In February 2013, the U.S. Department of Housing and Urban Development adopted a “Discriminatory Effects Rule,” which established liability under the Fair Housing Act for conduct that is otherwise lawful, but which has a disproportionately adverse effect on racial minorities or other protected classes. 24 CFR § 100.500. Insofar as it applied to insurers, the rule was promptly challenged in two lawsuits brought by trade associations, Property Casualty Insurers Assoc. of Am. v. Donovan, No. 1:13-cv-08654 (N.D. Ill.) (the “PCI Suit”), and American Insurance Association v. U.S. Department of Housing and Urban Development, No. 13–00966 (D.D.C.) (the “AIA Suit”). In September 2014, the court in the PCI Suit held that the agency had given inadequate consideration to the insurance industry’s arguments, and remanded the rule to HUD. 66 F.Supp.3d 1018.

Now, two years later, HUD has responded with a lengthy and aggressive rejection of all the insurers’ objections. 81 Fed. Reg. 69012. The response concludes that there is no insurance practice—not even the use of “long-recognized” risk factors in pricing—that could not, under some circumstances, form the basis for a valid disparate impact claim. It finds that insurers are exposed to liability under virtually every section of the FHA, including provisions that some courts previously declined to apply. And it endorses application of the disparate impact theory to marketing and claims handling practices; to non-actuarial aspects of underwriting; and to claims that insurers will cause other parties to commit lawful acts with a disparate impact.

As a practical matter, HUD’s response does little more in the short term than preserve the possibility of lawsuits based on practices that could have been protected by reasonable “safe harbor” provisions. But the response comes at a time when consumer advocates and government agencies are increasingly turning to disparate impact theories, under a variety of laws, to assail “price optimization,” credit scoring, and predictive modeling tools that rely on “big data.” Thus, in addition to potentially broadening insurers’ liability under the FHA, HUD’s statement encourages potential litigants to test a broad range of theories under a wide array of civil rights and consumer-protection legislation.

More information about HUD’s response is available here.