Protection for insurers under the McCarran-Ferguson Act erodes; a look at the case of DeHoyos, et. al. vs. Allstate Insurance Company.
The court decision in the nationwide class action captioned DeHoyos, et. al. vs. Allstate Insurance Company represents a significant erosion of the protections insurers have reasonably believed were provided under the McCarran-Ferguson Act.
A nationwide class action was filed (in 2002) against Allstate in the U.S. District Court for the Western District of Texas alleging racial discrimination by Allstate in the pricing, administration, underwriting, and renewal of auto and homeowners insurance policies issued, and that these practices have a disparate impact. The plaintiffs claimed violation of federal civil rights laws, including the Fair Housing Act. This case was recently concluded and the settlement approved. Insurance carriers are asking what this means to them. As discussed below, the DeHoyos case arguably knocks down the regulatory hurdles that often frustrate a plaintiff's ability to sustain rating complaints against insurers.
The claim was brought under 42 U.S.C.A. §1981 (right to freely contract without regard to race), and the Civil Rights Act (right to freely purchase real property without regard to race) and the Fair Housing Act (FHA).
Allstate filed a motion to dismiss, asserting disparate impact claims were only actionable under the FHA; and argued the U.S. Supreme Court held, in Humana Inc. v. Forsyth, 525 U.S. 299, that the McCarran-Ferguson Act gives insurance regulation to the states, with certain exceptions.
The District Court (trial court) rejected Allstate’s argument, observing federal courts have consistently rejected the McCarran-Ferguson defense where race-based discrimination was alleged, despite the existence of state regulations prohibiting discriminatory insurance practices.
Allstate appealed to the Court of Appeals for the 5th District, which found (in 2003) that the McCarran-Ferguson did not bar application of the civil rights statutes.
The insurance industry unsuccessfully argued race-neutral credit information was an expressly authorized insurance practice under the federal Fair Credit Reporting Act (15 U.S.C.A. §1681, et. seq.), and states actively regulate it, and therefore preemption by the McCarran-Ferguson Act should be applied.
The U.S. Supreme Court refused (in 2004) to review the decision; which meant that a claim of a civil rights violation under the FHA would not be pre-empted (or barred) by the McCarran-Ferguson Act.
No decision was made on the merits of the case, but the point of law appears to have been a significant erosion of the protections insurers have reasonably believed were provided under the McCarran-Ferguson Act. Note, however, this decision does not impose a disparate impact test on the use of credit or rating, it merely says that a claim under statutes that apply a disparate impact test are not barred.
Terms of Settlement:
On June 2, 2006, Allstate and the plaintiffs agreed upon the terms of a settlement agreement.
On December 18, 2006, the court held the “fairness hearing” to review the settlement agreement.
On February 20, 2007, the court entered their Amended Final Order.
The terms of the settlement, in which Allstate denies any liability, provides that Allstate will take the following actions:
Allstate will roll-out a new insurance scoring algorithm.
In states where Allstate uses information from credit reports to rate policies, Allstate will provide its customers with the opportunity to have an insurance policy priced using its new insurance scoring algorithm.
Allstate will make its new insurance scoring algorithm publicly available.
Allstate will deliver a comprehensive credit education program to class members, which provides valuable information, including the many different types of business transactions where information from credit reports is used today and how class members can improve their credit position.
Allstate will adopt an appeals program under which all customers who experience extraordinary events that negatively impact their credit history information can potentially obtain premium reductions.
Allstate will increase the substantial percentage of its national media spend devoted to targeted multicultural marketing in its continued efforts to make the widest range of consumers aware of its insurance products. Class members will be entitled to apply for a one-time monetary payment. Eligibility for this payment will be determined based on a comparison of the insurance scoring group assigned to his or her Allstate policy and the insurance scoring group assigned under the insurance scoring algorithm that will be implemented pursuant to this Settlement.
For other questions regarding insurance compliance, coverage and insurance operations, contact us at info@thenashgroupLLC.com or call (440) 953-0959.
© 2007 The Nash Group, LLC
This information does not constitute legal advice. Persons using this website are strongly advised not to act on the information contained in it without seeking legal counsel or engaging The Nash Group, LLC.
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