The Leadership Conference on Civil and Human Rights

Volume 8 no. 1

"When property is not insured, homes cannot be rebuilt, neighborhoods deteriorate, and communities suffer. All of Milwaukee benefits from today's actions by American Family. Today's agreement ensures that African Americans will be part of the Ameri can Family. We commend the company for recognizing the need to service the entire community, taking steps to compensate victims of its past actions, and ensuring that all citizens of Milwaukee have a chance to receive quality insurance for their homes. Risk discrimination is permitted, race discrimination is not."

The agreement provides that the insurance company will not discriminate, will pay more than $14 million in damages to the victims of the discrimination and their attorneys fees, will advertise in media outlets that target African Americans, and that its i nspections of homes in African American and white neighborhoods will be conducted on an equal basis.

The case was initially filed in 1990 by eight black Milwaukee homeowners and the NAACP charging discrimination under the Fair Housing Act of 1968. DOJ had begun an investigation of the company in 1988 after receiving numerous complaints and intervened in the case in federal court early this year. DOJ's investigation found that:

• African American homeowners disproportionately received inferior, more costly, "repair cost" policies while white homeowners with similar risk assessments were provided the more favorable "replacement cost" policies.
• Blacks were forced to submit to inspections more often than whites and agents failed to return calls from black customers and refused to keep appointments.
• The company insured a significantly lower percentage of homes in predominantly black neighborhoods than in comparable white neighborhoods.
• Even after accounting for various socioeconomic factors, the differences could not be explained by non-racial factors or any actuarial data.

The insurance company had argued in the district court that the Fair Housing Act did not cover insurance sales, and the district court agreed. On appeal to the Seventh Circuit, American Family argued that a Federal law (the McCarren-Ferguson Act) which g enerally precludes federal regulation of insurance companies bars application of the Federal Fair Housing Act to prohibit racial discrimination in the sale of homeowner's insurance. The U.S. Court of Appeals for the Seventh Circuit rejected the claim, an d reversed the district court holding that the Fair Housing Act "is an Act of Congress that does not specifically relate to the business of insurance" and thus does not "invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance."

On the question of the Fair Housing Act's coverage of insurance sales, the Seventh Circuit agreed with the plaintiffs that the language of the Act making it unlawful to refuse to sale or rent "or otherwise make unavailable" a dwelling or to disc riminate in the terms or conditions, of the sale on the basis of race, color, sex, familial status, or national origin, covered insurance sales as mortgage lenders require that borrowers secure property insurance and without such insurance one cannot secu re the house loan. American Family sought review by the Supreme Court, and on May 17, 1993, the Supreme Court without comment denied review of the Seventh Circuit decision. This allowed the suit to proceed. The DOJ filed an amicus curiae brief before the Supreme Court in support of the NAACP's position.

The complaint filed by DOJ together with the March 30, 1995, agreement by all three parties (DOJ, American Family, and NAACP plaintiffs) alleges that American Family:

• gave explicit instructions to agents and underwriters to consider race in deciding whether, and on what terms, to offer homeowners insurance;
• required agents and underwriters to consider race as a factor in deciding whether to inspect a home-the results of which were used to deny coverage in some cases;
• overlooked deficiencies in conditions of homes in white neighborhoods that were used to deny coverage in black neighborhoods;
• made disparaging and stereotypical references about African Americans as being poor insurance risks; and
• criticized agents, including African American agents, who sought to do business in the African American community, and discouraged them from doing such business.

The agreement is the product of negotiations among the three parties and provides for remedial objectives including:

"(1) compensating for past disparities in the availability of American Family insurance in the predominantly African-American community in Milwaukee; (2) enhancing the availability of American Family homeowners insurance in that area in the years to come; (3) offering such insurance to qualified applicants in all segments of the Milwaukee metropolitan area; and (4) investing in the future of that community through these steps."

Deval Patrick said: "We are persuaded by the evidence that American Family discriminated in the past. By entering this agreement, American Family has turned a new page."