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

; Eupreme Court, U.S

No. 92-1455 F =

IAG e

| AY 1 0

IN THE

Sigwrenw 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,

Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

BRIEF OF THE NATIONAL ASSOCIATION OF

INDEPENDENT INSURERS AS AMICUS CURIAE

IN SUPPORT OF THE PETITION

Of Counsel: PATRICIA A, DUNN

PATRICK J. MCNALLY (Counsel of Record)

L. Eric LOEWE GREGORY A. CASTANIAS

roa , Le Tr & Ponctir

NATIONAL ASSOCIATION OF J ONES, DAY > REA\ IS & i OGI E

INDEPENDENT INSURERS 1400 G Street, N.W. ;

2600 River Road Washington, D.C. 20005-2088 |

Des Plaines, IL 60018-3286 (202) 879-3939

(708) 297-7800 Counsel for Amicus Curiae

National Association of

Independent Insurers

Inc. - 789-0096 - WASHINGTON, D.C. 20001

WILSON - EPES PRINTING Co..

BSSSEST AVAILABLE COPY

QUESTION PRESENTED

Whether the McCarran-Ferguson Act precludes the ap-

plication of the Fair Housing Act to companies writing

homeowners insurance subject to regulation under state

insurance laws.

(i)

TABLE OF CONTENTS

Page

QUESTION PRESENTED 00000000... ooo ccc cece cece i

TABLE OF AUTHORITIES .............. Bae ican canaeemeaeietios iv

INTEREST OF THE AMICUS CURIAE .................... l

Nee iabausacnatanenntncnesnauecene 2

REASONS FOR GRANTING THE WRIT................. aa 3

A. THE SEVENTH CIRCUIT’S DECISION UN-

DERMINES THE AUTHORITY OF THE

STATES TO REGULATE INSURANCE .......... 5

B. THE FAIR HOUSING ACT DOES NOT, BY

ITS TERMS, APPLY TO INSURANCE ........ 10

CONCLUSION ...................... oe shots 55 Os OE 15

(ili)

iv

TABLE OF AUTHORITIES

Cases Page

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

Council, Inc., 467 U.S. 837 (1984) -....00002. ee. 11

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

EE a coxecoediactussheeaoe eaeiceeaetee kc ae eer eee are 6

Group Life & Health Ins. Co. v. Royal Drug Co.,

Ee SE eT erscaike eee ceeees 6

Halet v. Wend Investment Co., 672 F.2d 1305 (9th

ails. MIU vasrceuksauaesse adacuaebeanantenics palaiuek bimini 12

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

Lowe v. AARCO-American, Inc., 536 F.2d 1160

(7th Cir. 1976) (per curiam) .....................,........ 4

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

SAU, - IIE erection cnccecuicvacsee peste aan tee 8, 10, 11

Metropolitan Housing Dev. Co. v. Village of

Arlington Heights, 558 F.2d 1283 (7th Cir.

1977), cert. denied, 434 U.S. 1025 (1978)............ 12

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

Cir. 1977), cert. denied sub nom. Whitman Area

Improvement Council v. Resident Advisory Bd.,

GI tis. Be CI aca ee eeteeeevedccctesdiciecsorcteetinn natives 12

SEC v. National Securities, Inc., 393 U.S. 453

CR iGacchancadeaiiavesbanchenneciatiadeienaannaedtadeasees 5, 6

SEC v. Variable Annuity Life Ins. Co., 359 U.S. 65

RII i oocsciicduasoceicsicandicdciaasteetiataceee ae ee 14

Smith v. Anchor Building Corp., 536 F.2d 231 (8th

A: CeUFINEE sciccarucineoateae tas bancentiabetnmeniadeeascatedetacees 12

Spirt v. Teachers Ins. & Annuity Ass’n, 691 F.2d

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

Se is SU CD kkkccctencccce se ee 4

United States v. Mitchell, 580 F.2d 789 (5th Cir.

| PR UM Mite these ERAT A AE Naty oie 12

United States v. South-Eastern Underwriters

pig @ Rte Oy | ee eee ee 5

Constitutional Provisions and Statutes

ate Es 7

Fair Housing Act, 42 U.S.C. § 3601 et seq. (1988)... 3

ee Te i otc centae eee ee 11

a a ne

v

TABLE OF AUTHORITIES—Continued

Page

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

§ (SEN TURRIO atr LN Ea te le CERT eT SS 5

a 8 ole GD _ | Re aE ONeEaR rene Eee ison 5

Be Se Oe itches soca e a 6

Wis. Stat. Ann. § 601.01(d), (f) (West 1980 &

NN 1 NIE deserts rete ee ee a 9

Wis. Stat. Ann. §§ 601.11-601.73 (West 1980 &

RD es cherie eae 8

Wis. Stat. Ann. § 625.11(1) (West 1980 & Supp.

PI eel a sgaieoncentear boots ciocese cteaentae cee eee 9

Wis. Stat. Ann. § 628.34 (West 1980 & Supp.

| REN OU IED Cea ULE nan OCD OE aS Shon RIOR 9

Rules and Regulations

Fs Wie Ss re MOEN UD osicinsisiiscnb enc udaousareni ea oceeans 2,12

a tS A | | FIER aa RRO ae ort TSE 3

Wis. Admin. Code § Ins 6.68 (April 1992)... 9

Legislative History

H.R. Rep. No. 143, 79th Cong., Ist Sess. (1945) 5

H.R. Rep. No. 873, 78th Cong., Ist Sess. (1943)... 8,10

S. Rep. No. 20, 79th Cong., Ist Sess. (1945) 5

ESS Come. Tee re Cree eee i 11

126 Cong. Rec. $2991 (1980) ....................................... 12

Miscellaneous

Regina Austin, The Insurance Classification Con-

troversy, 131 U. Pa. L. Rev. 517 (1983).............. 13

Robert E. Keeton & Alan I. Widiss, Insurance Law

§ 8.1(c) (Practitioner’s ed. 1988)... 8

The Pricing and Marketing of Insurance: A Re-

port of the United States Department of Justice

to the Task Group on Antitrust Immunities

Ey sf SaRR BAe CUI T I any ERIE DR aan ARAL oR 13

Wis. Stat. Ann., ch. 601 Committee Comment

Sa acne a eer arn ee ere ee oe 8,9

IN THE

Supreme Cunt 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 LISTENBEE.

JAMES MILNER, DIANE PRATT, MARVIN PRATT. SIMON

WILLIAMS, BEVERLY WILLIAMS, and Lots Woops.

individually and as representatives of a class of all

similarly situated persons.

y P Respondents.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Seventh Circuit

BRIEF OF THE NATIONAL ASSOCIATION OF

INDEPENDENT INSURERS AS AMICUS CURIAE

IN SUPPORT OF THE PETITION

INTEREST OF THE AMICUS CURIAE *

The National Association of Independent Insurers

(the “Association”) is the largest association of property

and casualty insurers in the country. It represents over

*Counsel for all parties have consented to the filing of this

amicus brief. Amicus has filed those consents with the Clerk of this

Court.

2

560 property and casualty insurers that write over one-

quarter of the property insurance sold in the United

States. The Association regularly represents the interests

of its members in cases before the Court that vitally affect

the insurance industry.

The central issue presented in this case—whether Con-

gress intended by the Fair Housing Act to subject insur-

ance companies writing homeowners insurance to poten-

tially conflicting state and federal regulation—is a matter

of substantial concern to the Association and its mem-

bers. The Association strongly opposes the use of race

in insurance classifications, apart from any consideration

of the risk involved. The Association believes, however,

that the Fair Housing Act is not the proper vehicle for

addressing this reprehensible practice. In the McCarran-

Ferguson Act, Congress left “the business of insurance,”

including the regulation of insurance risk selection, to

the states.

Because the Seventh Circuit’s decision threatens this

allocation of authority between the federal government

and the states, the Association’s members are vitally in-

terested in this case. The Association, therefore, submits

this brief to offer the unique perspective of the insurance

industry on the importance of granting the Petition.

STATEMENT

Respondents filed a class action complaint against Pe-

titioner on July 27, 1990, alleging that Petitioner had

discriminated on the basis of race in the sale of home-

owners insurance, thereby violating, inter alia, the fed-

eral Fair Housing Act and the Wisconsin Insurance Code.

Petitioner moved to dismiss the claims arising out of the

Fair Housing Act and the state insurance law for failure

to state a claim upon which relief could be granted. Sze

Fed. R. Civ. P. 12(b)(6). The district court granted

that motion on December 11, 1990, and thereafter or-

3

dered entry of a partial final judgment on those claims.

See Fed. R. Civ. P. 54(b).

The Seventh Circuit reversed in part and affirmed in

part. Although it agreed with the district court that the

Wisconsin Insurance Code (unlike the Fair Housing Act)

created no private right of action, it disagreed with the

district court in regard to Respondents’ Fair Housing Act

claim. In an opinion by Judge Easterbrook, the court

first held that the McCarran-Ferguson Act’s “inverse pre-

emption” of federal law in favor of state law did not apply

here; even though the court held that the McCarran-

Ferguson Act applied to the subsequently-enacted Fair

Housing Act, the court concluded that the McCarran-

Ferguson Act did not preclude application of the Fair

Housing Act since the Fair Housing Act merely duplicated

state insurance laws forbidding “unfair discrimination.”

Pet. App. 13a-14a. Second, the court held that the Fair

Housing Act could be construed to regulate the writing of

homeowners insurance. /d. at 23a.

REASONS FOR GRANTING THE WRIT

The Seventh Circuit’s decision creates a triple conflict.

In order to reach its conclusion that the Fair Housing Act,

42 U.S.C. § 3601 et seq. (1988), applies to regulate the

writing of homeowners insurance, the Seventh Circuit had

to break ranks with two other courts of appeals’ prece-

dents, and overrule one of its own.

First, to hold that the Fair Housing Act “applies

to discriminatory denials of insurance, and discrim-

inatory pricing, that effectively preclude ownership of

housing because of the race of the applicant,” Pet.

App. 24a, the court of appeals had to depart from

the Fourth Circuit’s holding in Mackey v. Nation-

wide Ins. Co., 724 F.2d 419, 424 (4th Cir. 1984),

that the Fair Housing Act “was not intended to reach

. the hazard insurance industry.”

4

Second, to hold that the McCarran-Ferguson Act

applies to the Fair Housing Act, Pet. App. 12a-13a,

(he courts decision had to break from the Second

Circuits holding in Spirt v. Teachers Ins. & Annuity

Ass'n, 691 F.2d 1054, 1065 (2d Cir. 1982), vacated

on other grounds, 463 U.S. 1223 (1983), that the

McCarran-Ferguson Act does not preclude applica-

tion of subsequently-enacted civil rights laws, /e.,

Congress “had no intention of declaring that subse-

quentiy enacted civil rights legislation would be in-

applicable to any and all of the activities of an in-

surance company that can be classified as ‘the busi-

ness of insurance.’ ”

Third, to hold that the McCarran-Ferguson Act

nonetheless does not preclude application of the Fair

Housing Act in this case because the Fair Housing

Act’s “[d]juplication” of Wisconsin law “is not con-

flict.” Pet. App. 13a, the Seventh Circuit was forced

to overrule one of its own precedents, Lowe v.

AARCO-American, Inc., 536 F.2d 1160, 1161-62

(7th Cir. 1976) (per curiam), which held that a

federal statute duplicative of the terms of state law

does “invalidate, impair, or supersede” state law in

violation of the McCarran-Ferguson Act. See Pet.

App. 15a.

These conflicts did not go unacknowledged by the court of

appeals; indeed, the court understood that its opinion

“overrules Lowe to the extent that Lowe holds that the

McCarran-Ferguson Act prevents the application of fed-

eral laws duplicating state rules, and . . . conflicts with

both the second circuit’s views in Spirt and the fourth

circuit’s holding in Mackey.” Pet. App. 27a.

The triple conflict involving the interpretation of twcd

important federal statutes, the Fair Housing Act and the

McCarran-Ferguson Act, should be a compelling enough

reason for this Court to grant review. But there are other

compelling reasons as well. By applying the Fair Housing

Act to the business of insurance, the Seventh Circuit up-

5

set the balance that the McCarran-Ferguson Act strikes

between federal and state authority over the “business of

insurance.” Sound policy reasons, which we address be-

low, further underscore the incorrectness of the Seventh

Circuit’s decision. For all of these reasons, certiorari

should be granted.

A. THE SEVENTH CIRCUIT’S DECISION UNDER-

MINES THE AUTHORITY OF THE STATES TO

REGULATE INSURANCE.

By holding that the Fair Housing Act may be applied

to sellers of homeowners insurance, the Seventh Circuit

has misconstrued the McCarran-Ferguson Act in a manner

that threatens “the continued supremacy of the States,”

SEC v. National Securities, Inc., 393 U.S. 453, 459

(1969), in regulating the business of insurance. If per-

mitted to stand, the court of appeals’ decision will have a

tremendous impact on thousands of insurers previously

subject only to state regulations. Only this Court can

prevent this usurping of state authority in the insurance

field.

1. Congress enacted the McCarran-Ferguson Act, 15

U.S.C. § 1011 et seg. (1988), to further its determination

“that the continued regulation and taxation by the sev-

eral States of the business of insurance is in the public

interest, and that silence on the part of the Congress shall

not be construed to impose any barrier to the regulation

or taxation of such business by the several States.” 15

U.S.C. §$ 1011. See also S. Rep. No. 20, 79th Cong., 1st

Sess. 2 (1945): H.R. Rep. No. 143, 79th Cong., Ist Sess.

2-3 (1945). Congress’s primary goal, in the wake of this

Court’s decision in United States v. South-Eastern Under-

writers Ass'n, 322 U.S. 533 (1944) (holding that insur-

ance transactions were subject to federal regulation under

the Commerce Clause). was to enact legislation “that

would ensure that the States would continue to have the

ability to tax and regulate the business of insurance.”

6

Group Life & Health Ins. Co. v. Royal Drug Co., 440

U.S. 205, 217-18 (1979). To ensure the states’ primacy

in this field, the McCarran-Ferguson Act provides:

(a) State regulation.

The business of insurance, and every person en-

gaged therein, shall be subject to the laws of the

several States which relate to the regulation or taxa-

tion of such business.

(b) Federal regulation.

No 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[. ]

15 U.S.C. § 1012.

To determine whether a federal-statute is inapplicable

to conduct by virtue of the McCarran-Ferguson Act,

courts have undertaken a four-part inquiry based on the

statute. First, if the federal statute specifically relates to

“the business of insurance,” preclusion of the federal law

is inappropriate. See 15 U.S.C. § 1012(b); SEC v. Na-

tional Securities, Inc., 393 U.S. at 459-61. Second, pre-

clusion of the federal statute is also inappropriate unless

the state has enacted law for the purpose of regulating

insurance activities. /d. at 457-59; FTC v. National Cas-

ualty Co., 357 U.S. 560, 563-65 (1958). Third, a federal

statute can only be precluded if the activities underlying

the cause of action are “the business of insurance” within

the meaning of the Act. SEC v. National Securities, Inc.,

393 U.S. at 459-60; Group Life & Health Ins. Co. v.

Royal Drug Co., 440 U.S. at 210. And fourth, the fed-

eral statute will be precluded only if it would “invalidate,

impair, Or supersede” any state law regulating insurance.

15 U.S.C. § 1012(a):; see also SEC v. National Securities,

Inc., 393 U.S. at 463. All four prongs must be satisfied

7

for the McCarran-Ferguson Act to preclude application of

a federal statute.

2. The Seventh Circuit found the first three prongs

satisfied, but not the fourth. It held (a) that the Fair

Housing Act did not specifically relate to the business of

insurance,’ see Pet. App. 9a-10a; (b) that the State of

Wisconsin has enacted laws to regulate insurance activi-

ties, see id. at 13a, 24a-26a; and (c) that the challenged

activities of Petitioner were “the business of insurance.”

See id at 10a. The court concluded, however, that the

Fair Housing Act did not “invalidate, impair or supersede”

Wisconsin law because the Fair Housing Act was merely

duplicative of Wisconsin law, and—in Judge Easterbrook’s

words—“[d]uplication is not conflict.” Pet. App. 13a.

This holding was in error.

The Seventh Circuit reached this erroneous conclusion

by relying on analogy instead of relying on the words of

the McCarran-Ferguson Act:

The McCarran-Ferguson Act is a form of inverse

preemption, so principles defining when state rem-

edies conflict with (and so are preempted by) federal

law are pertinent in deciding when federal rules “in-

validate, impair, or supersede” state rules.

Pet. App. 14a. But principles of federal preemption are

not so easily transferable to the language of the McCarran-

Ferguson Act. Federal preemption of state legislation is

based on the Supremacy Clause of Article VI of the Con-

stitution, which simply provides that federal law “shall be

the supreme Law of the Land... any Thing in the Con-

stitution or Laws of any State to the Contrary notwith-

standing.” The McCarran-Ferguson Act, in contrast, con-

tains very different language: “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... .”

8

The analogy fails because even where a federal statute

duplicates a state’s regulation of insurance, the mere avail-

ability of the alternative federal remedy “impairs” the

state’s ability to regulate “the business of insurance”

through a uniform regulatory system. Moreover, having

duplicative federal remedies allows plaintiffs to bring in-

surance-related cases in federal court by invoking federal-

question jurisdiction, instead of bringing them in state

court or before state regulators. In such a case, the fed-

eral statute effectively “supersedes” the state’s authority to

dictate where and how the business of insurance will be

regulated. Thus, although “duplication” may not be “con-

flict” in a Supremacy Clause sense, the duplication cer-

tainly “impairs” and “supersedes” state law in violation of

the McCarran-Ferguson Act.

3. The decision below, applying the Fair Housing Act

to homeowners insurance regulated under Wisconsin law,

effectuates precisely such an impairment. The McCarran-

Ferguson Act recognizes that the business of insurance is

“fundamentally local in character, and therefore best regu-

lated by the States.” H.R. Rep. No. 873, 78th Cong.. Ist

Sess. 9 (1943). In order to fulfill McCarran-Ferguson’s

mandate, the State of Wisconsin has enacted a comprehen-

sive and integrated insurance code (two full volumes of

the Wisconsin Statutes Annotated). Moreover, like every

other state, see Robert E. Keeton & Alan I. Widiss, /n-

surance Law § 8.1(c), at 937 (Practitioner’s ed. 1988),

“Wisconsin maintains a substantial administrative appara-

tus regulating the conduct of insurers,” Pet. App. 26a,

which is administered by a Commissioner of Insurance.

See Wis. Stat. Ann. $$ 601.11-601.73 (West 1980 &

Supp. 1992). In enacting its insurance code, the Wis-

consin Legislature sought to “create[] a simple and con-

sistent framework for the enforcement of the insurance

laws.” Wis. Stat. Ann., ch. 601 Committee Comment

(1969). Two of the stated purposes of the Wisconsin

insurance code bear out Wisconsin’s intent to regulate

9

comprehensively the business of insurance: to “provide

for an office that is expert in the field of insurance,” and

to “improve and thereby preserve state regulation of in-

surance.” Wis. Stat. Ann. § 601.0!(d), (f) (West 1980

& Supp. 1992).

a. The court of appeals’ decision plainly allows the

Fair Housing Act to “impair” Wisconsin’s insurance code.

Wisconsin prohibits “unfair discrimination” in setting in-

surance rates, see Wis. Stat. Ann. § 625.11(1): Wis.

Admin. Code § Ins 6.68 (April 1992), which is the prac-

tice that Respondents seek to challenge under the Fair

Housing Act. Under Wisconsin’s scheme, the Insurance

Commissioner must be certain that insurance practices re-

flect an individual’s contribution to the risk pool, and must

resolve such questions as whether classifications based on

location are equitable and, if not, what procedure should

be prescribed to eliminate the improper classifications.

The Seventh Circuit recognized that Wisconsin’s insur-

ance code prohibits unfair discrimination in setting insur-

ance rates, although it also held that the section allows

for only administrative, and not judicial, enforcement. See

Pet. App. 25a; see also Wis. Stat. Ann. §§ 625.11(4),

628.34(3)(a), (11), (12) (West 1980 & Supp. 1992).

But the fact that “Wisconsin wants such contentions sub-

mitted to administrators rather than judges,” Pet. App.

26a, completely undermines any serious argument for con-

current state and federal regulation—Wisconsin clearly

wants these claims brought by its Commissioner of In-

surance, who possesses the expertise and long-term vision

that will help the insurance law “maintain its vitality and

relevance.” Wis. Stat. Ann. ch. 601 Committee Comment

(1969). Allowing judicial enforcement of the Fair Hous-

ing Act in lieu of the state administrative procedures

clearly “impairs” Wisconsin’s preference to have “such

contentions submitted to administrators rather than

judges.” Pet. App. 26a.

10

b. The Seventh Circuit’s decision also allows the Fair

Housing Act to “supersede” the Wisconsin insurance code.

It takes the regulation of insurance away from the unitary

guidance of the state insurance department and gives it,

in part, to the piecemeal litigation process. Persons claim-

ing “unfair discrimination” in the setting of insurance rates

now may shop for the forum that suits them. They may

even completely bypass state administrative processes—

such as Wisconsin’s—in favor of a judicial proceeding

brought under the Fair Housing Act. The Seventh Cir-

cuit’s decision thus replaces state insurance commissioners’

unitary regulatory authority with the interstitial judicial

decisionmaking process, a result at odds with the funda-

mental assumptions underlying the McCarran-Ferguson

Act:

All insurance policies are entered into in one State

or another and that State in which they are entered

into may through State regulation meet all problems

presented. If regulation be undertaken by the Fed-

eral Government this must inevitably result in a gen-

eral pattern which is not applicable in meeting the

requirements of the different States as they should be

met and as those States now meet them.

H.R. Rep. No. 873, 78th Cong., Ist Sess. 9 (1943).

In sum, the Seventh Circuit’s decision allows the Fair

Housing Act to interfere with the regulation of insurance,

insurers’ risk assessments, and rate-setting, matters long

reserved for the authority of the several states. The Court

should intervene to prevent these matters from being sub-

jected to a patchwork of federal and state authority.

B. THE FAIR HOUSING ACT DOES NOT, BY ITS

TERMS, APPLY TO INSURANCE.

Conceding that its decision conflicts with a decision of

the Fourth Circuit, Mackey v. Nationwide Ins. Co., supra,

the Seventh Circuit held that the Fair Housing Act “ap-

plies to discriminatory denials of insurance, and discrimi-

11

natory pricing, that effectively preclude ownership of hous-

ing because of the race of the applicant.” Pet. App. 24a.

Section 804 of that Act (42 U.S.C. § 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,

religion, sex, familial status, or national origin.

(b) To discriminate against any person in the

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

dwelling, or in the provision of services or facilities

in connection therewith, because of race, color, sex,

familial status, or national origin.

(emphasis added). To reach the conclusion that the Fair

Housing Act regulates insurance, the court of appeals re-

lied on the italicized “catch-all” provision in § 3604(a)

and the “services” language in $3604(b): concluded that

these sections were ambiguous as applied to the busi-

ness of insurance; and then allowed Chevron deference

(Chevron U.S.A. Inc. v. Natural Resources Defense Coun-

cil, Inc., 467 U.S. 837 (1984) ) to do the rest.

Petitioners have covered this legal issue in detail. See

Pet. Cert. 12-18. Suffice it to say here that neither the

language of the Fair Housing Act nor its legislative his-

tory makes any reference to homeowners insurance—the

Act was not designed to reach “every discriminatory act

that might conceivably affect the availability of housing.”

Mackey v. Nationwide Ins. Co., 724 F.2d at 423. Rather,

that Act was intended to eliminate the discriminatory prac-

tices of property owners, real estate brokers, builders, and

home financiers. 114 Cong. Rec. 2272-84 (1968);

Mackey, 724 F.2d at 423. The numerous, and unsuccess-

ful, attempts to amend the Fair Housing Act to cover

homeowners insurance provide further evidence that the

Act, as it is presently written, does not regulate home-

12

owners insurance. See, e.g., 126 Cong. Rec. 32991

(1980) (remarks of Sen. Heflin).

Applying the Fair Housing Act to the business of in-

surance poses not only significant legal problems, but im-

portant policy concerns as well. Although this Court “has

yet to decide whether practices with disparate impact vio-

late Title VIII,” Pet. App. 3a (citing Huntington v.

NAACP, 488 U.S. 15 (1988)), many courts of appeals

have concluded that a violation of the Fair Housing may

be proved merely by showing a discriminatory impact.

See, e.g., Halet v. Wend Investment Co., 672 F.2d 1308S,

{311 (9th Cir. 1982); United States v. Mitchell, 580

F.2d 789, 791 (Sth Cir. 1978); Resident Advisory Bd.

v. Rizzo, 564 F.2d 126, 146-48 (3d Cir. 1977), cert.

denied sub nom. Whitman Area Improvement Council v.

Resident Advisory Bd., 435 U.S. 908 (1978); Metro-

politan Housing Dev. Co. v. Village of Arlington Heights,

558 F.2d 1283, 1289-90 (7th Cir. 1977), cert. denied,

434 U.S. 1025 (1978); Smith v. Anchor Building Corp.,

536 F.2d 231, 233 (8th Cir. 1976). Thus, regulation of

insurance practices under the Fair Housing Act would

likely preclude otherwise-permissible allocations of risk.

Individuals could no longer be classified as groups, regard-

less of the peculiar risks inherent in that group, if there

would be a discriminatory effect.

Insurance, however, is necessarily based upon risk shar-

ing. Insurance companies accept these risks because they

can spread their actual losses “across the board,” over

the risks accepted. For risk sharing to be fair and equi-

table, then, insureds must be grouped with other individ-

1To be sure, since Respondents’ complaint was dismissed pur-

suant to Fed. R. Civ. P. 12(b) (6), “we must assume that plaintiffs

can establish that the defendant intentionally discriminates on

account of race.” Pet. App. 2a. However, the ultimate question

presented in this case—whether the Fair Housing Act applies at all

to the business of insurance—is a question of law, and is thus

unaffected by this assumption of fact.

13

uals possessing similar risks. These groupings are not

arbitrary; rather, they are based on the statistical correla-

tion of certain variables that help the company predict the

insured’s risk of loss.

With homeowners insurance, for example, it may be

statistically demonstrated that the location of a dwelling

affects the potential for loss. The likelihood of natural

disasters, theft or vandalism, as well as the quality of

police and fire protection available in ‘the area, all enter

into that calculation. Just as rural isolation from police

and fire departments can be a negative factor in rate-

setting, location in the center of a densely-populated city

is also undesirable, because of the increased possibility of

manmade calamities. Regina Austin, The Insurance Clas-

sification Controversy, 131 U. Pa. L. Rev. 517, 542-45

(1983).

Such classifications must have a meaningful actuarial

basis, i.e., the classification must group together all of

those individuals who have a similar risk of loss. Where

there is proper classification, however, the result is what

in insurance parlance is called “fair discrimination.” “Fair

discrimination” does not involve considerations of race or

any other impermissible classification; rather, it refers only

to classifications based on actuarially-verifiable risks, a

proper and necessary step in developing fair insurance

rates. Each insured thus pays an appropriate price for the

risk that he or she brings to the pool, and anything that

departs from that is unfair discrimination. “In fact, the

failure to grant a preference in rates reflecting the expense

differential results in unfair discrimination.” The Pricing

and Marketing of Insurance: A Report of the United

States Department of Justice to the Task Group on Anti-

trust Immunities 308-09 (1977).

The result of prohibiting such group classifications

would be an inequitable distribution of insurance risks and

a potential financial peril to many insurers. In effect, low-

14

risk homeowners would unfairly subsidize high-risk home-

owners. In turn, the low-risk individuals would be encour-

aged to drop out of the risk pool altogether, instead of

paying a subsidy for the high-risk members of the pool.

Homeowners with safer homes would conclude that the

cost of “self-insurance” would be less than the cost of

purchasing coverage. Rates formerly set on a risk pool

containing safe and less-safe homes, if applied to the re-

maining, primarily less-safe homes, would be insufficient

to cover the accident losses of the insureds. Accordingly,

even higher rates would be set, and some companies may

drop out of the market altogether. The perverse result

that the Seventh Circuit’s decision engenders is that ap-

plication of the Fair Housing Act could make homeowners

insurance /ess available.

Finally, one other consideration bears note. The setting

of insurance rates is a complex, multi-variable task that is

traditionally left to specialized state agencies to regulate.

In view of the complexity of the task, and the traditional

role of the states in regulating insurance, it is extremely

unlikely that Congress, by two “catch-all” phrases in the

Fair Housing Act, intended to include the business of

insurance within the scope of that Act. The Seventh Cir-

cuit properly recognized that the Fair Housing Act and

its legislative history were silent on its application to

insurance. Pet. App. 20a-2!a. But this “silence on the

part of the Congress,” 15 U.S.C. $1011, should have

made the court of appeals

reluctan[t] to disturb the state regulatory schemes

that are in actual effect, either by displacing them or

by superimposing federal requirements on transac-

tions that are tailored to meet state requirements.

When the States speak in the field of “insurance,”

they speak with the authority of a long tradition.

SEC v. Variable Annuity Life Ins. Co., 359 U.S. 65, 68

(1959).

a

15

CONCLUSION

The Petition for a writ of certiorari should be granted.

Of Counsel:

PATRICK J. MCNALLY

L. Eric LOEWE

NATIONAL ASSOCIATION OF

INDEPENDENT INSURERS

2600 River Road

Des Plaines, IL 60018-3286

(708) 297-7800

April 8, 1993

Respectfully submitted,

PATRICIA A. DUNN

(Counsel of Record)

GREGORY A. CASTANIAS

JONES, DAY, REAVIS & POGUE

1450 G Street, N.W.

Washington, D.C. 20005-2088

(202) 879-3939

Counsel for Amicus Curiae

National Association of

Independent Insurers