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September 7, 2017

Robert D. Helfand

The Latest Decision on Disparate Impact Puts Insurers Between a Federal Rock and a State-Level Hard Place

Two years ago, in Texas Dept. of Housing & Community Affairs v. Inclusive Communities Project, Inc., 135 S.Ct. 2507 (2015), the U.S. Supreme Court ruled that defendants may be liable under the federal Fair Housing Act (FHA) for actions that are otherwise lawful, and which have no discriminatory intent, but which nonetheless have a disproportionately adverse effect (a “disparate impact”) on the housing rights of certain disadvantaged communities. Although the case clarified housing law in one respect, the questions of whether, and to what extent, disparate impact liability may be extended to insurers has continued to be litigated.  On August 21, in National Fair Housing Alliance v. Travelers Indemn. Co., No. 1:16-cv-00928-JDB (D.D.C.), a district court in Washington, D.C., became the third federal court to rule not only that insurers may be sued for disparate impact, but that they may be liable under the FHA for the disparate impact of someone else’s conduct.

The new decision is important for two reasons.  It is the first case to rule that a disparate-impact-by-proxy theory can survive the “more stringent pleading standard for disparate-impact claims” that was announced in Inclusive Communities; it therefore calls the strength of that standard into question.  Additionally, it threatens to put insurers in the middle of a cross-fire with state regulators, whose recent pronouncements—declaring, for example, a hard line against the use of “any non-risk-based attributes” in either rating or underwriting—appear to prohibit the very deliberations that disparate impact liability would require.

You can learn more about this case and its significance here.

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