Insurers Defeat Overreaching HUD Regulation

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It’s taken nearly a year and a half, but insurers have finally gotten the decision they wanted in an action against the Department of Housing and Urban Development (HUD). On Monday, Judge Richard Leon of the U.S. District Court for the District of Columbia ruled that HUD went too far in its interpretation of the U.S. Fair Housing Act. HUD tried to assert that the pricing of homeowners insurance could not have a disparate impact on minorities. “Disparate impact” means practices in employment, housing, or other areas that can be considered discriminatory and illegal if they have a disproportionate “adverse impact” on persons along the lines of a protected trait.

Under the HUD rule, “government regulators and private plaintiffs could bring claims of illegal discrimination against homeowners’ insurers without having to prove that any individuals were treated differently because of their group membership,” explains Insurance Journal.

The site notes: “All that would have been necessary is a statistical analysis showing that the percentage in one group that was adversely affected by a particular underwriting practice was higher than the percentage that was adversely affected by the practice in other groups.”

Charles Chamness of NAMIC (National Association of Mutual Insurance Companies) applauded the decision. His organization as well as the American Insurance Association (AIA) brought the action forward.

“Today’s strong ruling by Judge Leon validates the argument that NAMIC and AIA have made that HUD does not have the authority to redefine the Fair Housing Act and apply a dubious legal standard of discrimination to an industry that is well-regulated for consumer protections,” Chamness said in a prepared statement. “The standard HUD sought to impose on homeowners’ insurers would have forced companies to risk either a firestorm of disparate-impact litigation or abandon the use of any risk-based underwriting standard that might create disparate-impact liability … Judge Leon rightly noted that the Fair Housing Act prohibits disparate treatment only, not disparate impact.”

(In other words, the pricing of insurance can still have disparate impact as determined by standard safety and risk factors provided the companies are not using disparate treatment to bring about said impact.)

Leon wrote that the HUD rule was “yet another example of an administrative agency trying desperately to write into law that which Congress never intended to sanction,” calling the attempt “nothing less than an artful misinterpretation of Congress’s intent that is, frankly, too clever by half.”

IJ commenters were pleased with the decision as well. One noted, “I continuously say that the biggest threat/problem facing us is the overreach of government regulations at all levels. This is a very pleasant change to that direction.”

This speaks to a point that Leon mentioned in his judgment — that the regulation of insurance which is, by law, left to the states, was in question as the HUD rule showed “serious concerns regarding widespread federal encroachment upon state insurance regulation.”

 

In Summary

The debate over how much control the federal government can exercise in the lives of states will continue to rage on, but AIA and NAMIC, on Monday, scored a victory for insurers and for the empowerment of state regulators.

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