Illinois Enters Court Fight Over HUD’s Home Insurance Rules

Illinois Attorney General Kwame Raoul on Wednesday threw his support behind the U.S. Department of Housing and Urban Development in its long-running legal battle with the homeowner’s insurance industry over a rule meant to protect consumers from discrimination.

Raoul led a team of 15 state attorneys general nationwide in filing a brief in support of HUD and its current version and enforcement of its Disparate Impact Rule, which went into place in 2013 and was reinstated earlier this year. It aims to prohibit practices considered discriminatory under the Fair Housing Act.

When it took effect, the rule became the subject of a legal challenge by the trade group Property Casualty Insurers of America, which won a partial victory in a 2014 ruling by the federal court for Northern Illinois.

But the lawsuit has dragged on since then as the Property Casualty Insurers has continued to argue that the disparate impact rule shouldn’t be applied to the homeowners insurance industry.

“Accessible homeowners insurance is critical to ending housing discrimination,” Raoul said. “Insulating effectively discriminatory insurance policies and practices from federal liability would deal a significant blow to efforts made by states, including Illinois, to combat housing discrimination.”

The legal wrangling began when a group of property and casualty insurance companies contested the validity of the rule as it relates to homeowners insurance pricing and underwriting. They contended that HUD should have granted a broad exemption to the rule because it would interfere with state-level insurance laws and regulations. Instead, the rule has been interpreted to allow conflicts between state and federal insurance laws involving the disparate impact rule to be considered on a case-by-case basis.

The trade group, however, has argued that the HUD’s rule has violated the Administrative Procedure Act, and that it “impairs, invalidates, or supersedes the law of every State,” in violation of the McCarran-Ferguson Act when it comes to risk-based pricing and underwriting of homeowners insurance, according to court documents.

In the amicus brief, Raoul and the coalition of state attorneys general defended the HUD’s approach, asserting that it reasonably opted against blanket exemptions to respect the individual states’ policy and regulatory choices. They rejected the claim that applying the disparate impact rule to homeowners insurance interferes with state-level regulation, emphasizing that the rule complements anti-discrimination laws and policies in many states, including Illinois.

Raoul’s coalition includes attorneys general from thirteen other states and Washington D.C.