HUD Denies Insurance Exemption from Liability under the Fair Housing Act Discriminatory Effects Standard

On October 5, the Department of Housing and Urban Development (“HUD”) released a Federal Register update in which it supplemented its response to certain insurance industry comments to HUD’s proposed rule implementing the Fair Housing Act’s (“Act”) discriminatory effects standard. The insurance industry commenters sought partial or total exemptions from liability. HUD denied all requests for insurance exemptions.

In 2013, HUD finalized its final rule where it declined to grant safe harbors for any insurance practices. In November of 2013, an insurance association filed suit claiming HUD’s rule violated the McCarran-Ferguson Act. The court found that the McCarren-Ferguson Act restricts only the application of federal law that directly conflicts with state insurance laws, frustrates a declared state policy or interferes with a state’s administrative regime. The court upheld HUD’s case by case analysis.

At this time, HUD reconsidered the insurance industry’s concerns. 

First, HUD responded to commentators who sought a complete exemption in accordance with the McCarren-Ferguson Act. The commentator relied on McCarren-Ferguson by saying “state insurance law trumps the application of any federal law to state regulated insurance, except under very narrow circumstances, which are not met here.” HUD responded that this approach would undermine HUD’s own statutory obligation to affirmatively further fair housing, and declined to implement this exemption. HUD cited Supreme Court precedent that ruled mere existence of state insurance regulation did not trigger McCarren-Ferguson.

Another commenter requested that HUD “exempt insurance pricing from the discriminatory effects standards” because the filed rate doctrine precludes “private claims for damages based on challenges to filed rates.” The filed rate doctrine bars suit against regulated utilities based on rates charged by the utility company. Again, HUD declined to craft an exemption, and found that discriminatory effects claims do not trigger the filed rate doctrine, because the claim is based on discriminatory effects and not the reasonableness of the insurance rates.

Finally, a commenter requested an exemption for FAIR plans. FAIR plans operate as insurance pools that sell property insurance to individuals who are unable to buy insurance on the voluntary market. Again, HUD declined to categorically exempt FAIR plans, finding that state regulation of these plans is too variable and changes frequently.

A copy of HUD’s Application of the Fair Housing Act’s Discriminatory Effects Standard to Insurance can be found at: https://www.federalregister.gov/documents/2016/10/05/2016-23858/application-of-fair-housing-acts-discriminatory-effects-standard-to-insurance.