Ojo v. Farmers Group, Inc.
600 F.3d 1205, 2010 U.S. App. LEXIS 7325, 2010 WL 1407850 (2010)
Rule of Law:
The Fair Housing Act prohibits racial discrimination in the denial and pricing of homeowner's insurance, but claims under the Act may be reverse-preempted by the McCarran-Ferguson Act if they invalidate, impair, or supersede state laws enacted to regulate the business of insurance.
Facts:
- Patrick O. Ojo is an African-American resident of Texas.
- Ojo purchased a homeowner's property-and-casualty insurance policy from Farmers Group, Inc.
- Farmers Group utilizes a credit-scoring system to determine the pricing of its insurance policies.
- Ojo alleges that Farmers uses undisclosed factors within this credit-scoring system that negatively affect the credit scores of minorities.
- Ojo contends that this practice results in higher insurance rates for minorities, creating a racially disparate impact.
- There is no allegation that Farmers intentionally discriminated against Ojo or other class members; the dispute centers solely on the discriminatory effects of the pricing model.
Procedural Posture:
- Plaintiff filed a class action lawsuit against Defendants in the U.S. District Court for the Central District of California alleging violations of the Fair Housing Act.
- Defendants moved to dismiss the claims pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6).
- The District Court granted the motion to dismiss, holding that the Texas Insurance Code reverse-preempted the FHA claims under the McCarran-Ferguson Act.
- Plaintiff appealed to the U.S. Court of Appeals for the Ninth Circuit.
- A three-judge panel of the Ninth Circuit reversed the District Court's dismissal.
- The Ninth Circuit ordered the case to be reheard en banc.
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Issue:
Does the Fair Housing Act prohibit discrimination in homeowner's insurance pricing, and if so, does the McCarran-Ferguson Act apply to reverse-preempt such civil rights claims when they conflict with state insurance laws?
Opinions:
Majority - Per Curiam
Yes, the Fair Housing Act (FHA) prohibits discrimination in insurance pricing, and yes, the McCarran-Ferguson Act applies to the FHA and can reverse-preempt it. Regarding the applicability of the FHA, the Court found the statutory terms 'make unavailable' and 'provision of services' to be ambiguous. Applying Chevron deference, the Court adopted the Department of Housing and Urban Development's (HUD) interpretation that the FHA applies to homeowner's insurance. Regarding the McCarran-Ferguson Act, the Court held that the phrase 'No Act of Congress' unambiguously includes civil rights statutes like the FHA. Therefore, if the FHA claim 'invalidates, impairs, or supersedes' Texas insurance law, it is preempted. However, because it was unclear whether Texas law permits the specific credit-scoring practices at issue, the Court could not make a final preemption ruling and certified a question to the Supreme Court of Texas to clarify state law.
Analysis:
This en banc decision resolves two significant circuit splits. First, it aligns the Ninth Circuit with the Sixth and Seventh Circuits in holding that the Fair Housing Act applies to homeowner's insurance, rejecting the Fourth Circuit's contrary view. This expands the scope of federal civil rights litigation to include insurance pricing models. Second, it establishes that civil rights statutes are not immune from the McCarran-Ferguson Act's reverse-preemption provisions. This creates a complex interplay between federal anti-discrimination goals and state autonomy in insurance regulation. The decision essentially creates a two-step hurdle for plaintiffs: they must prove an FHA violation and then survive a preemption analysis that depends heavily on the specifics of state law.
