Petition for Writ of Certiorari — American Family Mutual Insurance v. National Ass'n for the Advancement of Colored People

Court, U.S, |

SS ILED

No.

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

AMERICAN FAMILY MUTUAL INSURANCE COMPANY,

‘ Petitioner,

THE NATIONAL ASSOCIATION FOR THE ADVANCEMENT OF

COLORED PEOPLE, and its Milwaukee Branch (NAACP),

CELESTINE LINDSEY, DOROTHY LISTENBEE, JAMES MILNER,

DIANE PRATT, MARVIN PRATT, SIMON WILLIAMS,

BEVERLY WILLIAMS, and LOIS Woops,

individually and as representatives

of a class of all similarly situated persons,

ers Respondents.

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

PETITION FOR A WRIT OF CERTIORARI

BRADY C. WILLIAMSON *

JEFFREY J. KASSEL

JOANNE R. WHITING

LAFOLLETTE & SINYKIN

Suite 500

One East Main Street

P.O. Box 2719

Madison, WI 53701-2719

(608) 257-3911

March 8, 1993 Counsel for Petitioner

* Counsel of Record

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

a en ee a

QUESTIONS PRESENTED

1. Does the Fair Housing Act prohibit racial discrimi-

nation in the sale of homeowners’ insurance?

2. Does the McCarran-Ferguson Act preclude the admin-

istrative or judicial application of the Fair Housing Act

to state-regulated insurance sales?

(i)

ii

PARTIES

The names of all of the parties appear in the caption.

Petitioner American Family Mutual Insurance Company

is a mutual insurance corporation established and regu-

lated under the Wisconsin Insurance Code. It has no

parent company, and all of its subsidiaries are wholly

owned, either directly or through other wholly-owned

subsidiaries.

TABLE OF CONTENTS

QUESTIONS PRESENTED .........00000...... pccaiibeshoteeasncal

EECA ES ee ee

FEDERAL STATUTES AND REGULATIONS IN-

NE ci ict scanhackainvensnecanease

STATE STATUTES AND REGULATIONS §IN-

an ac sacecdonsanevessceshimssnsecusanacanines

STATEMENT OF THE CASE

Nature of the case

Procedural history

REASONS FOR GRANTING THE WRIT ....................

I. THE SEVENTH CIRCUIT’S DECISION TO

APPLY THE FAIR HOUSING ACT TO

HOMEOWNERS’ INSURANCE CONFLICTS

WITH THE FOURTH CIRCUIT, AND ITS

DEFERENCE TO ADMINISTRATIVE RULES

IGNORES THIS COURT’S DECISIONS

A. The Fair Housing Act, As The Fourth Cir-

cuit Has Held, Does Not Apply To Insur-

No: sincmavennn La

B. The Court Of Appeals’ Deference To HUD’s

Regulations Disregards This Court’s Unani-

mous Decision In Adams Fruit ..

(iii)

Page

12

12

12

14

iv

TABLE OF CONTENTS—Continued

Il. THE McCARRAN-FERGUSON ACT PRE-

VENTS THE FAIR HOUSING ACT’S APPLI-

CATION TO INSURERS WHETHER OR NOT

THE FAIR HOUSING ACT ACTUALLY CON-

FLICTS WITH ANY STATE LAV ..................

A. The Seventh Circuit’s Application Of Mc-

Carran-Ferguson To Subsequently Enacted

Civil Rights Laws Conflicts With The Sec-

| _ RRR e See SRN tO OMI

B. McCarran-Ferguson, This Court Has Held,

Does Not Permit Simultaneous Federal And

State Insurance Regulation, Whether Or Not

There Is An Actual Conflict Between The

eae Os EI Cr nets av EEC

C. The Seventh Circuit’s Decision Will Lead In-

evitably To Jurisdictional Confusion And

Inconsistent Regulation |..............000.....2.... facohes

Sa ta ae etege es avs oautaasemiendi oss ee deeit eels

APPENDIX

Decision, U.S. Court of Appeals for the Seventh

RIE catacercktsstastecicaieececiccauen den Fee ee NP ae ee eer

Transcript of oral decision, U.S. District Court

for the Eastern District of Wisconsin ......__...

Order granting motion to dismiss, U.S. District

Court for the Eastern District of Wisconsin ___.

Order denying petition for rehearing, U.S. Court

of Appeals for the Seventh Circuit 2.002.000.0000...

Page

18

19

21

27

30

Vv

TABLE OF AUTHORITIES

Cases Page

Adams Fruit Co. v. Barrett, 494 U.S. 638 (1990).. 15, 16,

17

Arizona Governing Comm. v. Norris, 463 U.S. 1073

SII ccneusbcedalalecc cnet cc eee ee 19

Ben v. General Motors Acceptance Corp., 374 F.

Supp. 1199 (D. Colo. 1974) ......oceccccccecccccecccoeeeee 9

Chevron U.S.A. Ine. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 (1984) 15, 16

English v. General Electric Co., 496 U.S. 72

SE, TR SARIS MG le Ne, Ae ie NRO B 25

EEOC v. Wooster Brush Co., 523 F. Supp. 1256

(N.D. Ohio 1981), aff’d in part and rev’d in

part, 727 F.2d 566 (6th Cir. 1984) 8

Federal Maritime Comm’n v. Seatrain Lines, Inc.,

he WS. TOO COO oo 15°

FMC Corp. v. Holliday, 498 U.S. 52, 111 8.Ct. 408

SIFTER nicaskcincecocntetoueadae ee 22

FTC v. National Casualty Co., 357 U.S. 560

fs iain nt nan EN Nn ee 22

Gade v. National Solid Wastes Management Ass’n,

US. , 112 S.Ct. 2374 (1992) 26, 27

Garner v. Teamsters Union, 346 U.S. 485 (1958) .. 26

Lowe v. AARCO-American, Inc., 586 F.2d 1160

yam See BIW ee 9, 21, 23, 24

Mackey v. Nationwide Ins. Cos., 724 F.2d 419 (4th

5 | | Peni eR any mem hen 7, passim

NAACP v. American Family Mut. Ins. Co., 978

F.2d 287 (7th Cir. 1992) 8

San Diego Bldg. Trades Council v. Garmon, 359

Wak, ee GEUee coe ee 24

SEC v. National Securities, Inc., 393 U.S. 458

8. ee TONE TE RG Een Sat ve lah a Is 19, 22

Spirt v. Teachers Ins. and Annuity Ass’n, 691

F.2d 1054 (2d Cir. 1982), vacated on other

grounds, 463 U.S. 1223 (1983)... 8, 20

Town of Huntington v. Huntington Branch,

NAACP, 488 U.S. 15 (1988) ...... 12

United States v. South-Eastern Underwriters

Ass’n, 322 U.S. 533 (1944) 22

Women in City Government United v. New York,

015 F. Supp. 295 (S.D.N.Y. ph Ennai Neveu one 8

vi

TABLE OF AUTHORITIES—Continued

Federal Statutes, Regulations and Rules Page

Fair Housing Act, 42 U.S.C. §§ 3601 et seq........ 1, passim

McCarran-Ferguson Act, 15 U.S.C. §§ 1011 et

WII. oxi winsoancceciuasssnnniscecetnn eaeeeiaaaiaas eoaaaaeaLE 8, passim

Migrant and Seasonal Agricultural Worker Pro-

tection Act, 29 U.S.C. §$§ 1801 et seq. ................. 15

ey Tees. Fe COED nccessnicanassaccensouisiantieaeaieteneeinians 14

Tr tei Be I cdi csi huss hcan ecapnidanaacbaneean einen. 18

Oe BE eas eo RIED eevaccitonctisinseactouscsacerimseanmhaceailons 18, 21

Be le i ORD vssssekssincccantanenaiaeeinioeantian 1

Mts i BIE: ociecxs seston aaa vastcatenneccenan nica tcpaadaemaaedliein 11

Be ire Te RINE saccassscssy.ninsxachicninnsanawiseesssodasaeimeaeniaatiaaanain 11

Be es Te EIN? oxic snsoccesncaiddhcrqrssoucnbnniemnmaneelen 11

Asc Ue IO scrciacacsoseucrvciatnscacbanbibochhinsniedetoisces tah cease 17

Re Oe NE oo oor cs cachnadacuortouvvenssodispbeasanalnneadonanons 7,20

Re ag Te IE ccs vin sadn pccousiisatenvessncerecensacins RR Le 7,20

ree ees sc cuecaccuteema sae aeaae 1

Be tats REID isssncecdcveaacaocsinaearsniveacceaees __.....2, passim

I eae Te MIRO go icspcinccedcascusstesos-csnyenssmeoianerei 2, passim

te Ae I on cs 5 cus areyaee seem ee eae 2, passim

Oe es eR OID cinta nnosersancnecestaausomnabnacnebauianeaen 29

oo a eee Se ante e en 22

24 CFR § 100.70(d) (4) ....... Bg ee 7,10,15

RR GNIS TIO FORGE oc nce eccssss cevcccicactassccuscavnasnees 1

memmmamne Court Teimie BBG an. o no cc css ccnc sen snsccnesncceccnss 1

ae Ae Se | | | Ee erence rom are 8

Wisconsin Statutes and Regulations

Wis. Stats. § 101.22 (2) (e) ........ HAM WORE RI Fe 1, 8, 25

Te hs Se, BROT CGD CD snnsinnnseicciccicenciceensemcenes 8, 25

3 RY |: RPE em pnmrnc i eien r cen miu nn nee 25

_, & BE bY bY erento te 7,25

hs CC CD oss sssdseccsiewsnicancdccnsntsacennvs renee 7, 25

We SE: CHRO GO BIE CO orccidicnide tasencmcc rs eee 7,25

Other Authorities

A.M. Best Data Base Services, Property Casualty

Experience By State By Line (1991) ......000......... 28

Insurance Information Institute, The Fact Book

IUNIEE cc ccheinciseasapcadenninaeeeenthctecadae ee 28

Spencer L. Kimball & Barbara P. Heaney, Emas-

culation of the McCarran-Ferguson Act: A

Study in Judicial Activism, 1985 Utah L. Rev. 1.. 22

PETITION FOR A WRIT OF CERTIORARI

American Family Mutual Insurance Company petitions

for a writ of certiorari to review the judgment of the

United States Court of Appeals for the Seventh Circuit

entered in this case on October 20, 1992, and the order’

denying the company’s petition for rehearing and sug-

gestion for rehearing en banc entered on December 7,

1992.

OPINIONS BELOW

The opinion of the Court of Appeals is reported at 978

F.2d 287 and is reprinted in the appendix (“App.’’) to

this petition. App., pp. la-27a. The subsequent crder

denying the petition for rehearing and suggestion for

rehearing en banc is not reported. It is reprinted in the

appendix at p. 34a.

The decision of the United States District Court for

the Eastern District of Wisconsin (Stadtmueller, J.),

which the Court of Appeals reversed in part and affirrned

in part, was rendered from the bench. It has not been

reported. The transcript of the relevant portion of that

oral decision is reprinted in the appendix at pp. 28a-31la.

JURISDICTION

The Court of Appeals entered its judgment on October

20, 1992. In an order entered on December 7, 1992, the

court denied a timely petition for rehearing and sugges-

tion for rehearing en banc. This Court has jurisdiction

to review the judgment of the Court of Appeals under

28 U.S.C. §1254(1) and Supreme Court Rules 13.1

and 13.4.

FEDERAL STATUTES AND REGULATIONS INVOLVED

Fair Housing Act (Title VIII, Civil Rights Act of 1968,

as amended)

42 U.S.C. § 3604 provides in part:

yy

Discrimination in the sale or rental of housing and

other prohibited practices.

As made applicable by section 803 [42 U.S.C. § 3603]

and except as exempted by sections 803(b) and 807

[42 U.S.C. $$ 8608(b), 3607], 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. .

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

conditions, or privileges of sale or rental of a dwell-

ing, or in the provision of services or facilities in

connection therewith, because of race.

42 U.S.C. § 3605 provides in part:

Discrimination in residential real estate-related

transactions.

(a) In general. It shall be unlawful for any person

or other entity whose business includes engaging in

residential real estate-related transactions to dis-

criminate against any person in making available

such a transaction, or in the terms or conditions of

such a transaction, because of race... .

(b) As used in this section, the term “residential

real estate-related transaction” means any of the

following:

(1) The making or purchasing of loans or pro-

viding other financial assistance

(A) for purchasing, constructing, improv-

ing, repairing, or maintaining a dwelling;

or

(B) secured by residential real estate.

* *% k *

42 U.S.C. § 3614a. Rules to implement title.

The Secretary [of Housing and Urban Develop-

ment| may make rules (including rules for the col-

lection, maintenance, and analysis of appropriate

data) to carry out this title....

3

24 CFR § 100.70 provides in part:

(b) It shall be unlawful, because of race . . ., to

engage in any conduct relating to the provision of

housing or of services therewith that otherwise makes

unavailable or denies dwellings to persons.

* * oe *

(d) Prohibited activities relating to dwellings under

paragraph (b) of this section include, but are not

limited to:

% % * *

(4) Refusing to provide municipal services or

property or hazard insurance for dwellings or provid-

ing such services or insurance differently because of

race.

McCarran-Ferguson Act

15 U.S.C. § 1012(a) State regulation. The business

of insurance, and every person engaged therein, shall

be subject to the laws of the several States which

relate to the regulation or taxation of such business.

(b) Federal regulation. No Act of Congress shall be

construed to invalidate, impair, or supersede any law

enacted by any State for the purpose of regulating

the business of insurance ... unless such Act specifi-

cally relates to the business of insurance: Provided.

That after June 30, 1948,... the Sherman Act... .

the Clayton Act. and the . . . Federal Trade Com-

mission Act... shall be applicable to the business of

insurance to the extent that such business is not

regulated by state law.

STATE STATUTES AND REGULATIONS INVOLVED

Wis. Stats. § 101.22 provides in part:

(Im) DEFINITIONS. In this section:

* % * *

(h) “Discriminate” means to... treat a person

or class of persons unequally in a manner described

in sub. (2)... because of ... race. .

* % * *

4

(2) DISCRIMINATION PROHIBITED. It is un-

lawful for any person to discriminate:

* * * *

(e) For a person in the business of insuring

against hazards, by refusing to enter into, or by

exacting different terms, conditions or privileges with

respect to, a contract of insurance against hazards

to a dwelling.

Wis. Stats. § 625.11(1) provides in part:

Rate standards. (1) Generai. Rates shall not be ex-

cessive, inadequate or unfairly discriminatory. ...

Wis. Stats. § 628.34(3) provides in part:

(3) UNFAIR DISCRIMINATION. (a) No insurer

may unfairly discriminate among policyholders by

charging different premiums or by offering different

terms of coverage except on the basis of classifica-

tions related to the nature and the degree of the risk

covered or the expenses involved. ...

Wis. Admin. Code § Ins 6.68 provides in part:

Ins 6.68 Unfair discrimination based on geographic

location or age of risk. (s. 628.34, Stats.)....

(3) SPECIFIC EXAMPLES OF UNFAIR

TRADE PRACTICES UNDER §&. 628.34, STATS.

The following are hereby identified as specific acts or

practices which are unfairly discriminatory.

(‘a’) Making . .. any unfair discrimination be-

tween individuals or risks of the same class and of

essentially the same hazards by refusing to issue,

refusing to renew, cancelling or limiting the amount

of insurance coverage on a property or casualty risk

because of the geographic location of the risk, unless:

1. The refusal, cancellation or limitation is for a

business purpose which is not a mere pretext for

unfair discrimination, or

2. The refusal, cancellation or limitation is re-

cuired by law or regulatory mandate.

5

STATEMENT OF THE CASE

Nature of the case. “Redlining,” whether practiced by

a financial institution, an insurance company, or a gov-

ernmental body, is reprehensible. It has come to mean,

as a pejorative term, invidious discrimination—by race

or by geography—that denies people loans or services

solely because of where they live or who they are.

The U.S. Court of Appeals for the Seventh Circuit,

construing an admittedly ambiguous statute, now has

made redlining in the sale of homeowners’ insurance sub-

ject to the Fair Housing Act. The issue this case presents

to the Supreme Court is not whether redlining is wrong—

it is—or whether the practice should be regulated and

proscribed—it is already, by the states. The issue is

whether a federal appellate court, relying primarily on a

federal agency’s new regulations, can set aside the com-

mand of the McCarran-Ferguson Act that, for almost

50 years, has preserved for the states their traditional

responsibility for regulating insurance.

“Is redlining in the insurance business a form of racial

discrimination violating the Fair Housing Act?” The

first line of Judge Easterbrook’s opinion for the Court of

Appeals puts the question succinctly. To answer the ques-

tion affirmatively, however, the court found it necessary

to reverse one of its own decisions and to contradict, ex-

plicitly, the decisions of the Second and Fourth Circuits.

Yet it is not just the conflict among the circuits that

commends this case to this Court, for the decision raises

fundamental questions about judicial deference to ad-

ministrative regulations and the allocation by Congress,

repeatedly recognized by this Court, of the reguiatcry

authority for the “business of insurance” to the states.

Insurance companies evaluate risk and, to provide risk

protection, they apportion its costs among the people and

organizations they insure. It is a complex process that

involves a broad range of factors—age and driving record

for example, in automobile insurance; building condition

6

and replacement cost, for example, in property insurance.

Far from violating any law, an asurance company that

charges higher rates for greater risks is engaging in the

very “core” of the business of insurance. “Risk dis-

crimination,” the Court of Appeals emphasized, “‘is not

race discrimination.” App. at 3a.

To ensure that permissible risk discrimination does not

disguise impermissible racial discrimination, Wisconsin

and the other states have imposed a comprehensive regu-

latory framework on the insurance industry that reflects

the particular needs of each state. Without Congressional

authorization, however, the Department of Housing and

Urban Development and, now, a federal court based on

HUD’s regulations, have superimposed a federal statute

written in very general terms over that system of specific

state regulation.

The cCecision’s significance can be measured by the

breadth and immediacy of its impact. With the Seventh

Circuit’s opinion, more than 1,000 insurance companies

that insure millions of family homes across this country

become subject, for the first time, to federal regulation

as well as to state regulation of their sales practices.

That may be warranted, as a matter of public policy,

because racial discrimination is intolerable in any form.

Yet, if federal regulation is warranted, if the states have

failed to regulate the insurance industry sufficiently, then

that is a decision for Congress—not for the federal judici-

ary and certainly not for a federal agency.

Procedural history. The plaintiffs—the NAACP, its

Milwaukee branch, and eight African-American home-

owners in Milwaukee—filed their class action complaint on

July 27, 1990. They alleged that the petitioner, American

Family Mutual Insurance Company (“American Fam-

ily”), discriminated on the basis of race in the sale of

homeowners’ insurance. The complaint alleged that

American Family’s insurance sales practices violated the

Fair Housing Act (Title VIII of the Civil Rights Act of

| j

7

1968, 42 U.S.C. §§ 3601 et seg.), the Civil Rights Acts of

1870 and 1866 (42 U.S.C. §§ 1981 and 1982), Wisconsin’s

fair housing law (Wis. Stats. § 101.22(2) (e) }, and the

Wisconsin Insurance Code (Wis. Stats. §§ 625.11(1) and

628.34(3); Wis. Admin. Code § Ins 6.68).

American Family answered the complaint, denying that

it had engaged in any racially discriminatory conduct,

and moved io dismiss the federal Fxir Housing Act and

State insurance law claims under Fed. R. Civ. P. 12(b)

for failure to state a claim upon which relief can be

granted. On the Fair Housing Act claim, American Fam-

ily specifically contended that the Act’s proscription of

discriminatory housing practices does not apply to the

sale of homeowners’ property and casualty insurance.

The district court agreed, granting the company’s mo-

tion to dismiss the claims on December 11, 1990. It relied

on “the most significant case in this area,” App. at 29a,

the U.S. Court of Appeals’ decision in Mackey v. Nation-

wide Ins. Cos., 724 F.2d 419 (4th Cir. 1984), which found

the Fair Housing Act inapplicable to insurance sales.

Judge Stadtmueller noted in his bench decision that Con-

gress repeatedly had rejected proposals introduced after

the Mackey decision to amend the Fair Housing Act to

prohibit discriminatory insurance practices. App. at 29a.

In dismissing the Fair Housing Act claim, the district

court declined to be bound by regulations issued in 1989

by the U.S. Department of Housing and Urban Develop-

ment (HUD) that define the Fair Housing Act’s “pro-

hibited practices” to include “(rjefusing to provide...

property or hazard insurance for dwellings or providing

such . . . insurance differently because of race... .” 24

CFR § 100.70(d) (4). Those regulations, the court said,

were promulgated “without any statutory authority. .. .”

App. at 29a. The district court also found that the state

insurance code provides no private right of action for

8

racial discrimination in the sale of homeowners’ insurance

policies.’

On December 17, 1990, the district court entered a final

judgment under Fed. R. Civ. P. 54(b) that dismissed the

Fair Housing Act and state insurance code claims. Judge

Stadtmueller directed the entry of a final judgment, mak-

ing his decision immediately appealable, because the trial

court’s backlog provided “sufficient time” for the parties

to “revisit” those claims if the Court of Appeals reversed

the decision. R. 22 at p. 41.

The plaintiffs appealed to the U.S. Court of Appeals

for the Seventh Circuit, which affirmed the dismissal of

the state law claim but reversed the district court’s Fair

Housing Act decision. NAACP v. American Family Mut.

Ins. Co., 978 F.2d 287 (7th Cir. 1992), App. at la-27a.

The Court of Appeals recognized at the outset that ‘“[a]ny

effort to use federal law to prescribe or penalize the be-

havior of insurers must reckon with the McCarran-

Ferguson Act,” 15 U.S.C. $$ 1011 et seg. App. at 9a. The

statute is a form of “inverse preemption,” Judge Easter-

brook wrote for the court, that since 1945 has preserved

the states’ power to regulate the “business of insurance.”

McCarran-Ferguson could block any application of the

Fair Housing Act to insurers.

Contradicting the Second Circuit’s decision in Spirt v.

Teachers Ins. and Annuity Ass’n, 691 F.2d 1054 (2d

Cir. 1982), vacated on other grounds, 463 U.S. 12238

(1983). and several district court decisions,” the Sev-

1 The parties agree that Wisconsin’s fair housing law, Wis. Stats.

§ 101.22(2)(e), creates a private remedy for racial discrimination

in insurance sales. A person (or the state) alleging a violation of

that statute “may bring a civil action for injunctive relief, for

damages, including punitive damages, and, in the case of a prevail-

ing plaintiff, for court costs and reasonable attorneys fees.” Wis.

Stats. § 101.22(6m) (a).

2EEOC v. Wooster Brush Co., 523 F. Supp. 1256 (N.D. Ohio

1981), aff'd in part and rev'd in part, 727 F.2d 566 (6th Cir. 1984);

Women in City Government United v. New York, 515 F. Supp. 295

9

enth Circuit rejected the plaintiffs’ argument that the

McCarran-Ferguson Act does not apply to subsequently

enacted civil rights legislation like the Civil Rights Act

of 1968. App. at 10a-13a. But that threshold determina-

tion did not resolve the case.

The Seventh Circuit next concluded that the McCarran-

Ferguson Act, while governing the interpretation of the

Fair Housing Act, still does not prevent that statute from

reaching property and casualty insurers. Explicitly over-

ruling its own decision in Lowe v. AARCO-American,

Inc., 5386 F.2d 1160 (7th Cir. 1976) (per curiam), the

court held that a federal statute duplicating a state in-

surance law does not necessarily “invalidate, impair,

or supersede” the state law in violation of McCarran-

Ferguson, even though the federal law provides different

remedies. App. at 18a-l6a. If the Fair Housing Act

merely prohibits the same insurance practices the Wis-

consin Insurance Code prohibits, the court concluded, the

McCarran-Ferguson Act does not insulate insurers from

simultaneous federal and state regulation. Jd. at 16a.

“Duplication,” the court said, “is not conflict.” Jd. at 13a.

With the McCarran-Ferguson Act issue resolved, the

Court of Appeals next asked whether the Fair Housing

Act actually covers the sale of homeowners’ insurance. It

quickly disposed of the plaintiffs’ assertion that section

3605 applies to insurers, noting that insurers do not

provide “financial assistance” to home buyers. Jd. at

16a-17a. The court then turned to section 3604, which

makes it unlawful to “refuse to sell or rent ... or

otherwise make unavailable or deny, a dwelling to any

person because of race,” 42 U.S.C. § 3604(a), or to

“discriminate against any person in the... sale or rental

of a dwelling, or in the provision of services or facilities

in connection therewith, because of race,” 42 U.S.C.

§ 3604 (b).

(S.D.N.Y. 1981); Ben v. General Motors Acceptance Corp., 374

F. Supp. 1199 (D. Colo. 1974).

10

Refusing to sell insurance ‘“make|s a dwelling] unavail-

able” under section 3604(a), the plaintiffs argued, and

property insurance is a “service” rendered “in connec-

tion” with the sale of a dwelling under section 3604(b).

The Court of Appeals found the statute ambiguous.

“Nothing in the text of the statute permits us to reject

[the plaintiffs’] proposed readings,” the court said. App.

at 18a. But, it added, “[a]lthough § 3604 could bear the

reading plaintiffs propose, it need not.” Jd. The court

resolved the ambiguity by rejecting the Feurth Circuit’s

decision on the identical issue and by deferring to a

federal agency’s recent interpretation of the statute.

The Fourth Circuit had concluded in Mackey that the

Fair Housing Act does not apply to insurers. Section

3604 “does not proscribe the alleged hazard insurance

redlining practice,” the court held, because “there is no

mention in the Fair Housing Act of insurance” and be-

cause there was no evidence Congress intended to apply

the Act to the insurance industry. 724 F.2d at 423. The

Seventh Circuit found that reasoning unpersuasive. App.

at 19a-23a. Rather than attempting to construe the stat-

ute independently, however, the Seventh Circuit simply

deferred to the HUD regulations, promulgated 21 years

after Congress enacted the Fair Housing Act and five

years after the Mackey decision, that define racial dis-

crimination in insurance sales as a prohibited practice.

24 CFR § 100.70(d) (4). Section 3604 is “sufficiently

pliable that its text can bear the Secretary’s construc-

tion,” the Court of Appeals said, and it accepted that

“plausible construction.” App. at 23a.

In concluding the opinion, the three-judge panel said

that it had been circulated to all of the Seventh Circuit’s

active judges, acknowledging the impact of the decision:

“!T {his opinion overrules Lowe to the extent that Lowe

holds that the McCarran-Ferguson Act prevents the ap-

plication of federal laws duplicating state rules, and...

it conflicts with both the second circuit’s views in Spirt

and the fourth circuit’s holding in Mackey. ...” Id. at

EL

11

27a. The Court of Appeals remanded the case for trial,

which is now scheduled to begin February 6, 1995.

The trial court decided this case on American Family’s

motion to dismiss. Accordingly, the Court of Appeals

“assume[d]” that the plaintiffs could prove “disparate

treatment [by race] and not just a disparate impact of

decisions made on actuarial grounds.” App. at 2a-8a.

However, to prevail at trial in this case under the Fair

Housing Act, the court said, the plaintiffs need only prove

that the insurance practices at issue had a disparate im-

pact and not that they were the result of intentional

racial discrimination, the heavier burden of proof the

plaintiffs must carry on all of their other claims. Jd. at

Ta-8a; see infra, n.3.

In response to the Seventh Circuit’s October 20, 1992,

decision, American Family filed a petition for rehearing

and suggestion for rehearing en banc. That petition

addressed the panel opinion’s characterization and assign-

ment of the burden of proof under the Fair Housing Act

on remand. The Court of Appeals denied the petition in

an order entered on December 7, 1992. App. at 34a.

Lower courts’ jurisdiction. The district court had juris-

diction over the plaintiffs’ federal claims under 28 U.S.C.

S$ 133i and 1343(a). It had jurisdiction over their state

law claims under the doctrine of pendent jurisdiction.

The Court of Appeals had jurisdiction over the plaintiffs’

appeal under 28 U.S.C. § 1291."

*The Court of Appeals initially questioned whether it had ap-

pellate jurisdiction because it was uncertain whether the trial

court’s final judgment on the Fair Housing Act claim was appro-

priately entered under Rule 54(b). It concluded that the plaintiffs’

burden of proof on that claim could be more easily sustained than

their burden under their other legal theories, making their Fair

Housing Act allegations a distinct claim on which the district court

properly entered final judgment. App. at 8a. “If [the plaintiffs] pre-

vail under Title VIII, they obtain all the relief they seek: if they

lose at trial under Title VIII, they necessarily lose on all other

theories. ...” Id.

12

REASONS FOR GRANTING THE WRIT

I. THE SEVENTH CIRCUIT’S DECISION TO APPLY

THE FAIR HOUSING ACT TO HOMEOWNERS’

INSURANCE CONFLICTS WITH THE FOURTH

CIRCUIT, AND ITS DEFERENCE TO ADMINIS-

TRATIVE RULES IGNORES THIS COURT’S DE-

CISIONS.

Now, two Courts of Appeals have addressed the appli-

cability of the Fair Housing Act to insurance companies

and reached opposite results. The Fourth Circuit in

Mackey v. Nationwide Ins. Cos., supra, held that section

3604 does not apply to an insurer’s refusal to sell prop-

erty insurance, whatever the mectivation. The Seventh

Circuit has held, in contrast, that section 3604 does pro-

hibit discrimination in the sale of homeowners’ insurance.

Indeed, at least for this case, the Seventh Circuit has

eliminated any requirement under the Fair Housing Act

that a plaintiff prove intentional discrimination in addi-

tion to disparate impact.‘ Only this Court can resolve ihe

conflict on this issue of national importance.

A. The Fair Housing Act, As The Fourth Circuit Has

Held, Does Not Apply To Insurance Sales.

The Fourth Circuit in Mackey refused to extend sec-

tion 3604 to insurance sales for several reasons. First,

it noted that section 3605 specifically prohibits discrimi-

nation in providing financial assistance. If section 3604’s

general “otherwise make unavailable” language were in-

tended to “reach every discriminatory act that might

conceivably affect the availability of housing,” the court

said, then section 3605’s specific prohibition of discrimina-

tion in financing would be superfluous. 724 F.2d at 423.

The nature of insurance—its classification and rating

of risks—distinguishes insurance from real estate financ-

4This Court has not yet determined whether practices with a

disparate impact violate the Fair Housing Act. See Town of Hunt-

ington v. Huntington Branch, NAACP, 488 U.S. 15, 18 (1988).

13

ing. While home mortgage lenders also face varying

risks, sometimes depending on the neighborhood, the

Fourth Circuit said, “the fact that Congress chose to

proscribe discrimination in mortgage financing does not

suggest that it would come to a similar conclusion with

respect to hazard insurance.” Jd. Moreover, the court

noted, “it has been the insistent position of Congress,”

expressed in the McCarran-Ferguson Act, “that regula-

tion of the insurance industry be left to the states.” Jd.;

see infra at 21-23.

Finally, the Fourth Circuit noted that bills to amend

the Fair Housing Act to prohibit discrimination by the

hazard insurance industry had been introduced in 1978,

1979 and 1980, but that none had been adopted. 724 F.2d

at 424. “Since there is no reference to hazard insurance

in the 1968 statute or in its legislative history,” the court

concluded, “the failure of the proposed amendments is

supportive of our conclusion that the statute as enacted

in 1968 was not intended to reach the hazard insurance

industry.” Jd.

The Seventh Circuit rejected the Fourth Circuit’s anal-

ysis. Section 3605’s specific prohibition of discrimination

in financing does not necessarily mean that section 3604

must be read narrowly, the court said, because the two

sections could provide overlapping coverage. App. at

19a. The fact that insurers engage in risk classification

is not a “principled ground to exclude insurers” from

coverage because lenders, who also evaluate risk, are ex-

plicitly covered by the Fair Housing Act. Jd. at 20a. Ad-

dressing Mackey’s final reason for holding the Act inap-

plicable, the Seventh Circuit found no significance in the

mere introduction of unsuccessful proposals to amend the

law. Id. at 22a-23a.

The Fourth Circuit, not the Seventh Circuit, correctly

construed the Fair Housing Act. There is no doubt that

Congress, when it enacted the statute, intended to attack

redlining by financial institutions—section 3605 of the

14

Act clearly prohibits that practice. It had become a

pervasive problem that, Congress concluded, required fed-

eral legislation—legislation compatible, not incidentally,

with the federal government’s general regulation of the

banking and savings and loan industries. The Court of

Appeals in Mackey correctly recognized that Congress

hardly could have intended that the Fair Housing Act

apply to one national “risk” industry, insurance, through

a generic phrase—“otherwise make unavailable’”—while

it responded to racial discrimination in another national

“risk” industry, mortgage lending, with an express statu-

tory prohibition. The Fourth Circuit reached that conclu-

sion as much on common sense as on any rule of statutory

construction. The McCarran-Ferguson Act, moreover,

should make that common sense conclusion inescapable.

See infra at 18-27.

B. The Court Of Appeals’ Deference To HUD’s Regula-

tions Disregards This Court’s Unanimous Decision

In Adams Fruit.

“Congress created ambiguity,” Judge Easterbrook

wrote, when it prohibited discrimination “in the provision

of services” for housing sales and rentals without defining

“key terms.” App. at 18a. Having found section 3604

ambiguous and having rejected the Fourth Circuit’s anal-

ysis, the Seventh Circuit should have attempted to con-

strue the statute based on its language and purpose. It

did not. Instead, it simply deferred to HUD’s construc-

tion of the statute, 21 years after its enactment, even

though the Fair Housing Act has been invoked in this

case not by HUD but by a private party, and even though

the agency had no statutory authcrity to expand the scope

of the law.

5 Congress also addressed mortgage redlining in the Home Mort-

gage Disclosure Act: ‘The Congress finds that some depository

institutions have sometimes contributed to the decline of certain

geographic areas by their failure pursuant to their chartering re-

sponsibilities to provide adequate home financing to qualified appli-

cants on reasonable terms and conditions.” 12 U.S.C. § 2801(a).

a Ll. ee

15

HUD has said the Fair Housing Act covers property

and casualty insurance. Unlike the relevant provisions of

the Act, the agency’s regulations are not ambiguous:

“Refusing to provide . . . property or hazard insurance

for dwellings or providing such . . . insurance differently

because of race,” according to HUD, is prohibited by the

Fair Housing Act. 24 CFR § 100.70(d) (4). For the

Seventh Circuit, that decided the case.

The Court of Appeals’ deference to HUD’s construction

of the statute conflicts with this Court’s unanimous hold-

ing in Adams Fruit Co. v. Barrett, 494 U.S. 688 (1990).

Federal courts should not defer to an administrative

agency’s expansive interpretation of the scope of a stat-

ute’s private judicial remedies, this Court said, because

“an agency may not bootstrap itself into an area in which

it has no jurisdiction.” Jd. at 650, quoting Federal Marvi-

time Comm’n v. Seatrain Lines, Inc., 411 U.S. 726, 745

(1973).

In Adams Fruit, the Court had to decide Whether the

private right of action created by the Migrant and Sea-

sonal Agricultural Worker Protection Act (AWPA),

29 U.S.C. $$ 1801 et ség., remains available to injured

workers if their state’s workers compensation law pro-

vides an exclusive remedy for work-related injuries. The

Department of Labor, which administers the statute, had

issued a regulation that whenever state workers compen-

sation remedies are available, those benefits provide the

exclusive remedy for loss. 494 U.S. at 649.

Rejecting that statutory construction, this Court un-

animously held that the judiciary “need not defer to the

Secretary of Labor’s view of the scope of [the AWPA]

because Congress has expressly established the Judiciary

and not the Department of Labor as the adjudicator of

private rights of action arising under the statute.” /7.

Deference, the Court held, has limits:

A precondition to deference under Chevron [U.S.A.

Inc. v. Natural Resources Defense Council, Inc., 467

16

U.S. 837 (1984),] is a congressional delegation of

administrative authority. No such delegation regard-

ing AWPA’s enforcement provisions is evident in the

statute. Rather, Congress established an enforce-

ment scheme independent of the Executive and pro-

vided aggrieved farmworkers with direct recourse to

federal court where their rights are violated. Under

such circumstances, it would be inappropriate to con-

sult executive interpretations of (the statute] to re-

solve ambiguities surrounding the scope of AWPA’s

judicially enforceable remedy.

Id. at 650. Although Congress ‘clearly envisioned, indeed

expressly mandated a role for the Department of Labor

in administering the statute,” this Court said, that dele-

gation “does not empower the Secretary to regulate the

scope of the judicial power vested by the statute.” Jd.

Accordingly, the administrative regulation was “not en-

titled to Chevron deference.” Id.

The Seventh Circuit should have applied that rationale

here. The Fair Housing Act, like the AWPA, provides

individuals with “direct recourse to federal court where

their rights are violated.” /d. Under Adams Fruit, the

Court of Appeals should have construed the Fair Housing

Act without deference to HUD’s interpretation. Its fail-

ure to interpret the statute independently conflicts with

this Court’s mandate.

The Court of Appeals did recognize that its reliance on

HUD’s rules at least appeared inconsistent with Adams

Fruit:

We can imagine the response that courts do not defer

to administrative constructions when judges, rather

than administrators, hold the power of enforcement.

Jusi as Congress authorized private litigation to en-

force the |AWPA], the subject of Adams Frwit, so

the Fair Housing Act is enforced by the courts at

the instance of private persons believing themselves

wronged.

App. at 28a-24a (citation omitted). However, the Sev-

enth Circuit noted, Congress provided for administrative

a

17

enforcement in the Fair Housing Act as well as judicial

enforcement and that, the court believed, made this case

different:

The Secretary’s regulations would receive deference

in an action to enforce HUD’s administrative deci-

sion. It would be weird to say that [the Fair Hous-

ing Act] applies to insurers on judicial review of

administrative actions but not when the litigation

begins in district court.

Id. at 24a.

The Court of Appeals failed to recognize that the fed-

eral statute at issue in Adams Fruit also provides for

administrative enforcement in addition to private ju-

dicial enforcement. The AWPA permits the Secretary

of Labor to assess monetary penalties for statutory viola-

tions and provides the person assessed the right to an ad-

ministrative hearing on the charges, followed by judicial

review of any administrative action. See 29 U.S.C.

$ 1853. The “no deference” rule of Adams Fruit cannot

be limited, therefore, to statutes that provide only a pri-

vate right of action, with no administrative enforcement,

because the statute construed in Adams Fruit itself con-

tained both administrative and private remedies.

Federal courts, both before and since the decision in

Chevron, have given “great weight” to an agency’s ad-

ministrative interpretation of a Statute. App. at 24a.

When Congress in 1988 gave HUD the authority to

“make rules .. . to carry out” the Fair Housing Act,

however, it did not give HUD the authority to rewrite the

statute by making it specifically applicable to insurance

companies even though Congress had made it specifically

applicable only to financial institutions. Nor did Con-

gress give HUD the authority to overrule a decision of

the U.S. Court of Appeals. Congress, not the executive

branch, certainly could have done either—by enacting a

law that expanded the Fair Housing Act and, at the same

time, satisfied the McCarran-Ferguson Act’s requirement

18

that any such law “specifically relate| | to the business of

insurance.” Yet Congress did neither.

Il. THE McCARRAN-FERGUSON ACT PREVENTS

THE FAIR HOUSING ACT’S APPLICATION TO

INSURERS WHETHER OR NOT THE FAIR HOUS-

ING ACT ACTUALLY CONFLICTS WITH ANY

STATE LAW.

The McCarran-Ferguson Act embodies Congress’ de-

termination that the regulation of the insurance industry

is a matter best left to the states. In “a form of inverse

preemption,” App. at 1da, Congress gave the states virtu-

ally exclusive authority over the “business of insurance.”

15 U.S.C. § 1012¢a). McCarran-Ferguson allocates that

regulatory authority to the states by creating a rule of

statutory construction that ensures federal statutes do not

“invalidate, impair, or supersede any law enacted by any

State for the purpose of regulating the business of insur-

ance,” 15 U.S.C. § 1012{b), waless Congress expressly in-

tends that result. The McCarran-Ferguson Act itself

specifically made some federal legislation applicable to the

business of insurance—the Sherman Act, the Clayton Act,

and the Federal Trade Commission Act—but only to the

extent it already “is not regulated by state law.” Jd.

In light of McCarran-Ferguson, any application of the

lair Housing Act to insurers presents two distinct issues:

1) Does McCarran-Ferguson, enacted in 1945, apply

to any subsequently enacted civil rights legislation? The

Seventh Circuit in this case concluded that it does, 2 con-

cusion directly in conflict with the Second Circuit’s de-

cision in Spirt v. Teachers Ins, and Annuity Ass'n, supra,

2) Assuming construction of the Fair Housing Act 7s

subject to the MceCarran-Ferguson Act, does McCarran-

Ferguson preclude an administrative agency and, in turn,

a federal court, from expanding the Fair Housing Act

to permit simultaneous federal and state regulation of

the insurance business? Overruling its own precedent,

the Seventh Cireuit held in this case that McCarran-

19

Ferguson tolerates dual state and federal regulation as

long as the state and federal rules do not actually conflict.

That conclusion collides, however, with this Court’s con-

sistent application of McCarran-Ferguson to ensure the

“continued supremacy of the States” in regulating the

“business of insurance.” SEC v. National Securities, Inc.,

393 U.S. 453, 459 (1969).

A. The Seventh Circuit’s Application of McCarran-

Ferguson To Subsequently Enacted Civil Rights

Laws Conflicts With The Second Circuit.

This Court has never had to decide whether the Mc-

Carran-Ferguson Act applies to subsequently enacted

civil rights legislation. In Arizona Governing Comm. v.

Norris, 463 U.S. 1073 (1983), however, four Justices con-

cluded that the McCarran-Ferguson Act does apply to

Title VII of the Civil Rights Act of 1964. Jd. at 1099-

1103 (Powell, J., joined by Burger, C.J., and Blackmun

& Rehnauist, JJ., concurring in part and dissenting in

part). The other five Justices found it unnecessary to

resolve the issue because even if McCarran-Ferguson does

apply to Title VII, it would not have prohibited the ap-

plication of Title VII to the challenged employment prac-

tice. Id. at 1087 n.17.°

® The issue in Norris was whether a state-administered retirement

plan for state employees violated Title VII by paying women retirees

lower monthly benefits than men. The majority opinion in Norris

noted that the challenged conduct involved an employment practice,

not an insurance practice, that no insurance company had been

joined as a defendant, and that the Court’s decision would not pre-

clude any insurance company from offering annuity benefits deter-

mined by gender-based actuarial tables. 463 U.S. at 1087 n.17.

Accordingly, the majority concluded, the application of Title VII in

that case could not possibly affect any state law governing the

business of insurance. It was unnecessary, therefore, to determine

whether Title VII “ ‘specifically relates to the business of insurance’

within the meaning of the McCarran-Ferguson Act.” Jd.

In this case, in contrast, the petitioner is an insurance company,

and the challenged practices—“deciding which risks [ petitioner |

will accept [and] at what price,” App. at 10a—are at “the core of

insurance.” Jd.; see SEC v. National Securities, 393 U.S. at 460.

This case necessarily requires, therefore, a resolution of the issue

20

The Courts of Appeals are now divided on the issue. In

Spirt v. Teachers Ins. and Annuity Ass’n, supra, the

Second Circuit held that the McCarran-Ferguson Act does

not apply to subsequently enacted civil rights statutes.

It found the “historical context, the legislative history, and

judicial interpretations of that history” dispositive. 691

F.2d at 1065. “Congress, in enacting a statute primarily

intended to deal with the conflict between state regulation

of insurers and federal antitrust laws, had no intention

of declaring that subsequently enacted civil rights legis-

lation would be inapplicable to any and all of the activi-

ties of an insurance company that can be classified as

the business of insurance.” Jd.

The Seventh Circuit in this case rejected the Second

Circuit’s reasoning. “|O]f course Congress had no in-

tention in the 1940s of curtailing the scope of laws yet to

be enacted—indeed, inconceivable at the time.” App. at

lla (emphasis in original). Yet the MeCarran-Ferguson

Act, the Seventh Circuit said, “could not be more compre-

hensive.” Jd. The statutory language “No Act of Con-

gress” obviously does not mean “no act on the books in

1946” and certainly not “no act other than a civil rights

statute.” Id.’

The clash between the Second and Seventh Circuits oc-

curs at the threshold: Does McCarran-Ferguson apply at

all to the Fair Housing Act? Whether the McCarran-

Ferguson Act governs the interpretation of all “Act[s]

of Congress,” as the Seventh Circuit concluded here, or

on which the Second and Seventh Circuits have divided even though

Judge Easterbrook accepted American Family’s contention that

McCarran-Ferguson does apply to all subsequently enacted federal

legislation, including the Fair Housing Act.

7 Even if the Second Circuit’s restrictive interpretation of the

McCarran-Ferguson Act were correct, it is clear that civil rights

statutes enacted before 1945 still would remain subject to McCarran-

Ferguson’s limiting construction. The validity of the plaintiffs’

section 1981 and 1982 claims under McCarran-Ferguson has not yet

been addressed by the district court, and the issue was not before

the Court of Appeals.

EEG ern

21

whether it has a more limited scope, as the Second Cir-

cuit believed, is an issue of national significance that only

this Court can address definitively. Resolving that con-

flict, however, does not resolve the entire issue or this

case.

Assuming the Seventh Circuit correctly held that

McCarran-Ferguson reaches the entire body of federal

law, the contours of its “inverse preemption” remain un-

defined. Does the statute permit simultaneous state and

federal regulation of the business of insurance? To an-

swer that question “yes,” the Seventh Circuit had to over-

rule its own decision in Lowe v. AARCO-American.

supra, which had reaffirmed the states’ exclusive jurisdic-

tion. Under the court’s new interpretation of the McCar-

ran-Ferguson Act, there now must be an actual conflict

between state law regulating the business of insurance

and a federal law that does not “specifically relate[] to

the business of insurance,” 15 U.S.C. § 1012(b), before

McCarran-Ferguson bars the application of the federal

law to insurers. Whether McCarran-Ferguson permits

concurrent state and federal regulation of the business

of insurance has become an open and troubling question

as a result of the Seventh Circuit’s decision in this case.

B. McCarran-Ferguson, This Court Has Held, Does

Not Permit Simultaneous Federal And State In-

surance Regulation, Whether Or Not There Is An

Actual Conflict Between The Regulations.

The Seventh Circuit now says that the McCarran-

Ferguson Act does not preclude simultaneous state and

federal regulation of insurance sales practices, as long as

the federal and state rules are essentially the same. That

conclusion cannot be squared with this Court’s repeated

recognition that the McCarran-Ferguson Act assigns the

entire field of insurance regulatory authority to the

states, absent an explicit Congressional command to the

contrary. McCarran-Ferguson, this Court has observed

just recently, reflects Congress’ “desire to reserve to the

22

States the regulation of the ‘business of insurance.’ ”

FMC Corp. v. Holliday, 498 U.S. 52, 111 S.Ct. 403, 410

(1990). The deciding principle is not the presence of an

actual state-federal conflict but the states’ occupation of

the field of insurance regulation.

In FTC v. National Casualty Cos 357 U.S. 560 (1957)

(per curiam), for example, the Court held that the

McCarran-Ferguson Act »recludes the Federal Trade

Commission from enforcing federal laws against decep-

tive trade practices by insurance companies in states that

already have their own statutes prohibiting unfair prac-

tices. The Court rejected the FTC’s argument that

McCarran-Ferguson does not bar federal regulation where

a state has not enforced its own regulations effectively.

Id. at 564.

The National Casualty opinion embodies this Court’s

“understanding of McCarran as an act allocating power

in a federal system.” Spencer L. Kimball & Barbara P.

Heaney, Emasculation of the McCarran-Ferguson Act:

A Study in Judicial Activism, 1985 Utah L. Rev. 1, 20.

The Court expanded on that understanding of McCarran-

Ferguson in SEC v. National Securities, Inc., supra.

The purpose of the McCarran Act, the Court said, was

to “turn back the clock’ in response to its decision in

United States v. South-Eastern Underwriters Ass’n, 322

U.S. 583 (1944), which held that insurance transactions

are subject to federal regulation under the Commerce

Clause. That decision, the Court observed, “threatened

the continued supremacy of the States in this area,”

National Securities, 3938 U.S. at 459, and Congress ex-

plicitly reinstated that state supremacy by enacting

McCarran-Ferguson.

Congress passed the McCarran-Ferguson Act, 59 Stat.

34 (1945), “to assure that the activities of insurance

companies in dealing with their policyholders would re-

main subject to state regulation.” 393 U.S. at 459.

McCarran-Ferguson did not “make the States supreme in

regulating all the activities of insurance companies,” the

23

Court noted. Jd. Rather, ‘only when [insurers] are en-

gaged in the ‘business of insurance’ does the statute ap-

ply.” Jd. at 459-60.

The Court then defined the “business of insurance” for

which McCarran-Ferguson does, indeed, “make the States

supreme”:

Certainly the fixing of rates is part of this business.

The selling and advertising of policies . . . and

the licensing of companies and their agents .. . are

also within the scope of the statute. Congress was

concerned with the type of state regulation that cen-

ters around the contract of insurance. . . . The

relationship between insurer and insured, the type

of policy which could be issued, its reliability, inter-

pretation and enforcement—these were the core of

the “business of insurance.’”’ Undoubtedly, other ac-

tivities of insurance companies relate so closely to

their status as reliable insurers that they too must

be placed in the same class. But whatever the exact

scope of the statutory term, it is clear where the

focus was—it was on the relationship between the

insurance company and the policyholder. Statutes

aimed at protecting or regulating this relationship,

directly or indirectly, are laws regulating the “busi-

ness of insurance.”

Id. at 460.

Until this case, the Seventh Circuit honored the intent

of MecCarran-Ferguson and its purpose. In Lowe v.

AARCO-American, supra, the plaintiffs alleged that the

defendants’ financing of insurance premiums violated the

federal Truth in Lending Act. The court found that

“!t]he particular elements of the ‘business of insurance’ ”’

at issue in Lowe already “are regulated extensively by

Illinois statutes.” 536 F.2d at 1162. Accordingly, the

court ruled, the McCarran Act “removied] .. . [those]

transactions from federal jurisdiction.” Jd. The fact that

“there is no inconsistency between the Truth in Lending

Act and the [state] disclosure requirements,” it con-

24

cluded, is not a “compelling reason to restrict the full

sway of the McCarran Act....” Id.

By overruling Lowe, the Seventh Circuit’s opinion in

this case undermines the purpose and effect of the

McCarran-Ferguson Act and this Court’s application of

it. The court acknowledged the “inverse preemption”

of McCarran-Ferguson, App. at 14a, which is designed to

ensure state supremacy in insurance regulation, and then

ignored it. Permitting simultaneous federal regulation of

insurers, as the Seventh Circuit now has done, nullifies

the explicit determination by Congress that, unless a

federal law “specifically relates to the business of in-

surance,” the states alone are responsible for regulating

“the business of insurance.”

The Seventh Circuit did recognize that in some areas—

labor law, for example—the rules of preemption prohibit

any concurrent state and federal regulation. Jd. at 13a-14a,

citing San Diego Bldg. Trades Council v. Garmon, 359

U.S. 236 (1959). That principle is inapplicable here, the

court contended, because it “rest[s| on a conclusion that

Congress occupied the field of labor relations. ...” App.

at 14a. In other fields, the court observed, dual state and

federal regulation is permissible as long as the state and

federal rules “do not conflict with or displace each other.”

Id. at 16a.

Under McCarran-Ferguson’s “inverse preemption” com-

mand, the court concluded, federal regulation of the busi-

ness of insurance can “invalidate, impair, or supersede’”’

state regulation only if the federal law actually “displaces

states’ choices about the proper conduct of the business

of insurance.” Jd. Dual regulation, even if it creates

potential conflict, is not enough, the court held—there

must be actual conflict to trigger McCarran-Ferguson.

The Court of Appeals found no conflict here as long as

Wisconsin law and federal law both prohibit racial dis-

crimination in the sale of homeowners’ insurance.

Wisconsin provides a comprehensive regulatory struc-

ture that unequivocally prohibits racial discrimination

25

by all insurance companies doing business in the state.

The state insurance code prohibits unfair discrimination

by insurers in setting rates or in refusing to sell policies.

Wis. Stats. §$§ 625.11(1), 628.34(3); Wis. Admin. Code

$ Ins 6.68. Those provisions are enforced administra-

tively by the state’s Commissioner of Insurance. See Wis.

Stats. § 601.41. In addition, Wisconsin’s fair housing law

also prohibits discrimination by insurers, explicitly and

unambiguously, and provides a privately enforceable ju-

dicial remedy. See Wis. Stats. §§ 101.22(2) (e),(6m) (a);

see supra, n. 1. Expanding the federal Fair Housing

Act’s coverage to insurers deprives the State of Wiscon-

sin of its exclusive authority under McCarran-Fergvson

to regulate insurance sales until Congress—not a fed-

eral agency and not a federal court deferring to that

agency—determines that federal regulation is necessary.

For the Seventh Circuit, there must be a substantive

difference between federal and state laws before those

laws can “conflict.” It failed to recognize that a conflict

arises between state and federal law whenever one level

of government even attempts to regulate within the

other’s exclusive domain. As this Court observed re-

cently, “field pre-emption may be understood as a species

of conflict pre-emption: a state law that falls within a

pre-empted field conflicts with Congress’ intent (either ex-

press or plainly implied) to exclude state regulation.”

English v. General Electric Co., 496 U.S. 72, 79 n.5

(1990). To paraphrase Judge Easterbrook, “duplication

is conflict.”

In the field of insurance regulation, federal rules that

duplicate the reach of state rules “conflict” with state

regulation. In the language of McCarran-Ferguson, any

federal attempt to regulate the business of insurance nec-

essarily “impairs” state regulation because it conflicts

with the decision of Congress to let the states exclusively

regulate the business of insurance. The Seventh Circuit

failed to acknowledge that.

Simultaneous state and federal regulation inevitably

produces conflict because, as this Court has observed, “a

26

multiplicity of tribunals and a diversity of procedures are

quite as apt to produce incompatible or conflicting ad-

judications as are different rules of substantive law.”

Garmon, 359 U.S. at 248, quoting Garner v. Teamsters

Union, 346 U.S. 485, 490-91 (1953). This case illustrates

just that point well.

The Seventh Circuit believed that there is no conflict

between Wisconsin insurance law and the Fair Housing

Act because both prohibit redlining in insurance sales.

App. at 16a. Yet its assignment of the burden of proof

on the plaintiffs’ various claims creates just such a con-

flict. On the Fair Housing Act claim, the Court of Ap-

peals said, the plaintiffs can prevail by proving only dis-

parate impact, a “lighter” burden than their state fair

housing law claim, where they must prove intentional dis-

crimination. The allocation of burdens of proof in dis-

crimination cases, the appellate court recognized, “‘is

bound to affect many cases, given the difficulty in drawing

inferences.” /d. at 4a. By suggesting that it is easier for

the plaintiffs to prevail on their federal claim, the Court

of Appeals has allowed the Fair Housing Act to “super-

sede” the state’s more stringent requirements.

This Court’s new decision in Gade v. National So'id

Wastes Management Ass’n, U.S. , BEB SAX.

2374 (1992), emphasizes, moreover, that preemption does

not necessarily require a conflict in laws. The Occupa-

tional Safety and Health Act of 1970 (OSH Act) permits

states to develop occupational safety and health stand-

ards that, upon their approval by the Secretary of Labor,

preempt federal standards. /d. at 2382. The issue be-

fore the Court in Gade was whether the OSH Act pre-

empts state regulation of occupational safety in states

whose safety and health standards have not been approved

by the Secretary.

Concluding that the OSH Act does preempt such state

laws, the Court’s plurality opinion rejected the petitioner’s

argument, “drawn from Judge Easterbrook’s separate

opinion below, that the [OSH} Act does not pre-empt

27

nonconflicting state regulations at all.” Jd. at 2381

(O’Connor, J., joined by Rehnquist, C.J., and White and

Scalia, JJ.). After reviewing the entire statute, the plur-

ality determined that “Congress intended to subject em-

ployers and employees to only one set of regulations” at a

time, “be it federal or state... .” Jd. at 2383. “{T]he

only way a State may regulate an OSHA-regulated 9c-

cupational safety and health issue is pursuant to an ap-

proved state plan that displaces the federal standards.”

Id.

The Seventh Circuit should have applied that analysis

here. Congress enacted the McCarran-Ferguson Act to

affirm the states’ supremacy in regulating the “business

of insurance.” Section 1012(b) of McCarran-Ferguson

carries out that policy by instructing courts and federal

administrative agencies to avoid subjecting insurers to

the burden of concurrent federal regulation unless Con-

gress has enacted legislation that, in explicit and un-

ambiguous terms, “specifically relates to the business of

insurance.” HUD may have tried to do that with its

new regulations. The Seventh Circuit may have tried to

do that with this decision. It is clear, however, that Con-

gress has not.

The Seventh Circuit concluded its discussion of the

Fair Housing Act by asking whether the HUD regula-

tions are “tenable.” App. at 24a. That question need

never have been asked. The critical question is whether

HUD, in light of the McCarran-Ferguson Act’s require-

ment that a statute “specifically relate[] to the business

of insurance” and the Fair Housing Act’s failure to even

mention insurance, had the authority to regulate the busi-

ness of insurance through any regulations, “tenable” or

not.

C. The Seventh Circuit’s Decision Will Lead Inevit-

ably To Jurisdictional Confusion And Inconsistent

Regulation.

Almost 50 years ago, Coneress drew a bright line be-

tween the federal government and the states to allocate

28

the responsibility for regulating the business of insurance.

Indeed, it is difficult to imagine a brighter line than the

McCarran-Ferguson Act. Just as Congress reserved for

the federal government the exclusive authority to regulate

labor relations in the National Labor Relations Act, it

gave the states the exclusive authority to regulate the

“business of insurance.” It created a convenient mecha-

nism, however, to avoid tying its hands in the future and

to reserve for itself the final authority should the states

fail their responsibility. Under McCarran-Ferguson, if

Congress wants to regulate the business of insurance,

supplementing or supplanting the regulatory authority of

the states, it has only to say so in clear and explicit

language. That is what McCarran-Ferguson requires.

And that is precisely what has not happened here.

With the decision of the U.S. Court of Appeals in this

case, McCarran-Ferguson’s bright line has blurred. The

states’ regulatory authority is not exclusive after all. It

is subject to concurrent regulation by the federal govern-

ment—not regulation imposed by Congress but regulation

imposed by a- federal agency’s rules and an appellate

court’s willingness to defer to them. The ultimate issue,

of course, is not whether the bright line of McCarran-

Ferguson is the right line but whether a federal court or

an administrative agency, without the expressed author-

ity of Congress, can redraw it.

There are more than 1000 insurance companies in this

country that offer insurance protection against personal

injury and property damage from virtually every im-

aginable peril. More than 96 percent of American home-

owners have some form of hazard insurance, and they

pay annual premiums that total over $19 billion.* To en-

sure that the ‘“‘business of insurance” is conducted prop-

erly, that policies are sold and priced fairly, every state

regulates the insurance companies that operate within

8 Insurance Information Institute, The Fact Book, p. 14 (1993);

A.M Best Data Base Services, Property Casualty Experience By

State By Line (1991).

29

its borders. Wisconsin, like most other states, has adopted

statutes and regulations that explicitly prohibit and punish

unfair discrimination, by race or by geography, in the sale

of insurance policies. See Wis. Stats. §§ 101.22(2) (e),

625.1111), 628.34(3). Indeed, the Seventh Circuit. it-

self recognized that “Wisconsin maintains a substantial

administrative apparatus regulating the conduct of in-

surers....” App. at 26a.

There has been no finding, by the courts or by Con-

gress, that the states have refused to acknowledge the

potential for racial discrimination in the sale of insur-

ance policies or to deal with its reality. Notwithstanding

that, the Seventh Circuit with its decision has changed

the MeCarran-Ferguson Act. In the decision’s wake, in-

surance practices have become subject to federal as well

as to state anti-discrimination laws—in fact, to pervasive

federal as well as state regulation, for their is no limiting

principle anywheye in the opinion that restricts its appli-

cation to the Fair Housing Act. From now on, the Sev-

enth Circuit has held, the business of insurance is subject

not only to state regulation but to any general federal law

or regulation that does not conflict directly with those

state regulations.

Since the Seventh Circuit issued its opinion in this ease,

the U.S. Department of Justice has undertaken a compre-

hensive investigation of insurance industry practices un-

der the Fair Housing Act.” The Associated Press, “De-

partment Investigating Home Insurance ‘Redlining,’”

Feb. 5, 1993 (available on Nexis). What had been a mat-

ter fcr the exclusive authority of the states under the

McCarran-Ferguson Act, the regulation of the business

of insurance, is no longer.

* The 1988 amendments to the Fair Housing Act gave the Attor-

ney General power to enforce the Act by bringing a civil action in

district court. See 42 U.S.C. § 3614(a).

30

CONCLUSION

This case presents important questions of statutory con-

struction—involving the Fair Housing Act, the McCarran-

Ferguson Act and the power of federal agencies—that

have divided the circuits. For the foregoing reasons, the

Court should grant this petition for a writ of certiorari

and review the decision of the U.S. Court of Appeals for

the Seventh Circuit.

Respectfully submitted,

BRADY C. WILLIAMSON *

JEFFREY J. KASSEL

JOANNE R. WHITING

LAFOLLETTE & SINYKIN

Suite 500

One East Main Street

P.O. Box 2719

Madison, WI 53701-2719

(608) 257-3911

March 8, 1993 Counsel for Petitioner

* Counsel of Record

APPENDICES

la

APPENDIX A

IN THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

No. 91-1176

THE NATIONAL ASSOCIATION FOR THE ADVANCEMENT

OF COLORED PEOPLE, et al.,

Plaintiffs-A ppellants,

V.

AMERICAN FAMILY MUTUAL INSURANCE COMPANY,

Defendant-A ppellee.

Appeal from the United States District Court

for the Eastern District of Wisconsin,

No. 90-C-759—J. P. Stadtmueller, Judge.

ARGUED SEPTEMBER 19, 1991—DECcIDED OCTOBER 20, 1992

Before COFFEY and EASTERBROOK, Circuit Judges, and

FAIRCHILD, Senior Circuit Judge.

EASTERBROOK, Circuit Judge. Is redlining in the insur-

ance business a form of racial discrimination violating the

Fair Housing Act? “Redlining” is charging higher rates

or declining to write insurance for people who live in par-

ticular areas (figuratively, sometimes literally, enclosed

2a

with red lines on a map). The NAACP, its Milwaukee

Branch, and eight of its members contend in this class

action that redlining violates the Fair Housing Act, 42

U.S.C. §§ 3601-19, and four other rules of state and fed-

eral law when insurers draw their lines around areas

that have large or growing minority populations.

Plaintiffs contend that a mortgage loan usually is essen-

tial to home ownership, and that lenders are unwilling

to provide credit unless the borrower obtains insurance

on the house that serves as security for the loan. Higher

premiums price some would-be buyers out of the market;

a refusal to write insurance excludes all buyers. If in-

surers redline areas with large or growing numbers of

minority residents, that practice raises the cost of hous-

ing for black persons and also frustrates their ability to

live in integrated neighborhoods. Even if they achieve

their goal, they pay extra.

The complaint asserts that American Family Mutual

Insurance Company engages in redlining in and near Mil-

waukee. The district judge concluded that two of plain-

tiffs’ five theories are legally insufficient. See Fed. R. Civ.

P. 12(b) (6). Following Mackey v. Nationwide Insurance

Cos., 724 F.2d 419, 423-24 (4th Cir. 1984), he held that

the Fair Housing Act (Title VIII of the Civil Rights Act

of 1968) does not apply to the property and casualty in-

surance business. And he held that Wisconsin would not

recognize a private right of action to enforce the anti-

discrimination portions of its insurance code. At the con-

clusion of his oral ruling, the judge entered a partial final

judgment on these two theories under Fed. R. Civ. P.

54(b).

Because the district judge dismissed claims under Title

VIII and Wisconsin’s insurance code in advance of discov-

ery, we must assume that plaintiffs can establish that the

defendant intentionally discriminates on account of race.

That is, we must assume that the plaintiffs can establish

3a

disparate treatment and not just a disparate impact of

decisions made on actuarial grounds. The distinction is

important not only because the Supreme Court has yet to

decide whether practices with disparate impact violate

Title VIII, see Huntington v. NAACP, 488 U.S. 15

(1988), but also because of the nature of insurance. In-

surance works best when the risks in the pool have similar

characteristics. For example, term life insurance costs sub-

stantially more per dollar of death benefit for someone 65

years old than for one 25 years old, although the expected

return per dollar of premium is the same to both groups

because the older person, who pays more, also has a higher

probability of dying during the term. Auto insurance is

more expensive in a city than in the countryside, because

congestion in cities means more collisions. Putting young

and old, or city and country, into the same pool would

lead to adverse selection: people knowing that the risks

they face are less than the average of the pool would drop

out. A single price for term life insurance would dissuade

younger persons from insuring, because the price would

be too steep for the coverage offered; the remaining older

persons would pay a price appropriate to their age, but

younger persons would lose the benefits of insurance al-

together. To curtail adverse selection, insurers seek to dif-

ferentiate risk classes with many variables.

Risk discrimination is not race discrimination. Yet ef-

forts to differentiate more fully among risks may produce

classifications that could be generated by discrimination.

Recall the dispute, in both courts and journals, whether

separate annuity tables for women are sex discrimination.

See Arizona Governing Committee v. Norris, 463 U.S.

1073 (1983); George J. Benston, The Economics of Gen-

der Discrimination in Employee Fringe Benefits: Man-

hart Revisited, 49 U. Chi. L. Rev. 489 (1982): Lea Bril-

mayer, et al., Sex Discrimination in Employer-Sponsored

Insurance Plans: A Legal and Demographic Analysis,

47 U. Chi. L. Rev. 505 (1980). No insurer openly uses

4a

race as a ground of ratemaking, but is a higher rate per

$1,000 of coverage for fire insurance in an inner city

neighborhood attributable to risks of arson or to racial

animus?

A disparate treatment approach assigns burdens of

proof and persuasion to the plaintiff, while a disparate

impact approach places them on the insurer. Allocation

of these burdens is bound to affect many cases, given the

difficulty in drawing inferences. For example, a recent

study by the Federal Reserve System concluded that black

applicants for mortgage loans are more likely to be turned

down, holding income constant. Glenn B. Canner &

Dolores S. Smith, Home Mortgage Disclosure Act: Ex-

panded Data on Residential Lending, 77 Fed. Res. Bull.

859, 868-76 (1991). Is this attributable to applicants’

race, to the fact that they seek loans that are larger mul-

tiples of their average wealth, or to difficulties of obtain-

ing insurance that may (‘or may not) themselves have a

racial component? The Federal Reserve reported data on

applicants’ income but not their wealth or the value of the

Joans sought, both important variables. The greater the

uncertainty in drawing inferences, the more the place-

ment of the burden matters. We mention this not to re-

solve the question but to make clear that we have not done

so by indirection. All we decide is whether the complaint

states claims on which the plaintiffs may prevail if they

establish that the insurer has drawn lines according to

race rather than actuarial calculations.

I

Appellate jurisdiction is the first question. Rule 54(b)

allows a court to “direct the entry of a final judgment

as to one or more but fewer than all of the claims or par-

ties” but does not employ a special meaning of “final’’.

So it does not authorize appeal of decisions that, if made

in stand-alone litigation, would not be final. Liberty Mu-

tual Insurance Co. v. Wetzel, 424 U.S. 737 (1976::; Horn

<<<

5a

v. Transcon Lines, Inc., 898 F.2d 589 (7th Cir. 1990).

Unless the court enters judgment on an entire “claim,” or

wraps up the case with respect to all claims involving a

particular party, Rule 54(b) does not permit an imme-

diate appeal. Steve’s Homemade Ice Cream, Inc. v. Stew-

art, 907 F.2d 364 (2d Cir. 1990): FDIC v. Elefant, 790

F.2d 661, 664 (7th Cir. 1986); Horn, 898 F.2d at 593-95.

The district judge did not discuss the legal and factual

overlap between the two counts being dismissed and the

three being retained and did not explain why he viewed

them as separate claims. A “claim for relief” seeks re-

dress of a distinct wrong; a distinct legal underpinning

differs from a new claim and is not independently appeal-

able. A/S Apothekernes Laboratorium for Specialprae-

parater v. 1.M.C. Chemical Group, Inc., 725 F.2d 1140,

1142-43 (7th Cir. 1984). Yet the district judge appears

to have equated theories with claims. He observed that be-

cause a trial lay more than a year in the future there

was ample time to resolve these two legal disputes on

appeal so that all theories could be handled during one

trial. This suggests that the judge confused Rule 54 (b)

with 28 U.S.C. § 1292(b), which permits a court to certify

the case for discretionary appeal when interlocutory reso-

lution of important issues could advance the final disposi-

tion of the litigation. Because of the mismatch between

the district court’s stated rationale and the scope of Rule

54(b)—and the apparent overlap of the two dismissed

counts with the three retained—our jurisdiction is in

doubt.

Plaintiffs’ complaint begins with 66 paragraphs and

then states five “claims,” each of which incorporates these

paragraphs and asserts one reason why the conduct is

wrongful. The Fair Housing Act and the state insurance

code are two. The other three: Wisconsin’s Fair Housing

Act, 42 U.S.C. § 1981 (the right to be free of racial dis-

crimination in making contracts), and 42 U.S.C. §$ 1982

(the right to be free of racial discrimination in buying

6a

real property). Perhaps the judge was led astray by the

structure of the complaint. Identifying legal theories may

assist defendants and the court in seeing how the plain-

tiff hopes to prevail, but this organization does not track

the idea of “claim for relief’ in the federal rules. Put-

ting each legal theory in a separate count is a throwback

to code pleading, perhaps all the way back to the forms of

action; in both, legal theory and facts together created a

“cause of action.” The Rules of Civil Procedure divorced

factual from legal aspects of the claim and replaced

“cause of action” with “claim for relief” to signify the

difference. Bartholet v. Reishauer A.G. (Ziirich), 953

F.2d 1073, 1078 (7th Cir. 1992). A complaint should

limn the grievance and demand relief. It need not

identify the law on which the claim rests, and different

legal theories therefore do not multiply the number of

claims for relief.

One set of facts producing one injury creates one claim

for relief, no matter how many laws the deeds violate.

Car Carriers, Inc. v. Ford Motor Co., 789 F.2d 589 (7th

Cir. 1986) ; Supporters to Oppose Pollution, Inc. v. Heri-

tage Group, No. 91-1247 (7th Cir. Aug. 28, 1992), slip op.

8-11. Plaintiffs could not litigate and lose a suit asserting

that American Family’s redlining violates Title VIII, pur-

sue another asserting that redlining violates § 1981, and

then crank up a third asserting that redlining violates

§ 1982. If these principles—well understood when dealing

with the preclusive effects of judzments—define a “claim”’

for purposes of Rule 54(b), then this appeal must be dis-

missed.

Language in some of our cases equates “claim” in Rule

54(b) with “claim” for purposes of res judicata, but as

we observed in Olympia Hotels Corp. v. Johnson Wax

Development Corp., 908 F.2d 1363, 1367 (7th Cir. 1990),

this equivalence cannot accommodate the many cases that

permit separate appeals of claims and compulsory coun-

terclaims. E.g., Cold Metal Process Co. v. United En-

gineering & Foundry Co., 351 U.S. 445, 452 (1956). It

———————

7a

follows that two “claims” may arise out of the same trans-

action for purposes of Rule 54(b), provided that the facts

and theories are sufficiently distinct. Buckley v. Fitzsim-

mons, 919 F.2d 1230, 1237 (7th Cir. 1990), remanded,

112 S. Ct. 40 (1991), after remand, 952 F.2d 965 (7th

Cir. 1992). Two legal theories sufficiently distinct that

they call for proof of substantially different facts may be

Separate “claims.” Stearns v. Consolidated Management,

Inc., 747 F.2d 1105, 1108-09 (7th Cir. 1984) ; Jack Walt-

ers & Sons Corp. v. Morton Building, Inc., 737 F.2d 698,

702-03 (7th Cir. 1984).

“Sufficiently” and “substantially” are hedges. Ideally

the facts and theories separated for immediate appeal

should not overlap with those retained; to the extent they

do, the court of appeals is “deciding” claims still pending

in the district court, and may have to cover the same

ground when the district court acts on the residue. A

combination of anticipation with overlap leads to waste-

ful duplication and increases the likelihood of conflict (or

error). In disdaining bright lines and asking how much

duplication is too much, we enter the zone of shadings

traditionally committed to a district judge’s discretion. So

the Supreme Court emphasized in Curtiss-Wright Corp.

v. General Electric Co., 446 U.S. 1, 8-10 (1980).

Although the district judge in our case confused Rule

94(b) with § 1292(b), we do not believe that he abused

his discretion in permitting an immediate appeal. Amer-

ican Family stated, in its memorandum concerning appel-

late jurisdiction, that “the dismissed Fair Housing Act

claim, would, if it were viable, be subject to proof under

a disparate impact formula, rather than under the ‘in-

fentional racial discrimination’ test applicable to all the

counts remaining in the district court.” Huntington and

Bellwood v. Dwivedi, 895 F.2d 1521, 1529-30 (7th Cir.

1990!, show that this concession may have been impru-

dent, and American Family has tried to recant. But the

parties shared this belief in the district court, and the

8a

district judge may well have relied on its when deciding

to enter judgment under Rule 54(b). Retraction thus

comes too late—not only for purposes of this appeal, but

also for the whole case. (Treating American Family’s

concession as binding on appeal but not back in the dis-

trica court would create precisely the wasted effort that

Rule 54(b) is set against.) We therefore assume that

plaintiffs’ burden under Title VIII is lighter than their

burden under the other legal theories. Different burdens

may imply different “claims” even for purposes of preclu-

sion. E.g., Emerald Cut Stones v. United States, 409

U.S. 232 (1972); United States v. 89 Firearms, 465 US.

354 (1984); ef. United States v. Fonner, 920 F.2d 1330,

1332-33 (7th Cir. 1990). Resolving the Title VIII issue

in plaintiffs’ favor implies that the other legal theories

will fall away. If they prevail under Title VIII, they ob-

tain all the relief they seek; if they lose at trial under

Title VIII, they necessarily lose on all other theories;

either way, there will not be duplicative appellate review.

Stearns holds that this is enough, if barely, to justify

treating a legal theory as a “claim” for purposes of Rule

54 (b).

One additional jurisdictional problem needs attention.

American Family insists that there is no case or contro-

versy Within the meaning of Article III because none of the

plaintiffs has been unable to buy a house. This is strictly

a constitutional argument, for the definition of “aggrieved

person” in Title VIII, 42 U.S.C. § 3602 (i), eliminates any

prudential barriers to adjudication. Gladstone, Realtors v.

Bellwood, 441 U.S. 91, 98-99 (1979) ; Havens Realty Corp.

v. Coleman, 455 U.S. 363, 372-73 (1982). Congress

amended the statute in 1988 to authorize suit by anyone

who “believes that [he] will be injured by a discriminatory

housing practice that is about to occur’’, § 3602 (i) (2), and

unless this statute is unconstitutional several of the plain-

tiffs (and the NAACP itself, as an organization whose

members include many black persons in the housing

market! have standing.

9a

After Lujan v. Defenders of Wildlife, 112 S. Ct. 2130

(1992), any litigant must show how he has been injured.

Because this case was dismissed on the pleadings, “gen-

eral factual allegations of injury resulting from the de-

fendant’s conduct may suffice”. Jd. at 2137. See also Lucas

v. South Carolina Coastal Council, 112 8. Ct. 2886, 2892

n.3 (1992). Paragraph 47 of the complaint implies that

lack of insurance delayed one of the plaintiffs in closing on

a house; delay in obtaining a valuable thing is an injury.

So is paying a higher price for insurance or any other

good or service, Plaintiffs cannot rest on their pleadings;

once jurisdiction is contested (as it had been here) “each

element [essential to justiciability] must be supported in

the same way as any other matter on which the plaintiff

bears the burden of proof”. Lujan, 112 S. Ct. at 2136.

If they can prove the essential allegations of the com-

plaint, however, plaintiffs have standing.

II

Any effort to use federal law to prescribe or penalize the

behavior of insurers must reckon with the McCarran-

Ferguson Act. Section 2(b) of this statute, 15 U.S.C.

s 1012(b), provides: “No Act of Congress shall be con-

strued to invalidate, impair, or supersede any law enacted

by any State for the purpose of regulating the business of

insurance . . . unless such Act specifically relates to the

business of insurance”. American Family is engaged in

the business of insurance; plaintiffs complain about how,

and at what price, American Family writes (or declines

to write) policies of insurance. The McCarran-Ferguson

Act establishes a form of inverse preemption, letting state

law prevail over general federal rules—those that do not

“specifically relate[] to the business of insurance.” Title

VIII does not mention insurance and therefore cannot

apply to its endeavors, American Family concludes. Plain-

tiffs rejoined at oral argument that racial discrimination

is not insurance. The Fair Housing Act requires race-blind

10a

practices in housing and related services; it does not tell

anyone how to write insurance and therefore does not

regulate the business of insurance, plaintiffs conclude.

Doubtless there is a difference between the business of

insurance and the business of insurers. Pilot Life Insur-

ance Co. v. Dedeaux, 481 U.S. 41 (1987); Union Labor

Life Insurance Co. v. Pireno, 458 U.S. 119 (1982) ; Group

Life & Health Insurance Co. v. Royal Drug Co., 440 U.S.

205, 230 n.88 (1979). But it is not helpful to point to a

practice forbidden by federal law (here, racial discrimina-

tion) and observe that this practice is not itself insurance.

Discrimination is not insurance, but then neither is a con-

spiracy in restraint of trade. By such a maneuver we

could declare that the antitrust laws apply with full rigor

to the insurance industry; yet the main target of the

McCarran-Ferguson Act was United States v. South-

Eastern Underwriters Ass’n, 322 U.S. 583 (1944), which

applied the antitrust laws to insurance. Plaintiffs say

that the Fair Housing Act tells American Family how to

behave in deciding which risks it will accept, at what

price, in its dealings with potential insureds; that is the

core of insurance.

A stronger argument appears in plaintiffs’ reply brief:

that the McCarran-Ferguson Act does not apply to subse-

quently enacted civil rights statutes. This submission has

the support of Spirt v. Teachers Insurance and Annuity

Ass’n, 691 F.2d 1054, 1064-66 (2d Cir. 1982), vacated on

other grounds, 463 U.S. 1223 (1983), on remand, 735 F.2d

23 (1984), and a few decisions by district courts. The

second circuit wrote:

We find, based on the historical context, the legis-

lative history, and judicial interpretations of that his-

tory, that Congress, in enacting a statute primarily

intended to deal with the conflict between state regu-

lation of insurers and the federal antitrust laws, had

lla

no intention of declaring that subsequently enacted

civil rights legislation would be inapplicable to any

and all of the activities of an insurance company that

can be classified as “the business of insurance.”

691 F.2d at 1065. Well of course Congress had no inten-

tion in the 1940s of curtailing the scope of laws yet to be

enacted—indeed, inconceivable at the time. (After south-

ern states regained representation in the Senate following

the Civil War, no civil rights laws were enacted until 1957.

See 71 Stat. 634). What Members of Congress may have

“intended” in 1945, when it enacted a statute limited to

the antitrust laws, and 1946, when it extended the Mc-

Carran-Ferguson Act to other federal laws, is not, how-

ever, the question. We must determine what Congress

meant by what it enacted, not what Senators and Repre-

sentatives said, thought, wished, or hoped. In re Sinclair,

870 F.2d 1840 (7th Cir. 1989). Cf. West Virginia Uni-

versity Hospitals, Inc. v. Casey, 111 S. Ct. 1138, 1147-49 &

n.7 (1991); American Hospital Ass’n v. NLRB, 111 S.

Ct. 1539, 1545-46 (1991). What Congress passed and the

President signed—what the second circuit never quoted—

is that “|n]o Act of Congress shall be construed to invali-

date, impair, or supersede any law enacted by any State

for the purpose of regulating the business of insurance

. unless such Act specifically relates to the business of

insurance.” “No Act of Congress” differs from “no act on

the books in 1946” or “no act other than a civil rights

statute.”

“No Act of Congress” could not be more comprehensive.

The McCarran-Ferguson Act creates a rule of construc-

tion applicable to all other federal laws, a “plain state-

ment” approach. We had no difficulty applying the Act

to subsequent legislation such as the Truth in Lending

Act. Lowe v. AARCO-American, Inc., 536 F.2d 1160 (7th

Cir. 1976). The second circuit posed the wrong question

when inquiring whether Congress meant to insulate the

insurance business from civil rights laws. Congress did

12a

not tie its hands; instead it prescribed the consequences

of silence and specificity in other acts past and future.

Federal laws that do not conflict with or supersede state

rules always apply; federal laws inconsistent with state

laws apply when Congress says so directly. Plaintiffs’

problem is that Congress did not say so, even obliquely,

in the Fair Housing Act.

Spirt and all of the district court decisions reaching a

similar conclusion predate Norvis, in which four Justices

concluded that the McCarran-Ferguson Act applies to

Title VII of the Civil Rights Act of 1964. 463 U.S. at

1099-1103 (Powell, J.. joined by Burger, C.J., and Black-

mun & Rehnquist, JJ., concurring in part and dissenting

in part). The other five Justices found it unnecessary to

address the issue. Jd. at 1087 n.17. No Justice disagreed

with Justice Powell, then or since. Spirt also predates

Pilot Life Insurance, in which all nine Justices concluded

that the McCarran-Ferguson Act applies to the Employee

Retirement Income Security Act of 1974. Written a decade

ago, Spirt might have looked to Mitchum v. Foster, 407

U.S. 225 (1972), which held that 42 U.S.C. § 1988 is

specific enough to satisfy the Anti-Injunction Act, 28

U.S.C. § 2283. More recent cases have declined to extend

the approach of Mitchum to create other exceptions to

$ 2283. Chick Kam Choo v. Exxon Corp., 486 U.S. 140

(1988); Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623

(1977); Bolingbrook v. Citizens Utilities Co., 864 F.2d

481 (7th Cir. 1988); see also Martin H. Redish, The

Anti-Injunction Statute Reconsidered, 44 U. Chi. L.

Rev. 717 (1977). No Justice has suggested using Mitchum

as a model approach to statutes other than § 2283. Per-

haps the second circuit will take a new look at Syrt if the

problem comes up again. No matter how our colleagues

on the east coast would approach the subject today, how-

ever, we conclude that Congress should be taken at its

word. The Fair Housing Act is an “Act of Congress” that

does not “specifically relate{| to the business of insur-

13a

ance’. It therefore does not “invalidate, impair, or super-

sede any law enacted by any State for the purpose of

regulating the business of insurance’”’.

Although American Family insists that this conclusion

ends the case, it does not. What state law regulating the

business of insurance does Title VIII “invalidate, impair,

or supersede”? None that we could find. American Family

points to two: Wis. Stat. § 101.22(2) (e), which forbids

discrimination by casualty insurers on the basis of race,

and Wis. Stat. $ 628.34(3). which more generally inter-

dicts “unfair discrimination” in the business of insurance.

Although American Family insists that it is “of no im-

portance” that “these statutes may not be inconsistent

with the Fair Housing Act”, this is hard to swallow.

Literalism cuts both ways. Cipollone v. Liggett Group,

Ine., 112 S. Ct. 2608, 2618 (1992) (a preemption clause

should be taken seriously, but such a clause also implies

the absence of additional grounds of preemption). Having

stood on the text to show that the McCarran-Ferguson

Act governs the construction of the Fair Housing Act,

American Family needs to show that the Fair Housing

Act conflicts with state law. Duplication is not conflict.

Undoubtedly there is a sense in which any overlap be-

tween state and federal law upsets a balance struck by

one of the two legislatures. Gade v. National Solid Wastes

Management Ass’n, 112 S. Ct. 2374, 2385-86 (1992).

Wisconsin forbids “unfair discrimination” but, as we

conclude in Part IV, did not create a private right of

action to enforce this prohibition. Laws enforced only by

administrative agencies with limited budgets are less

potent than laws enforced by both agencies and private

litigants. One could say that a federal rule increasing the

probability that a state norm will be vindicated (or aug-

menting the damages assessed in the event of violation)

conflicts with a decision by the state that remedies should

be limited or rare. It is on reasoning of this sort that the

Supreme Court does not allow states to forbid most con-

l4a

duct that is “arguably prohibited” by federal labor laws.

San Diego Building Trades Council v. Garmon, 359 U.S.

236, 246 (1959). Cf. Luddington v. Indiana Bell Tele-

phone Co., 966 F.2d 225, 228-29 (7th Cir. 1992).

Principles of labor law do not transfer to other subjects,

however. Garmon and similar opinions rest on a conclu-

sion that Congress occupied the field of labor relations,

so that it remains only to decide which state laws regulate

“labor relations’ and which address broader subjects

(such as criminal violence) that intersect with but do not

displace federal rules. In the main, federal regulation of

a subject—even thoroughgoing federal regulation—does

not prevent states from adding remedies to the arsenal

established by federal law. The McCarran-Ferguson Act

is a form of inverse preemption, so principles defining

when state remedies conflict with (and so are preempted

by) federal law are pertinent in deciding when federal

rules “invalidate, impair, or supersede” state rules.

Consider nuclear power. National law regulates almost

every nook and cranny of industries handling radioactive

materials. Yet the Court held in Silkwood v. Kerr-McGee

Corp., 464 U.S. 238 (1984), that states may require firms

engaged in this business to pay punitive damages for vio-

lating norms of state law duplicating those of federal law,

even on the assumption that federal law sets a much

lower cap on monetary liability. See also English v. Gen-

eral Electric Co.. 496 U.S. 72, 88-89 (1990). Nat «nal

law also regulates the competitive behavior of firms en-

gared in interstate commerce. The Court held in Jllinois

Brick Co, v. Illinois, 431 U.S. 720 (1977), that indirect

purchasers may not recover under the antitrust laws be-

cause such recoveries would unduly complicate litigation

and undermine the deterrent force of those laws. None-

theless, the Court unanimously held in California v. ARC

America Corp., 490 U.S. 93 (1989), that states may re-

quire offenders to pay damages to indirect purchasers, on

top of the treble damages federal law requires them to

15a

pay to direct purchasers. Federal law regulates the ad-

vertising of cigarettes and expressly bars states from pre-

scribing different or additional disclosures: nonetheless,

States may award damages for fraud in selling this prod-

uct. Cipollone, 112 S. Ct. at 2623-24. The catalog may

be extended at will. E.g., Hillsborough County v. Auto-

mated Medical Laboratories, Inc., 471 U.S. 707 (1985)

(medical safety) ; Amanda Acquisition Corp. v. Universal

Foods Corp., 877 F.2d 496, 502-05 (7th Cir. 1989) (ten-

der offers); Air Line Pilots Ass’n v. UAL Corp., 874

F.2d 439, 446-47 (7th Cir. 1989) (interaction of labor

and corporate law).

Considerations of this kind led the fourth circuit to hold

in Mackey that application of the Fair Housing Act to

insurance would not impair or supersede any state law,

although North Carolina, like Wisconsin, forbids discrim-

inatory rates in the insurance business. 724 F.2d at 421

nn. 1 & 2. (Mackey went on to hold that the Fair Hous-

ing Act does not apply to property insurance, a subject

to which we return.) The only obstacle to joining that

conclusion is our opinion in Lowe. After holding that the

rule of construction in the McCarran-Ferguson Act ap-

plies to the Truth in Lending Act, and observing that Il-

linois required insurance brokers and premium finance

companies to make the same disclosures as the Truth in

Lending Act did, we wrapped up: “Since Illinois has

regulated this aspect of the ‘business of insurance’ in the

same manner as would the Truth in Lending Act, there is

no compelling reason to restrict the full sway of the

McCarran Act in this case.” 5386 F.2d at 1162. Without

further explanation, Lowe affirmed a judgment dismissing

a suit filed under the Truth in Lending Act.

Lowe’s unstated premise is that a federal statute dupli-

cating the terms of state law “invalidate[s], impair |[s},

or supersede[s]” state law. Lowe did not explain why

and cited no authority. This omission has opened Lowe to

criticism by the fifth circuit, Cochran v. Paco, Inc., 606

16a

F.2d 460, 466 (5th Cir. 1979). Cases such as Silkwood

and ARC America decided in the 16 years since Lowe

show that state and federal rules that are substantively

identical but differ in penalty do not conflict with or

displace each other. To the extent Lowe holds the con-

trary, it is overruled.

Nothing in this conclusion permits federal law to dis-

place states’ choices about the proper conduct of the busi-

ness of insurance. If Wisconsin wants to authorize red-

lining, it need only say so; if it does, any challenge to that

practice under the auspices of the Fair Housing Act be-

comes untenable. American Family has not drawn to our

attention, however, any law, regulation, or decision in

Wisconsin requiring redlining, condoning that practice,

committing to insurers all decisions about redlining, or

holding that redlining with discriminatory intent (or dis-

parate impact) does not violate state law. Cf. FTC v.

Ticor Title Insurance Co., 112 S. Ct. 2169 (1992). No

official of Wisconsin has appeared in this litigation to say

that a federal remedy under the Fair Housing Act would

frustrate any state policy. Although the McCarran-

Ferguson Act gives states the final word on the regulation

of insurance unless Congress specifically overrides their

choices, Wisconsin’s word is consistent with the Fair

Housing Act.

II]

According to the plaintiffs, three sections of the Fair

Housing Act address insurance sold (or withheld) in con-

nection with the purchase of a dwelling: 42 U.S.C.

S§ 3604(a), 3604(b), and 3605. Section 3605 requires

the least discussion. It provides:

(a) It shall be unlawful for any person or other en-

tity whose business includes engaging in residential

real estate-related transactions to discriminate against

any person in making available such a transaction,

or in the terms or conditions of such a transaction,

17a

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

status, or national origin.

(b) As used in this section, the term “residential

real estate-related transaction” means any of the fol-

lowing:

(1) The making or purchasing of loans or pro-

viding other financial assistance—

(A) for purchasing, constructing, improv-

ing, repairing, or maintaining a dwelling ;

or

(B) secured by residential real estate.

(2) The selling, brokering, or appraising of res-

idential real property.

It would strain language past the breaking point to treat

property or casualty insurance as “financial assistance”—

let alone as assistance “for purchasing . . . a dwelling”.

Insurers do not subsidize their customers or act as chan-

nels through which public agencies extend subsidies. They

do not “assist” customers even in the colloquial sense that

loans are “assistance” (a lender advances cash, with re-

payment deferred). Payment runs from the customer to

the insurer. Insurance is no more “financial assistance”

than a loaf of bread purchased at retail price in a super-

market is “food assistance” or a bottle of aspirin bought

from a druggist is “medical assistance.”

Section 3604 makes it 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, re-

ligion, sex, familial status, or national origin.

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

conditions, or privileges of sale or rental of a dwell-

ing, or in the provision of services or facilities in con-

_

18a

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

status, or national origin.

Plaintiffs rely on the portions of these sections that we

have italicized. They contend that by refusing to write

policies (or setting a price too dear) an insurer ‘“make|[s

a dwelling] unavailable” to the potential buyer. Lenders

require their borrowers to secure property insurance. No

insurance, no loan; no loan, no house; lack of insurance

thus makes housing unavailable. Cf. Cartwright v. Amer-

ican Savings & Loan Ass’n, 880 F.2d 912 (7th Cir. 1989).

Plaintiffs also submit that property insurance is a “serv-

ice’ rendered “in connection” with the sale of the dwell-

ing. If the world of commerce is divided between “goods”

and “services,” then insurers supply a “service.” “([I]n

connection” may be read broadly, and should be (plain-

tiffs contend) to carry out the national goal of removing

obstacles to minorities’ ownership of housing. There you

have it.

Nothing in the text of the statute permits us to reject

these proposed readings. The Fair Housing Act does not

define key terms such as “service” and “make unavail-

able’. By writing its statute in the passive voice—ban-

ning an outcome while not saying who the actor is, or how

such actors bring about the forbidden consequence—

Congress created ambiguity.

Although § 3604 could bear the reading plaintiffs pro-

pose, it need not. It does not mention insurers or for-

bidden devices. Plaintiffs would like us to embrace the

“remedial purpose” of the statute. Title VIII indeed is

designed to root out racial discrimination in the housing

market. Whether it reaches insurers, however, is not

something a general reference to purpose discloses. One

can always do “more” in pursuit of a goal, but statutes

have limits. You cannot discover how far a statute goes

by observing the direction in which it points. “Finding

the meaning of a statute is more like calculating a vector

19a

(with direction and length) than it is like identifying

Which way the underlying ‘values’ or ‘purposes’ point

(which has direction alone). Cf. Walton v. United States

Consumers Club, Inc., 786 F.2d 303, 310-11 (7th Cir.

1986); Mercado v. Calumet Federal Savings & Loan

Ass’n, 763 F.2d 269, 271 (7th Cir. 1985).” In re Erick-

son, 815 F.2d 1090, 1094 (7th Cir. 1987). See also Rod-

riguez v. United States, 480 U.S. 522, 525-26 (1987).

After denying that “remedial purpose” alone extends

the statute to insurance, the fourth circuit in Mackey

gave several reasons why it believed that § 3604 does not

apply. The first is that § 3605 shows that § 3604 must be

read narrowly. “If § 804 [§ 3604] was designed to reach

every discriminatory act that might conceivably affect the

availability of housing, § 805’s specific prohibition of dis-

crimination in the provision of financing would have been

superfluous.” 724 F.2d at 423. The court’s unstated as-

sumption is that statutes never overlap. Section 3605

then shows that § 3604 does not cover lending, and by

implication does not cover much at all. Yet why should we

Suppose ti:at sections of a statute do not overlap? See

United States v. Naftalin, 441 USS. 768, 778 (1979)

(“that there may be some overlap is neither unusual nor

unfortunate.”). Conveying meaning to diverse inter-

preters for an uncertain future is a difficult business. A

wise drafter may state a principle in one section and list

some applications of that principle in another, to make

pellucid what ought to be apparent but which’ some judges

(and many lay persons) will miss unless spelled out.

Using the instance to restrict the principle would gum up

the p»ocess of communication, inverting every effort to

clarify.

As a second reason for treating § 3604 as inapplicable

to insurance, Mackey observed that “[t]he insurance in-

dustry has traditionally classified risks. If insurance pre-

miums are to remain at reasonable levels for most house-

holders, some insurers must be permitted to reject risks

20a

which are perceived to be excessively high, while charging

higher premiums on some risks than upon others.” 724

F.2d at 423. If the question were whether to subject red-

lining by insurers to evaluation under the disparate im-

pact paradigm, this consideration might be important.

As we suggested at the outset, classification of risks is

important to insurance, and assigning higher rates to

greater risks differs from assigning rates by race. Noth-

ing in the nature of insurance implies that hazard insur-

ers need to engage in disparate treatment, to draw lines

on the basis of race rather than risk. The fourth circuit

could have said much the same thing about lenders as it

said about insurers. A lender must evaluate the risk that

the borrower will not repay, and higher probability of

nonpayment implies a higher rate of interest (or a lower

probability of extending credit). Title VIII indisputably

applies to lenders, and it is difficult to see risk classifica-

tion as a principled ground to exclude insurers.

Mackey also stressed the omission from both § 3604 and

its legislative history of any reference to insurance. Be-

cause § 3604 uses the passive voice, however, it omits

reference to any person. Insurers, escrow agents, title

searchers, and so on are treated alike. The fourth circuit

ultimately concluded that “service” in § 83604 means no

more than “garbage collection and other services of the

kind usually provided by municipalities”, 724 F.2d at 424,

but Congress did not mention either garbage collectors

or municipalities in § 3604. Selective omission might be

telling, but the universal omission that accompanies pas-

sive construction does not distinguish insurers from others.

We once suggested in passing, Southend Neighborhood

Improvement Ass’n v. County of St. Clair, 743 F.2d 1207,

1210 (7th Cir. 1984), that “service” in § 3604 means

“services generally provided by governmental units,” but

the subject was nct before us—and the suggestion that

§ 3604 is limited to governments is hard to reconcile with

another plain-statement principle requiring Congress to be

2la

especially clear if it wants to regulate the conduct of state

and local governments. E.g., Gregory v. Ashcroft, 111 S.

Ct. 2395, 2399-2406 (1991); Dellmuth v. Muth, 491 U.S.

223 (1983). A statute that does not mention state govern-

ments applies exclusively to private actors. So it is hard

to understand § 3604 as restricted to garbage collection

and like services. See also Clifton Terrace Associates, Ltd.

v. United Technologies Corp., 929 F.2d 714 (D.C. Cir.

1991) (“service” in § 3604 means services in connection

with the acquisition of housing, not its maintenance;

§ 3604 therefore does not apply to elevator repair serv-

ices).

Silence in the legislative history could imply that Mem-

bers of Congress did not anticipate that the law would

apply to insurers. Silence equally could imply that the

debate was about the principle of non-discrimination, leav-

ing details to the future. The backward phraseology of

§ 3604 suggests the latter possibility. What was in the

heads of the legislators is not, however, the measure of

their enactment. Only the statute, and not the debates,

is part of the United States Code. Persuasive evidence

that Congress embedded terms of art in the text might

lead us to confine its scope, Continental Can Co. v. Chi-

cago Truck Drivers Pension Fund, 916 F.2d 1154 (7th

Cir. 1990), but what did not happen during the debates

hardly shows that any word in the enacted text carries a

special meaning.

In 1980 the silence was broken. A district court con-

cluded that the Fair Housing Act covers property insurers.

Dunn v. Midwestern Indemnity Mid-American Fire &

Casualty Co., 472 F. Supp. 1106 (S.D. Ohio 1979). Some

Members of Congress sought to amend Title VIII to

“clarify” that Dunn correctly understood its scope. The

effort was beaten back. See Mackey, 724 F.2d at 423-24

(summarizing these events). The fourth circuit inferred

that Congress disapproved of Dunn. That conclusion is

unwarranted. Proposed legislation can fail for many rea-

22a

sons. Some Members of Congress may oppose the proposal

on the merits; others may think it unnecessary and there-

fore not worth the political capital needed to write the

“clarification” into the statute over opposition; still others

may be indifferent, or seek to use the bill as a vehicle for

some unrelated change. Congress may run out of time,

as a noncontroversia] bill sits in a queue while a con-

tentious proposal is debated. No surprise, therefore, that

the Supreme Court repeatedly reminds us that unsuccess-

ful proposals to amend a law, in the years following its

passage, carry no significance. E.g., Firestone Tire &

Rubber Co. v. Bruch, 489 U.S. 101, 114 (1989). See also

United States v. Marshall, 908 F.2d 1312, 1818-19 (7th

Cir. 1990) (in banc), affirmed under the name Chapman

v. United States, 111 S. Ct. 1919, 1927 n.4 (1991). Were

it otherwise, one House of Congress could change the

meaning of a law by refusing to approve a change in the ~

text. Yet Congress may change the law only by bicameral

action, INS v. Chadha, 462 U.S. 919 (1983), which implies

that the refusal of one chamber to assent to a proposed

amendment cannot alter the meaning of the law on which

both chambers agreed in prior years.

By parallel reasoning, we dispatch American Family’s

argument that legislative failure to overturn Mackey is

significant. Interest groups alert Congress to many ju-

dicial decisions, and the legislature frequently alters the

law to countermand opinions that do not find favor in

today’s political climate. During the last quarter century,

Congress has interred an average of 15 opinions per year,

about two-thirds of these opinions by the inferior courts.

William N. Eskridge, Jr., Overriding Supreme Court Stat-

utory Interpretation Decisions, 101 Yale L.J. 331, 338

(1991)-. Courts of appeals and district courts issue tens

of thousands of opinions yearly, however, so an opinion

has to stir up a hornets’ nest to get on the agenda. Most

of the time, Congress waits to see whether a higher court

will reach a different conclusion. Mackey appeared on the

23a

agenda, but some Members of Congress opposed the pro-

posal to change Title VIII. Members of Congress ex-

pressed conflicting views, but Congress as an institution

took a pass. That decision carries no significance.

Congress has not been inactive since Mackey, however.

In 1988 it enacted amendments to the Fair Housing Act,

authorizing the Department of Housing and Urban Devel-

opment to “make rules... to carry out this subchapter.”

42 U.S.C. $ 8614a. Congress gave the Executive Branch

this power with knowledge that since 1978 a succession

of Secretaries have believed that “[i]nsurance redlining,

by denying or impeding coverage[,] makes mortgage

money unavailable, rendering dwellings ‘unavailable’ as

effectively as the denial of financial assistance on other

grounds”. Memorandum by the General Counsel of HUD,

quoted in Dunn, 472 F. Supp. at 1109. The Secretary

deployed this new rulemaking power in the predictable

way, issuing regulations that include, among the conduct

prohibited by § 3604: “Refusing to provide . . . property

or hazard insurance for dwellings or providing such...

insurance differently because of race’. 24 C.F.R. § 100.70

(d) (4). The United States has filed a brief as amicus

curiae to support the plaintiffs’ position in this case.

Section 3604 is sufficiently pliable that its text can bear

the Secretary’s construction. Courts should respect a

plausible construction by an agency to which Congress has

delegated the power to make substantive rules. Chevron

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

467 U.S. 837 (1984); Pauley v. Bethenergy Mines, Inc.,

111 S. Ct. 2524, 2534-36 (1991). We can imagine the re-

sponse that courts do not defer to administrative construc-

tions when judges, rather than administrators, hold the

power of enforcement. Adams Fruit Co. v. Barrett, 494

U.S. 638, 649-50 (1990). Just as Congress authorized

private litigation to enforce the Migrant and Seasonal

Agricultural Worker Protection Act, the subject of Adams

Fruit, so the Fair Housing Act is enforced by the courts

24a

at the instance of private persons believing themselves

wronged.

Among the amendments in 1988, however, was a pro-

vision for administrative enforcement paralleling judicial

enforcement. 42 U.S.C. $§ 3610-12. The Secretary’s reg-

ulations would receive deference in an action to enforce

HUD’s administrative decision. It would be weird to say

that Title VIII applies to insurers on judicial review of

administrative actions but not when the litigation begins

in district court. Long before Adams Fruit, indeed long

before the Secretary had the power to issue regulations

and adjudicate complaints under Title VIII, the Supreme

Court declared that the Secretary’s views about the mean-

ing of that statute are entitled to “great weight”. Traf-

ficante v. Metropolitan Life Insurance Co., 409 U.S. 205,

210 (1972) ; Gladstone, 441 U.S. at 107.

Events have bypassed Mackey. We have expressed doubt

about the interpretive methods used in that opinion. No

matter how a court should have understood the Fair Hous-

ing Act in 1984, however, the question today is whether

the Secretary’s regulations are tenable. They are. Section

3604 applies to discriminatory denials of insurance, and

discriminatory pricing, that effectively preclude ownership

of housing because of the race of the applicant.

IV

Plaintiffs contend that redlining viclates state law in

two ways. First, they believe, redlining entails racial

discrimination forbidden by Wis. Stat. $ 101.22(2) (e).

Second, they contend, redlining is an “unfair” practice that

offends several provisions of the Insurance Code. Ameri-

can Family concedes that plaintiffs are entitled to enforce

§ 101.22(2) (e) in private litigation but denies that stat-

utes and regulations speaking more generally about “un-

fair’ practices create private rights of action. The district

court agreed with this submission and dismissed the com-

plaint to the extent it relied on Wis. Stat. §§ 625.11(1)

25a

and 628.34(3), and Wis. Adm. Code INS 6.68. Our re-

view is plenary. Salve Regina College v. Russell, 111

S. Ct. 1217 (1991).

Section 625.11(1) forbids “unfair discrimination” in the

setting of rates but does not specify what unfair discrimi-

nation consists in. Section 628.34(3) bans differentials in

premiums and coverages unless based on “classifications

related to the nature and the degree of the risk covered

and the expenses involved”. Regulation INS 6.68 adds a

bit of specificity to these open-ended statutes. Plaintiffs

rely particularly on INS 6.68(3) (a), which identifies the

following as “unfairly discriminatory” for purposes of the

insurance statutes:

Making or permitting any unfair discrimination be-

tween individuals or risks of the same class and of

essentially the same hazards by refusing to issue,

refusing to renew, canceling or limiting the amount

of insurance coverage on a property or casualty risk

because of the geographic location of the risk, unless:

1. The refusal, cancellation or limitation is for a

business purpose which is not a mere pretext for

unfair discrimination, or

2. The refusal, cancellation or limitation is required

by law or regulatory mandate.

Redlining is a distinction based on the “geographic loca-

tion of the risk” and hence unlawful in Wisconsin as “un-

fairly discriminatory” unless “for a business purpose

which is not a mere pretext for unfair discrimination”.

Neither of these statutes, nor regulation INS 6.68, speci-

fies private litigation or provides a remedy in damages.

Fach regulates general business practices and leaves much

to the discretion of whoever must determine what is “un-

fair” or “for a business purpose”. Like charges to a fed-

eral agency to identify the “public interest, convenience,

and necessity,” these rules read more like descriptions of

26a

an agency’s turf than like individual rights to be enforced

in litigation.

No court of Wisconsin has permitted anyone to enforce

provisions of this kind in the insurance laws through pri-

vate litigation. Plaintiffs observe that many state cases

say that a remedy accompanies every right, e.g., Urwan

v. Northwestern National Life Insurance Co., 125 Wis.

349, 103 N.W. 1102 (1905), and that Yanta v. Mont-

gomery Ward & Co., 66 Wis. 2d 58, 224 N.W.2d 389

(1974), allowed a victim of employment discrimination to

obtain a remedy, back pay, not mentioned in the statute

creating the right of action. Our concern, though, is not

whether there is some remedy for violations of state law—

for Wisconsin maintains a substantial administrative ap-

paratus regulating the conduct of insurers—or whether

the statutes provide one measure of damages rather than

another. It is whether courts, rather than the regulators,

are the right institutions to identify “unfair discrimina-

tion” and “business purpose” in this market.

Kranzush v. Badger State Mutual Casualty Co., 103

Wis. 2d 56, 307 N.W.2d 256, 268-70 (1981), persuades us

that Wisconsin wants such contentions submitted to ad-

ministrators rather than judges. Kranzush complained

that, even though its insured obviously was negligent and

had to compensate the victim of an auto accident, an

insurance company stalled until the victim died; such

manipulation, the administrator of the estate contended,

violated Wis. Adm. Code INS 6.11(3)(a)4, which

makes it an “unfair practice” for an insurer to fail “to

attempt in good faith to effectuate fair and equitable

settlement of claims submitted in which liability has be-

come reasonably clear.” The Supreme Court of Wisconsin

held that enforcement of administrative rules defining un-

fair practices is for administrative officials, which can

revoke an insurer’s license or impose other penalties. Wis.

Stat. § 601.64(3) (ce) and (4) set out penalties for trans-

gressions against insurance statutes and rules; damages

in private actions are not among them. Although Kran-

27a

zush mentioned that a separate provision for administra-

tive remedies in INS 6.11 fortified the conclusion that the

administrative route was exclusive, 103 Wis. 2d at 80,

307 N.W.2d at 268, the court also emphasized that the

rule defined unfair practices, a subject the justices

thought best handled by the Commissioner of Insurance

and the staff of that office.

Perhaps the Supreme Court of Wisconsin ultimately

will conclude that the specification of an administrative

remedy in INS 6.11 distinguishes that section from INS

6.68. Extensions of state law are best left to state courts.

This is a case about racial discrimination, and plaintiffs

will have ample opportunity to prove their claims under

both state and federal law.

V

Because this opinion overrules Lowe to the extent that

Lowe holds that the McCarran-Ferguson Act prevents the

application of federal laws duplicating state rules, and

because it conflicts with both the second circuit’s views in

Spivt and the fourth circuit’s holding in Mackey, it was

circulated before release to all judges in active service.

See Circuit Rule 40(f). No judge requested a hearing in

bane.

The judgment of the district court is affirmed to the

extent it holds that there is no private right of action to

enforce Wis. Stat. §§ 625.11(1) and 628.34(3), and Wis.

Adm. Code INS 6.68. The judgment is reversed to the

extent it holds that the Fair Housing Act is inapplicable

to property and casualty insurance written or withheld

in connection with the purchase of real estate. The case

is remanded for proceedings consistent with this opinion.

A true Copy:

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

28a

APPENDIX B

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF WISCONSIN

Civil No. 90-C-0759

THE NATIONAL ASSOCIATION FOR THE ADVANCEMENT OF

COLORED PEOPLE and its Milwaukee Branch (NAACP),

CELESTINE LINDSEY, DOROTHY LISTENBEE, JAMES MIL-

NER, DIANNE PRATT, MARVIN PRATT, SIMON WILLIAMS,

BEVERLY WILLIAMS, and LOIS Woops, individually and

as representatives of a class of all similarly situated

persons, Plaintiffs,

VS.

AMERICAN FAMILY MUTUAL INSURANCE Co., and

JOHN DOEs 1 through 20, and XYZ CORPORATION,

Defendants.

TRANSCRIPT OF HEARING ON DEFENDANT'S

MOTIONS TO DISMISS AND FOR RULE 11

SANCTIONS

Record made in the above-entitled matter before the

Honorable J. P. Stadtmueller, Judge of said Court, on

December 11, 1990, commencing at 1:35 p.m.

~ 7 * *

[86] THE COURT: Thank you. Well, based upon my

review of the entirety of this issue, let me begin with a

few general observations. First of all, I appreciate coun-

sel’s efforts to bring to the court the relevant authority

that you believe are [37] instructive and perhaps control-

ling with regard to this court’s disposition of this motion.

On the one hand I have considerable personal empathy

and sympathy for those who find themselves in the shoes

of the plaintiffs, unable to secure what not only the Fair

Housing Act but these other statutory enactments have

allowed them or created vehicles for them to insure that

29a

these valuable rights that Congress has created are right-

fully delivered.

But on the other hand to follow up on a comment that

Mr. Shriner made from the Bethlehem Steel case, so also

it is not entrusted to the courts to enact legislation where

Congress has either shirked or otherwise erred in its re-

sponsibilities. And with regard to the matter of the Fair

Housing Act claim, I am constrained in the factual set-

ting that has been presented to the court in the pleadings

as well as the comments that both sides have drawn upon

in the legislative history as well as what I believe to be

the most significant case in this area, namely, Mackey

versus Nationwide Insurance Company, to grant the de-

fendant’s motion to dismiss Count One.

I do so because the United States Congress on more

than one occasion has had an opportunity to amend the

statute subsequent to Mackey. In fact, amendments were

proposed again in 1987. And Congress in its own inimi-

table fashion chose to duck the issue for lack of a better

description and [38] chose not to include it in the final

legislation that was enacted.

Similarly with regard to the matter of the court giving

due deference to these HUD regulations that have been

recently promulgated, the regulations may be well and

good and well-intended, but the fact of the existence cf

the reguiations without any statutory authority specifi-

cally authorizing those types of regulations I find totally

undermines any reliance on those regulations in the con-

text of this particular case, particularly against the back-

drop of senators from both sides of the aisle, and I make

reference to Senator Heflin and Hatch having chastised

the Department of Housing and Urban Development back

in 1980 for their attempts to administratively work into

the regulatory scheme matters that relate to the matter

of insurance coverage.

And so there is considerable amount of undercurrent

that exists with regard to plaintiffs true reliance on some

of these matters that while they have been certainly de-

30a

bated in the halls of the legislature and through commit-

tee, the reality is Congress in its wisdom has seen not

to enact legislation specifically relating to insurance.

I do not find a great deal of credence to be drawn from

the comment of Judge Bauer in the Southend case. As

defendants correctly point out, no authority was cited in

the footnote for reference to insurance “redlining.” In

point of [39] fact, much of what has been developed in

this area was quite available if the court seriously wanted

to draw upon that analogy in its ultimate decision in the

Southend case. And I dare say it’s a rather open question

whether it was wise to have included insurance “red-

lining” when it came to the Fair Housing Act. It may

be applicable under one or more of the other claims that

remain viable, but I do not find it at all within the ambit

of section 34 or—strike that, 34 or 35 of the Fair Housing

Act; and, accordingly, I am compelled to grant a dis-

missal as to Count One.

I’m going to ultimately deal with this in a manner that

will allow plaintiffs to immediately take this issue up to

the Seventh Circuit if they so elect. This case is not

going to be resolved in the near term. In fact, we'll take

up the matter of scheduling at the conclusion of my rul-

ing with regard to the insurance claim.

With reference to the insurance claim, the issue I think

is a little more close than it is with regard to the matter

of the Fair Housing Act claims. And the reason that I

say so is that as counsel are aware, and I think at some

point one or more of you may have cited this by way of

analogy in your written submissions, there’s disagreement

even among myself and my fellow judges with regard to

a private right of action under the Wisconsin Fair Em-

ployment Act in the federal courts.

I believe the issue is still up on appeal in the Seventh

[40] Circuit. I’m not aware that it has been resolved at

the appellate level; and I think truly that there is some

argument, although very limited, that one could advance

to suggest that plaintiffs have a cause of action under the

Wisconsin insurance regulatory system.

3la

However, I don’t believe that that slight authority by

way of analogy sufficiently overcomes my judicial con-

servatism in recognizing, for example, that had the Wis-

consin legislature wanted to create a private right of

action with regard to the matter of redress under the

Wisconsin insurance regulatory scheme, that they would

not have so much as said so. For example, as the legis-

lature created a direct right of action against an insur-

ance company in connection with a tort or other action

that would allow an insured or a third party to proceed

directly against an insurance carrier.

The same holds true in my view by way of analogy with

regard to what plaintiffs perceive to be a private right of

action in the context of this factual setting presented in

this case. That is to say, had the Wisconsin legislature at

the time or subsequently by way of amendment chosen to

grant plaintiffs or those similarly situated with such right,

they certainly could have chosen to do so.

And in essence what is really being sought here is a

judicial imprimatur or fiat with regard to whether or not

the causes of action stated in the first claim and the fifth

claim [41] survive what has been enacted by the legisla-

tures both in Wisconsin and in the Congress. And I am

compelled, albeit reluctantly, to conclude that the legisla-

ture has not granted the plaintiffs the vehicle by which

they have presented their claims in the first and fifth

causes of action.

Having made those findings, I’m going to direct that my

clerk enter a judgment in this case pursuant to Rule 54

(b) of the Federal Rules and that that judgment run in

favor of the defendant as to both the first and fifth causes

of action. And that judgment be a final judgment since

I am at the same time expressly determining pursuant

to Rule 54(b) that there is no just reason for the delay

of entry of judgment as to the first and fifth causes of

action until tinal determination of the balance of the

claims set forth in the complaint.

* * * *

32a

APPENDIX C

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF WISCONSIN

Civil Action No. 90-C-759

THE NATIONAL ASSOCIATION FOR THE ADVANCEMENT

OF COLORED PEOPLE, et al.,

Plaintiffs,

VS.

AMERICAN FAMILY MUTUAL INSURANCE Co.,

Defendant.

ORDER

| Filed Dec. 17, 1990]

This matter came on for hearing on December 11, 1990

upon the defendant’s motions to dismiss and for Rule 11

sanctions. The plaintiffs appeared by john powell, Wil-

liam H. Lynch, James H. Hall, Jr., and Curry First. The

defendant appeared by Thomas L. Shriner, Jr., Richard

M. Esenberg, and Robert C. Burrell. Amicus curiae

United States of America appeared, by special leave of

the Court, by Joseph D. Rich and Conrad Schneider. Hav-

ing heard the oral arguments of counsel and considered

the briefs of the parties and amici curiae, and for the

reasons stated on the record in open court, the Court

entered the following orders:

1. The defendant’s motion to dismiss the first and

fifth claims of the complaint, pursuant to Fed. R. Civ. P.

12(b) (6), for failure to state claims upon which relief

ean be granted, is GRANTED.

33a

2. Upon its own motion, the Court, pursuant to Fed.

R. Civ. P. 54(b), expressly DIRECTS the Clerk to enter

a final judgment dismissing the first and fifth claims of

the complaint, having expressly determined that there is

no just reason for delay in the entry of the judgment.

3. The defendant’s motion for an order, pursuant to

Rule 11, Fed. R. Civ. P., requiring the plaintiffs to pay

the defendant its costs incurred in bringing the motion to

dismiss the fifth claim is DENIED.

Done at Milwaukee, Wisconsin this 17th day of De-

cember, 1990.

BY THE COURT:

/s/ J. P. Stadtmueller

United States District Judge

34a

APPENDIX D

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

CHICAGO, ILLINOIS 60604

December 7, 1992

Hon. JOHN L. CoFFEY, Circuit Judge

Hon. FRANK H. EASTERBROOK, Circuit Judge

Hon. THOMAS E. FAIRCHILD, Senior Circuit Judge

No. 91-1176

THE NATIONAL ASSOCIATION FOR THE ADVANCEMENT OF

COLORED PEOPLE, et al.,

Plaintiffs-A ppellants,

vi

AMERICAN FAMILY MUTUAL INSURANCE COMPANY,

Defendant-A ppellee.

Appeal from the United States District Court

for the Eastern District of Wisconsin

No. 90-C-759—J.P. Stadtmueller, Judge.

ORDER

Defendant-Appellee filed a petition for rehearing and

suggestion of rehearing en bane on November 8, 1992. No

judge in regular active service has requested a vote on the

suggestion of rehearing en banc, and all of the judges on

the panel have voted to deny rehearing. The petition for

rehearing is therefore DENIED.