# Amicus Curiae Brief — Nationwide Mutual Insurance v. Cisneros

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1996
- **Citation:** 516 U.S. 1140

## Text

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

\©

*

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386002_0738%3A5. Public record. Not legal advice.