Federal District Court Rules Disparate Impact Lawsuit Against Insurer May Proceed

The United States District Court for the District of Columbia recently issued an opinion finding that the National Fair Housing Alliance (NFHA) has standing to bring a discrimination claim against Travelers Indemnity Corporation and Travelers Casualty Insurance Company of America (Travelers). In a 25-page opinion, U.S. District Judge John Bates denied Travelers’ motion to dismiss NFHA’s claims under the Fair Housing Act and the D.C. Human Rights Act. The lawsuit alleges race, sex, and source of income discrimination against Travelers for failing to provide habitational insurance to apartment owners who rent to tenants who participate in the Housing Choice Voucher (HCV) program.

NFHA based its discrimination claim on the theory of disparate impact liability. Under this theory, a housing provider violates the Fair Housing Act when the provider’s policy or practice has an unjustified discriminatory effect, even when the provider had no intent to discriminate. The theory was upheld in 2015 when the Supreme Court warned against “abusive” disparate impact cases that served only to second-guess otherwise legitimate housing decisions, and said that plaintiffs had to satisfy a “robust causality requirement” to make out a sufficient claim, in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.

The Supreme Court case originated when the Inclusive Communities Project, a Dallas nonprofit that tries to promote racial and socioeconomic integration, sued the Texas Department of Housing and Community Affairs in 2008 over the way it allocated low-income housing tax credits. In Texas and other states, the state housing agency chooses which projects will receive the credits through a formula called the Qualified Allocation Plan, which gives some projects more points than others. States publish their QAPs every year, and some give priority to projects that are located in high-opportunity areas, others seek projects that invest in distressed neighborhoods, while others prioritize projects that target extremely low-income individuals. The projects with the most points receive the tax credits, and are thus able to move forward.

Here, NFHA alleges that the Travelers’ policy has an adverse impact on African Americans and women, especially against families living in predominantly African-American neighborhoods east of the Anacostia River in Washington, D.C., in violation of the federal Fair Housing Act and the District of Columbia Human Rights Act. Ninety-two percent of HCV participating households in the District are African American and 81 percent are female-headed households. Residents who participate in the HCV program are largely concentrated in four census tracts east of the Anacostia River. These tracts are 84.7 percent black, compared to the D.C. average, which is 51.1 percent black.

The denial of Travelers’ motion to dismiss means NFHA’s discrimination complaint has viable disparate impact claims on the basis of race and sex under the Supreme Court’s 2015 Inclusive Communities Project decision. The district court noted that NFHA’s claims meet the “robust causality” requirement articulated in Inclusive Communities, because NFHA sufficiently alleged that Travelers’ policy disproportionately harms the groups most likely to participate in the HCV program—African Americans and women—by limiting their housing choices. Specifically, the court held that NFHA sufficiently pleaded that because these groups are overly represented among HCV participants, “members of a protected class are more likely to be harmed by Travelers’ policy than are other individuals” in D.C. The court also held that NFHA adequately alleged that Travelers’ policy violated the D.C. Human Rights Law’s prohibitions on housing discrimination based on source of income.

Travelers’ business practices were discovered by NFHA investigators who contacted five independent insurance agencies that represent Travelers in the D.C. area. The investigators sought insurance coverage for multifamily apartment buildings located in Southeast Washington. When investigators mentioned that the tenants participated in the HCV program, often referred to as “Section 8,” every investigator was told that Travelers does not provide habitational insurance to apartment owners who rent to tenants using Section 8. One investigator was told by a broker that she would not send the investigator’s application to Travelers because Travelers “won’t write subsidized housing policies.”