Indirect Discrimination Claims

Transcription

1 Indirect Discrimination Claims How They Will Change Underwriting Policies and Practices John A. Houlihan, Partner Elizabeth A. Tosaris, Partner British Insurance Law Association 15 April Locke Lord LLP

2 Agenda Background in the US Background in the UK and EU US Regulatory Climate Practical Tips & Pointers 2

3 Background Fair Housing Act, 42 U.S.C.A et seq. What is prohibited? The FHA prohibits discrimination: In connection with the sale or rental of a dwelling; and In connection with the provision of any services or facilities relating to the sale or rental of a dwelling. 42 U.S.C.A. 3604(a) and 3604(b). 3

4 Background Fair Housing Act, 42 U.S.C.A et seq. What is prohibited? The FHA expressly prohibits intentional acts of discrimination disparate treatment. Last June in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S.Ct (2015), the United States Supreme Court confirmed that plaintiffs may also rely on a disparate impact theory to establish a violation of the FHA. 4

5 Background Fair Housing Act, 42 U.S.C.A et seq. What is a Disparate Impact claim? Disparate Impact Claims focus on the consequences of acts: that are not prohibited; that may have an innocent motive; that adversely impact a protected class. 5

6 Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S.Ct (2015) What the Court said: The Court confirmed that disparate impact claims are cognizable under the FHA, but also: Criticized disparate impact claims based solely on statistical evidence, and Provided guidance as to the requirements for Properly pleading a disparate impact claim; and The evidentiary requirements for proving such a claim. 6

7 Proving a Disparate Impact Claim in the Wake of the Inclusive Communities Decision Step One: The Plaintiff must establish that a practice or policy causes a discriminatory effect because it: predictably results in a discriminatory impact, or perpetuates segregated housing patterns. 7

8 Proving a Disparate Impact Claim in the Wake of the Inclusive Communities Decision Step Two: A defendant can overcome proof that a policy or practice has a discriminatory effect by demonstrating that the challenged policy or practice serves a legitimate business or governmental interest. 8

9 Proving a Disparate Impact Claim in the Wake of the Inclusive Communities Decision Step Three: The plaintiff can prevail even if the challenged policy or practice serves a legitimate business or governmental interest by pointing to a less discriminatory alternative means of addressing the legitimate business or governmental interest. 9

10 How Will the Inclusive Communities Decision Impact the Insurance Industry? Historically, most FHA cases brought against insurers alleged intentional discrimination disparate treatment, not disparate impact. In the year or two preceding the Inclusive Communities decision that historical trend began to change. That change is likely to accelerate in the wake of the Inclusive Communities Decision. 10

11 How Will the Inclusive Communities Decision Impact the Insurance Industry? Why does the plaintiffs bar in the United States consider the insurance industry to be fertile ground for further FHA claims? A plaintiff need not be a member of a protected class to be aggrieved person within the meaning of the FHA. A potential plaintiff is a Property & Casualty or Specialty Line policy holder or co-insured. 11

12 How Will the Inclusive Communities Decision Impact the Insurance Industry? Why does the plaintiffs bar in the United States consider the insurance industry to be fertile ground for further FHA claims? Perception that underwriting policies are based on:. reasoned analysis of historical loss experience, anticipated future costs, and / or statistical projections of future losses based on a current risk assessment. 12

13 Background in UK Gender Discrimination The Equality Act 2010 Age Discrimination Disability Discrimination Other grounds of Discrimination Marriage/civil partnership/sexual orientation/race/religion 13

14 Background in the EU Test Achats Case European Directives Impact of Refugees? 14

15 US Regulatory Climate FHA primarily administered by the Department of Housing and Urban Development ( HUD ) 1988 Amendments to FHA expand HUD s enforcement authority Soon thereafter, HUD begins targeting insurers 2013 HUD Rule impacts insurers 15

16 HUD s threat to actuarially sound rating HUD rule impacts homeowners policies 2014 Trade Group Legal Challenge 16

17 State Insurance Regulators State Insurance regulators Do not take the same view as HUD Are waiting to see what HUD does next Continue to police against redlining and other illegal activity using authority from state laws 17

18 Theory of Reverse Preemption Insurance is federally regulated as interstate commerce Federal Act returned jurisdiction to states except as expressly stated State Departments of Insurance regulation of homeowners policies 18

19 Surplus Lines Companies Not subject to the early legal challenges in 1990s No brokers involved in early legal challenges Not subject to same rate regulation as admitted market May underwrite properties where eligibility and rating guidelines have Disparate Impact 19

20 Practical Tips & Pointers Where does this leave the insurance industry? 20

21 What Can the Insurance Industry Do to Minimize Exposure to Disparate Impact Claims Practical Steps to Explore Now: Review existing underwriting guidelines. Do records of recent policy reviews exist? What do the records that exist show? 21

22 What Can the Insurance Industry Do to Minimize Exposure to Disparate Impact Claims Practical Steps to Explore Now: To the extent that the existing policies and guidelines utilize potentially problematic proxies consider alternatives. Documentation of individual policies underwriting files 22

23 What Can the Insurance Industry Do to Minimize Exposure to Disparate Impact Claims Development of rates based on rational, non-race based discriminatory factors. Insurers are likely to put greater focus on additional factors that do not fall within the prohibited grounds, but must be aware of the risk of indirect discrimination e.g. lifestyle choices. Track HUD Rule and other legal developments along with other regular compliance issues. 23

24 What Can the Insurance Industry Do to Minimize Exposure to Disparate Impact Claims Some challenges: Available technology allows insurers to obtain and utilize a broader array of data points in their decision making processes. State laws often prohibit insurers from collecting the relevant data needed to determine whether or not a particular practice or policy might have a damaging disparate impact on a protected group. 24

25 What Can the Insurance Industry Do to Minimize Exposure to Disparate Impact Claims Some potentially good news: In some cases, McCarron-Ferguson reverse preemption remains a potentially viable defense. The Court s admonition in Inclusive Communities that court s apply a robust causality requirement will pose serious challenges for plaintiffs. 25

26 Conclusion/Q&A John A. Houlihan Partner Locke Lord LLP 111 Huntington Avenue Boston, MA T: F: Elizabeth A. Tosaris Partner Locke Lord LLP 44 Montgomery Street, Suite 4100 San Francisco, CA T: F: