Amicus Curiae Brief — Nationwide Mutual Insurance v. Cisneros

MOTION FILED

JAN 3 1996

No. 95-714

IN THE

Supreme Court of the Anited States

October Term, 1995

NATIONWIDE MUTUAL INSURANCE COMPANY

and

NATIONWIDE MUTUAL FIRE

INSURANCE COMPANY,

Petitioners,

Vv.

HENRY CISNEROS, Secretary of the United States

Department of Housing & Urban Development;

JERALD L. STEED, Executive Director, Dayton Human Relations Council;

CHARLES W. BROWN, Chairperson, Dayton Human Relations Council;

and CITY OF DAYTON,

Respondents.

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Sixth Circuit

MOTION FOR LEAVE TO FILE BRIEF AND BRIEF OF

THE NATIONAL ASSOCIATION OF INDEPENDENT

INSURERS AS AMICUS CURIAE IN SUPPORT OF THE

PETITION FOR WRIT OF CERTIORARI

ANDREW L. SANDLER MICHAEL P. DUNCAN

Counsel of Record NATIONAL ASSOCIATION OF

HEIDI L. MASON INDEPENDENT INSURERS

SKADDEN, ARPS, SLATE, 2600 River Road

MEAGHER & FLOM Des Plaines, IL 60018

1440 New York Avenue, N.W. (708) 297-7800

Washington, D.C. 20005

(202) 371-7000 COUNSEL FOR Amicus Curiae

NATIONAL ASSOCIATION

January 3, 1996 OF INDEPENDENT INSURERS

tee Tt

oe + arbre

No. 95-714

IN THE

Suprem: Court of the United States

October Term, 1995

NATIONWIDE MUTUAL INSURANCE COMPANY

and

NATIONWIDE MUTUAL FIRE

INSURANCE COMPANY,

Petitioners,

v.

HENRY CISNEROS, Secretary of the United States

Department of Housing & Urban Development;

JERALD L. STEED, Executive Director, Dayton Human Relations Council;

CHARLES W. BROWN, Chairperson, Dayton Human Relations Council;

and CITY OF DAYTON,

Respondents.

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Sixth Circuit

MOTION FOR LEAVE TO FILE BRIEF

AS AMICUS CURIAE IN SUPPORT OF THE PETITION

FOR WRIT OF CERTIORARI

National Association of Independent Insurers (“NAIT’)

respectfully moves, pursuant to Rule 37.2 of the Rules of this

Court, for leave to file the attached brief as amicus curiae in

support of the petition of Nationwide Mutual Insurance

Company and Nationwide Mutual Fire Insurance Company

(“Nationwide”) for Writ of Certiorari. Petitioners and the

Office of the Solicitor General, on behalf of respondent Henry

Cisneros, have consented to the filing of this brief. This

motion is necessitated because counsel for respondents Jerald

Se

2

L. Steed, Charles W. Brown and the City of Dayton have

refused written consent.'

NAII is a national insurance trade association

representing over 550 property and casualty insurance

companies across the country. NAII is headquartered in Des |

Plaines, Illinois, maintains two regional offices and a

Washington, D.C. office, and retains legislative counsel in

nearly every state. NAII member companies are domiciled in

48 states and conduct business in all 50 states, the District of

Columbia and various foreign jurisdictions.

The NAII membership reflects a broad cross-section of

the property and casualty insurance industry. NAII member

companies range in size from large national companies to

regional companies to companies writing in a single state. |

Over one third of the nation’s top 50 insurers are NAII

members. In 1994, NAII member insurers together wrote

over $65 billion in direct property and casualty premiums

which represented over 26% of all property and casualty

insurance underwritten in the United States.

seiienmiedde ieee ane

clei de

On a national basis, 154 NAII member companies wrote

homeowners insurance in 1994 for a total of over $7.4 billion

in direct premiums or nearly 31% of the national homeowners

insurance market. The number of NAII member companies

writing homeowners insurance increased over 40% during the

years 1988 to 1993 and the number of such companies

continues to climb. Currently, over 280 NAII member

companies (over 50% of all NAII members) write

homeowners insurance.

ROR en

As a national insurance trade association, NAII seeks to

promote the economic, legislative and public standing of the

nn

1. Although the above-referenced respondents have refused to provide

such consent to NAII, it is NAII’s understanding ths! ‘nese respondents

recently have informed this Court by letter, dated December 29, 1995, that

they “do not object to the filing of an amicus brief in this matter.”

3

insurance industry; to provide a forum for discussion of

problems which are of common concern to its members; to

keep members informed of regulatory and legislative

developments; and to serve the public interest through

appropriate activities, including the promotion of safety and

security of persons and property.

Because it can draw on the collective knowledge of its

broad-based membership, NAII has the unique ability to serve

as a source of a wealth of objective, specialized information

concerning the complex economic structure of the insurance

business. NAII collects information concerning various

aspects of the insurance business and distributes that

information to various entities, including insurance

companies, state insurance departments and government

agencies. Indeed, NAII is a state-authorized statistical

reporting agency. Among other things, NAII’s data

compilations reflect the loss experience of a major segment of

the insurance industry.

NAII and its members have a substantial interest in the

issues raised by the lower court’s decision in Nationwide Mut.

Ins. Co. v. Cisneros, 52 F.3d 1351 (6th Cir. 1995). As

detailed more fully in the attached memorandum, that court’s

decision that property and hazard insurance practices are

governed by the Fair Housing Act (“FHA”) will have a

profound effect on NAII members and the property and

casualty insurance industry in general.

The continuing uncertainty as to whether the FHA

applies to insurance practices has created an enormous

dilemma for the entire property and casualty insurance

industry. Insurers must choose between attempting to

reconfigure their business in a manner consistent with the

Department of Housing and Urban Development’s regulatory

structure, an approach likely to substantially change their

businesses in ways that may be inconsistent with basic

financial soundness considerations and the existing state

a

4

regulatory structure, or leaving themselves vulnerable to

prohibitively costly government investigations and

enforcement actions and/or private litigation brought under

the FHA. Indeed, several NAII member companies already

have become the target of federal investigations and/or civil

actions, including class actions, pursuant to the FHA. Thus, a

proper resolution of the conflict among the circuits regarding

whether the FHA applies to insurers will provide much

needed guidance for NAII and its members.

5

Because of the distinct perspective NAII can offer in

connection with these issues based on its specialized

knowledge of the insurance industry, and because of NAII’s

strong interest in these issues and their effect on its members,

NAII respectfully moves for leave to submit the attached brief

to assist the Court in its determination whether to grant further

review.

Respectfully submitted,

ANDREW L. SANDLER

Counsel of Record

HEIDI L. MASON

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM

1440 New York Avenue, N.W.

Washington, D.C. 20005

(202) 371-7000

MICHAEL P. DUNCAN

NATIONAL ASSOCIATION OF

INDEPENDENT INSURERS

2600 River Road

Des Plaines, IL 60018

(708) 297-7800

COUNSEL FOR Amicus Curiae

NATIONAL ASSOCIATION

OF INDEPENDENT INSURERS

January 3, 1996

No. 95-714

IN THE

Supreme Court of the United States

October Term, 1995

NATIONWIDE MUTUAL INSURANCE COMPANY

and

NATIONWIDE MUTUAL FIRE

INSURANCE COMPANY,

Petitioners,

Vv.

HENRY CISNEROS, Secretary of the United States

Department of Housing & Urban Development;

JERALD L. STEED, Executive Director, Dayton Human Relations Council:

CHARLES W. BROWN, Chairperson, Dayton Human Relations Council:

and CITY OF DAYTON,

Respondents.

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The Sixth Circuit

BRIEF OF THE NATIONAL ASSOCIATION

OF INDEPENDENT INSURERS

AS AMICUS CURIAE IN SUPPORT OF

THE PETITION FOR WRIT OF CERTIORARI

TABLE OF CONTENTS

PAGE

TABLE OF AUTHORITIES ...................00...... ii

STATEMENT OF INTEREST OF THE AMICUS

I ei i a l

ESS SEES a l

BACKGROUND OF THE ACTION..................... 2

REASONS FOR GRANTING WRIT.................... 6

I. THE DECISION BELOW HAS PERPETUATED A

CONFLICT AMONG THE CIRCUITS

REGARDING THE APPLICATION OF THE FHA

TO INSURANCE PRACTICES.................... 6

Il. THIS CASE PRESENTS AN OPPORTUNITY TO

ADDRESS THE CONFLICT AMONG THE

CIRCUITS REGARDING HUD’S IMPROPER

EFFORT TO EXPAND THE FHA’S SCOPE IN

CONTRAVENTION OF CLEAR

CONGRESSIONAL INTENT...................... 7

A. The Plain Language Of FHA Sections 3604

And 3605 Taken Together Establishes That

Congress Did Not Intend To Include Insurance

Activities Within The Act’s Scope ............. 7

B. The Legislative History Of The FHA And Its

Amendments Further Support The Conclusion

That Congress Did Not Intend To Include

Insurance Practices Within The Act’s Scope ....

Il. THE DECISION BELOW RAISES ISSUES OF

SUBSTANTIAL IMPORTANCE TO THE

INSURANCE INDUSTRY AND ITS

oc ce REA TAA Ea ieee oe 13

elie Sa ni yf aac il AR 20

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*

il

TABLE OF AUTHORITIES

PAGE(S)

CASES

Boyd v. Lefrak Org., 509 F.2d 1110 (2d Cir. 1975)... 15

Brown v. Artery Org., 654 F. Supp. 1106

CTRL FRG a vecvcccsesneucddesuvcrdsctesctedhas 14

Chevron U.S.A., Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 (1984) ................ 4, 6

INS v. Cardoza-Fonseca, 480 U.S. 421 (1987) .......

Mackey v. Nationwide Ins. Cos., 724 F.2d 419

CG Gay Fe caves cbudl icev veces edethciovseets passim

N.A.A.C.P. v. American Family Mut. Ins. Co.,

978 F.2d 287 (7th Cir. 1992), cert. denied, 113 S.

CR, Zee MEDD hobccuddGecnbctubsdewededhoaesécds passim

Nationwide Mut. Ins. Co. v. Cisneros, 52 F.3d 1351

Ge Ga, SO ndcendanudus ts ddousdsdencctdenderes passim

United States v. American Family Mut. Ins. Co.,

Civ. Act. No. 90-C-0759 (E.D. Wis. March 30,

Se CS CN eb cc akennreencccusteeneens 19 |

United States v. Weiss, 847 F. Supp. 819

DD. Hea Teno ice eke dn bebe HAN Batak esd detus 15

Village of Bellwood v. Dwivedi, 895 F.2d 1521

CPD Gi FRE bck chcs cvcvivees WRC AM 14

STATUTES

Fair Housing Act, Pub. L. No. 90-284, § 805, ’

SE SU. FS CoM oc de cedisinebuccbivedvessvets. 3

Fair Housing Act, 42 U.S.C. § 3601, et seg. ......... passim

Fair Housing Amendments Act of 1988, Pub L. 100-

430, § 805, 102 Stat. 1622 (1988) ................. 3,4

McCarran-Ferguson Act, 15 U.S.C.A. § 1012(b)

COND ou kndeccdscensdsuekeucess paaareanieedbes 9

ili

Urban Property Protection and Reinsurance Act,

12 U.S.C.A. § 1749bbb et seg. (West 1989 &

Padus bce es oudsuuusGieeceocececs sss.

42 U.S.C.A. § 3604, et seg. (West 1994).............

42 U.S.C.A. § 3605, et seg. (West 1994).............

42 US.C.A. § 3613(a)(1)(A) (West 1994) ............

42 U.S.C.A. § 3613(c) (West 1994)..................

42 U.S.C.A. § 3614(d) (West 1994)..................

C.F.R.

24 C.F.R. § 100.70(d)(4) (1995) ..... 000...

FEDERAL REGISTER

59 Fed. Reg. 41995 (1994).........................

ee

LEGISLATIVE HISTORY

doe eS Re ee

126 Cong. Rec. 32,989 (1980) ..................066-

126 Cong. Rec. 32,991 (1980) ......................

141 Cong. Rec. $14,361 (daily ed. Sept. 27, 1995) ...

H.R. 3504, 95th Cong., 2d Sess. (1978)..............

H.R. 5200, 96th Cong., 2d Sess. (1980)..............

H.R. 3482, 98th Cong., Ist Sess. (1983) .............

H.R. 4119, 99th Cong., 2d Sess. (1986)..............

H.R. 1158, 100th Cong., Ist Sess. (1987) ............

H.R. Rep. No. 1585, 90th Cong., 2d Sess. (1968),

reprinted in 1968 U.S.C.C.A.N. 2873 .............

H.R. Rep. No. 711, 100th Cong., 2d Sess. (1988),

reprinted in 1988 U.S.C.C.A.N. 2173 .............

S. 506, 96th Cong., Ist Sess. (1979) .................

PAGE(S)

passim

passim

11

10

lia,

iv

PAGE(S)

S. 1220, 98th Cong., Ist Sess. (1983)............60- 10

S. 2040, 99th Cong., 2d Sess. (1986) .............05. 10

S. 558, 100th Cong., Ist Sess. (1987}...........0005. 4

Hearing on Homeowners Insurance Discrimination

Before the Senate Comm. on Banking, Housing,

and Urban Affairs, 103d Cong., 2d Sess. (1994)

(statement of Roberta Achtenberg, Asst. Sec. for

Fair Housing and Equal Opportunity) (May 11,

FUN b cuds chen ed seu cuas souu eur tneGn i dbabceeltex 15, 16, 17

Hearing Before the House Comm. on the Judiciary,

103d Cong., 2d Sess. (1994) (statement of Roberta

Achtenberg, Asst. Sec. for Fair Housing and Equal

Opportunity) (Sept. 28, 1994) ............ cece eens 17

OTHER AUTHORITIES

American Bankers Association, FEDERAL LAW

PROHIBITING LENDING DISCRIMINATION AND THE :

DEPARTMENT OF JUSTICE LENDING DISCRIMINATION

ENFORCEMENT PROGRAM (1995)............200008 15

Best DataBase Services: P/C Experience By State |

(By Line), A.M. Best Company, Inc. (1995)....... 13

Brief for Secretary as Respondent, HUD v. Mountain

Side Mobile Estates, 56 F.3d 1243 (10th Cir. 1995) 15

Letter from Congressman Dingell to HUD Secretary

Cisneros (November 3, 1994) ..............050000- 11

Mem. to C. McGuire, HUD Asst. Sec. for Equal

Opportunity from R. Prokop, General Counsel of

Se Ss SITE Sa ccncrcecscadhchoeseresss 3, 11

M. Duncan, National Association of Independent

Insurers, THE FAIR HOUSING ACT & PROPERTY

INSURANCE: THE CALL FOR CONGRESSIONAL

Pe ee Cs TE ocd sb Feb 'ac tend cceanceenss 14, 16

—

STATEMENT OF INTEREST OF THE

AMICUS CURIAE

The interest of the amicus curiae is set forth in the

motion accompanying this brief.

INTRODUCTION

The central issue raised by the decision below is whether

the Department of Housing and Urban Development (“HUD”)

may establish by regulatory fiat that the Fair Housing Act, 42

U.S.C. § 3601, et seg. (the “FHA” or “Act’) applies to the

property and hazard insurance business.' This issue is clearly

and unequivocally ripe for review by this Court. The Sixth

Circuit’s split panel decision permitting HUD to regulate the

business of property and hazard insurance under the FHA2

has perpetuated a decade of conflict among the Courts of

Appeal as to whether Congress, which enacted the FHA in

1968 and subsequently declined on at least four separate

occasions to expand the Act’s reach to property insurance,

intended to permit HUD to redefine the Act’s scope to reach

insurance practices.

The prompt and final resolution of the issue is one of

substantial importance to the property insurance industry and

to the millions of American homeowners who purchase

property insurance. Absent clear direction from this Court,

1. Because HUD and some courts have consistently included the term

“hazard insurance” in describing the types of insurance purportedly

covered by the FHA, NAII uses the term in this brief where necessary to

avoid confusion. The term “hazard insurance,” however, is not commonly

used by the insurance industry. The terms more commonly used to

describe the types of insurance provided to homeowners in multiperil

homeowners policies are “property and casualty” insurance, and the large

group of insurers who provide such insurance are part of the “property and

casualty” insurance industry.

2. Nationwide Mut. Ins. Co. v. Cisneros, 52 F.3d 1351 (6th Cir. 1995 ),

App. 1. References to the Appendix filed by Petitioners are abbreviated

herein as “App.”. References to the Joint Appendix filed by the parties

with the Court of Appeals are abbreviated herein as “JA”.

2

the property insurance industry will confront continued

uncertainty as to whether the law requires that it abandon the

State sanctioned risk-based underwriting system that is

currently used in order to acquiesce to HUD’s aggressive use

of the FHA to establish a new layer of federal regulations

intended to advance HUD’s social policy agenda. Hence the

issue presented raises a public policy dilemma this Court is

uniquely positioned to address—the conflict between the

long-standing policy in favor of state regulation of insurance

to ensure a fair and equitable risk-based underwriting and

pricing system that promotes financial soundness on the one

hand and HUD’s interest in expansive regulation of market

practices to achieve social policy objectives on the other.

For these reasons, NAII, on behalf of its over 550

property and casualty insurance company members,

respectfully requests that the Court grant the Petition of

Nationwide Mutual Insurance Company and Nationwide

Mutual Fire Insurance Company (“Nationwide”) for Writ of

Certiorari.

BACKGROUND OF THE ACTION

Congress enacted the Fair Housing Act in 1968 to

“eliminate discriminatory practices of property owners, real

estate brokers, builders and home financers.” Mackey v.

Nationwide Ins. Cos., 724 F.2d 419, 423 (4th Cir. 1984)

(citing Sen. Mondale, the Act’s sponsor (Cong. Rec. S.

2272-2284) (daily ed. Feb. 6, 1968)). In accord with these

purposes, Section 3604(a) and (b) of the FHA state that it

shall be unlawful:

(a) To refuse to sell or rent after the making of a bona

fide offer, or to refuse to negotiate for the sale or rental

of, or otherwise make unavailable or deny, a dwelling to

any person because of race, color, religion, sex, familial

Status, or national origin.

ee

a

3

(b) To discriminate against any person in the terms,

conditions, or privileges of sale or rental of a dwelling,

or in the provision of services or facilities in connection

therewith, because of race, color, religion, sex, familial

Status, or national origin.

42 U.S.C.A. § 3604(a) and (b) (West 1994).> In its original

version, section 3605 specifically prohibited discrimination in

the financing of housing.* Notwithstanding the fact that

section 3605 has since undergone substantial amendment to

increase the scope of its coverage to include certain

specifically identified “real estate-related transactions,””*

neither it nor any other section of the FHA has ever contained

a single reference to property or hazard insurance.

Since 1968, however, HUD, which is charged with

administering the Act, has repeatedly ignored the will of

Congress and sought to establish by regulatory fiat the

applicability of the FHA to the business of property insurance.

HUD’s efforts to expand the reach of the FHA beyond the

intent of Congress began in 1978 when HUD issued a

memorandum opining that the FHA applies to property and

hazard insurance, thus deeming itself to have regulatory

jurisdiction over such matters. However, in 1984, the Fourth

Circuit categorically rejected HUD’s interpretation and held

that Congress did not intend that the FHA apply to property

and hazard insurance. Mackey, 724 F.2d at 424. The Fourth

Circuit stated that “the legislative history [of the FHA]

3. Sections 3604(a) and (b) have not been materially modified since

their enactment, except for the addition of “familial status” as a prohibited

basis of discrimination. /d. (as amended in 1988).

4. Fair Housing Act, Pub. L. No. 90-284, § 805, 82 Stat. 73 (1968)

(current version at 42 U.S.C. § 3605).

5. Fair Housing Amendments Act of 1988, Pub. L. 100-430, § 805,

102 Stat. 1622 (1988) (current version at 42 U.S.C. § 3605).

6. See Mem. to C. McGuire, HUD Asst. Sec. for Equal Opportunity

from R. Prokop, General Counsel of HUD, dated August 25, 1978, JA

372-375.

4

contains no discussion of a barrier to fair housing created by

the insurance industry.” Jd. at 423.

Consistent with the Mackey decision, Congress has

rejected numerous attempts by HUD allies to amend the FHA

to bring insurance activities within its scope. For example,

Congress, while amending section 3605 of the Act in 1988 to

include businesses that engage in certain real-estate related

transactions, such as appraisal and secondary market

activities, rejected an amendment that also would have

included property and hazard insurance.’

Undaunted by its failure to reverse the will of Congress,

HUD determined to pursue its goal by regulatory fiat. It

issued regulations in 1989 granting itself the authority it was

not able to secure from Congress t .eeulate the business of

insurance under the FHA. HUD c:zued section 3604 to

include, among other things, “[rJefusing to provide...property

or hazard insurance for dwellings or providing

such...insurance differently because of race, color, religion,

sex, handicap, familial status, or national origin.” 24 C.F.R.

§ 100.70(d)(4) (1995) (referred to herein as “the 1989

Regulation”). | Based upon this self-proclaimed and

unwarranted expansion of authority under the FHA, HUD has

initiated an aggressive FHA enforcement effort directed at

insurers.

In the decision below, the Sixth Circuit, in a 2-1 split,

deferred to HUD’s view that the FHA applies to property and

hazard insurance based on the mistaken view that this Court’s

analysis set forth in Chevron U.S.A., Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837 (1984) (hereinafter the

“Chevron analysis”) required such a result. Nationwide Mut.

7. Compare H.R. 1158, 100th Cong., Ist Sess. (1987) and S. 558,

100th Cong., Ist Sess. (1987) with Fair Housing Amendments Act of

1988, Pub. L. 100-430, § 805, 102 Stat. 1622 (1988) (current version at 42

U.S.C. § 3605); see also H.R. Rep. No. 711, 100th Cong., 2d Sess. 12

(1988), reprinted in 1988 U.S.C.C.A.N. 2173.

5

Ins. Co. v. Cisneros, 52 F.3d 1351, 1356-59 (6th Cir. 1995),

App. 8-15.8 The dissenting opinion adopted the view of the

Fourth Circuit in Mackey that Congress’ intent was that the

FHA does not apply to insurance. On this basis it found that

the Chevron analysis did not apply. See Nationwide, 52 F.3d

at 1364, App. 29 (Kennedy, J., dissenting). Thus, the Sixth

Circuit’s split decision deepened the conflict among the

Courts of Appeal on this issue, perpetuating continuing

confusion as to whether Congress’ clear legislative intent to

continue to recognize the principal of state regulation of

insurance or HUD’s overbroad interpretation of the FHA is

controlling.’

8. In so doing, the Sixth Circuit majority relied substantially on the

Seventh Circuit’s decision in N.A.A.C.P. v. American Family Mut. Ins.

Co., 978 F.2d 287 (7th Cir. 1992), cert. denied, 113 S. Ct. 2335 (1993),

which reached the same conclusion.

9. This amicus memorandum focuses primarily on the necessity for

this Court to resolve the conflict among the circuits concerning whether

Congress intended the FHA to apply to property insurance. NAII,

however, fully supports those arguments stated by Petitioners and other

amici in requesting this Court to review whether a disparate impact

enforcement of the FHA is preempted by the McCarran-Ferguson Act as

well as the Sixth Circuit’s holding that the McCarran-Ferguson Act does

not otherwise preempt the application of the FHA to insurance practices.

6

REASONS FOR GRANTING WRIT

I. THE DECISION BELOW HAS PERPETUATED

A CONFLICT AMONG THE CIRCUITS

REGARDING THE APPLICATION OF THE

FHA TO INSURANCE PRACTICES.

In reaching its decision, the court below rejected the

Fourth Circuit’s well-reasoned analysis in Mackey that

Congress did not intend the FHA to apply to insurance

activities. In contrast, both the majority below and the

Seventh Circuit in American Family applied a Chevron

analysis in concluding that the 1989 Regulation is a

reasonable construction of the FHA. Nationwide, 52 F.3d at

1356-60, App. 8-19; N.A.A.C.P. v. American Family Mut. Ins.

Co., 978 F.2d 287, 297-301 (7th Cir. 1992), cert. denied, 113

S. Ct. 2335 (1993).

This Court has clearly stated, however, that the Chevron

analysis regarding deference to an agency does not apply

where, as here, the issue of Congressional intent involves a

“pure question of statutory construction” and the Court can

ascertain such intent by “employing traditional tools of

statutory construction.” JNS v. Cardoza-Fonseca, 480 U.S.

421, 446-48 (1987); see also Nationwide, 52 F.3d at 1364,

App. 29 (Kennedy, J., dissenting). Thus, there exists a clear

conflict among the Circuits (and within the panel below)

concerning whether Congress has expressed an intent that the

property insurance industry not be subject to an additional

layer of federal regulation under the FHA.'°

10. Compare Mackey, 724 F.2d at 424 (concluding that “the [FHA] as

enacted in 1968 was not intended to reach the hazard insurance industry”)

with American Family, 978 F.2d at 298 (“Congress created ambiguity” in

the FHA). Compare also Nationwide, 52 F.3d at 1359, App. 15 (majority)

(“plaintiffs have failed to show any evidence of Congressional intent to

preclude the application of the [FHA] to insurance underwriting

practices”) with Nationwide, 52 F.3d at 1364, App. 29 (Kennedy, J.,

dissenting) (finding that Chevron analysis unnecessary where “this Court

7

Il. THIS CASE PRESENTS AN OPPORTUNITY

TO ADDRESS THE CONFLICT AMONG

THE CIRCUITS REGARDING HUD’S

IMPROPER EFFORT TO EXPAND THE FHA’S

SCOPE IN CONTRAVENTION OF CLEAR

CONGRESSIONAL INTENT.

The conflict among the Courts of Appeal discussed

above reflects the dramatically divergent views of Congress

and HUD regarding the scope of the FHA. Only by

disregarding the legislative context in which the FHA was

enacted, relevant subsequent legislation, and other federal

legislation defining a limited federal role in the regulation of

insurance did the split panel of the court below find that

Nationwide “failed to show any evidence of Congressional

intent to preclude the application of the Fair Housing Act to

insurance underwriting practices.” Nationwide, 52 F.3d at

1359, App. 15. Without action by this Court reversing this

plainly incorrect finding, the property insurance industry will

continue to be subject to HUD’s improper exercise of

regulatory authority under the FHA and to inherently

inconsistent federal and state regulatory schemes.

A. The Plain Language Of FHA Sections 3604 And

3605 Taken Together Establishes That Congress

Did Not Intend To Include Insurance Activities

Within The Act’s Scope.

It is undisputed that the FHA does not specifically

include property or hazard insurance within its ambit.

Moreover, as the Mackey court held, the fact that section

3604(a) makes it unlawful to refuse to sell, rent or “otherwise

make unavailable a dwelling” on a discriminatory basis does

can ascertain Congressional intent through traditional tools of statutory

construction” and that Congress did not intend FHA to apply to property

insurance practices) (citing INS v. Cardoza-Fonseca, 480 U.S. 421

(1987)).

8

not render Congress’ intent ambiguous as to whether property |

insurance activities are included within the scope of section

3604. Mackey, 724 F.2d at 423.'' Section 3604 must be read

in conjunction with section 3605, which as originally enacted,

limited the FHA’s scope with respect to activities which only

indirectly affect the availability of housing to mortgage |

financing. Jd. Thus, the Sixth Circuit’s interpretation of

section 3604 to include property insurance practices reads

section 3605 out of the Act. As stated by the Fourth Circuit in

Mackey, “if § 804 [3604] was designed to reach every

discriminatory. act that might conceivably affect the

availability of housing, § 805’s [3605’s] specific prohibition

of discrimination in the provision of financing would have

been superfluous.” /d.

As the dissent in the lower court recognized, the clear

merit of the Mackey holding was reinforced when Congress

more directly addressed the scope of the FHA with respect to

“real estate-related transactions” in its 1988 amendments to

the FHA and, in doing so, reiterated its intent that property

insurance not be included within the Act’s scope.

Nationwide, 52 F.3d at 1364, App. 29 (Kennedy, J.,

dissenting); see 42 U.S.C.A. § 3605 (West 1994) (historical

and statutory notes). Such transactions are now clearly

11. Although the American Family court and the court below made

brief references to an argument that the term “service” in section 3604(b)

is undefined and that property insurance could be interpreted to constitute

a “service” rendered in connection with the sale or rental of a dwelling

under section 3604(b), both the Sixth and Seventh Circuits based their

decisions that the FHA is applicable to property insurance primarily on

section 3604(a)’s prohibition against “otherwise mak[ing] unavailable a

dwelling.” See Nationwide, 52 F.3d at 1356-60, App. 6-19; American

Family, 978 F.2d at 297-301. In any event, property or hazard insurance

does not constitute a “service” provided in connection with a dwelling. As

the Mackey court noted, any contention otherwise requires a “strained

interpretation of the word.” Mackey, 724 F.2d at 424 (“what the [hazard]

insurance industry does cannot reasonably be described as the provision of

a service in connection with dwellings”).

9

limited to “[t}he making or purchasing of loans or providing

other financial assistance” and “(t]he selling, brokering or

appraising of residential real property.” 42 U.S.C.A.

§ 3605(b) (West 1994).

B. The Legislative History Of The FHA And Its

Amendments Further Support The Conclusion

That Congress Did Not Intend To Include

Insurance Practices Within The Act’s Scope.

As the Mackey court noted, “the legislative history [of

the FHA] contains no discussion of a barrier to fair housing

created by the insurance industry.” Mackey, 724 F.2d at 423

(noting that the bill’s sponsor stated only that the FHA “was

necessary to eliminate discriminatory practices of property

owners, real estate brokers, builders and home financers.”).

Indeed, the only reference to property insurance during the

debate of the Act was the unopposed assertion that the FHA

does not apply to “title insurance or fire, casualty and other

insurance.” 114 Cong. Rec. 9603 (1968).

The court below treated the lack of statutory language or

of debate indicating any congressional intention to include

insurance practices as insignificant and gave short shrift to the

legislative context in which the FHA was passed.

Nationwide, 52 F.3d at 1358-59, App. 13-14. However, the

failure of Congress to debate the FHA’s application to

insurance is particularly telling in light of the fact that

Congress has legislated and steadfastly adhered to a strong

public policy preference in favor of state regulation of the

insurance business.'? In this context, it strains credulity to

assert that Congress intended to so profoundly affect the

insurance industry in enacting the FHA without so much as a

12. See McCarran-Ferguson Act, § 2(b), 15 U.S.C.A. § 1012(b) (1945)

(precluding constructions of federal law which would “invalidate, impair,

or supersede” state inavrance regulation, unless the federal law

“specifically relates to ihe business of insurance”’).

10

reference to the McCarran-Ferguson Act and the policy in

favor of state regulation of insurance. See Nationwide, 52

F.3d at 1364, App. 29 (Kennedy, J., dissenting) (“I do not

believe that Congress would have intended to include

insurance practices without at least considering the limitations

imposed by the McCarran-Ferguson Act”).

Indeed, when Congress enacted the FHA it “was not

unaware of the problem of the unavailability of hazard

insurance in some urban areas.” Mackey, 724 F.2d at 424.

Rather than addressing the issue in the FHA, Congress instead

chose to address it through the Urban Property Protection and

Reinsurance Act of 1968 (“UPPRA”), which created

incentives for states to adopt plans to provide insurance

coverage for troubled urban areas (“FAIR plans”). Urban

Property Protection and Reinsurance Act, 12 U.S.C.A.

§ 1749bbb, et seq. (West 1989 & Supp. 1995). The legislative

history of UPPRA demonstrates that the same Congress that

passed the FHA took specific note of the McCarran-Ferguson

implications when it intended to pass legislation affecting the

business of insurance. There, Congress made clear that

UPPRA “is not designed to replace or alter the existing

structure of the insurance industry or its regulation by the

individual States.”'*

The legislative history accompanying later amendments

to the FHA has served only to reinforce that Congress did not

intend that the Act be applied to insurance. Since its original

enactment, Congress has rejected at least four attempts to

amend the FHA to permit federal regulation of insurance

practices.'* For example, after HUD’s General Counsel

13. H.R. Rep. No. 1585, 90th Cong., 2d Sess. (1968), reprinted in

1968 U.S.C.C.A.N. 2873, 2957.

14. See, e.g., H.R. 3504, 95th Cong., 2d Sess. (1978); S. 506, 96th

Cong., Ist Sess. (1979); H.R. 5200, 96th Cong., 2d Sess. (1980); 126

Cong. Rec. 32,989 (1980); S. 1220, 98th Cong., Ist Sess. (1983); H.R.

3482, 98th Cong., Ist Sess. (1983); S. 2040, 99th Cong., 2d Sess. (1986);

H.R. 4119, 99th Cong., 2d Sess. (1986); H.R. 1158, 100th Cong., Ist Sess.

issued a 1978 memorandum opining that the FHA applied to

property insurance activities,'° the Senate rejected an

amendment which sought to make the FHA applicable to

property insurers. Indeed, Senator Howard Heflin noted:

I am aware that HUD has proposed regulations under

title VIII that would cover the business of insurance—a

business the Senate has decided should not be addressed

by this legislation. I hope it is clear from these

proceedings that HUD should not attempt to achieve by

regulation what the Senate has declined to do, namely, to

amend title VIII to cover the business of insurance.

126 Cong. Rec. 32,991 (1980).

As discussed above, through the vehicle of the 1988

FHA amendments, Congress dealt the final legislative blow to

any interpretation of the FHA which includes property

insurance within its scope. Four years after Mackey,

Congress once again rejected an amendment that would have

brought insurance activities within the scope of the Act.'®

However, Congress concurrently amended section 3605 of the

Act to include other real-estate related transactions, such as

appraisals and loan purchases by the secondary market, within

its scope. See generally H.R. Rep. No. 711, 100th Cong., 2d

Sess., reprinted in 1988 U.S.C.C.A.N. 2173.

The lower court asserts that the 1988 FHA amendments

support its finding that there is no evidence of congressional

intent not to include property insurance within the ambit of

the FHA because “Congress gave HUD the authority to

(1987); H.R. Rep. No. 711, 100th Cong., 2d Sess. 12 (1988), reprinted in

1988 U.S.C.C.A.N. 2173; see also 141 Cong. Rec. $14,361 (daily ed.

Sept. 27, 1995) (citing letter from Congressman Dingell to HUD Secretary

Cisneros, dated Nov. 3, 1994, referencing four rejected attempts to amend

FHA to include insurance).

15. Mem. to C. McGuire, HUD Asst. Sec. for Equal Opportunity from

R. Prokop, General Counsel of HUD, dated August 25, 1978, JA 372-75.

16. See supra, n. 7.

12

promulgate regulations knowing that HUD had consistently

interpreted the Act as governing insurance underwriting

practices.” Nationwide, 52 F.3d at 1359, App. 15. Far from

approving of HUD’s interpretation that the FHA applies to

insurers, however, Congress again rejected an amendment

that adopted such an interpretation knowing that the Mackey

court had held that insurance was not included in the Act.

The language of the FHA, the legislative context in

which it was enacted and the subsequent legislation and its

related legislative history demonstrate conclusively that

Congress does not intend the Act to be used to regulate the

business of property insurance. Accordingly, it is uniquely

appropriate that this Court resolve the split among the Courts

of Appeal, and in the panel below, concerning whether HUD

may properly use the FHA to create for itself a regulatory role

over the property insurance business.

OO

13

Ill. THE DECISION BELOW RAISES ISSUES

OF SUBSTANTIAL IMPORTANCE TO

THE INSURANCE INDUSTRY AND ITS

CONSUMERS.

The property insurance industry is comprised of over

1,100 companies that wrote approximately $30 billion in

direct homeowners multiperil and/or fire insurance premiums

in the United States in 1994!’ as well as thousands of other

related small businesses and individuals, including insurance

agents, brokers, claims adjusting firms, actuarial firms and

rating services.'® Purchasers of property insurance include

the residents of the estimated 75.8 million insured housing

units in the country.'? Without instruction from the Court

concerning whether the FHA can be used by HUD and others

to impose an additional layer of regulation on the property

and hazard insurance industry, the industry will be faced with

continuing uncertainty regarding the source and scope of its

legal obligations and millions of insurance consumers will be

required to absorb the significant economic costs of such

regulatory uncertainty.

The property insurance industry is unique. Unlike most

product or service providers, insurers must set their prices

without full knowledge of their product’s cost and must

17. Best DataBase Services: P/C Experience By State (By Line), A.M.

Best Company, Inc. (1995). Homeownership multiperil policies

accounted for approximately $24.2 billion of this amount. Jd.

18. HUD has solicited comments concerning the “[e]ntities and

individuals who should be covered by the [FHA] ... such as mutual and

stock companies, independent agents, direct writers, exclusive agents, and

rating services.” See Discrimination in Property Insurance Under the Fair

Housing Act, Advance Notice of Proposed Rulemaking, 59 Fed. Reg.

41995, 41996 (1994).

19. This estimate is based on an extrapolation of data collected by

NAII from its subscriber companies, which account for approximately

39% of the relevant market.

14

project future costs by analyzing loss experience data.*° This

analysis results in the classification of like risks based on a

number of objective variables, including among many others

the condition and use of the property insured, the loss

experience for similar properties and exposure to

environmental hazards.*! In pricing a product, an insurer

determines its risk by assessing average losses for the type of

property being insured.*? Similarly, insurers develop and use

underwriting standards based on loss experience to categorize,

accept and reject individual risks for particular property

types.2° This pricing and underwriting structure has been

developed over a number of years by the insurance industry

and state regulators consistent with state law regarding

financially sound business practices and fair (non-

discriminatory) trade practices.*4

This carefully developed insurance underwriting and

pricing system, which is heavily regulated by state insurance

commissions, would need to be abandoned to meet the FHA

requirements as interpreted by HUD. Specifically, HUD has

taken the position that the disparate impact legal doctrine

developed in Title VII cases should apply in FHA cases.”° As

20. M. Duncan, National Association of Independent Insurers, THE

FAIR HOUSING ACT & PROPERTY INSURANCE: THE CALL FOR

CONGRESSIONAL ACTION (hereinafter, “THE FHA & PROPERTY

INSURANCE”) (October, 1995) 1-2.

21. Id; see also JA 344, 386.

22. M. Duncan, THE FHA & PROPERTY INSURANCE 1.

23. Id.

24. JA 342-46.

25. There is a significant dispute as to whether the disparate impact

theory applies to private entities in the FHA context. At least some courts

have questioned whether plaintiffs should be allowed to establish FHA

claims based solely on a showing of disparate impact absent

discriminatory intent. See, e.g., Brown v. Artery Org., 654 F. Supp. 1106,

1114-16 (D.D.C. 1987) (holding private landlords liable “for the racial

effects of their housing conversions irrespective of their purpose or intent

... would . . . be likely to halt in their tracks most, if not all, private efforts

to upgrade deteriorated housing”) (emphasis in original); Village of

15

HUD interprets this doctrine, neutral business practices such

as the insurance industry’s underwriting and pricing policies

constitute illegal discrimination under the FHA when

members of any protected class are adversely impacted unless

the business can demonstrate both that there is a compelling

need for the practice and that there is no alternative business

practice it could use which would not have such an impact.*°

Under this disparate impact legal analysis, any risk-based

pricing or underwriting factor that has greater impact in urban

than suburban jurisdictions (e.g., age of property or

Bellwood v. Dwivedi, 895 F.2d 1521, 1533 (7th Cir. 1990) (“[w]hether the

[disparate impact] analogy works, especially after [Wards Cove] .. . is not

a question we need decide”); United States v. Weiss, 847 F. Supp. 819, 826

(D. Nev. 1994) (“ ‘there is no indication that Congress had in mind the far

reaching consequences of the [effects test] ... on private landlords or

developers’ ”) (citations omitted); Boyd v. Lefrak Org., 509 F.2d 1110,

1113 (2d Cir. 1975) (“we will not impose an affirmative duty on the

private landlord to accept low income tenants absent evidence that his

motivation is racial rather than economic in origin”); see also American

Bankers Association, FEDERAi LAW PROHIBITING LENDING

DISCRIMINATION AND THE DEPARTMENT OF JUSTICE LENDING

DISCRIMINATION ENFORCEMENT PROGRAM (1995) 55-57.

26. See generally Brief for the Secretary as Respondent, HUD y.

Mountain Side Mobil Estates, 56 F. 3d 1243 (10th Cir. 1995) (No.

94-9509), in which HUD vigorously advocated the use of its flawed

interpretation of the disparate impact theory in a housing discrimination

action. It is without question that HUD intends to apply the disparate

impact theory in the insurance context as well. See, e.g., Hearing on

Homeowners Insurance Discrimination Before the Senate Comm. on

Banking, Housing, and Urban Affairs, 103d Cong., 2d Sess. (1994)

(statement of Roberta Achtenberg, Asst. Sec. for Fair Housing and Equal

Opportunity) (May 11, 1994) at 6 (“[t]he standards to determine

discrimination in [the insurance context]—as in all other covered

areas—will be based on the principles of overt discrimination, disparate

treatment, and disparate impact’) (emphasis added); Discrimination in

Property Insurance 'Jnder the Fair Housing Act; Advance Notice of

Proposed Rulemaking: Notice of Extension of Public Comment Deadline,

59 Fed. Reg. 52104, 52105 (1994) (HUD requesting comments regarding

“{insurance] [u]nderwriting practices that may discriminate due to ...

disparate impact’).

16

environmental hazards) can be deemed racially

discriminatory.?’ Similarly, practices adopted by insurers to

limit fraudulent claims, such as refusing to provide

replacement coverage where replacement cost far exceeds

property value, often would be prohibited as discriminatory.”*

Thus, so long as there remains uncertainty concerning

the applicability of the FHA to the property insurance

industry, insurers are left to confront an inherently

inconsistent dual regulatory structure where the state

regulatory authorities require that property insurance be

priced to reflect risk, while HUD and private litigants attack

underwriting and pricing standards based on demonstrable

risk factors where they are perceived to adversely impact

members of a protected class. The resulting dilemma has far-

reaching implications for the property insurance industry.

Where insurers abandon risk-based underwriting and pricing

to address HUD’s regulatory mandate, they must either

expose themselves to increased economic risk or impose

higher insurance costs on all property insurance consumers

without regard to the risks being underwritten.*®

27. Concerns about coverage implications in urban areas resulting

from risk-based pricing and underwriting have been addressed in the

existing regulatory structure through implementation of “FAIR” plans (fair

access to imsurance requirements). Under typical FAIR plans,

state-regulated insurers contribute to a mandatory pool of insurance for

certain otherwise uninsurable properties and the risk of loss is distributed

proportionally among all insurers. See M. Duncan, THE FHA & PROPERTY

INSURANCE 15; see also JA 387-389, 449-51.

28. See, e.g., Hearing on Homeowners Insurance Discrimination

Before the Senate Comm. on Banking, Housing, and Urban Affairs, 103d

Cong., 2d Sess. (1994) (statement of Roberta Achtenberg, Asst. Sec. for

Fair Housing and Equal Opportunity) (May 11, 1994) at 5.

29. As the Magistrate Judge in the district court in this action

recognized, “{a)n insurer’s underwriting standards provide the foundation

for daily decisions whether to insure and at what rate to insure. Clearly,

then, HUD’s regulation affects the primary business of insurers. On the

other hand, compliance with the HUD regulation, if it is invalid, could

17

Where an insurer declines to abandon the state-approved

underwriting and pricing guidelines under which it now

operates, it confronts a likelihood of protracted government

investigations and/or class action litigation. This concern is

not hypothetical. A number of property insurers currently are

the target of HUD enforcement actions and are subject to the

threat of multimillion dollar class action litigation premised

on HUD’s aggressive interpretation of the requirements the

FHA places upon the insurance industry.*° For example, it is

publicly disclosed that HUD currently is pursuing

investigations of major insurers under its purported FHA

jurisdiction?! In addition, private litigants are pursuing

actions, including class actions, against insurers based on

HUD’s interpretation of the reach of the FHA and the

disparate impact legal theory.** Such actions can have

cause insurers unnecessarily to bind themselves to cover risks they would

otherwise have refused to accept.” App. 41 (emphasis added).

30. HUD has established a special unit to handle property insurance

issues arising under the FHA and held hearings throughout the country in

connection with its initial intentions to promulgate regulations that would

affect most aspects of the business of property and hazard insurance,

including underwriting, sales and marketing policies and practices. See

Hearing on Homeowners Insurance Discrimination Before the Senate

Comm. on Banking, Housing, and Urban Affairs, 103d Cong., 2d Sess.

(1994) (statement of Roberta Achtenberg, Asst. Sec. for Fair Housing and

Equal Opportunity) (May 11, 1994) at 5; Discrimination in Property

Insurance Under the Fair Housing Act; Advance Notice of Proposed

Rulemaking, 59 Fed. Reg. 41995 (1994); see also Hearing Before the

House Comm. on the Judiciary, 103d Cong., 2d Sess. (1994) (statement of

Roberta Achtenberg, Asst. Sec. for Fair Housing and Equal Opportunity)

(Sept. 28, 1994).

31. Hearing on Homeowners Insurance Discrimination Before the

Senate Comm. on Banking, Housing, and Urban Affairs, 103d Cong., 2d

Sess. (1994) (statement of Roberta Achtenberg, Asst. Sec. for Fair

Housing and Equal Opportunity) (May 11, 1994) at 7-8.

32. Private individuals may file a civil action for relief after the

occurrence or termination of an allegedly discriminatory housing practice.

42 U.S.C.A. § 3613(a)(1)(A) (West 1994). The current state of

uncertainty concerning whether the FHA applies to insurance practices

a D

18

devastating consequences for an insurer. Insurers must not

only confront the public opprobrium of being labeled as

racists based on the alleged impact of their use of objective

risk factors in making pricing and coverage decisions, but are

also exposed to the tremendous costs associated with

defending such actions and to the threat of substantial liability

under the FHA.*?

In addition, such actions are being used to accomplish

social engineering objectives that extend well beyond

regulating the use of risk-based pricing and coverage

standards by insurers to the regulation of nearly every aspect

of the business of insurance, including marketing, sales, office

placement and hiring practices. For example, insurance

companies that want to resolve costly government

investigations and private litigation have been compelled to

institute affirmative marketing programs, which among other

things set quotas regarding the type, size and frequency of

advertisements to be placed in minority publications and aired

on minority radio stations; mandate the distribution of special

notices concerning insurance products to designated minority

communities; set quotas regarding the number of sales agents

placed in minority communities; and require insurers to

compile and present to the government and private plaintiffs

lists of minority groups with whom the insurers are then

mandated to establish relationships. At least one insurer also

has been required to subsidize interest rates and provide

financing cost assistance for loans to low and moderate

income African-Americans to purchase, repair and improve

provides class action plaintiffs with a special incentive to engage in

FHA has been held applicable to insurance practices.

33. The FHA permits the award of injunctive relief, compensatory and

punitive damages and civil penalties, and assessment of litigation costs

and attorney fees. See 42 U.S.C.A. § 3613(c) (West 1994) (relief available

in private actions) and id. § 3614(d) (West 1994) (relief available in

enforcement actions by Attorney General).

iB

19

homes. See generally Consent Decree, United States v.

American Family Mut. Ins. Co., Civ. Act. No. 90-C-0759

(E.D. Wis. March 30, 1995).

For all these reasons, it is clear that continuing

uncertainty concerning whether HUD has the legal authority

to abrogate risk-based coverage practices has substantial and

important implications for the thousands of businesses who

comprise the insurance industry as well as the millions of

homeowners who are consumers of property insurance

products. It is therefore imperative that the Court accept

certiorari in this matter.

20

CONCLUSION

For the foregoing reasons, as well as those presented by

Petitioners, the amicus curiae request this Court to grant the

petition for Writ of Certiorari.

January 3, 1996

Respectfully submitted,

ANDREW L. SANDLER

Counsel of Record

HEIDI L. MASON

SKADDEN, ARPS, SLATE,

MEAGHER & FLOM

1440 New York Avenue, N.W.

Washington, D.C. 20005

(202) 371-7000

MICHAEL P. DUNCAN

NATIONAL ASSOCIATION OF

INDEPENDENT INSURERS

2600 River Road

Des Plaines, IL 60018

(708) 297-7800

COUNSEL FOR Amicus Curiae

NATIONAL ASSOCIATION

OF INDEPENDENT INSURERS