Property Casualty Insurers Association of America Secures Important Federal Court Victory In Fair Housing Act’s Discriminatory Effects Standard Relating to Homeowners Insurance
Sep 9, 2014
By Maria Elena Abate, Esq.
Colodny Fass& Webb
Led by the Property Casualty Insurers Association of America (“PCI”), the insurance industry won an important federal court victory on September 3, 2014 in an Illinois U.S. District Court battle against the U.S. Department of Housing and Urban Development (“HUD”). PCI had filed suit on November 27, 2013 in the wake of HUD’s February 15, 2013 adoption of Rule FR-5508-F-02, entitled “Implementation of the Fair Housing Act’s Discriminatory Effects Standard” (or “the Rule”).
Among various insurance industry trade associations and interested parties that participated in the rulemaking process, PCI sought in its lawsuit to invalidate the disparate impact (discriminatory effect) provisions of the new Rule as it applies to the provision and pricing of homeowners insurance.
The final adopted Rule formalized HUD’s long-held recognition of discriminatory effects liability under the FHA and, for purposes of providing consistency nationwide, formalized a burden-shifting test for determining whether a given practice has an unjustified discriminatory effect that would lead to liability under the FHA. The final Rule also added to, and revised illustrations of discriminatory housing practices found in HUD’s Fair Housing Act regulations.
“The provision and pricing of homeowner’s insurance” was among those examples provided by HUD of housing policies or practices that may have a disparate impact on groups protected under the FHA. In disparate impact cases, plaintiffs rely on statistics to show that seemingly neutral housing or lending practices can disproportionately harm racial minorities, even if there is no proof of intent to discriminate.
PCI was supported by Oklahoma Insurance Commissioner John Doak, who filed an amicus curiae brief in the litigation on May 30, 2014. Approximately two weeks later, insurance commissioners from Alabama, Louisiana, Mississippi and Nevada formalized their support of Commissioner Doak’s “Oklahoma Brief” in a motion filed by the law firms of Meckler, Bulger, Tilson, Marick & Pearson, and Colodny Fass& Webb.
In its lawsuit, PCI claimed that HUD’s new Rule was invalid under the Administrative Procedure Act for a number of reasons. First, PCI argued that application of disparate impact to the insurance industry would violate the McCarran-Ferguson Act, explaining that HUD’s issuance of the Rule was arbitrary and capricious because the agency failed to adequately consider the Rule’s conflict with the McCarran-Ferguson Act, the Filed Rate Doctrine, and the nature of insurance. Finally, PCI challenged the three-step burden-shifting framework HUD had adopted in the Rule as arbitrary, capricious, and not in accordance with law.
In the 52-page September 3, 2014 ruling, the Court granted PCI’s motion for summary judgment in part, but also denied it in part. Judge Amy J. St. Eve granted the motion under the Administrative Procedures Act, finding HUD’s application of the Rule to homeowners’ insurers to be arbitrary and capricious.
The Court specifically found that HUD failed to meaningfully consider the insurance industry’s comments in relation to the McCarran Ferguson Act and the Filed Rate Doctrine, and also found that HUD failed to adequately consider the nature of homeowners insurance when promulgating the Rule.
PCI was determined to have standing to challenge the Rule, but Judge St. Eve denied PCI’s motion for summary judgment under the McCarran Ferguson Act, finding that the challenge was not yet ripe.
Summary judgment was granted for HUD on PCI’s challenge to the Rule’s burden-shifting test, thereby giving deference to HUD on its interpretation on the reasonableness of adopting the burden-shifting framework.
In her ruling, Judge St. Eve remanded the Rule to HUD for further proceedings.
A copy of her Opinion is attached, along with the Order on Summary Judgment.
Should you have any questions or comments, please contact Maria Elena Abate (mabate@cftlaw.com) at Colodny Fass& Webb.
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