Seventh Circuit Holds Fair Housing Act Bans Insurance Redlining

The U. S. Seventh Circuit Court of Appeals held October 20, that the federal Fair Housing Act prohibits "redlining" by insurance companies.

This decision by a three judge appeals court panel is considered "a major breakthrough" by fair housing advocates. It brings the insurance industry under the 1988 Fair Housing amendments that apply to real estate agents, mortgage lenders and banks.

The insurance industry has argued in this and other cases that the Fair Housing Act was not intended to prohibit insurance redlining. The appeals court rejected that argument and found that obtaining insurance was a key ingredient in home ownership.

Ruling Tied Insurance to Housing

The Court of Appeals ruling tightly tied insurance discrimination to housing discrimination. They said, "Lenders require their borrowers to secure property insurance. No insurance, no loan; no loan, no house; lack of insurance thus makes housing unavailable."

The ruling reinstates part of a class action suit filed two years ago in U. S. District Court in Milwaukee by attorneys for the American Civil Liberties Union and the NAACP. The suit was brought on behalf of eight African American property owners against the American Family Insurance Co.

They allege several discriminatory practices. Some of the minority property owners were denied insurance; others found they were underinsured; and others say claims made under their homeowners policy were checked more closely that claims made by whites, according to Gretchen Miller, legal director for the Wisconsin ACLU. That group says census figures show Milwaukee to be one of the most segregated metro areas in the country.

The ruling gives attorneys for the ACLU and the NAACP another legal theory to pursue at trial. It does not mean that redlining has already been proven in this case.

Judge Frank Easterbrook, who wrote the opinion for the appeals panel said a 1984 case is no longer the law as a result of the 1988 amendments authorizing HUD to issue regulations to clarify the scope of the Fair Housing Act. He said, the law "applies to discriminatory denials of insurance, and discriminatory pricing, that effectively preclude ownership of housing because of the race of the applicant."

Fair Housing Advocates See Wide Impact

Fair housing advocates say the decision could have nationwide implications. Gretchen Miller said, "This opens the door for people in other parts of the country to scrutinize the practices of the homeowners insurance industry in urban areas."

Victor Bolden, a staff attorney at the ACLU's office in New York, said, '"This ruling is very significant. It is the first federal federal court of appeals ruling that extends the protections of the federal Fair Housing Act to insurance redlining."

"The decision sends a powerful message to all insurance companies, especially to those doing business in Chicago," said Derrick Ford, a staff attorney for fair housing issues at the Chicago Lawyers' Committee for Civil Rights Under Law.

A similar declaratory judgment action was filed in federal district court in Fort Wayne, Indiana. A friend of the court brief was filed in that case by Stephen M. Dane of the Toledo firm of Cooper, Straub, Walinski and Cramer. He filed in July 1990, as counsel for the National Fair Housing Alliance. That brief argued that the language in Section 804 of the FHA prohibited insurance discrimination because it would "otherwise make unavailable ...a dwelling." The judge put the issue on hold until the 7th Circuit decided the Milwaukee case.

Redlining Denies Loans By Zip Code Not Merit

Redlining has been used by some companies offering homeowners insurance, and also by some mortgage lenders who apply different rates and terms against residents in racially changing neighborhoods, and Black neighborhoods.

Redlining denies loans or insurance based on zip codes and geographical area rather than the merits of individuals or their property. Fair housing advocates say the practice perpetuates racial segregation in neighborhoods throughout the country.