Application of the Fair Housing Act’s Discriminatory Effects Standard to Insurance
Reconsideration of public comments; implementation of the
CFR Part: "24 CFR Part 100"
Citation: "81 FR 69012"
Document Number: "Docket No. FR-5508-N-03"
Page Number: "69012"
"Proposed Rules"
SUMMARY: HUD is issuing this document to supplement its responses to certain insurance industry comments to HUD's proposed rule implementing the
EFFECTIVE DATE: Supplemental Responses issued on
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
Background
Title VIII of the Civil Rights Act of 1968, as amended ("Fair Housing Act" or "Act"), prohibits discrimination in the sale, rental, or financing of dwellings and in other housing-related activities on the basis of race, color, religion, sex, disability, familial status, or national origin. /1/ On
FOOTNOTE 1 42 U.S.C. 3601-3619. END FOOTNOTE
FOOTNOTE 2 76 FR 70921 (
On
FOOTNOTE 3 78 FR 11460 (
FOOTNOTE 4 15 U.S.C. 1011-1015. END FOOTNOTE
FOOTNOTE 5 5 U.S.C. 551-559. END FOOTNOTE
On
FOOTNOTE 6 Prop. Cas. Insurers Ass'n of Am. v. Donovan (PCIAA), 66 F. Supp. 3d 1018 (
FOOTNOTE 7 Id. at 1051-53. END FOOTNOTE
FOOTNOTE 8 Id. at 1037-42. END FOOTNOTE
FOOTNOTE 9 Id. at 1049. END FOOTNOTE
FOOTNOTE 10 Id. at 1054. END FOOTNOTE
After careful reconsideration of the comments from insurance industry representatives and the court's opinion, HUD continues to believe that case-by-case adjudication is preferable to creating the requested exemptions or safe harbors for insurance practices.
FOOTNOTE 11 See, e.g., 42 U.S.C. 3605(c) (exempting appraisal practices from disparate impact liability), 3607(b)(1) (exempting reasonable governmental occupancy limits from disparate impact liability), 3607(b)(4) (exempting practices related to certain controlled substance convictions from disparate impact liability); see also Tex. Dep't of Hous. & Cmty. Affairs v. Inclusive Cmtys.
FOOTNOTE 12 See 42 U.S.C. 3601. END FOOTNOTE
FOOTNOTE 13
FOOTNOTE 14 See 42 U.S.C. 3608(e)(5). END FOOTNOTE
FOOTNOTE 15 See, e.g., 42 U.S.C. 3608 (the Secretary's administrative responsibilities under the Act), 3609 (education, conciliation, conferences, and reporting obligations to further the purposes of the Act), 3610 (investigative authority), 3611 (subpoena power), 3612 (administrative enforcement authority), 3614a (rulemaking authority), 3616 (authority to cooperate with state and local agencies in carrying out the Secretary's responsibilities under the Act), 3616a (authority to fund of state and local agencies and private fair housing groups to eliminate discriminatory housing practices prohibited by the Act). END FOOTNOTE
FOOTNOTE 16
Accordingly, HUD has determined that categorical exemptions or safe harbors for insurance practices are unworkable and inconsistent with HUD's statutory mandate. The discriminatory effects standard imposes liability only for those insurance practices that actually or predictably result in a discriminatory effect and that lack a legally sufficient justification. /17/ It takes into account an insurer's interest in the challenged practice and, for the reasons explained below, any conflict with a specific state insurance law can and should be addressed on a case-by-case basis in the context of that state law. HUD provides the following supplemental responses to the public comments submitted by the three insurance trade associations that sought exemptions or safe harbors.
FOOTNOTE 17 See 24 CFR 100.500(b). END FOOTNOTE
Revised Responses to Insurance Industry Comments
Issue: Two commenters requested exemptions from the Rule for all insurance practices, and a third commenter requested an exemption for insurance underwriting practices. All three of these insurance industry commenters raised McCarran-Ferguson in support of their requests for an exemption. One of these three commenters urged HUD to delete the insurance example from the Rule, stating that McCarran-Ferguson dictates that "state insurance law trumps the application of any federal law to state regulated insurance, except under very narrow circumstances, which are not met here." /18/ Another questioned "whether non-racially motivated and sound actuarial underwriting principles recognized by state insurance regulators that permit accurate risk-based pricing for consumers can be prohibited by federal regulators who find them to have a `disparate impact.' " /19/
FOOTNOTE 18
FOOTNOTE 19
The third commenter was concerned that "the disparate impact standards would impair state unfair discrimination standards," which have "historically been a cost based concept" prohibiting "underwriting and rating distinctions `between individuals or risks of the same class and essentially the same hazard.' " /20/ The commenter expressed concern that if the Rule is applied to homeowners insurance, "accurate risk assessment will be threatened, adverse selection will increase, and coverage availability will suffer." /21/ This commenter also sought, in the alternative, "safe harbors for long-recognized risk-related factors," stating that "[f]ailure to provide safe harbor protection for the use of factors historically allowed by state insurance regulators would subject insurers to baseless litigation and threaten the sound actuarial standards underpinning the insurance market." /22/
FOOTNOTE 20
FOOTNOTE 21 Id. END FOOTNOTE
FOOTNOTE 22 Id. END FOOTNOTE
HUD Response: HUD does not agree that it is necessary or appropriate to create an exemption from discriminatory effects liability for all insurance practices or for all underwriting practices in order to accommodate the insurance industry's concerns. McCarran-Ferguson does not require HUD to do so, and categorical exemptions would undermine the Act's broad remedial purpose and contravene HUD's own statutory obligation to affirmatively further fair housing. HUD also declines to create safe harbors from discriminatory effects liability for the use of particular risk factors. HUD disagrees with the commenter's assertions about the consequences that would befall the insurance industry if HUD does not grant the requested safe harbors for "long-recognized risk-related factors" or "historically allowed" factors. Establishing safe harbors for specific risk-related criteria would be overbroad, arbitrary, and quickly outdated.
The Act's broad remedial purpose is "to provide . . . for fair housing throughout
FOOTNOTE 23 42 U.S.C. 3601; see also cases cited supra note 13. END FOOTNOTE
FOOTNOTE 24 Inclusive Cmtys., 135 S. Ct. at 2526. END FOOTNOTE
FOOTNOTE 25
FOOTNOTE 26 See, e.g., Or.
Yet the history of discrimination in the homeowners insurance industry is long and well documented, /27/ beginning with insurers overtly relying on race to deny insurance to minorities and evolving into more covert forms of discrimination. /28/ At times, agents were given plainly discriminatory instructions, such as "`get away from blacks' and sell to `good, solid premium-paying white people,'" or they simply were told, "We don't write Blacks or Hispanics." /29/ Underwriting guidelines contained discriminatory statements, such as listing "population and racial changes" among "red flags for agents." /30/ Minorities were offered inferior products, such as coverage for repairs rather than replacement, or were subject to additional hurdles during the quote and underwriting process. /31/ Additionally, discrimination took the form of insurers redlining predominantly minority neighborhoods and disproportionately placing agents and offices in predominately white neighborhoods. /32/ Minorities also were denied access to insurance through property-location and property-age restrictions, even when data had demonstrated that such restrictions are not justified by risk of loss. /33/ This history of discrimination led to minorities being unjustifiably denied insurance policies or paying higher premiums. /34/
FOOTNOTE 27 Although the discussion that follows focuses on race and national origin discrimination because of their historic prevalence, examples of discrimination in insurance against other protected classes exist as well. See e.g., Nevels v. W. World Ins. Co., 359 F. Supp. 2d 1110, 1120-21 (
FOOTNOTE 28 See generally, Homeowners' Insurance Discrimination: Hearings Before the S. Comm. on Banking, Housing and Urban Affairs, 103d Cong. (1994) [hereinafter 1994 Hearings ]; Insurance Redlining Practices: Hearings before the Subcom. on Commerce, Consumer Protection & Competitiveness of the H. Comm. on Energy and Commerce, 103d Cong. (1993) [hereinafter
FOOTNOTE 29 See 139 Cong. Rec. 22,459 (1993) (statement of Rep.
FOOTNOTE
FOOTNOTE 31 1994 Hearings, supra note 28, at 15, 47-48 (statements of
FOOTNOTE 32 Feb. 1993 Hearing, supra note 28, at 7 (statement of
FOOTNOTE 33 See, e.g., Comm'n on Civil Rights, supra note 28, at 34-39 ("The greater the minority concentration of an area and the older the housing, independent of fire and theft, the less voluntary insurance is currently being written."); 1994 Hearings, supra note 28, at 18 (statement of
FOOTNOTE 34 See, e.g. 139 Cong. Rec. 22,459 (1993) (statement of Rep.
HUD's long experience in administering the Act counsels that discriminatory effects liability does not threaten the fundamental nature of the insurance industry. HUD's position that discriminatory effects liability applies to insurance dates back more than three decades, /35/ as does the industry's concern that such liability makes it "near impossible for an insurer to successfully defend himself." /36/ HUD has maintained for decades that remedying discrimination in insurance, including discriminatory effects claims, requires examination of each allegedly discriminatory insurance practice on a case-by-case basis, /37/ and HUD sees no reason to deviate now from this longstanding approach.
FOOTNOTE 35 Fair Housing Amendments Act of 1979: Hearings before the Subcom. on Civil and Constitutional Rights of the H. Comm. on the Judiciary, 96th Cong. 79 (1979) (statement of
FOOTNOTE 36 Fair Housing Act: Hearings before the Subcom. on Civil and Constitutional Rights of the H. Comm. on the Judiciary, 95th Cong. 20, 616 (1978) (statement of the Am. Ins. Ass'n.). END FOOTNOTE
FOOTNOTE 37 1994 Hearings, supra note 28, at 19 (statement of
HUD recognizes that risk-based decision making is an important aspect of sound insurance practice, and nothing in the Rule prohibits insurers from making decisions that are in fact risk-based. Under the standard established by the Rule, practices that an insurer can prove are risk-based, and for which no less discriminatory alternative exists, will not give rise to discriminatory effects liability. /38/ All the Rule requires is that if an insurer's practices are having a discriminatory effect on its insureds and "an adjustment . . . can still be made that will allow both [parties'] interests to be satisfied," the insurer must make that change. /39/ Risk-based decision making is not unique to insurance, and discriminatory effects liability has proven workable in other contexts involving risk-based decisions, such as mortgage lending, without the need for exemptions or safe harbors. /40/ Moreover, some states provide for discriminatory effects liability against insurers under state laws, further undermining the industry's claim that providing for such liability as a matter of federal law threatens the fundamental nature of the industry. /41/
FOOTNOTE 38 24 CFR 100.500(b); see also Toledo Fair Hous. Ctr. v. Nationwide Mut. Ins. Co., 94 Ohio Misc. 2d 151, 157 (Ohio Ct. Com. Pl. 1997) ("[T]he disparate-impact approach does not unduly undermine the business of selling insurance. Assuming . . . that the insurance industry is based on `fair' risk discrimination, the disparate-impact approach will not impede such fair discrimination if the insurer can show a business necessity."). END FOOTNOTE
FOOTNOTE 39 Ave. 6E Invs., LLC v. City of Yuma, 818 F.3d 493, 513 (9th Cir. 2016). END FOOTNOTE
FOOTNOTE 40 See, e.g., Policy Statement on Discrimination in Lending, 59 FR 18266 (
FOOTNOTE 41 See infra notes 61 thru 64 and accompanying text. END FOOTNOTE
Consistent with the Act's broad scope and purpose, as well as HUD's own obligation to affirmatively further fair housing, HUD declines to foreclose viable discrimination claims by creating an overbroad exemption. For the reasons detailed below, wholesale exemptions for all insurance practices or all insurance underwriting practices would necessarily be overbroad, allowing some practices with unjustified discriminatory effects to go uncorrected. Wholesale exemptions also would invariably sweep within their scope potential intentional discrimination in the insurance market as well because "disparate-impact liability under the [Fair Housing Act] also plays a role in uncovering discriminatory intent: It permits plaintiffs to counteract unconscious prejudices and disguised animus that escape easy classification as disparate treatment." /42/
FOOTNOTE 42 Inclusive Cmtys., 135 S. Ct. at 2522. END FOOTNOTE
Some discriminatory effects claims against insurers will survive a McCarran-Ferguson defense depending on a host of case-specific variables, and therefore wholesale exemptions would be overbroad. McCarran-Ferguson specifically provides that "[n]o Act of
FOOTNOTE 43 15 U.S.C. 1012(b). END FOOTNOTE
FOOTNOTE 44 Humana, 525 U.S. at 310 ("When federal law does not directly conflict with state regulation, and when application of the federal law would not frustrate any declared state policy or interfere with a State's administrative regime, the McCarran-Ferguson Act does not preclude its application."). END FOOTNOTE
FOOTNOTE 45 Dehoyos v.
FOOTNOTE 46 See PCIAA, 66 F. Supp. 3d at 1038 ("McCarran-Ferguson challenges to housing discrimination claims [depend on] the particular, allegedly discriminatory practices at issue and the particular insurance regulations and administrative regime of the state in which those practices occurred."). END FOOTNOTE
For example, in Dehoyos v.
FOOTNOTE 47 Dehoyos, 345 F.3d 290. END FOOTNOTE
FOOTNOTE 48 179 F.3d 557 (7th Cir. 1999). END FOOTNOTE
FOOTNOTE 49 42 U.S.C. 12101-12213. END FOOTNOTE
FOOTNOTE 50 Dehoyos, 345 F.3d at 298 n.6. Although in HUD's view the Fifth Circuit persuasively distinguished the Seventh Circuit's holding in Doe, the case-by-case approach appropriately accommodates any variations among the circuits that may exist, now or in the future, as to how McCarran-Ferguson should be applied. This includes the Second Circuit's skepticism over whether McCarran-Ferguson applies at all to "subsequently enacted civil rights legislation." Viens v. Am. Empire Surplus Lines Ins. Co., 113 F. Supp. 3d 555, 572 (
Past cases demonstrate also that discriminatory effects claims brought under the Fair Housing Act against insurers survive McCarran-Ferguson defenses even when an insurer points to a specific state law and alleges that it is impaired. Although the commenters provided examples of cases in which state laws were found to be impaired by a particular discriminatory effects challenge, other cases provide examples of state laws that were not. For instance, in Lumpkin v.
FOOTNOTE 51 Lumpkin v.
FOOTNOTE 52 Id. END FOOTNOTE
FOOTNOTE 53 Id. at *19-20. END FOOTNOTE
McCarran-Ferguson requires a fact-intensive inquiry that will vary state by state and claim by claim. Thus, even those cases in which impairment was found support the case-by-case approach herein adopted by HUD because, in such cases, the finding of impairment was made only after considering the particularities of the challenged practices and the state law at hand. In Saunders v.
FOOTNOTE 54 Saunders v. Farmers Ins. Exch. (Saunders II), 537 F.3d 961 (8th Cir. 2008). END FOOTNOTE
FOOTNOTE 55 Saunders v. Farmers Ins. Exch. (Saunders I), 440 F.3d 940 (8th Cir. 2006). These variables included whether
The many ways in which one state's insurance laws can differ from another's, as well as the ways in which a single state's insurance laws can change over time, mean that even an exemption for specific insurance practices would be overbroad and quickly outdated. For example, variations in state insurance laws have resulted in discriminatory effects challenges to similar insurance practices surviving a McCarran-Ferguson defense in regard to some state laws but not others. /56/ Past cases also demonstrate that the insurance laws of each state can change over time in significant ways, /57/ and state insurance regulators respond to new practices as they become common and their effects become clear. /58/ Given the variation in state insurance laws across more than fifty jurisdictions and over time, HUD declines to fashion a one-size-fits-all exemption that would inevitably insulate insurers engaged in otherwise unlawful discriminatory practices from Fair Housing Act liability.
FOOTNOTE 56 For example, in cases challenging the discriminatory effect of insurers' reliance on credit scores, the McCarran-Ferguson defense has failed in some states but succeeded in others. Compare Dehoyos, 345 F.3d 290 (McCarran-Ferguson defense fails) and Lumpkin II, 2007
FOOTNOTE 57 Compare Ojo v.
FOOTNOTE 58 See, e.g., Nat'l Ass'n of Ins. Comm'rs, Price Optimization White Paper (
A one-size-fits-all exemption is also inappropriate in light of the fact that insurance practices are not governed solely by "hermetically sealed" state insurance codes, /59/ but are also governed by a range of other state laws, including state fair housing laws. Many state fair housing laws track the Act's applicability to insurance and provision of effects liability, indicating that those states do not consider disparate impact liability to conflict with the nature of insurance. Categorical exemptions or safe harbors of the types requested by the commenters would deprive all states of federal support in addressing discriminatory insurance practices--even those states that welcome or depend on such support. This outcome would be at odds with the purpose of McCarran-Ferguson to support the autonomy and sovereignty of each individual state in the field of insurance. /60/
FOOTNOTE 59 Humana, 525 U.S. at 312. END FOOTNOTE
FOOTNOTE 60 See 15 U.S.C. 1011 (explaining the purpose of McCarran-Ferguson as "the continued regulation . . . by the several States of the business of insurance is in the public interest"). END FOOTNOTE
FOOTNOTE 61 Viens, 113 F. Supp. 3d at 573 n.20 (finding that McCarran-Ferguson does not bar an FHA disparate impact claim against an insurer related to a property located in
FOOTNOTE 62 Toledo, 94 Ohio Misc. 2d at 157. END FOOTNOTE
FOOTNOTE 63 Jones v. Travelers Cas. Ins. Co. of Am., Tr. of Proceedings Before the Honorable Lucy H. Koh U.S. District Judge, No. C-13-02390 LHK (
FOOTNOTE 64 Toledo, 94 Ohio Misc. 2d at 157 (recognizing discriminatory effects liability in homeowners insurance under state law in part because the Superintendent of Insurance lacks "primary jurisdiction" over such claims). END FOOTNOTE
FOOTNOTE 65 See, e.g., 42 U.S.C. 3610(f); 24 CFR pt. 115
The commenters' concerns about the incompatibility between HUD's Rule and the fundamental nature of insurance do not warrant the requested exemptions. Although the commenters assert that a broad exemption for all insurance practices or all underwriting decisions is necessary to preserve "sound actuarial underwriting" and the "risk-based insurance `unfair discrimination' standard," HUD declines to create a broad exemption of that sort because doing so would immunize a host of potentially discriminatory insurance practices that do not involve actuarial or risk-based calculations. Insurers regularly engage in practices, such as marketing and claims processing and payment, that do not involve risk-based decision making and to which the Act applies in equal force. /66/ In addition, a discriminatory effects claim also can challenge an insurer's underwriting policies as " not purely risk-based" without infringing on the insurer's "right to evaluate homeowners insurance risks fairly and objectively." /67/ Even practices such as ratemaking that are largely actuarially-based can incorporate an element of non-actuarially-based subjective judgment or discretion under state law. Indeed, many of the state statutes referenced by commenters mandating that rates be reasonable, not excessive, inadequate, or unfairly discriminatory permit insurers, via the very same section of the insurance code, to rely on "judgment factors" in ratemaking. /68/ The example of price optimization practices, /69/ which a minority of states have started regulating, illustrates how non-actuarial factors, such as price elasticity of market demand, /70/ can impact insurance pricing in a manner similar to how such considerations affect pricing of products in non-actuarial industries. /71/
FOOTNOTE 66 See, e.g., Franklin v.
FOOTNOTE 67 Nat'l Fair Hous. Alliance v. Prudential Ins. Co. of Am., 208 F. Supp. 2d 46, 60 (D.D.C. 2002). END FOOTNOTE
FOOTNOTE 68 See e.g., Ga. Code Ann. 33-9-4; Mont. Code Ann. 33-16-201; see also NAIC White Paper, supra note 58, at 1 [paragraph] 5 ("Making adjustments to actuarially indicated rates is not a new concept; it has often been described as `judgment.' "). END FOOTNOTE
FOOTNOTE 69 The term "price optimization" can refer to "the process of maximizing or minimizing a business metric using sophisticated tools and models to quantify business considerations," such as "marketing goals, profitability and policyholder retention." NAIC White Paper, supra note 58, at 4 [paragraph] 14(a). END FOOTNOTE
FOOTNOTE 70 The term "price elasticity of demand" refers to "the rate of response of quantity demanded due to a price change. Price elasticity is used to see how sensitive the demand for a good is to a price change." Id. at 4 [paragraph] 14(f) (internal quotations omitted). END FOOTNOTE
FOOTNOTE 71 Id. at 9 [paragraph] 30 ("Price optimization has been used for years in other industries, including retail and travel. However, the use of model-driven price optimization in the
HUD likewise declines to craft a safe harbor for any risk-based factor or for the specific "long-recognized" factors suggested by one commenter because it would be arbitrary and overbroad. Creating a safe harbor for the use of any factor that an insurer could prove is in fact risk-based would be overbroad because it would foreclose claims where the plaintiff could prove the existence of a less discriminatory alternative, such as an alternative risk-based practice. Moreover, if HUD were to provide a safe harbor for the use of any factor that an insurer could prove is purely risk-based, entitlement to the safe harbor would inevitably necessitate a determination of whether the use of the factor is, in fact, risk-based. As stated above, if an insurance practice is provably risk-based, and no less discriminatory alternative exists, the insurer will have a legally sufficient justification under the Rule as is. The arguments and evidence that would be necessary to establish whether a practice qualifies for the requested exemption would effectively be the same as the arguments and evidence necessary for establishing a legally sufficient justification. Thus, an exemption for all provably risk-based factors would offer little added value for insurers not already provided by the Rule itself while foreclosing potentially meritorious claims in contravention of the Act's broad remedial goals and HUD's obligation to affirmatively further fair housing.
Selecting a few factors for exemption, such as those suggested by the commenter, based on bare assertions about their actuarial relevance, without data and without a full survey of all factors utilized by the homeowners insurance industry, would also be arbitrary. Even if such data were available and a full survey performed, safe harbors for specific factors would still be overbroad because the actuarial relevance of a given factor can vary by context. /72/ Also, while use of a particular risk factor may be generally correlated with probability of loss, the ways in which an insurer uses that factor may not be. Furthermore, the actuarial relevance of any given factor may change over time as societal behaviors evolve, new technologies develop, and analytical capabilities improve.
FOOTNOTE 72 For example, in some high-crime neighborhoods the higher-than-average risk of loss from theft could be offset by a lower-than-average risk of other losses, such as those caused by weather. Therefore, the legitimacy of declining to issue insurance policies in all locations with high crime rates would depend on other features of those locations. END FOOTNOTE
In light of the long, documented history of discrimination in the homeowners' insurance industry, including the use of "risk factors" by insurers and regulators that were subsequently banned as discriminatory, as well as the fact-specific nature of McCarran-Ferguson analysis and the non-actuarial or hybrid nature of many insurance practices, HUD considers it inappropriate to craft any exemptions or safe harbors for insurance practices. HUD's longstanding case-by-case approach can adequately address any McCarran-Ferguson concerns and better serves the Act's broad remedial purpose and HUD's statutory obligation to affirmatively further fair housing, including by supporting fair housing efforts undertaken by states. /73/
FOOTNOTE 73 Cf. CROSSRDS v. MSP Crossroads Apts., LLC, No. 16-233
Issue: One commenter requested that HUD "exempt insurance pricing from the discriminatory effects standards." The commenter argued that pricing is not covered by the Act because the Act only covers insurance practices that "make[ ] homeowners insurance unavailable" and pricing does not do so. The commenter also asserted that pricing is "subject to the filed rate doctrine" and should therefore be exempted because the filed rate doctrine precludes "private claims for damages based on challenges to filed rates."
HUD Response: HUD disagrees with the commenter's characterization of the Act as only covering insurance practices that make insurance unavailable, as well as with the commenter's premise that pricing does not do so. HUD also declines to craft an exemption for insurance pricing based on the filed rate doctrine because HUD does not anticipate that the filed rate doctrine will bar discriminatory effects claims involving insurance pricing. In light of the broad remedial goals of the Act and HUD's obligation to affirmatively further fair housing, HUD continues to prefer case-by-case adjudication over the requested exemption.
In addition to Section 804(a), /74/ which prohibits discrimination that "make[s] unavailable" a dwelling, there are several other provisions of the Act that can prohibit discriminatory insurance practices, including pricing. /75/ One of those is Section 805(a), /76/ which prohibits discrimination in the "terms or conditions" of "residential real estate-related transactions." Another is Section 804(b), /77/ which prohibits discrimination in the "provision of services . . . in connection" with a dwelling. Indeed, HUD's fair housing regulations since 1989 have specifically stated that the Act prohibits "[r]efusing to provide . . . property or hazard insurance for dwellings or providing such . . . insurance differently" because of a protected characteristic. /78/ Courts have applied the Act to insurance pricing, /79/ as well as to other practices such as marketing and claims processing, /80/ irrespective of whether the discriminatory conduct occurred in conjunction with or subsequent to the acquisition of a dwelling.
FOOTNOTE 74 42 U.S.C. 3604(a). END FOOTNOTE
FOOTNOTE 75 Depending on the circumstances, discriminatory insurance practices can violate 42 U.S.C. 3604(a), (b), (c), (f)(1), (f)(2), 3605, and 3617. See, e.g., Nationwide Mut. Ins. Co. v. Cisneros, 52 F.3d at 1360 (holding that section 3604 of the Act prohibits discriminatory insurance underwriting); Nevels, 359 F. Supp. 2d at 1120-21 (recognizing that sections 3604(f)(1), 3604(f)(2), 3605 and 3617 of the Act cover insurance practices); Nat'l Fair Hous. Alliance, 208 F. Supp. 2d at 55-58 (holding that sections 3604(a), 3604(b), and 3605 of the Act prohibit discriminatory insurance underwriting practices); Owens v. Nationwide Mut. Ins. Co., No. 3:03-CV-1184-H, 2005
FOOTNOTE 76 42 U.S.C. 3605(a). END FOOTNOTE
FOOTNOTE 77 42 U.S.C. 3604(b). END FOOTNOTE
FOOTNOTE 78 24 CFR 100.70(d)(4) (emphasis added). As used in this regulation, the phrase "property or hazard insurance for dwellings" includes insurance purchased by an owner, renter, or anyone else seeking to insure a dwelling. See 42 U.S.C. 3602(b) (defining "dwelling" without reference to whether the residence is owner- or renter-occupied). END FOOTNOTE
FOOTNOTE 79 See, e.g.,
FOOTNOTE 80 See sources cited supra note 66; see also Owens, 2005
HUD is not aware of any case, and no commenter cited one, in which a court has applied the filed rate doctrine to defeat any sort of claim under the Act, although several courts have rejected such attempts. /81/ "The filed rate doctrine bars suits against regulated utilities grounded on the allegation that the rates charged by the utility are unreasonable." /82/ The doctrine primarily serves two purposes: First, preventing litigants from securing more favorable rates than their non-litigant competitors, and second, preserving for agencies rather than courts the role of ratemaking. /83/
FOOTNOTE 81 See Saunders I, 440 F.3d at 944-46 ("The district court erred in invoking the judicially created filed rate doctrine to restrict
FOOTNOTE 82
FOOTNOTE 83 Id. END FOOTNOTE
The fit between the filed rate doctrine and discriminatory effects claims is attenuated, at best, because discriminatory effects claims "do not challenge the reasonableness of the insurance rates" but rather their discriminatory effects. /84/ To the extent there is any conflict between the directives of the federal Fair Housing Act and those of state ratemaking regulations, "the Supremacy Clause tips any legislative competition in favor of the federal antidiscrimination statutes." /85/ Unlike filed rate doctrine cases involving a conflict between federal ratemaking and a federal statute, applying the filed rate doctrine to prioritize state ratemaking over a federal statute "would seem to stand the Supremacy Clause on its head." /86/ Moreover, the filed rate doctrine "does not preclude injunctive relief or prohibit the Government from seeking civil or criminal redress," /87/ which are types of relief often obtained for violations of the Act. /88/
FOOTNOTE 84 Lumpkin I, 2007
FOOTNOTE 85 Saunders I, 440 F.3d at 944. END FOOTNOTE
FOOTNOTE 86 Perryman v.
FOOTNOTE 87 In re Title Ins. Antitrust Cases, 702 F. Supp. 2d 840, 849 (N.D.
FOOTNOTE 88 See 42 U.S.C. 3612(g)(3), 3613(c), 3614(d). END FOOTNOTE
Because "the law on the filed rate doctrine is extremely creaky," /89/ abundant variations exist among the courts as to how the doctrine applies. Even where it does apply, a filed rate doctrine defense "must be examined specifically in the context of the laws and regulatory structures at issue." /90/ This would be a "fact-intensive issue" /91/ that would include consideration of the particular state's ratemaking structures. /92/ The case-by-case approach best accommodates these variations.
FOOTNOTE 89 Town of Norwood v.
FOOTNOTE 90 Munoz v.
FOOTNOTE 91 Saunders I, 440 F.3d at 945. END FOOTNOTE
FOOTNOTE 92 For example, the Seventh Circuit has questioned the applicability of the filed rate doctrine to any claims involving property insurance in
For all the foregoing reasons, HUD does not agree that the filed rate doctrine, nor the commenter's assertions about the Act's scope, warrant an exemption for insurance pricing.
Issue: One commenter sought an exemption from discriminatory effects liability for FAIR plans because "the operation of FAIR plans facilitates private conduct that otherwise would not have occurred."
HUD Response: FAIR plans were first enacted by many states in response to the federal Urban Property Protection and Reinsurance Act of 1968, /93/ which was passed by
FOOTNOTE 93 Public Law 90-448, 82 Stat. 555 (1968). END FOOTNOTE
HUD declines to categorically exempt FAIR plans from discriminatory effects liability under the Act. To do so, without any consideration of the particular insurance practice or state requirements at issue, would be inconsistent with the broad remedial purpose of the Act and HUD's obligation to affirmatively further fair housing. Like state regulation of voluntary market insurance practices, state laws governing the provision and pricing of FAIR plans vary across jurisdictions. Variations in state regulation of FAIR plans include the types of coverage provided by such plans, /94/ the amount of coverage allowed under such plans, /95/ and the conditions under which an individual or property will qualify for such plans. /96/ Additionally, even within a given state, FAIR plan regulations are subject to revision over time.
FOOTNOTE 94 Compare, e.g., Conn. Agencies Regs. 38a-328-3(c) (defining "basic insurance" for purposes of the Connecticut FAIR plan to include liability coverage for any dwelling of up to three families) with Mass.
FOOTNOTE 95 Compare, e.g., Mo.
FOOTNOTE 96 Compare, e.g., Ohio Rev. Cod. Ann. 3929.44(D) (requiring applicant to certify that two insurance companies declined to provide coverage for purposes of FAIR plan eligibility) with 215 Ill. Comp. Stat. 5/524(1) (restricting FAIR plan eligibility to applicants who have been declined insurance coverage by three companies). END FOOTNOTE
Given such variation and changeability, exempting all FAIR plans from application of the discriminatory effects standard would be overbroad and would deprive individuals of the protections afforded by the Fair Housing Act. Indeed, one state court has held "the disparate impact approach does not interfere with the Ohio FAIR Plan." /97/ In light of this demonstrated compatibility, and because insurers retain some discretion in the operation of FAIR plans, /98/ HUD determines that case-by-case adjudication is preferable to the requested exemption of FAIR plans.
FOOTNOTE 97 Toledo, 94 Ohio Misc. 2d at 157. END FOOTNOTE
FOOTNOTE 98 See, e.g., Cal. Ins. Code 10094 (leaving discretion to governing committee of participating insurers to establish "reasonable underwriting standards" for determining whether a property for which FAIR plan coverage is sought is insurable); 215 Ill. Comp. Stat. 5/524(1) (same); Ohio
Dated:
Assistant Secretary for
[FR Doc. 2016-23858 Filed 10-4-16;
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