Amicus Curiae Brief — American Family Mutual Insurance v. National Ass'n for the Advancement of Colored People

No. 92-1455

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 Loris Woops,

individually and as representatives of a class of all

similarly situated persons,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

BRIEF FOR AMICUS CURIAE NATIONAL

ASSOCIATION OF MUTUAL INSURANCE COMPANIES

IN SUPPORT OF PETITION

FOR A WRIT OF CERTIORARI

JAMES F.. FITZPATRICK *

GEOFFREY F.. ARONOW

KATHLEEN M. H. WALLMAN

NANCY L. PERKINS

EDWARD N. COOPER

ARNOLD & PORTER

1200 New Hampshire Avenue, N.W.

Washington, D.C. 20036

(202) 872-6878

Counsel for Amicus Curiae

National Association of

* Counsel of Record Mutual Insurance Companies

April 8, 1993

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

BEST. AVAILABLE COPY

TABLE OF CONTENTS

TABLE OF AUTHORITIES

INTEREST OF AMICUS CURIAE

SUMMARY OF ARGUMENT

ARGUMENT

I.

IT.

THE SEVENTH CIRCUIT'S DECISION SERI-

OUSLY UNDERMINES THE PRIMACY OF

STATE REGULATION OF INSURANCE

THAT CONGRESS ESTABLISHED IN THE

McCARRAN-FERGUSON ACT

THE SEVENTH CIRCUIT WRONGLY IN-

TERPRETED AND APPLIED THE McCAR-

RAN-FERGUSON ACT

A. The Seventh Circuit Misinterpreted the

Plain Meaning of the McCarran-Ferguson

Act _.. eee . eects

B. The Seventh Circuit Ignored the Manner in

Which the Fair Housing Act, If Applied to

Insurance, Would Invalidate, Impair, or Su-

persede Wisconsin Laws and Regulations

C. The Rationale of the Seventh Circuit for Its

Interpretation and Application of the Act Is

Inconsistent with This Court’s Precedents

CONCLUSION

Page

~]

~]

12

13

ii

TABLE OF AUTHORITIES

Cases: Page

Arthur v. City of Toledo, 782 F.2d 565 (6th Cir.

1986) ORI ceases 9

Asbury Vv. Brougham, 866 F.2d 1276 (10th Cir.

1989) : ; seddacteldaeurs i 9

Betsey V. Turtle Creek Assocs., 736 F.2d 983 (4th

Cir. 1984) DE: ae 9

Elliot v. City of Athens, 960 F.2d 975 (11th Cir.).

cert. denied, —— USS. 113 S. Ct. 376

(1992) Ps 9

Firemen’s Ins. Co. V. Washington, 483 F.2d 1323

LS ee eM |: | SeenON euasioe anaaanalie 11

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

(1957) . mes : 12

Gade V. National Solid Wastes Management Ass’n.

U.S. , 1128S. Ct. 2374 (1992) 12, 13

Hanson V. Veterans Admin., 800 F.2d 1381 (5th

Cir. 1986) a . 9

Huntington Branch, NAACP v. Town of Hunting-

ton, 844 F.2d 926 (2d Cir.), review declined in

relevant part, 488 U.S. 15 (1988) 9

Keith Vv. Volpe, 858 F.2d 467 (9th Cir. 1988), cert.

denied, 493 U.S. 813 (1989) ; . 9

Kranzish v. Badger State Mut. Casualty Co., 307

N.W.2d 256 (1981) : . 8

Mackey V. Nationwide Ins. Co., 724 F.2d 419 (4th

Cir. 1984) muses ae 2

Metropolitan Housing Dev. Corp. Vv. Village of

Arlington Heights, 558 F.2d 1283 (1977), cert.

denied, 434 U.S. 1025 (1978) 9

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

F.2d 287 (7th Cir. 1992) . . 5, 9, 11-12

Pridential Ins. Co. v. Benjamin, 328 U.S. 408

IPSS) ........ stceshepicinntenlnnegtae eee ee 12

Resident Advisory Bd. v. Rizzo, 564 F.2d 126 (3d

Cir. 1977), cert. denied, 435 U.S. 908 (1978) 9

Reves Vv. Ernst & Young, — U.S. ——, 1138S. Ct.

1163 (1993) 7

SEC v. Variable Annuity Life Ins. Co., 359 US.

65 (1959) - 12

iii

TABLE OF AUTHORITIES—Continued

Page

Town of Huntington v. Huntington Branch,

NAACP, 488 U.S. 15 (1988) 9

United States v. City of Black Jack, 508 F.2d 1179

(8th Cir. 1974), cert. denied, 422 U.S. 1042

EEL GEER OE ne 9

Ward v. Harte, 794 F. Supp. 109 (S.D.N.Y. 1992) .. 11

Statutes and Regulations:

Fair Housing Act Amendments of 1988, Pub. L.

No. 100-430, 102 Stat. 619 (1988)... 6

Urban Property Protection and Reinsurance Act

of 1968, Pub. L. No. 90-448 §8 1101-1102, 82

MO oon cassaveceesesescace 10

Es BORO TOD cnc cneccceccseseseccsccecoesesccec. 4

18 U.S.C. §§ 1961-1968 6

6 1 EE 4

29 U.S.C. § 1144 (¢) (1) 4

42 U.S.C. §§ 3601-3631 0 4

Wis. Stat. Ann. § 101.22(2) (e) 8

Wis. Stat. Ann.§ 619.01... 10

Wis. Stat. Ann. § 628.34(3)..0 8

Wis. Admin. Code § Ins 4.10 (Apr. 1992) . 10

Legislative Materials:

H.R. Rep. No. 873, 78th Cong., 1st Sess. (1943). 7,

S. 1220, 98th Cong., 1st Sess. | | ee

H.R. 3482, 98th Cong., 1st Sess. (1983)

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

H.R. 4119, 99th Cong., 2d Sess. ee

H.R. 1158, 100th Cong., 1st Sess. ho of So

126 Cong. Rec. 31,696, 32,350-51, 32,353, 32.991-92

(1980)

PADMA R HD

Other Sources:

Oxford English Dictionary (compact ed. 1971)... 7

IN THE

Sipirenw Court of the United States

OCTOBER TERM, 1992

No. 92-1455

AMERICAN FAMILY MUTUAL INSURANCE COMPANY.

: Petitioner,

THE NATIONAL ASSOCIATION FOR THE ADVANCEMENT

OF COLORED PEOPLE, and its Milwaukee Branch

(NAACP), CELESTINE LINDSEY, DoROTHY LISTENBEEF.

JAMES MILNER, DIANE PRATT, MARVIN PRATT. SIMON

WILLIAMS, BEVERLY WILLIAMS, and Lots Woobs,

individually and as representatives of a class of all

similarly situated persons,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

BRIEF FOR AMICUS CURIAE NATIONAL

ASSOCIATION OF MUTUAL INSURANCE COMPANIES

IN SUPPORT OF PETITION

FOR A WRIT OF CERTIORARI

INTEREST OF AMICUS CURIAE

The National Association of Mutual Insurance Com-

panics (“NAMIC”) is comprised of more than 1200

companies throughout the United States that underwrite

all forms of insurance, including homeowners’ insurance.

Founded in 1895, NAMIC exists to promote a financially

Stable, competitive private insurance industry. In 199],

NAMIC member companies were responsible for almost

2

$59 billion in direct written premiums for property and

casualty insurance alone, representing approximately 26

percent of that business nationwide.

The Seventh Circuit’s decision in this case, if allowed

to stand, will disrupt profoundly the manner in which the

insurance business has been regulated and conducted in

this nation for nearly fifty years. That decision creates

a new rule that federal regulation does not “invalidate,

impair, or supersede” state law within the meaning

of the McCarran-Ferguson Act if it can be construed

as “parallel” to state regulation. This novel reading

of the McCarran-Ferguson Act effectively overturns

Congress’ careful apportionment of roles for the federal

and state governments with respect to the regulation of

the business of insurance. It sanctions for the first time

the use of federal laws that Congress never specifically

applied to the business of insurance to attack insurance

practices permitted under state law. Thus, the decision’s

impact exiends far beyond the specific issues in this case

and will disrupt the business of many insurance com-

panies, including the members of NAMIC, and the serv-

ices they provide to the public.

For this reason, and because the Seventh Circuit deci-

sion creates a split in the Courts of Appeals regarding

the application of the Fair Housing Act to insurance, see

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

1984), NAMIC and its members have a strong interest

in urging this Court to grant the petition for writ of

certiorari in this case, and ultimately to reverse the Sev-

enth Circuit’s decision.

SUMMARY OF ARGUMENT

This Court should review the decision below in order

to correct a seriously erroneous interpretation of the

McCarran-Ferguson Act and to resolve the resulting con-

flict between the federal Courts of Appeals concerning

whether the Fair Housing Act applies to the business of

a oe

3

insurance. The Seventh Circuit’s revolutionary construc-

tion of the McCarran-Ferguson Act will have extremely

deleterious consequences for the insurance industry and

the system of state regulation that traditionally has gov-

erned it.

The Seventh Circuit erroneously held that the Fair

Housing Act, which does not specifically address insur-

ance, merely “duplicates” Wisconsin’s insurance law and

thus may coexist with it without invalidating, impairing,

or superseding the State’s law within the meaning of the

McCarran-Ferguson Act. By so holding, the Seventh Cir-

cuit has invited a disruption of the scheme that Congress

enacted, nearly a half-century ago, for regulation of the

business of insurance. If future judicial decisions apply

the Seventh Circuit’s rule, a wide range of federal laws

that seem to parallel state insurance laws may be held

applicable to insurance and, when so applied, effectively

will emasculate the ability of the states to achieve a bal-

ance among state policies that affect insurance regulation.

The Seventh Circuit ignored the plain meaning of the

terms “invalidate,” “impair.” and “supersede’”’ in the

McCarran-Ferguson Act, as well as the legislative history

supporting that plain meaning. Contrary to the Seventh

Circuit’s opinion, those terms do not simply mean ‘‘con-

flict” in the narrowest sense. As repeatedly recognized by

this Court and the lower federal courts, application of a

federal law to the business of insurance may “invalidate,

impair, or supersede” state insurance laws even absent a

blatant conflict, by undermining state choices about the

nature of and methodology for achieving insurance regu-

latory goals. In this case, the application of the Fair

Housing Act to the business of insurance in Wisconsin

has that effect by, for example, threatening the Wisconsin

scheme for both preventing discrimination in the provision

of property insurance and ensuring broad availability of

such insurance through state insurance pools. This is

because such insurance pools could be attacked, under

4

+

jurisprudence endorsed by nine of the federal Circuits,

including the Seventh Circuit, as having a “disparate

impact” on groups protected under the Fair Housing Act.

To prevent the decision below from effectively revers-

ing Congress’ determination regarding state primacy in

the regulation of insurance, without any support from

judicial precedent, NAMIC respectfully submits that this

Court should grant American Family’s petition for a writ

of certiorari.

ARGUMENT

I. THE SEVENTH CIRCUIT’S DECISION SERIOUSLY

UNDERMINES THE PRIMACY OF STATE REGU-

LATION OF INSURANCE THAT CONGRESS ES-

TABLISHED IN THE McCARRAN-FERGUSON ACT.

The McCarran-Ferguson Act, enacted by Congress

in 1945. established the primacy of the states in the

regulation of the business of insurance. It states: ‘‘No

Act of Congress shall be construed to invalidate, im-

pair, 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.” ' 15 U.S.C. $ 1012(b) (1988) (emphasis

added). Insurance companies and state insurance regula-

tors have acted in reliance on this fundamental rule. In

this case, the Seventh Circuit has defied legal precedent

and policy bv holding that the Fair Housing Act

(“FHA”), 42 U.S.C. $8 3601-3631, applies to the busi-

ness of insurance, even thouech (1) the FHA and its

legislative history nowhere indicate that the statute is in-

1The term “law enacted by any State” is understood to include

“all laws, decisions, rules, regulations, or other State action having

the effect of law, of any State.” See 29 U.S.C. § 1144(e) (1) (1988)

(Employee Retirement Income Security Act). See also 27 U.S.C.

§ 214(11) (1988) (Federal Alcohol Administration Act (‘state

law” includes “state statutes, regulations, and principles and rules

having the force of law’’) ).

Po

tended to apply to the business of insurance * and (2) the

application of the FHA to the business of insurance neces-

sarily will interfere with several state laws regulating the

business of insurance generally and prohibiting insurance

redlining practices specifically.

The crux of the Seventh Circuit’s reasoning is that the

FHA end the Wisconsin laws regulating discrimination

by insurers are parallel rather than inconsistent, and there-

fore the FHA does not “invalidate, impair, or supersede”

Wisconsin insurance law. Although the Seventh Circuit

identified a fundamental difference between the state and

federal remedies authorized under these statutes, it never-

theless held that the FHA did not, by virtue of this

difference, “invalidate, impair, or supersede” the state

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

F.2d 287, 295 (7th Cir. 1992).

As is discussed below (infra at 8-12), the Seventh Cir-

cuit’s premise as to the rel::tionship between the FHA and

Wisconsin law is wrong. There is more at issue here than

differing penalties in the state and federal statutes: there

are conflicts in the purportedly parallel regulatory schemes

that go to the basic questions of what conduct by insurers

will be deemed actionable and which officials, state or

federal, will have the authority to make judgments regard-

ing such conduct. State regulation in this area reflects the

integration of state goals and policies over which “‘dupli-

cate” federal regulation will ride roughshod, a result that

the McCarran-Ferguson Act was enacted specifically to

prevent.

By rejecting this reality, the Seventh Circuit’s decision

provides the foundation for similar decisions permitting

the application of other federal laws to the business of

2As explained in American Family’s Petition for a Writ of

Certiorari (“Petition”), the FHA does not, by its terms, apply to

the business of insurance, and the legislative history of the FHA

confirms the plain meaning of the statute. See Petition at 12-14.

6

insurance that are superficially consistent with state regu-

lation but that in fact will disrupt the state’s chosen

regulatory system.* Thus, the decision threatens to sweep

aside long-standing practices in insurance regulation and

the conduct of the business of insurance.

Had Congress intended the consequences of the Sev-

enth Circuit’s decision, all that it had to do, at any of

several opportunities, was to add a single word to the

FHA." In the absence of such congressional action, this

Court should not allow such revolutionary consequences

to occur without review. Review is particularly critical

in light of the weakness of the foundation upon which

the Seventh Circuit’s new view of the McCarran-Ferguson

Act is based.

3 For example, under the Seventh Circuit’s reading of the

McCarran-Ferguson Act, a federal statute such as the Racketeer

Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.

§$§ 1961-1968, which authorizes private rights of action for treble

damages and recovery of attorney fees in cases involving fraudulent

use of the mails or wires, might be used to challenge solicitations

of insurance, even though the states pervasively regulate insurance

solicitation practices. Following the rationale of the Seventh Cir-

cuit, as long as RICO simply seems to create a more powerful

weapon for use against practices otherwise subject to state regula-

tion, it could apply to “the business of insurance.”

* Congress specifically rejected attempts to amend the FHA to

cover property insurance in 1980, 1983, 1986, and 1988. See 126

Cong. Rec. 31,696, 32,350-51, 32,353, 32,991-92 (1980) (objections

to H.R. 5200, 96th Cong., 2d Sess. (1980) ); S. 1220, 98th Cong., Ist

Sess. (1983); H.R. 3482, 98th Cong., Ist Sess. (1983); S. 2040,

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

compare H.R. 1158, 100th Cong., Ist Sess. (1987) (specifically refer-

ring to hazard insurance) with Fair Housing Act Amendments of

1988, Pub. L. No. 100-430, 102 Stat. 619 (1988) (omitting mention

of hazard insurance).

7

II. THE SEVENTH CIRCUIT WRONGLY INTER-

PRETED AND APPLIED THE McCARRAN-

FERGUSON ACT.

A. The Seventh Circuit Misinterpreted the Plain Mean-

ing of the McCarran-Ferguson Act.

As this Court recently emphasized in Reves v. Ernst &

Young, USS. , 113 S. Ct. 1163 (1993), the

first task for a court in construing the scope of a statu-

tory provision is to examine the plain language of the

statute. If that language is unambiguous, then it should

be deemed conclusive, assuming there is no clearly ex-

pressed legislative intent to the contrary. Jd. at 1169.

The Seventh Circuit has misapplied that basic rule of

Statutory construction in this case. Its reading of the

McCarran-Ferguson Act fails to acknowledge the plain

meaning of the terms “invalidate,” “impair,” and “su-

persede.”

“Impair” means “[t]lo make worse, less valuable. or

weaker.” “Invalidate” means “to destroy the validity or

strength of . . .; to render of no force or effect; esp.,

to deprive of legal efficacy.” ‘“Supersede” means “to

render superfluous or unnecessary; to preclude the neces-

sity of; . . . to make of no effect.” Oxford English Dic-

tionary (compact ed. 1971). Not just one, but each of

these definitions accurately describes the effect of the

FHA on Wisconsin law regulating the business of in-

surance.°®

°’ Even if the plain meaning of the terms “impair,” “invalidate,”

and “supersede” did not so clearly establish that the MeCarran-

Ferguson Act precludes application of the FHA in this case, the

legislative history of the McCarran-Ferguson Act would confirm

that conclusion. See Reves, 113 S. Ct. at 1170-72 (discussing how

legisiative history supported understanding of statute’s plain mean-

ing). The Act was designed to “affirm the intent of the Congress

that the regulation of the business of insurance remain within the

control of the several States.” H.R. Rep. No. 873, 78th Cong., Ist

Sess. 1 (1943). Significantly, the House Judiciary Committee re-

&

B. The Seventh Circuit Ignored the Manner in Which

the Fair Housing Act, If Applied to Insurance,

Would Invalidate, Impair, or Supersede Wisconsin

Laws and Regulations.

Wisconsin law explicitly prohibits discrimination by

“person[s] 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. Stat. Ann.

§ 101.22(2)(e) (West 1992). The state law also ex-

plicitly forbids racial discrimination by casualty insurers.

Wis. Stat. Ann. § 628.34(3) (West 1992). Since the

FHA generally duplicates the mandates of these state

laws, it makes the state laws “unnecessary,” and _ there-

fore “supersedes” them. See supra at 7 (definition of

“supersede” ).

The Wisconsin statutes prohibiting discrimination in

the business of insurance, taken together, constitute a

single manifestation of the state’s regulatory goals on the

issue. The application of the FHA to the business of

insurance interferes with the methods by which the state

has chosen to meet these goals. For example, it “ren-

der{s] of no force or effect” Wisconsin’s choice to pre-

clude private rights of action in redlining cases.°

The FHA and the Wisconsin insurance antidiscrimina-

tion laws collide, moreover, on the crucial issues of what

jected the Department of Justice’s insistence that the federal gov-

ernment should be able to interfere with state insurance regulation

whenever it deemed such regulation to be inadequate. The Com-

mittee maintained that “[i]f the states are to be permitted to

regulate, they should be permitted to regulate as they see fit.” Jd.

at 7.

8 See Kranzush v. Badger State Mut. Casualty Co., 307 N.W.2d

256, 268-69 (1981) (discussing intent of Wisconsin legislature and

regulatory authorities to limit enforcement of state law forbidding

“unfair” insurance practices to administrative officials).

9

conduct is actionable and who shall have the burdens of

proof and persuasion at trial. Nine of the federal circuits.

including the Seventh Circuit, see Metropolitan Housing

Dev. Corp. Vv. Village of Arlington Heights, 558 F.2a

1283, 1289-90 (1977), cert. denied, 434 U.S. 1025

(1978), permit a claim under the FHA to rest on proof

of disparate impact.’ Under Wisconsin insurance law.

however, discrimination cannot be established absent proof

of disparate treatment, i.e., intent to discriminate. See

American Family, 978 F.2d at 292-93.

This fundamental discrepancy between federal and state

law is consequential for precisely the reasons acknowl-

edged in the Seventh Circuit’s opinion: the very “nature

of insurance” requires insurers to discriminate as to risks.

As the Seventh Circuit recognized: “Insurance works best

when the risks in the pool have similar characteristics. . . .

To curtail adverse sélection, insurers seek to differentiate

risk classes with many variables.” Jd, at 290. Such dif-

ferentiation, based solely on the identification of risks

and without regard to race, may lead to less advantageous

policies (such as those with higher premiums or deducti-

bles) for some insurance customers, or to the decision

* See Huntington Branch, NAACP v. Town of Huntington, 844

F.2d 926, 934 (2d Cir.), review declined in relevant part, 488 U.S.

15, 18 (1988) ; Resident Advisory Bd. v. Rizzo, 564 F.2d 126, 146-48

(3d Cir. 1977), cert. denied, 485 U.S. 908 (1978); Betsey v. Turtle

Creek Assocs., 736 F.2d 983, 986-88 (4th Cir. 1984); Hanson vy.

Veterans Admin., 800 F.2d 1381, 1386 (5th Cir. 1986); Arthur v.

City of Toledo, 782 F.2d 565, 574-75 (6th Cir. 1986) ; United States

Vv. City of Black Jack, 508 F.2d 1179, 1184-85 (8th Cir. 1974), cert.

denied, 422 U.S. 1042 (1975): Keith v. Volpe, 858 F.2d 467, 482-84

(9th Cir. 1988), cert. denied, 493 U.S. 813 (1989) ; Elliot v. City

of Athens, 960 F.2d 975, 981 (11th Cir.), cert. denied, ——- U.S.

+ 113 S. Ct. 8376 (1992) ; compare with Asbury v. Brougham, 866

F.2d 1276, 1279 (10th Cir. 1989) (requiring proof of discriminatory

intent). This Court has vet to decide whether proof that a practice

has a disparate impact, absent evidence of disparate treatment, may

suffice to establish a violation of the FHA. Town of Huntington v.

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

10

that some would-be customers are uninsurable. Engaging

in risk differentiation, which is integral to the business

of insurance, could, under the Seventh Circuit’s decision,

render insurers vulnerable to charges of disparate impact

discrimination—simply for doing what is inherent in the

“nature of insurance.”

The incongruity of that result is particularly stark in

states such as Wisconsin that have established Fair Access

to Insurance Requirements (“FAIR”) plans.* Congress

specifically encouraged the states to establish FAIR plans

pursuant to the Urban Property Protection and Reinsur-

ance Act of 1968 (“UPPRA”), a statute enacted just

three months after the adoption of the FHA. Pub.

L. No. 90-448 $$ 1101-1102, 82 Stat. 555-556 (1968).

UPPRA created incentives for insurers and state regu-

lators to address the issue of access to basic property

insurance, including, in a number of states, homeowners’

insurance. In enacting UPPRA, Congress envisioned the

preservation of the basic structure of state-regulated insur-

ance rating systems based on cost-based rate classifica-

tions, including territorial factors.

If the Seventh Circuit rule applies, policyholders who

obtain insurance through FAIR plans could claim, in

federal court, that insurers have discriminated against

them in violation of the FHA by offering them insurance

under a FAIR plan rather than under regularly marketed

policies.” If such a federal claim were successful, the

state courts and insurance regulators could be estopped

from making their own findings that better reflect the

8 See Wis. Stat. Ann. § 619.01 (West 1992); Wis. Admin. Code

§ Ins 4.10 (April 1992).

®Tronically, such a claim would involve attacking a mechanism

(the FAIR plan) designed to make property insurance available,

when the very objective of the FHA is “making available” residen-

tial real estate.

11

State’s statutory and regulatory priorities. Moreover, if

such a claim were brought in any of the nine Circuits

that read the FHA as authorizing proof of discrimination

based on a showing of disparate impact, the claim might

be established merely through an analysis of the race (or

other protected classification) of the urban area residents

served by the FAIR plan.

The FAIR plans serve an important, mutual state and

federal goal: to provide, on a subsidized basis, basic

property insurance in urban areas under the supervision

of state insurance regulators. The application of the FHA

would threaten—“impair,” if you will—the FAIR plans

and therefore the ability of the states to achieve this goal.

See Fireman's Ins. Co. v. Washington, 483 F.2d 1323,

1331 (D.C. Cir. 1973) (application of anti-discrimination

regulation to property insurance conflicts with FAIR

plan’s “equitable distribution of the hazards posed by...

high-risk properties among private insurers.”). Simply

labeling the state and federal regulatory schemes as paral-

lel or consistent masks the serious potential for erosion

of state initiatives such as the formation and implemen-

tation of the FAIR plans.

The Seventh Circuit itself has conceded that “Tuln-

doubtedly there is a sense in which any overlap between

State and federal law upsets a balance struck by one of

the two legislatures.” American Family, 978 F.2d at 295.

citing Gade v. National Solid Wastes Management Ass’n,

USS. , 112 S. Ct. 2374, 2385-86 (1992). The

court further noted that “[o]ne could say that a federal

rule increasing the probability that a state norm will be

vindicated (or augmenting the damages assessed in the

event of a violation) conflicts with a decision by the state

that remedies should be limited or rare.” American Fam-

10 See Ward v. Harte, 794 F. Supp. 109, 118 (S.D.N.Y. 1992)

(finding defendant in private suit under federal law to be collater-

ally estopped from challenging previous county regulatory finding of

housing discrimination).

12

ily, 978 F.2d at 295. Yet the Seventh Circuit refused to

recognize the extent to which the imbalance and conflict

it noted are “impairments” within the meaning of the

McCarran-Ferguson Act.

C. The Rationale of the Seventh Circuit for Its Inter-

pretation and Application of the Act Is Inconsistent

with This Court’s Precedents.

The Seventh Circuit’s new construction and application

of the McCarran-Ferguson Act is inconsistent with this

Court’s previous consideration of the regulatory system

established by the Act. For example, in SEC v. Vari-

able Annuity Life Ins. Co., 359 U.S. 65, 68 (1959), this

Court expressed “a reluctance to disturb the state regu-

latory schemes that are in actual effect, either by dis-

placing them or by superimposing federal requirements

on transactions that are tailored to meet state require-

ments.” See also Prudential Ins. Co. v. Benjamin, 328

U.S. 408 (1946) (“[o]bviously Congress’ purpose was

broadly to give support to the existing and future state

systems for regulating and taxing the business of insur-

ance . . . by removing obstructions which might be

thought to flow from its own power, whether dormant or

exercised, except as otherwise expressly provided in the

Act itself or in future [federal] legislation.”); FTC v.

National Casualty Co., 357 U.S. 560, 563 (1957) (Mc-

Carran-Ferguson Act “withdrew from the Federal Trade

Commission the authority to regulate [insurance com-

panies’] advertising practices in those States which are

regulating those practices under their own laws,” without

any exception for “parallel” regulation).

The Seventh Circuit’s narrow view of the McCarran-

Ferguson Act is also at odds with well-established prin-

ciples of preemption. In Gade v. National Solid Wastes

Management Ass'n, USS. , 12 S&S. te. 2574

(1992), this Court rejected an argument that is echoed

in the Seventh Circuit’s rationale here. In Gade, the peti-

13

tioner argued that the Occupational Safety and Health

Act does not preempt “nonconflicting state laws because

those laws, like the Act, are designed to promote worker

safety.” /d. at 2385. In turning that argument aside,

this Court wrote:

In determining whether state law “stands as an

obstacle” to the full implementation of a federal

law, ... “it is not enough to say that the ultimate

goal of both the federal and state law” is the same.

... “A state law also is preempted if it interferes

with the methods by which the federal statute was

designed to reach th[at] goal.”

Id. (emphasis added) (citations omitted). For precisely

the reason articulated in that statement by this Court

in Gade, the Seventh Circuit’s narrow reading of the

McCarran-Ferguson Act is fundamentally flawed, and

threatens to turn the Act’s well-understood function on

its head without justification.

CONCLUSION

For all the foregoing reasons, NAMIC respectfully sub-

mits that the Court should grant American Family’s peti-

tion for a writ of certiorari.

Respectfully submitted,

JAMES F. FITZPATRICK *

GEOFFREY F’.. ARONOW

KATHLEEN M. H. WALLMAN

NANCY L. PERKINS

EDWARD N. COOPER

ARNOLD & PORTER

1200 New Hampshire Avenue, N.W.

Washington, D.C. 20036

(202) 872-6878

Counsel for Amicus Curiae

National Association of

* Counsel of Record Mutual Insurance Companies

April 8, 1993