[Federal Register Volume 81, Number 193 (Wednesday, October 5, 2016)]
[Proposed Rules]
[Pages 69012-69019]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-23858]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 100

[Docket No. FR-5508-N-03]


Application of the Fair Housing Act's Discriminatory Effects 
Standard to Insurance

AGENCY: Office of the Assistant Secretary for Fair Housing and Equal 
Opportunity, HUD.

ACTION: Reconsideration of public comments; implementation of the Fair 
Housing Act's Discriminatory Effects Standard.

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SUMMARY: HUD is issuing this document to supplement its responses to 
certain insurance industry comments to HUD's proposed rule implementing 
the Fair Housing Act's (``Act'') discriminatory effects standard. These 
commenters requested, inter alia, total or partial exemptions or safe 
harbors from liability under the Act's discriminatory effects standard. 
After careful reconsideration of the insurance industry comments in 
accordance with the court's decision in Property Casualty Insurers 
Association of America (PCIAA) v. Donovan, HUD has determined that 
categorical exemptions or safe harbors for insurance practices are 
unworkable and inconsistent with the broad fair housing objectives and 
obligations embodied in the Act. HUD continues to believe that the 
commenters' concerns regarding application of the discriminatory 
effects standard to insurance practices can and should be addressed on 
a case-by-case basis.

DATES: Supplemental Responses issued on October 5, 2016.

FOR FURTHER INFORMATION CONTACT: Jeanine Worden, Associate General 
Counsel for Fair Housing, Office of General Counsel, U.S. Department of 
Housing and Urban Development, 451 7th Street SW., Washington, DC 
20410-0500; (202) 402-5188 (this is not a toll-free number). Persons 
with hearing or speech impairments may contact this number via TTY by 
calling the toll-free Federal Relay Service at 800-877-8399.

SUPPLEMENTARY INFORMATION: 

Background

    Title VIII of the Civil Rights Act of 1968, as amended (``Fair 
Housing Act'' or ``Act''), prohibits discrimination in the sale, 
rental, or financing of dwellings and in other housing-related 
activities on the basis of race, color, religion, sex, disability, 
familial status, or national origin.\1\ On November 16,

[[Page 69013]]

2011, HUD issued a proposed rule seeking to formalize, through notice-
and-comment rulemaking, HUD's longstanding interpretation of the Act as 
prohibiting practices with an unjustified discriminatory effect and to 
standardize the analytical framework for evaluating such cases.\2\ In 
response to the proposed rule, HUD received nearly one hundred comments 
from a range of interested parties, including from three insurance 
trade associations requesting exemptions or safe harbors. The National 
Association of Mutual Insurance Companies (``NAMIC'') and the American 
Insurance Association (``AIA'') requested an exemption from 
discriminatory effects liability for all insurance practices. NAMIC 
also requested, in the alternative, exemptions for insurance pricing, 
for Fair Access to Insurance Requirements (``FAIR'') plans, and/or safe 
harbors for recognized risk factors. The Property Casualty Insurers 
Association of America (``PCIAA'') requested an exemption for all 
insurance underwriting practices.
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    \1\ 42 U.S.C. 3601-3619.
    \2\ 76 FR 70921 (Nov. 16, 2011).
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    On February 15, 2013, HUD published its final rule, entitled 
``Implementation of the Fair Housing Act's Discriminatory Effects 
Standard'' (``Rule'').\3\ In the Rule, HUD declined to grant the 
requested exemptions or safe harbors for any insurance practices, 
explaining that the commenters' concerns could be addressed on a case-
by-case basis. On November 27, 2013, PCIAA filed an action in the U.S. 
District Court for the Northern District of Illinois (``the court'') 
alleging that HUD's Rule violated the McCarran-Ferguson Act \4\ 
(``McCarran-Ferguson'') and the Administrative Procedure Act.\5\
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    \3\ 78 FR 11460 (Feb. 15, 2013).
    \4\ 15 U.S.C. 1011-1015.
    \5\ 5 U.S.C. 551-559.
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    On September 3, 2014, the court issued a decision in PCIAA v. 
Donovan.\6\ The court upheld the Rule's burden-shifting framework for 
analyzing discriminatory effects claims as a reasonable interpretation 
of the Fair Housing Act.\7\ The court also held that a violation of 
McCarran-Ferguson can be adjudicated by a court only in the context of 
a concrete dispute challenging the application of the Rule to a 
particular insurance practice, and not in the abstract.\8\ 
Distinguishing between adjudication and agency rulemaking, the court 
concluded that HUD had not adequately explained why case-by-case 
adjudication was preferable to using its rulemaking authority to 
provide exemptions or safe harbors related to homeowners insurance.\9\ 
The court remanded the matter to HUD for further proceedings consistent 
with its ruling.\10\
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    \6\ Prop. Cas. Insurers Ass'n of Am. v. Donovan (PCIAA), 66 F. 
Supp. 3d 1018 (N.D. Ill. 2014).
    \7\ Id. at 1051-53.
    \8\ Id. at 1037-42.
    \9\ Id. at 1049.
    \10\ Id. at 1054.
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    After careful reconsideration of the comments from insurance 
industry representatives and the court's opinion, HUD continues to 
believe that case-by-case adjudication is preferable to creating the 
requested exemptions or safe harbors for insurance practices. The Fair 
Housing Act's broad prohibitions on discrimination in housing are 
intended to eliminate segregated living patterns while moving the 
nation toward a more integrated society. When Congress enacted the Fair 
Housing Act in 1968 and amended it in 1988, it established exemptions 
for certain practices \11\ but not for insurance. Rather, Congress 
stated that the Act is intended to provide for fair housing throughout 
the United States.\12\ The Supreme Court has recognized the Act's broad 
remedial purpose.\13\ Among other things, the Act requires HUD to 
affirmatively further fair housing in all of its housing-related 
programs and activities,\14\ one of which is the administration and 
enforcement of the Act.\15\ McCarran-Ferguson, enacted in 1945, 
restricts only those applications of federal law that directly conflict 
with state insurance laws, frustrate a declared state policy, or 
interfere with a State's administrative regime.\16\ For HUD to create 
the requested exemptions or safe harbors would allow to go uncorrected 
at least some discriminatory insurance practices that can be subject to 
disparate impact challenges consistent with McCarran-Ferguson and the 
filed rate doctrine. Thus, to create such exemptions or safe harbors 
would undermine the efficacy of the Act and run counter to the Act's 
purpose and HUD's statutory responsibilities. The concerns raised by 
the insurance industry commenters do not outweigh this loss of efficacy 
in the administration and enforcement of the Act. Rather, the case-by-
case approach appropriately balances these concerns against HUD's 
obligation to give maximum force to the Act by taking into account the 
diversity of potential discriminatory effects claims, as well as the 
variety of insurer business practices and differing insurance laws of 
the states, as they currently exist or may exist in the future. 
Moreover, in light of the variety of practices and relevant state laws, 
as well as the substantial range of possible discriminatory effects 
claims, it is practically impossible for HUD to define the scope of 
insurance practices covered by an exemption or safe harbor with enough 
precision to avoid case-by-case disputes over its application.
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    \11\ See, e.g., 42 U.S.C. 3605(c) (exempting appraisal practices 
from disparate impact liability), 3607(b)(1) (exempting reasonable 
governmental occupancy limits from disparate impact liability), 
3607(b)(4) (exempting practices related to certain controlled 
substance convictions from disparate impact liability); see also 
Tex. Dep't of Hous. & Cmty. Affairs v. Inclusive Cmtys. Project, 
Inc., 135 S. Ct. 2507, 2520-21 (2015) (discussing these ``exemptions 
from liability'').
    \12\ See 42 U.S.C. 3601.
    \13\ See Havens Realty Corp. v. Coleman, 455 U.S. 363, 380 
(1982) (recognizing Congress's ``broad remedial intent'' in passing 
the Act); Trafficante v. Metro. Life Ins. Co., 409 U.S. 205, 209 
(1972) (recognizing the ``broad and inclusive'' language of the 
Act); see also Inclusive Cmtys., 135 S. Ct. at 2521 (describing the 
``central purpose'' of the Act as ``to eradicate discriminatory 
practices within a sector of our Nation's economy'').
    \14\ See 42 U.S.C. 3608(e)(5).
    \15\ See, e.g., 42 U.S.C. 3608 (the Secretary's administrative 
responsibilities under the Act), 3609 (education, conciliation, 
conferences, and reporting obligations to further the purposes of 
the Act), 3610 (investigative authority), 3611 (subpoena power), 
3612 (administrative enforcement authority), 3614a (rulemaking 
authority), 3616 (authority to cooperate with state and local 
agencies in carrying out the Secretary's responsibilities under the 
Act), 3616a (authority to fund of state and local agencies and 
private fair housing groups to eliminate discriminatory housing 
practices prohibited by the Act).
    \16\ Humana Inc. v. Forsyth, 525 U.S. 299, 310 (1999) (``When 
federal law does not directly conflict with state regulation, and 
when application of the federal law would not frustrate any declared 
state policy or interfere with a State's administrative regime, the 
McCarran-Ferguson Act does not preclude its application.'').
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    Accordingly, HUD has determined that categorical exemptions or safe 
harbors for insurance practices are unworkable and inconsistent with 
HUD's statutory mandate. The discriminatory effects standard imposes 
liability only for those insurance practices that actually or 
predictably result in a discriminatory effect and that lack a legally 
sufficient justification.\17\ It takes into account an insurer's 
interest in the challenged practice and, for the reasons explained 
below, any conflict with a specific state insurance law can and should 
be addressed on a case-by-case basis in the context of that state law. 
HUD provides the following supplemental responses to the public 
comments submitted by the three insurance trade associations that 
sought exemptions or safe harbors.
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    \17\ See 24 CFR 100.500(b).
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Revised Responses to Insurance Industry Comments

    Issue: Two commenters requested exemptions from the Rule for all

[[Page 69014]]

insurance practices, and a third commenter requested an exemption for 
insurance underwriting practices. All three of these insurance industry 
commenters raised McCarran-Ferguson in support of their requests for an 
exemption. One of these three commenters urged HUD to delete the 
insurance example from the Rule, stating that McCarran-Ferguson 
dictates that ``state insurance law trumps the application of any 
federal law to state regulated insurance, except under very narrow 
circumstances, which are not met here.'' \18\ Another questioned 
``whether non-racially motivated and sound actuarial underwriting 
principles recognized by state insurance regulators that permit 
accurate risk-based pricing for consumers can be prohibited by federal 
regulators who find them to have a `disparate impact.' '' \19\
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    \18\ American Insurance Association, Comment Letter on Proposed 
Rule on Implementation of the Fair Housing Act's Discriminatory 
Effects Standard (Jan. 17, 2012).
    \19\ Property Casualty Insurers Association of America, Comment 
Letter on Proposed Rule on Implementation of the Fair Housing Act's 
Discriminatory Effects Standard (Jan. 17, 2012).
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    The third commenter was concerned that ``the disparate impact 
standards would impair state unfair discrimination standards,'' which 
have ``historically been a cost based concept'' prohibiting 
``underwriting and rating distinctions `between individuals or risks of 
the same class and essentially the same hazard.' '' \20\ The commenter 
expressed concern that if the Rule is applied to homeowners insurance, 
``accurate risk assessment will be threatened, adverse selection will 
increase, and coverage availability will suffer.'' \21\ This commenter 
also sought, in the alternative, ``safe harbors for long-recognized 
risk-related factors,'' stating that ``[f]ailure to provide safe harbor 
protection for the use of factors historically allowed by state 
insurance regulators would subject insurers to baseless litigation and 
threaten the sound actuarial standards underpinning the insurance 
market.'' \22\
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    \20\ National Association of Mutual Insurance Companies, Comment 
Letter on Proposed Rule on Implementation of the Fair Housing Act's 
Discriminatory Effects Standard (Jan. 17, 2012).
    \21\ Id.
    \22\ Id.
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    HUD Response: HUD does not agree that it is necessary or 
appropriate to create an exemption from discriminatory effects 
liability for all insurance practices or for all underwriting practices 
in order to accommodate the insurance industry's concerns. McCarran-
Ferguson does not require HUD to do so, and categorical exemptions 
would undermine the Act's broad remedial purpose and contravene HUD's 
own statutory obligation to affirmatively further fair housing. HUD 
also declines to create safe harbors from discriminatory effects 
liability for the use of particular risk factors. HUD disagrees with 
the commenter's assertions about the consequences that would befall the 
insurance industry if HUD does not grant the requested safe harbors for 
``long-recognized risk-related factors'' or ``historically allowed'' 
factors. Establishing safe harbors for specific risk-related criteria 
would be overbroad, arbitrary, and quickly outdated.
    The Act's broad remedial purpose is ``to provide . . . for fair 
housing throughout the United States.'' \23\ Thus, the Act plays a 
``continuing role in moving the Nation toward a more integrated 
society.'' \24\ Ensuring that members of all protected classes can 
access insurance free from discrimination is necessary to achieve the 
Act's objective because obtaining a mortgage for housing typically 
requires obtaining insurance, too.\25\ Likewise, obtaining insurance 
may be a precondition to securing a home in the rental market.\26\ 
Insurance is also critical to maintaining housing because fire, storms, 
theft, and other perils frequently result in property damage or loss 
that would be too costly to repair or replace without insurance 
coverage.
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    \23\ 42 U.S.C. 3601; see also cases cited supra note 13.
    \24\ Inclusive Cmtys., 135 S. Ct. at 2526.
    \25\ NAACP v. Am. Family Mut. Ins. Co., 978 F.2d 287, 297 (7th 
Cir. 1992) (``No insurance, no loan; no loan, no house; lack of 
insurance thus makes housing unavailable.'').
    \26\ See, e.g., Or. Rev. Stat. 90.222(1) (``A landlord may 
require a tenant to obtain and maintain renter's liability insurance 
in a written rental agreement.''); Va. Code Ann. 55-248.7:2(B) (``A 
landlord may require as a condition of tenancy that a tenant have 
renter's insurance. . . .'').
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    Yet the history of discrimination in the homeowners insurance 
industry is long and well documented,\27\ beginning with insurers 
overtly relying on race to deny insurance to minorities and evolving 
into more covert forms of discrimination.\28\ At times, agents were 
given plainly discriminatory instructions, such as ```get away from 
blacks' and sell to `good, solid premium-paying white people,''' or 
they simply were told, ``We don't write Blacks or Hispanics.'' \29\ 
Underwriting guidelines contained discriminatory statements, such as 
listing ``population and racial changes'' among ``red flags for 
agents.'' \30\ Minorities were offered inferior products, such as 
coverage for repairs rather than replacement, or were subject to 
additional hurdles during the quote and underwriting process.\31\ 
Additionally, discrimination took the form of insurers redlining 
predominantly minority neighborhoods and disproportionately placing 
agents and offices in predominately white neighborhoods.\32\ Minorities 
also were denied access to insurance through property-location and 
property-age restrictions, even when data had demonstrated that such 
restrictions are not justified by risk of loss.\33\ This history of 
discrimination led to

[[Page 69015]]

minorities being unjustifiably denied insurance policies or paying 
higher premiums.\34\
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    \27\ Although the discussion that follows focuses on race and 
national origin discrimination because of their historic prevalence, 
examples of discrimination in insurance against other protected 
classes exist as well. See e.g., Nevels v. W. World Ins. Co., 359 F. 
Supp. 2d 1110, 1120-21 (W.D. Wash. 2004) (disability).
    \28\ See generally, Homeowners' Insurance Discrimination: 
Hearings Before the S. Comm. on Banking, Housing and Urban Affairs, 
103d Cong. (1994) [hereinafter 1994 Hearings]; Insurance Redlining 
Practices: Hearings before the Subcom. on Commerce, Consumer 
Protection & Competitiveness of the H. Comm. on Energy and Commerce, 
103d Cong. (1993) [hereinafter Mar. 1993 Hearings]; Insurance 
Redlining: Fact or Fiction: Hearing before the Subcom. On Consumer 
Credit and Insurance of the H. Comm. on Banking, Finance & Urban 
Affairs, 103d Cong. (1993) [hereinafter Feb. 1993 Hearing]; 
Insurance Redlining: Fact Not Fiction (Feb. 1979) [hereinafter 
Comm'n on Civil Rights] (report of the Illinois, Indiana, Michigan, 
Minnesota, Ohio and Wisconsin Advisory Committees to the U.S. 
Commission on Civil Rights); President's National Advisory Panel on 
Insurance in Riot-Affected Areas, Meeting the Insurance Crisis of 
Our Cities (1968) [hereinafter Nat'l Advisory Panel].
    \29\ See 139 Cong. Rec. 22,459 (1993) (statement of Rep. Joseph 
P. Kennedy, II); see also, e.g., Nat'l Advisory Panel, supra note 
28, at 116 (quoting an insurance broker as explaining, ``No matter 
how good [a customer] is, they [the insurers] take that into 
consideration, the fact he is a Negro.'').
    \30\ Feb. 1993 Hearing, supra note 28 at 19, 27 (statement of 
Gregory Squires, Prof. U. Wis. Milwaukee).
    \31\ 1994 Hearings, supra note 28, at 15, 47-48 (statements of 
Deval Patrick, DOJ Ass't Attorney Gen. for Civil Rights); id. at 18-
19, 51 (statements of Roberta Achtenberg, HUD Ass't Sec'y of Fair 
Hous. & Equal Opportunity).
    \32\ Feb. 1993 Hearing, supra note 28, at 7 (statement of John 
Garamendi, Cal. Ins. Comm'r) (``There may be some people that deny 
that redlining exists. They are not telling you the truth, or they 
just don't know what they are talking about. It is real, it does 
exist, and it is a very serious socioeconomic problem.''); Comm'n on 
Civil Rights, supra note 28, at 5 (listing ``[p]lacing agents 
selectively in order to reduce the opportunity to secure business in 
certain areas'' among the types of documented redlining practices).
    \33\ See, e.g., Comm'n on Civil Rights, supra note 28, at 34-39 
(``The greater the minority concentration of an area and the older 
the housing, independent of fire and theft, the less voluntary 
insurance is currently being written.''); 1994 Hearings, supra note 
28, at 18 (statement of Roberta Achtenberg, HUD Ass't Sec'y of Fair 
Hous. & Equal Opportunity) (noting the ``disparate impact on 
minority communities'' of property age and value requirements, and 
explaining that ``47 percent of black households, but just 23 
percent of white households, live in homes valued at less than 
$50,000'' and that ``40 percent of black households compared to 29 
percent of white households live in homes build before 1950.'').
    \34\ See, e.g. 139 Cong. Rec. 22,459 (1993) (statement of Rep. 
Joseph P. Kennedy, II) (``[S]hocking anecdotal evidence was 
supported by 12 years of data submitted by Missouri State Insurance 
Commissioner Jay Angoff. . . . It shows that, in the cities of St. 
Louis and Kansas City, low-income minorities had to pay more money 
for less coverage than their white counterparts, despite the fact 
that losses in minority areas were actually less than those in white 
areas. This evidence directly challenges industry assertions that 
minorities are too risky to insure.'').
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    HUD's long experience in administering the Act counsels that 
discriminatory effects liability does not threaten the fundamental 
nature of the insurance industry. HUD's position that discriminatory 
effects liability applies to insurance dates back more than three 
decades,\35\ as does the industry's concern that such liability makes 
it ``near impossible for an insurer to successfully defend himself.'' 
\36\ HUD has maintained for decades that remedying discrimination in 
insurance, including discriminatory effects claims, requires 
examination of each allegedly discriminatory insurance practice on a 
case-by-case basis,\37\ and HUD sees no reason to deviate now from this 
longstanding approach.
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    \35\ Fair Housing Amendments Act of 1979: Hearings before the 
Subcom. on Civil and Constitutional Rights of the H. Comm. on the 
Judiciary, 96th Cong. 79 (1979) (statement of Patricia Roberts 
Harris, Sec'y of HUD).
    \36\ Fair Housing Act: Hearings before the Subcom. on Civil and 
Constitutional Rights of the H. Comm. on the Judiciary, 95th Cong. 
20, 616 (1978) (statement of the Am. Ins. Ass'n.).
    \37\ 1994 Hearings, supra note 28, at 19 (statement of Roberta 
Achtenberg, HUD Ass't Sec'y of Fair Hous. & Equal Opportunity) 
(discussing insurers' property age and value requirements and 
stating that ``when practices with such racial impacts are not 
legally or otherwise justified, a case-by-case, Fair Housing Act 
analysis is warranted''); id at 50 (stating that ``it is important 
to stress that the finding of a [Fair Housing Act] violation occurs 
on a case by case basis'' for insurance practices that are ``neutral 
on their face [but] have a disproportionate racial impact'' and 
``cannot meet the established test of business necessity and . . . 
less discriminatory alternative'').
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    HUD recognizes that risk-based decision making is an important 
aspect of sound insurance practice, and nothing in the Rule prohibits 
insurers from making decisions that are in fact risk-based. Under the 
standard established by the Rule, practices that an insurer can prove 
are risk-based, and for which no less discriminatory alternative 
exists, will not give rise to discriminatory effects liability.\38\ All 
the Rule requires is that if an insurer's practices are having a 
discriminatory effect on its insureds and ``an adjustment . . . can 
still be made that will allow both [parties'] interests to be 
satisfied,'' the insurer must make that change.\39\ Risk-based decision 
making is not unique to insurance, and discriminatory effects liability 
has proven workable in other contexts involving risk-based decisions, 
such as mortgage lending, without the need for exemptions or safe 
harbors.\40\ Moreover, some states provide for discriminatory effects 
liability against insurers under state laws, further undermining the 
industry's claim that providing for such liability as a matter of 
federal law threatens the fundamental nature of the industry.\41\
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    \38\ 24 CFR 100.500(b); see also Toledo Fair Hous. Ctr. v. 
Nationwide Mut. Ins. Co., 94 Ohio Misc. 2d 151, 157 (Ohio Ct. Com. 
Pl. 1997) (``[T]he disparate-impact approach does not unduly 
undermine the business of selling insurance. Assuming . . . that the 
insurance industry is based on `fair' risk discrimination, the 
disparate-impact approach will not impede such fair discrimination 
if the insurer can show a business necessity.'').
    \39\ Ave. 6E Invs., LLC v. City of Yuma, 818 F.3d 493, 513 (9th 
Cir. 2016).
    \40\ See, e.g., Policy Statement on Discrimination in Lending, 
59 FR 18266 (Apr. 15, 1994); Interagency Fair Lending Examination 
Procedures (Aug. 2009); see also 1994 Hearings, supra note 28, at 20 
(statement of Roberta Achtenberg, HUD Ass't Sec'y of Fair Hous. & 
Equal Opportunity) (``As in other areas of fair housing law 
enforcement, standards to determine [insurance] discrimination will 
. . . [include] disparate impact. . . . The investigative techniques 
we will utilize will include those that have grown from our fair 
housing investigative experience across the board . . . the kinds of 
tactics that we currently utilize . . . in lending discrimination 
investigations.'').
    \41\ See infra notes 61 thru 64 and accompanying text.
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    Consistent with the Act's broad scope and purpose, as well as HUD's 
own obligation to affirmatively further fair housing, HUD declines to 
foreclose viable discrimination claims by creating an overbroad 
exemption. For the reasons detailed below, wholesale exemptions for all 
insurance practices or all insurance underwriting practices would 
necessarily be overbroad, allowing some practices with unjustified 
discriminatory effects to go uncorrected. Wholesale exemptions also 
would invariably sweep within their scope potential intentional 
discrimination in the insurance market as well because ``disparate-
impact liability under the [Fair Housing Act] also plays a role in 
uncovering discriminatory intent: It permits plaintiffs to counteract 
unconscious prejudices and disguised animus that escape easy 
classification as disparate treatment.'' \42\
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    \42\ Inclusive Cmtys., 135 S. Ct. at 2522.
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    Some discriminatory effects claims against insurers will survive a 
McCarran-Ferguson defense depending on a host of case-specific 
variables, and therefore wholesale exemptions would be overbroad. 
McCarran-Ferguson specifically provides that ``[n]o Act of Congress 
shall be construed to invalidate, impair, or supersede any law enacted 
by any State for the purpose of regulating the business of insurance . 
. . unless such Act specifically relates to the business of 
insurance.'' \43\ As interpreted by the Supreme Court in Humana v. 
Forsyth, McCarran-Ferguson applies only when a particular application 
of a federal law directly conflicts with a specific state insurance 
regulation, frustrates a declared state policy, or interferes with a 
State's administrative regime.\44\ Accordingly, the mere fact that a 
state has the authority to regulate insurance or has adopted ratemaking 
regulations does not suffice on its own to create the kind of conflict, 
frustration of purpose, or interference that triggers McCarran-
Ferguson.\45\ Rather, the inquiry required by Humana depends on the 
relevant state law and other case-specific variables.\46\
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    \43\ 15 U.S.C. 1012(b).
    \44\ Humana, 525 U.S. at 310 (``When federal law does not 
directly conflict with state regulation, and when application of the 
federal law would not frustrate any declared state policy or 
interfere with a State's administrative regime, the McCarran-
Ferguson Act does not preclude its application.'').
    \45\ Dehoyos v. Allstate Corp., 345 F.3d 290, 295 (5th Cir. 
2003) (disparate impact under the Act); Nationwide Mut. Ins. Co. v. 
Cisneros, 52 F.3d 1351, 1363 (6th Cir. 1995) (disparate treatment 
under the Act); Moore v. Liberty Nat'l Life Ins. Co., 267 F.3d 1209, 
1221 (11th Cir. 2001) (disparate treatment in life insurance).
    \46\ See PCIAA, 66 F. Supp. 3d at 1038 (``McCarran-Ferguson 
challenges to housing discrimination claims [depend on] the 
particular, allegedly discriminatory practices at issue and the 
particular insurance regulations and administrative regime of the 
state in which those practices occurred.'').
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    For example, in Dehoyos v. Allstate,\47\ the Fifth Circuit rejected 
a McCarran-Ferguson defense to a disparate impact claim where the 
insurer did not identify a specific state law that was impaired. In so 
ruling, the Fifth Circuit reasoned that the Seventh Circuit's holding 
in Doe v. Mutual of Omaha \48\ does not foreclose all discriminatory 
effects claims against insurers as barred by McCarran-Ferguson. 
Instead, the Fifth Circuit distinguished Doe, where McCarran-Ferguson 
was held to bar a claim of discrimination under the Americans with 
Disabilities Act \49\ (``ADA''), by explaining that ``[i]n Doe, there 
was an actual state insurance law which purportedly conflicted with the 
application of the [ADA] to the particular question at issue.'' \50\ 
Thus,

[[Page 69016]]

where no state law is impaired, McCarran-Ferguson will not bar a 
discriminatory effects claim against an insurer.
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    \47\ Dehoyos, 345 F.3d 290.
    \48\ 179 F.3d 557 (7th Cir. 1999).
    \49\ 42 U.S.C. 12101-12213.
    \50\ Dehoyos, 345 F.3d at 298 n.6. Although in HUD's view the 
Fifth Circuit persuasively distinguished the Seventh Circuit's 
holding in Doe, the case-by-case approach appropriately accommodates 
any variations among the circuits that may exist, now or in the 
future, as to how McCarran-Ferguson should be applied. This includes 
the Second Circuit's skepticism over whether McCarran-Ferguson 
applies at all to ``subsequently enacted civil rights legislation.'' 
Viens v. Am. Empire Surplus Lines Ins. Co., 113 F. Supp. 3d 555, 572 
(D. Conn. 2015) (quoting Spirt v. Teachers Ins. & Annuity Ass'n, 691 
F.2d 1054, 1065 (2d Cir. 1982)).
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    Past cases demonstrate also that discriminatory effects claims 
brought under the Fair Housing Act against insurers survive McCarran-
Ferguson defenses even when an insurer points to a specific state law 
and alleges that it is impaired. Although the commenters provided 
examples of cases in which state laws were found to be impaired by a 
particular discriminatory effects challenge, other cases provide 
examples of state laws that were not. For instance, in Lumpkin v. 
Farmers Group, the court rejected a McCarran-Ferguson defense to a 
disparate impact challenge to credit scoring in insurance pricing, 
holding that disparate impact liability in that context did not impair 
the state's law mandating that ``insurance rates cannot be `unfairly 
discriminatory.' '' \51\ In so ruling, the court held it erroneous to 
read a state law prohibiting ``unfairly discriminatory'' rates ``too 
broadly'' and rejected the insurer's argument that such state laws 
require that practices with an unjustified discriminatory effect must 
be permitted ``as long as the rates are actuarially sound.''\52\ The 
court then cited other provision of the state's insurance code 
specifically dealing with credit scoring, concluding that they too were 
not impaired.\53\
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    \51\ Lumpkin v. Farmers Grp. (Lumpkin II), No. 05-2868 Ma/V, 
2007 U.S. Dist. LEXIS 98949, at *19 (W.D. Tenn. July 6, 2007).
    \52\ Id.
    \53\ Id. at *19-20.
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    McCarran-Ferguson requires a fact-intensive inquiry that will vary 
state by state and claim by claim. Thus, even those cases in which 
impairment was found support the case-by-case approach herein adopted 
by HUD because, in such cases, the finding of impairment was made only 
after considering the particularities of the challenged practices and 
the state law at hand. In Saunders v. Farmers Insurance Exchange, for 
example, prior to ruling that McCarran-Ferguson barred a discriminatory 
effects claim under the Act,\54\ the Eighth Circuit first remanded the 
case for further inquiry into several unknowns about the facts and 
Missouri law.\55\
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    \54\ Saunders v. Farmers Ins. Exch. (Saunders II), 537 F.3d 961 
(8th Cir. 2008).
    \55\ Saunders v. Farmers Ins. Exch. (Saunders I), 440 F.3d 940 
(8th Cir. 2006). These variables included whether Missouri insurance 
law provided a private right of action to challenge the conduct at 
issue, and whether determinations by the state insurance agency were 
subject to judicial review. The court explained that ``the mere fact 
of overlapping complementary remedies under federal and state law 
does not constitute impairment for McCarran-Ferguson purposes.'' Id. 
at 945.
---------------------------------------------------------------------------

    The many ways in which one state's insurance laws can differ from 
another's, as well as the ways in which a single state's insurance laws 
can change over time, mean that even an exemption for specific 
insurance practices would be overbroad and quickly outdated. For 
example, variations in state insurance laws have resulted in 
discriminatory effects challenges to similar insurance practices 
surviving a McCarran-Ferguson defense in regard to some state laws but 
not others.\56\ Past cases also demonstrate that the insurance laws of 
each state can change over time in significant ways,\57\ and state 
insurance regulators respond to new practices as they become common and 
their effects become clear.\58\ Given the variation in state insurance 
laws across more than fifty jurisdictions and over time, HUD declines 
to fashion a one-size-fits-all exemption that would inevitably insulate 
insurers engaged in otherwise unlawful discriminatory practices from 
Fair Housing Act liability.
---------------------------------------------------------------------------

    \56\ For example, in cases challenging the discriminatory effect 
of insurers' reliance on credit scores, the McCarran-Ferguson 
defense has failed in some states but succeeded in others. Compare 
Dehoyos, 345 F.3d 290 (McCarran-Ferguson defense fails) and Lumpkin 
II, 2007 U.S. Dist. LEXIS 98949 (same) with Saunders II, 537 F.3d 
961 (McCarran-Ferguson defense succeeds) and McKenzie v. S. Farm 
Bureau Cas. Ins. Co., No. 3:06CV013-B-A, 2007 U.S. Dist. LEXIS 49133 
(N.D. Miss. July 5, 2007) (same). See also PCIAA, 66 F. Supp. 3d at 
1039 (``Variations among state regulatory regimes . . . provide an 
additional variable that may complicate any hypothetical McCarran-
Ferguson analysis.'').
    \57\ Compare Ojo v. Farmers Grp., Inc., 356 SW.3d 421 (Tex. 
2011) (recognizing a McCarran-Ferguson defense to a credit scoring 
disparate impact claim based on the state legislature ``expressly 
authoriz[ing] the use of credit scoring in setting insurance rates 
in 2003'') with Dehoyos, 345 F.3d 290 (rejecting a McCarran-Ferguson 
defense to the same type of claim based on Texas law in effect 
before 2003).
    \58\ See, e.g., Nat'l Ass'n of Ins. Comm'rs, Price Optimization 
White Paper (Nov. 19, 2015) http://www.naic.org/documents/committees_c_catf_related_price_optimization_white_paper.pdf 
[hereinafter NAIC White Paper] (discussing the responses of state 
regulators to the rising increase in use of price optimization 
practices by insurance providers).
---------------------------------------------------------------------------

    A one-size-fits-all exemption is also inappropriate in light of the 
fact that insurance practices are not governed solely by ``hermetically 
sealed'' state insurance codes,\59\ but are also governed by a range of 
other state laws, including state fair housing laws. Many state fair 
housing laws track the Act's applicability to insurance and provision 
of effects liability, indicating that those states do not consider 
disparate impact liability to conflict with the nature of insurance. 
Categorical exemptions or safe harbors of the types requested by the 
commenters would deprive all states of federal support in addressing 
discriminatory insurance practices--even those states that welcome or 
depend on such support. This outcome would be at odds with the purpose 
of McCarran-Ferguson to support the autonomy and sovereignty of each 
individual state in the field of insurance.\60\ Connecticut's 
Discriminatory Housing Practices Act, for example, ``provides similar 
(albeit broader) protection against housing discrimination as the [Fair 
Housing Act], which is strong indication that application of the 
federal antidiscrimination law will not impair Connecticut's regulation 
of the insurance industry, but rather is complementary with 
Connecticut's overall regulatory scheme.'' \61\ Similarly, a state 
court found that ``the disparate-impact approach does not conflict with 
Ohio Insurance law'' and thus allowed a disparate impact claim against 
an insurer to proceed under the state's fair housing law.\62\ In 
another case where the court rejected a McCarran-Ferguson defense to a 
discriminatory effects claim against an insurer, the court explained 
that it was ``not persuaded that California law would allow [the 
challenged] practice'' and therefore ``the Fair Housing Act complements 
California law in this regard.'' \63\ Furthermore, the allocation of 
authority to enforce a state's protections against discrimination in 
insurance can impact whether McCarran-Ferguson is a viable defense to a 
discriminatory effects claim in a given state.\64\ The case-by-case 
approach thus affirms state autonomy

[[Page 69017]]

and furthers the Act's broad remedial goals by ensuring that HUD is not 
hindered in fulfilling its statutory charge to support and encourage 
state efforts to protect fair housing rights.\65\
---------------------------------------------------------------------------

    \59\ Humana, 525 U.S. at 312.
    \60\ See 15 U.S.C. 1011 (explaining the purpose of McCarran-
Ferguson as ``the continued regulation . . . by the several States 
of the business of insurance is in the public interest'').
    \61\ Viens, 113 F. Supp. 3d at 573 n.20 (finding that McCarran-
Ferguson does not bar an FHA disparate impact claim against an 
insurer related to a property located in Connecticut).
    \62\ Toledo, 94 Ohio Misc. 2d at 157.
    \63\ Jones v. Travelers Cas. Ins. Co. of Am., Tr. of Proceedings 
Before the Honorable Lucy H. Koh U.S. District Judge, No. C-13-02390 
LHK (N.D. Cal. May 7, 2015), ECF No. 269-1.
    \64\ Toledo, 94 Ohio Misc. 2d at 157 (recognizing discriminatory 
effects liability in homeowners insurance under state law in part 
because the Superintendent of Insurance lacks ``primary 
jurisdiction'' over such claims).
    \65\ See, e.g., 42 U.S.C. 3610(f); 24 CFR pt. 115 (HUD's Fair 
Housing Assistance Program); 42 U.S.C. 3608(d); 80 FR 42272 (July 
16, 2015) (HUD's rule on Affirmatively Furthering Fair Housing).
---------------------------------------------------------------------------

    The commenters' concerns about the incompatibility between HUD's 
Rule and the fundamental nature of insurance do not warrant the 
requested exemptions. Although the commenters assert that a broad 
exemption for all insurance practices or all underwriting decisions is 
necessary to preserve ``sound actuarial underwriting'' and the ``risk-
based insurance `unfair discrimination' standard,'' HUD declines to 
create a broad exemption of that sort because doing so would immunize a 
host of potentially discriminatory insurance practices that do not 
involve actuarial or risk-based calculations. Insurers regularly engage 
in practices, such as marketing and claims processing and payment, that 
do not involve risk-based decision making and to which the Act applies 
in equal force.\66\ In addition, a discriminatory effects claim also 
can challenge an insurer's underwriting policies as ``not purely risk-
based'' without infringing on the insurer's ``right to evaluate 
homeowners insurance risks fairly and objectively.'' \67\ Even 
practices such as ratemaking that are largely actuarially-based can 
incorporate an element of non-actuarially-based subjective judgment or 
discretion under state law. Indeed, many of the state statutes 
referenced by commenters mandating that rates be reasonable, not 
excessive, inadequate, or unfairly discriminatory permit insurers, via 
the very same section of the insurance code, to rely on ``judgment 
factors'' in ratemaking.\68\ The example of price optimization 
practices,\69\ which a minority of states have started regulating, 
illustrates how non-actuarial factors, such as price elasticity of 
market demand,\70\ can impact insurance pricing in a manner similar to 
how such considerations affect pricing of products in non-actuarial 
industries.\71\
---------------------------------------------------------------------------

    \66\ See, e.g., Franklin v. Allstate Corp., No. C-06-1909 MMC, 
2007 U.S. Dist. LEXIS 51333 (N.D. Cal. July 3, 2007) (applying the 
Act to claims processing); Burrell v. State Farm & Cas. Co., 226 F. 
Supp. 2d 427 (S.D.N.Y. 2002) (same).
    \67\ Nat'l Fair Hous. Alliance v. Prudential Ins. Co. of Am., 
208 F. Supp. 2d 46, 60 (D.D.C. 2002).
    \68\ See e.g., Ga. Code Ann. 33-9-4; Mont. Code Ann. 33-16-201; 
see also NAIC White Paper, supra note 58, at 1 ] 5 (``Making 
adjustments to actuarially indicated rates is not a new concept; it 
has often been described as `judgment.' '').
    \69\ The term ``price optimization'' can refer to ``the process 
of maximizing or minimizing a business metric using sophisticated 
tools and models to quantify business considerations,'' such as 
``marketing goals, profitability and policyholder retention.'' NAIC 
White Paper, supra note 58, at 4 ] 14(a).
    \70\ The term ``price elasticity of demand'' refers to ``the 
rate of response of quantity demanded due to a price change. Price 
elasticity is used to see how sensitive the demand for a good is to 
a price change.'' Id. at 4 ] 14(f) (internal quotations omitted).
    \71\ Id. at 9 ] 30 (``Price optimization has been used for years 
in other industries, including retail and travel. However, the use 
of model-driven price optimization in the U.S. insurance industry is 
relatively new.'').
---------------------------------------------------------------------------

    HUD likewise declines to craft a safe harbor for any risk-based 
factor or for the specific ``long-recognized'' factors suggested by one 
commenter because it would be arbitrary and overbroad. Creating a safe 
harbor for the use of any factor that an insurer could prove is in fact 
risk-based would be overbroad because it would foreclose claims where 
the plaintiff could prove the existence of a less discriminatory 
alternative, such as an alternative risk-based practice. Moreover, if 
HUD were to provide a safe harbor for the use of any factor that an 
insurer could prove is purely risk-based, entitlement to the safe 
harbor would inevitably necessitate a determination of whether the use 
of the factor is, in fact, risk-based. As stated above, if an insurance 
practice is provably risk-based, and no less discriminatory alternative 
exists, the insurer will have a legally sufficient justification under 
the Rule as is. The arguments and evidence that would be necessary to 
establish whether a practice qualifies for the requested exemption 
would effectively be the same as the arguments and evidence necessary 
for establishing a legally sufficient justification. Thus, an exemption 
for all provably risk-based factors would offer little added value for 
insurers not already provided by the Rule itself while foreclosing 
potentially meritorious claims in contravention of the Act's broad 
remedial goals and HUD's obligation to affirmatively further fair 
housing.
    Selecting a few factors for exemption, such as those suggested by 
the commenter, based on bare assertions about their actuarial 
relevance, without data and without a full survey of all factors 
utilized by the homeowners insurance industry, would also be arbitrary. 
Even if such data were available and a full survey performed, safe 
harbors for specific factors would still be overbroad because the 
actuarial relevance of a given factor can vary by context.\72\ Also, 
while use of a particular risk factor may be generally correlated with 
probability of loss, the ways in which an insurer uses that factor may 
not be. Furthermore, the actuarial relevance of any given factor may 
change over time as societal behaviors evolve, new technologies 
develop, and analytical capabilities improve.
---------------------------------------------------------------------------

    \72\ For example, in some high-crime neighborhoods the higher-
than-average risk of loss from theft could be offset by a lower-
than-average risk of other losses, such as those caused by weather. 
Therefore, the legitimacy of declining to issue insurance policies 
in all locations with high crime rates would depend on other 
features of those locations.
---------------------------------------------------------------------------

    In light of the long, documented history of discrimination in the 
homeowners' insurance industry, including the use of ``risk factors'' 
by insurers and regulators that were subsequently banned as 
discriminatory, as well as the fact-specific nature of McCarran-
Ferguson analysis and the non-actuarial or hybrid nature of many 
insurance practices, HUD considers it inappropriate to craft any 
exemptions or safe harbors for insurance practices. HUD's longstanding 
case-by-case approach can adequately address any McCarran-Ferguson 
concerns and better serves the Act's broad remedial purpose and HUD's 
statutory obligation to affirmatively further fair housing, including 
by supporting fair housing efforts undertaken by states.\73\
---------------------------------------------------------------------------

    \73\ Cf. CROSSRDS v. MSP Crossroads Apts., LLC, No. 16-233 ADM/
KMM, 2016 U.S. Dist. LEXIS 86965 at *32 n.6 (D. Minn. July 5, 2016) 
(declining to adopt a per se rule that a certain category of 
disparate impact claims could not be brought in part because ``HUD 
has indicated a preference for case-by-case review of practices 
alleged to cause a disparate impact'').
---------------------------------------------------------------------------

    Issue: One commenter requested that HUD ``exempt insurance pricing 
from the discriminatory effects standards.'' The commenter argued that 
pricing is not covered by the Act because the Act only covers insurance 
practices that ``make[ ] homeowners insurance unavailable'' and pricing 
does not do so. The commenter also asserted that pricing is ``subject 
to the filed rate doctrine'' and should therefore be exempted because 
the filed rate doctrine precludes ``private claims for damages based on 
challenges to filed rates.''
    HUD Response: HUD disagrees with the commenter's characterization 
of the Act as only covering insurance practices that make insurance 
unavailable, as well as with the commenter's premise that pricing does 
not do so. HUD also declines to craft an exemption for insurance 
pricing based on the filed rate doctrine because HUD does not 
anticipate that the filed rate doctrine will bar discriminatory effects 
claims involving insurance pricing. In light of the broad remedial 
goals of the Act and HUD's obligation to affirmatively further fair 
housing, HUD continues to prefer

[[Page 69018]]

case-by-case adjudication over the requested exemption.
    In addition to Section 804(a),\74\ which prohibits discrimination 
that ``make[s] unavailable'' a dwelling, there are several other 
provisions of the Act that can prohibit discriminatory insurance 
practices, including pricing.\75\ One of those is Section 805(a),\76\ 
which prohibits discrimination in the ``terms or conditions'' of 
``residential real estate-related transactions.'' Another is Section 
804(b),\77\ which prohibits discrimination in the ``provision of 
services . . . in connection'' with a dwelling. Indeed, HUD's fair 
housing regulations since 1989 have specifically stated that the Act 
prohibits ``[r]efusing to provide . . . property or hazard insurance 
for dwellings or providing such . . . insurance differently'' because 
of a protected characteristic.\78\ Courts have applied the Act to 
insurance pricing,\79\ as well as to other practices such as marketing 
and claims processing,\80\ irrespective of whether the discriminatory 
conduct occurred in conjunction with or subsequent to the acquisition 
of a dwelling.
---------------------------------------------------------------------------

    \74\ 42 U.S.C. 3604(a).
    \75\ Depending on the circumstances, discriminatory insurance 
practices can violate 42 U.S.C. 3604(a), (b), (c), (f)(1), (f)(2), 
3605, and 3617. See, e.g., Nationwide Mut. Ins. Co. v. Cisneros, 52 
F.3d at 1360 (holding that section 3604 of the Act prohibits 
discriminatory insurance underwriting); Nevels, 359 F. Supp. 2d at 
1120-21 (recognizing that sections 3604(f)(1), 3604(f)(2), 3605 and 
3617 of the Act cover insurance practices); Nat'l Fair Hous. 
Alliance, 208 F. Supp. 2d at 55-58 (holding that sections 3604(a), 
3604(b), and 3605 of the Act prohibit discriminatory insurance 
underwriting practices); Owens v. Nationwide Mut. Ins. Co., No. 
3:03-CV-1184-H, 2005 U.S. Dist. LEXIS 15701, at *16-17 (N.D. Tex. 
Aug. 2, 2005) (holding that section 3604(b) of the Act prohibits 
discriminatory insurance practices); Francia v. Mount Vernon Fire 
Ins. Co., No. CV084032039S, 2012 Conn. Super. LEXIS 665 (Conn. 
Super. Ct. Mar. 6, 2012) (relying on section 3604(c) to interpret an 
analogous state law as prohibiting a discriminatory statement in an 
insurance quote).
    \76\ 42 U.S.C. 3605(a).
    \77\ 42 U.S.C. 3604(b).
    \78\ 24 CFR 100.70(d)(4) (emphasis added). As used in this 
regulation, the phrase ``property or hazard insurance for 
dwellings'' includes insurance purchased by an owner, renter, or 
anyone else seeking to insure a dwelling. See 42 U.S.C. 3602(b) 
(defining ``dwelling'' without reference to whether the residence is 
owner- or renter-occupied).
    \79\ See, e.g., NAACP, 978 F.2d at 301 (``Section 3604 of the 
Fair Housing Act applies to discriminatory denials of insurance, and 
discriminatory pricing, that effectively preclude ownership of 
housing because of the race of the applicant.'') (emphasis added); 
Dehoyos, 345 F.3d at 293 (holding that a claim alleging 
discriminatory insurance pricing was not barred by McCarran-
Ferguson).
    \80\ See sources cited supra note 66; see also Owens, 2005 U.S. 
Dist. LEXIS 15701, at *17 (Insurance practices are covered by the 
Act ``whether the insurance is sought in connection with the 
maintenance of a previously purchased home or with an application to 
purchase a home.''); Lindsey v. Allstate Ins. Co., 34 F. Supp. 2d 
636, 643 (W.D. Tenn. 1999) (``It would seem odd to construe a 
statute purporting to promote fair housing as prohibiting 
discrimination in providing property insurance to those seeking a 
home, but allowing that same discrimination so long as it takes 
place in the context of renewing those very same insurance 
policies.'').
---------------------------------------------------------------------------

    HUD is not aware of any case, and no commenter cited one, in which 
a court has applied the filed rate doctrine to defeat any sort of claim 
under the Act, although several courts have rejected such attempts.\81\ 
``The filed rate doctrine bars suits against regulated utilities 
grounded on the allegation that the rates charged by the utility are 
unreasonable.'' \82\ The doctrine primarily serves two purposes: First, 
preventing litigants from securing more favorable rates than their non-
litigant competitors, and second, preserving for agencies rather than 
courts the role of ratemaking.\83\
---------------------------------------------------------------------------

    \81\ See Saunders I, 440 F.3d at 944-46 (``The district court 
erred in invoking the judicially created filed rate doctrine to 
restrict Congress's broad grant of standing to seek judicial redress 
for race discrimination.''); Dehoyos, 345 F.3d at 297 n.5 (finding 
``unpersuasive'' the argument that the filed rate doctrine barred a 
Fair Housing Act disparate impact claim); Lumpkin v. Farmers Grp., 
Inc. (Lumpkin I), No. 05-2868 Ma/V, 2007 U.S. Dist. LEXIS 98994, at 
*20-22 (W.D. Tenn. Apr. 26, 2007) (ruling that ``the filed rate 
doctrine does not apply'' to a Fair Housing Act disparate impact 
claim).
    \82\ Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17, 18 (2d Cir. 
1994).
    \83\ Id.
---------------------------------------------------------------------------

    The fit between the filed rate doctrine and discriminatory effects 
claims is attenuated, at best, because discriminatory effects claims 
``do not challenge the reasonableness of the insurance rates'' but 
rather their discriminatory effects.\84\ To the extent there is any 
conflict between the directives of the federal Fair Housing Act and 
those of state ratemaking regulations, ``the Supremacy Clause tips any 
legislative competition in favor of the federal antidiscrimination 
statutes.'' \85\ Unlike filed rate doctrine cases involving a conflict 
between federal ratemaking and a federal statute, applying the filed 
rate doctrine to prioritize state ratemaking over a federal statute 
``would seem to stand the Supremacy Clause on its head.'' \86\ 
Moreover, the filed rate doctrine ``does not preclude injunctive relief 
or prohibit the Government from seeking civil or criminal redress,'' 
\87\ which are types of relief often obtained for violations of the 
Act.\88\
---------------------------------------------------------------------------

    \84\ Lumpkin I, 2007 U.S. Dist. LEXIS 98994, at *21; see also 
Dehoyos, 345 F.3d at 297 n.5 (``[T]he application of anti-
discrimination laws cannot be reasonably construed to supplant the 
specific insurance rate controls of [states].'').
    \85\ Saunders I, 440 F.3d at 944.
    \86\ Perryman v. Litton Loan Servicing, LP, No. 14-cv-02261-JST, 
2014 U.S. Dist. LEXIS 140479, at *20-22 (N.D. Cal. Oct. 1, 2014).
    \87\ In re Title Ins. Antitrust Cases, 702 F. Supp. 2d 840, 849 
(N.D. Ohio 2010); see also Marcus v. AT&T Corp., 138 F.3d 46, 62 (2d 
Cir. 1998).
    \88\ See 42 U.S.C. 3612(g)(3), 3613(c), 3614(d).
---------------------------------------------------------------------------

    Because ``the law on the filed rate doctrine is extremely creaky,'' 
\89\ abundant variations exist among the courts as to how the doctrine 
applies. Even where it does apply, a filed rate doctrine defense ``must 
be examined specifically in the context of the laws and regulatory 
structures at issue.'' \90\ This would be a ``fact-intensive issue'' 
\91\ that would include consideration of the particular state's 
ratemaking structures.\92\ The case-by-case approach best accommodates 
these variations.
---------------------------------------------------------------------------

    \89\ Town of Norwood v. New England Power Co., 202 F.3d 408, 420 
(1st Cir. 2000). The filed rate doctrine has also been described as 
a ``weak and forcefully criticized doctrine.'' Cost Mgmt. Servs. v. 
Wash. Natural Gas Co., 99 F.3d 937, 946 (9th Cir. 1996).
    \90\ Munoz v. PHH Corp., 659 F. Supp. 2d 1094, 1099 (E.D. Cal. 
2009).
    \91\ Saunders I, 440 F.3d at 945.
    \92\ For example, the Seventh Circuit has questioned the 
applicability of the filed rate doctrine to any claims involving 
property insurance in Illinois because ``[a]lthough [a property 
insurance provider] is required to file its insurance rates with the 
Illinois Department of Insurance, it is not at all clear that the 
Department has the authority to approve or disapprove property-
insurance rates.'' Cohen v. Am. Sec. Ins. Co., 735 F.3d 601, 607 
(7th Cir. 2013). States vary considerably in the degree to which 
they regulate rate-setting, with six different types of rate 
regulatory systems in use across the country: Prior approval; file 
and use; use and file; flex rating; modified prior approval; and no 
file. See NAIC, 2 Compendium of State Laws on Insurance Topics, 
Health/Life/Property/Casualty II-PA-10-21 (2011). As the 
classifications indicate, these rate regulatory systems vary with 
respect to whether or when an insurance company is required to file 
its rates with a state insurance agency before those rates can be 
used.
---------------------------------------------------------------------------

    For all the foregoing reasons, HUD does not agree that the filed 
rate doctrine, nor the commenter's assertions about the Act's scope, 
warrant an exemption for insurance pricing.
    Issue: One commenter sought an exemption from discriminatory 
effects liability for FAIR plans because ``the operation of FAIR plans 
facilitates private conduct that otherwise would not have occurred.''
    HUD Response: FAIR plans were first enacted by many states in 
response to the federal Urban Property Protection and Reinsurance Act 
of 1968,\93\ which was passed by Congress to address the problem of 
inadequate property insurance availability in the nation's urban areas 
due to insurance redlining. FAIR plans operate as insurance pools that 
sell property insurance to

[[Page 69019]]

individuals who are unable to purchase insurance in the voluntary 
market.
---------------------------------------------------------------------------

    \93\ Public Law 90-448, 82 Stat. 555 (1968).
---------------------------------------------------------------------------

    HUD declines to categorically exempt FAIR plans from discriminatory 
effects liability under the Act. To do so, without any consideration of 
the particular insurance practice or state requirements at issue, would 
be inconsistent with the broad remedial purpose of the Act and HUD's 
obligation to affirmatively further fair housing. Like state regulation 
of voluntary market insurance practices, state laws governing the 
provision and pricing of FAIR plans vary across jurisdictions. 
Variations in state regulation of FAIR plans include the types of 
coverage provided by such plans,\94\ the amount of coverage allowed 
under such plans,\95\ and the conditions under which an individual or 
property will qualify for such plans.\96\ Additionally, even within a 
given state, FAIR plan regulations are subject to revision over time.
---------------------------------------------------------------------------

    \94\ Compare, e.g., Conn. Agencies Regs. 38a-328-3(c) (defining 
``basic insurance'' for purposes of the Connecticut FAIR plan to 
include liability coverage for any dwelling of up to three families) 
with Mass. Gen. Laws ch. 175c, Sec.  1 (defining ``basic property 
insurance'' for purposes of the Massachusetts FAIR plan to include 
liability coverage for only non-owner occupied dwellings of up to 
four families) and 98-08 Wash. Reg. 4 (April 15, 1998) (excluding 
liability coverage from the definition of ``essential property 
insurance'' for purposes of the Washington FAIR plan).
    \95\ Compare, e.g., Mo. Rev. Stat. 379.825 (limiting maximum 
insurance coverage for a dwelling under the Missouri FAIR plan to 
$200,000) with 98-08 Wash. Reg. 5 (April 15, 1998) (limiting maximum 
insurance coverage for a dwelling under the Washington FAIR plan to 
$1.5 million).
    \96\ Compare, e.g., Ohio Rev. Cod. Ann. 3929.44(D) (requiring 
applicant to certify that two insurance companies declined to 
provide coverage for purposes of FAIR plan eligibility) with 215 
Ill. Comp. Stat. 5/524(1) (restricting FAIR plan eligibility to 
applicants who have been declined insurance coverage by three 
companies).
---------------------------------------------------------------------------

    Given such variation and changeability, exempting all FAIR plans 
from application of the discriminatory effects standard would be 
overbroad and would deprive individuals of the protections afforded by 
the Fair Housing Act. Indeed, one state court has held ``the disparate 
impact approach does not interfere with the Ohio FAIR Plan.'' \97\ In 
light of this demonstrated compatibility, and because insurers retain 
some discretion in the operation of FAIR plans,\98\ HUD determines that 
case-by-case adjudication is preferable to the requested exemption of 
FAIR plans.
---------------------------------------------------------------------------

    \97\ Toledo, 94 Ohio Misc. 2d at 157.
    \98\ See, e.g., Cal. Ins. Code 10094 (leaving discretion to 
governing committee of participating insurers to establish 
``reasonable underwriting standards'' for determining whether a 
property for which FAIR plan coverage is sought is insurable); 215 
Ill. Comp. Stat. 5/524(1) (same); Ohio Rev. Code. Ann. 3929.43(C) 
(same).

    Dated: September 23, 2016.
Gustavo Velasquez,
Assistant Secretary for Fair Housing and Equal Opportunity.
[FR Doc. 2016-23858 Filed 10-4-16; 8:45 am]
 BILLING CODE 4210-67-P