.,


Documents

BRIEF OF AMICI CURIAE IN SUPPORT OF MOTION FOR …€¦ · in the united states district court for the district of columbia american insurance association, et al., plaintiffs, v