Property/casualty insurer trade groups won a court victory Monday when a federal judge ruled in their favor that the U.S. Fair Housing Act does not prohibit housing practices including the pricing of homeowners insurance that have a disparate impact on minorities.
The law does, however, bar disparate treatment, or intentional discrimination, toward minorities.
U.S. District Judge Richard Leon of the U.S. District Court for the District of Columbia agreed to vacate the contested Department of Housing and Urban Development rule on disparate impact. The judge found that HUD exceeded its authority when it drafted the rule.
“This is yet another example of an administrative agency trying desperately to write into law that which Congress never intended to sanction,” Leon wrote.
He called the rule “nothing less than an artful misinterpretation of Congress’s intent that is, frankly, too clever by half.”
Leon wrote that the Supreme Court has said that statutes prohibit disparate impact in the absence of discriminatory intent only when the statutes explicitly say so and, he wrote, the FHA law has no such “effects-based language.”
He also noted that applying the FHA law to insurance raises “serious concerns regarding widespread federal encroachment upon state insurance regulation” since the McCarran-Ferguson Act reserves insurance regulation for the states.
The Supreme Court is poised to take up a similar case over whether citizens may sue by showing a disparate impact on racial minorities, or whether they must prove intentional bias.
The just-decided insurance case was brought by the American Insurance Association (AIA) and National Association of Mutual Insurance Companies (NAMIC) back in June 2013.
The National Association of Mutual Insurance Companies hailed the ruling.
“Today’s strong ruling by Judge Leon validates the argument that NAMIC and AIA have made that HUD does not have the authority to redefine the Fair Housing Act and apply a dubious legal standard of discrimination to an industry that is well-regulated for consumer protections,” said Charles M. Chamness, president and CEO of NAMIC.
Under the rule, government regulators and private plaintiffs could bring claims of illegal discrimination against homeowners’ insurers without having to prove that any individuals were treated differently because of their group membership. All that would have been necessary is a statistical analysis showing that the percentage in one group that was adversely affected by a particular underwriting practice was higher than the percentage that was adversely affected by the practice in other groups.
“The standard HUD sought to impose on homeowners’ insurers would have forced companies to risk either a firestorm of disparate-impact litigation or abandon the use of any risk-based underwriting standard that might create disparate-impact liability,” Chamness said. “Judge Leon rightly noted that the Fair Housing Act prohibits disparate treatment only, not disparate impact.”
The case (decision is embedded below) is American Insurance Association v. HUD, 13- cv-966, U.S. District Court, District of Columbia, (Washington).