Insurance Redlining Draws Renewed Criticism

Legal

Insurance Redlining Draws Renewed Criticism
by Robert  D.  Butters



"The insurance industry is like a ripe fruit ready to be picked." This is how one plaintiffs' civil rights attorney characterized the potential for fair housing litigation against property and casualty insurance carriers and brokers at a recent National Fair Housing Summit Conference held in Washington, D.C. The Summit, sponsored by HUD and the National Fair Housing Alliance, focused upon an array of fair housing policy and enforcement trends. The Summit was punctuated by keynote speeches by numerous Clinton Administration officials, including Attorney General Janet Reno. The message was clear: Those in the housing, mortgage lending, and property and casualty insurance industries must engage in satisfactory "voluntary compliance," as defined by the Administration and private advocacy groups, or face vigorous enforcement measures from both the federal government and private attorneys representing alleged victims of discrimination.

The property and casualty insurance carriers and agents were the object of special scrutiny at the Summit. At a specific workshop devoted to insurance redlining, representatives from advocacy groups, such as ACORN, the NAACP Legal Defense and Education Fund, academia, private fair housing organizations, and plaintiffs' attorneys asserted that insurance redlining was rampant in inner city neighborhoods. The industry was accused of employing various underwriting criteria that have the effect of making property insurance unavailable to minority home buyers. These criteria include refusing to write insurance (1) on houses that are over maximum age; (2) if the property is arguably worth more as vacant land; and (3) on properties worth less than a minimum amount. Another industry practice attacked as discriminatory is the placement of agents: as neighborhoods change from predominately white to integrated or predominately minority, carriers allegedly withdraw agent appointments or refuse to appoint new agents.

Panelists noted that the federal circuit courts are divided over whether the sale of insurance is covered by the federal fair housing laws. The Seventh Circuit, which includes Illinois, Indiana and Wisconsin, has held that the federal laws do apply, while the Fourth Circuit, which includes Maryland, Virginia, and North and South Carolina, has held that they do not. Many state fair housing laws, however, specifically apply to the sale of insurance. Consequently, state courts may become the more likely forum for insurance redlining lawsuits because battles over the applicability of federal law can be avoided. Plaintiffs have filed several suits in the state courts of Ohio for precisely this reason.

Plaintiffs' attorneys identified the types of evidence used to prove discrimination by insurance carriers and their agents. First and foremost is evidence from the agent's or carrier's files on denials of coverage, cancellations or non-renewals. Also relevant is premium data, which might show that premiums on similarly constructed buildings in low income neighborhoods are higher than in upper income suburban neighborhoods. Potential plaintiffs were also advised to examine the carrier's or agent's advertising practices and any publicly available corporate filings with state or federal regulatory agencies. These documents are likely to contain information about the company's marketing strategies, which may include specific references to abandoning certain types of neighborhoods.

Several commentators spoke about the value of conducting "tests" of individual agents. The test would involve two similarly situated individuals who pose as potential insureds. The only difference would be the location of the property to be insured. The testers would then record the treatment they received from the agent. If the tester with property in a lower income neighborhood is treated less favorably, this evidence would support an inference of discrimination.

Sponsors of the Summit Conference all called for tough new federal legislation that would require insurance carriers to report data on insurance availability by census tract. A bill supported by the advocacy groups has been introduced by Rep. Joseph Kennedy (D-MA). An industry supported bill introduced by Rep. Cardiss Collins (D-IL) was attacked as ineffective because it only deals with twenty-five (25) cities and data is to be reported by zip code rather than census tract.

The primary objective of the advocacy groups is to impose the same basic data reporting obligations upon insurance carriers as were imposed upon the mortgage lending industry by the Home Mortgage Disclosure Act of 1989 (HMDA). A strategy under active consideration by advocacy groups is to insist that the Kennedy bill provisions be included in any federal "bail out" legislation to assist the industry in dealing with natural disasters, such as the California earthquakes or the Midwest flooding.

In summary, the future is bound to bring more litigation, and possible legislation, attacking alleged discrimination in the property and casualty insurance industry. The Clinton Administration fair housing enforcement officials at HUD and the Department of Justice are clearly pursuing a strategy of stricter enforcement, and are allowing private advocacy groups to set the government's enforcement agenda. Those in the industry should reexamine every aspect of their business practices to be sure that their marketing and underwriting decisions are supported by legitimate non-discriminatory business justifications.


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Robert D..Butters. All right reserved. For information contact Frog Pond at 800.704.FROG(3764) or email susie@frogpond.com.