Insurers Disappointed as Supreme Court Backs Disparate Impact Claims

By | June 25, 2015

The U.S. Supreme Court said people who file housing-discrimination suits don’t have to show they were victims of intentional bias, in a blow to lenders and insurers and a surprise legal victory for the Obama administration.

The 5-4 ruling upholds a category of U.S. Fair Housing Act lawsuits that civil rights groups said are especially important — and business groups consider particularly onerous. The court said plaintiffs can base their suits on statistical evidence that a disputed policy has a “disparate impact” on a minority group.

The Obama administration has relied on the disparate-impact approach to get hundreds of millions of dollars in fair-lending settlements with Bank of America Corp., Wells Fargo & Co. and other financial companies.

“Recognition of disparate impact claims is consistent with FHA’s central purpose,” Justice Anthony Kennedy wrote for the court. The law was “enacted to eradicate discriminatory practices within a sector of our nation’s economy.”

Kennedy said those sued under the law would have an opportunity to argue that their policies served valid interests.

The ruling defied expectations. The court under Chief Justice John Roberts had eliminated decades-old protections for racial minorities in other contexts, and the justices had given every indication that disparate-impact suits were next.

[Insurance companies were among those hoping for a different ruling. The National Association of Mutual Insurance Companies issued this statement expressing its disappointment:

“NAMIC is disappointed the Supreme Court saw fit to create law today in its ruling to allow disparate impact claims in some circumstances under the Fair Housing Act. No such provision exists in the law as written, and it is troubling to see one created by judicial fiat. Despite the court’s ruling, NAMIC will continue to fight the Department of Housing and Urban Development’s attempt to impose this standard without justification on the homeowners’ insurance marketplace over which, by law, HUD has no regulatory authority. NAMIC and its allies have already successfully opposed the rule in federal district court, and we remain committed to our case should the government continue with its appeal.

The Property Casualty Insurers of America issued a similar statement:

“While the Supreme Court ruled today in the Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., case, PCI’s suit vs HUD challenging disparate impact liability insurers will continue in the Northern District of Illinois. The insurance industry supports fair housing practices and the widespread availability of affordable homeowners insurance. Federal and state law already prohibit unfairly discriminatory practices and pricing. Disparate impact analysis potentially undermines the actuarially based underwriting and pricing decisions, as well as the state regulation, that has been the foundation of the business.”]

Aggressive Approach

The court took an aggressive approach toward the issue, agreeing to consider abolishing disparate-impact suits even though federal appeals courts were unified in allowing them. The court had to grant review in three cases before having a chance to rule. Two other cases accepted earlier were scuttled when civil rights groups engineered settlements.

The ruling may also apply to the Equal Credit Opportunity Act, a second law invoked by the Obama administration against Bank of America and Wells Fargo.

The Consumer Financial Protection Bureau has relied on the disparate-impact doctrine in enforcing that law, which contains language similar to that in the Fair Housing Act. ECOA, as the law is known, covers auto lending as well as mortgages.

In the case before the court, Texas was fighting a lawsuit by the Inclusive Communities Project, a Dallas-based group that advocates for racially integrated housing. The organization accused state officials of thwarting integration by allocating a disproportionate number of federal low-income housing tax credits to minority neighborhoods.

A federal appeals court had said the lawsuit could go forward.

The case, embedded below, is Texas Department of Housing v. Inclusive Communities Project, 13-1371.

Related

Today’s Supreme Court Opinion:

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