Insurance Trades Challenge HUD Disparate Impact Rule

HUD Fair Housing Disparate Impact

On June 26, two insurance associations filed a lawsuit challenging a rule promulgated earlier this year by HUD that authorizes so-called “disparate impact” or “effects test” claims under the Fair Housing Act. The rule provides support to private or governmental plaintiffs challenging housing or mortgage lending practices that have a “disparate impact” on protected classes of individuals, even if the practice is facially neutral and non-discriminatory and there is no evidence that the practice was motivated by a discriminatory intent. The rule also permits practices to be challenged based on claims that the practice improperly creates, increases, reinforces, or perpetuates segregated housing patterns. The insurance associations allege that the rule violates the Administrative Procedures Act because it contradicts the plain language of the relevant portion of the Fair Housing Act, which prohibits only intentional discrimination. The complaint also alleges that the rule, if applied to homeowners’ insurance, would require insurers “to consider characteristics such as race and ethnicity and to disregard legitimate risk-related factors,” thereby forcing insurers “to provide and price insurance in a manner that is wholly inconsistent with well-established principles of actuarial practice and applicable state insurance law.”