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Howard L. Chabner v. United of Omaha Life Insurance Company

Court of Appeals for the Ninth Circuit
225 F.3d 1042 (2000)
ELI5:

Rule of Law:

Under California law, charging a disabled person a different insurance rate violates the Unfair Competition Law and the Unruh Civil Rights Act if the rate differential is not based on sound actuarial principles or related to actual and reasonably anticipated experience.


Facts:

  • Howard Chabner has facioscapulohumeral muscular dystrophy (FSH MD), a rare condition that confined him to a wheelchair.
  • In 1993, at age 35, Chabner applied for a whole life insurance policy from United of Omaha Insurance Company ('United').
  • United's underwriter, who had no experience with FSH MD, consulted external underwriting manuals and authorized a policy with a 'Table 6' rating, corresponding to a 150% above-standard mortality risk.
  • This rating resulted in the cost-of-insurance portion of Chabner's premium being 96.5% higher than the standard rate.
  • Chabner accepted the policy but questioned the high premium.
  • In response, United's Senior Medical Director sent Chabner a letter acknowledging that FSH MD 'has only a small effect on mortality' and reduced his life expectancy by only four years, a figure inconsistent with the nine-to-eleven-year reduction implied by the 'Table 6' rating.

Procedural Posture:

  • Howard Chabner sued United of Omaha Insurance Company in California Superior Court, alleging violations of state law.
  • United removed the case to the U.S. District Court for the Northern District of California, based on diversity jurisdiction.
  • Chabner amended his complaint in federal court to add a claim under the Americans with Disabilities Act (ADA).
  • The district court granted summary judgment for Chabner, holding that United had violated the ADA and various California laws.
  • The district court subsequently ordered United to issue Chabner a new policy conforming to its ruling.
  • United (Appellant) appealed the district court's summary judgment and modification order to the U.S. Court of Appeals for the Ninth Circuit, with Chabner as the Appellee.

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Issue:

Under California law, does an insurer engage in an unlawful and discriminatory business practice by charging a disabled individual a significantly higher life insurance premium that is not justified by sound actuarial principles or related to actual and reasonably anticipated experience?


Opinions:

Majority - Hug, Chief Judge

Yes. An insurer engages in an unlawful and discriminatory business practice by charging a disabled individual a significantly higher insurance premium that is not justified by sound actuarial principles or actual and reasonably anticipated experience. The court first determined that Title III of the Americans with Disabilities Act (ADA) does not regulate the content or terms of insurance policies, only physical access to the insurer's place of business, and thus United did not violate the ADA. However, the court affirmed the lower court's judgment on state law grounds. The court held that a violation of California Insurance Code § 10144, which prohibits discriminatory rate differentials not based on sound actuarial principles or actual experience, can serve as the predicate 'unlawful' act for a private cause of action under California's Business and Professions Code § 17200 (the Unfair Competition Law). The same conduct also violates California's Unruh Civil Rights Act, as a rate differential not justified under § 10144 is considered an unreasonable and arbitrary form of discrimination. Here, there was no genuine issue of material fact that United's rating was arbitrary, as United's own medical director admitted Chabner's condition had only a 'small effect on mortality,' which directly contradicted the significantly higher mortality risk priced into his policy.



Analysis:

This decision significantly clarifies the avenues for relief for disability-based discrimination in insurance underwriting within the Ninth Circuit. By holding that the ADA does not apply to the 'content' of insurance policies, the court closed a federal route but simultaneously highlighted the power of state laws. The case establishes an important precedent in California, allowing plaintiffs to use the state's broad Unfair Competition Law (§ 17200) to enforce the anti-discrimination standards of the Insurance Code (§ 10144), even if the latter does not provide a private right of action. This 'borrowing' mechanism strengthens consumer protection and puts insurers on notice that they must have concrete, data-driven justifications for charging disabled individuals higher premiums.

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