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NATIONAL FAIR HOUSING ALLI. v. PRUDENTIAL INS. CO.

July 9, 2002

NATIONAL FAIR HOUSING ALLIANCE, INC., ET AL., PLAINTIFFS,
V.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Sullivan, District Judge.

  MEMORANDUM OPINION AND ORDER

Plaintiffs are non-profit organizations that promote fair housing policies and practices and three individuals from Toledo, Ohio. Plaintiffs are suing Prudential Insurance Company and Prudential Property & Casualty Company (collectively, "Prudential") under the Fair Housing Act ("FHA"), 42 U.S.C. § 3601 et seq., and 42 U.S.C. § 1981, alleging that Prudential engages in policies and practices that discriminate against minority applicants for homeowners insurance. Specifically, the plaintiffs challenge the use of certain "redlining" procedures, which Prudential utilizes to deny homeowners insurance in certain areas, including the entire District of Columbia, and the use of factors such as credit history to determine eligibility for homeowners insurance.

Pending before the Court is defendants' motion to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6). Defendants' motion to dismiss asserts four primary arguments: (1) that plaintiffs lack standing to bring this case; (2) that the FHA doesn't apply to provision of homeowners insurance; (3) that disparate impact claims are not available under the FHA, and even if they are, that plaintiffs have failed to state a disparate impact claim, and such claims should be barred by the equitable doctrine of laches; and (4) that plaintiffs have failed to state a claim pursuant to section 1981, and that the statute of limitations bars any section 1981 claims.

The Court finds that, because sections 3604 and 3605 of the FHA may be reasonably construed to apply to the provision of homeowners insurance, plaintiffs have stated legally cognizable claims under sections 3604 and 3605 of the FHA. Furthermore, because defendants' challenge to plaintiffs' standing and defendants' laches defense are based on facts outside the complaint, resolution of such issues is inappropriate at this stage of the proceedings. Accordingly, after careful consideration of defendants' motion to dismiss, the response and reply thereto, the argument of counsel, and the applicable statutory and case law, the Court denies defendants' motion to dismiss.

I. Procedural History

Plaintiffs in this matter are National Fair Housing Alliance, Inc. ("NFHA"),*fn1 Housing Opportunities Made Equal of Richmond, Inc. ("HOME"), Fair Housing Council of Suburban Philadelphia ("FHCSP"), Toledo Fair Housing Center ("TFHC"). Metropolitan Milwaukee Fair Housing Council, Inc ("MMFHC") (together, "Fair Housing Group plaintiffs"), and Dr. Monica Holiday-Goodman. Justina Alsup, and Robert Scales (together. "Individual Plaintiffs"). The Fair Housing Group plaintiffs are all non-profit organizations that work to promote fair housing in their respective geographic areas across the United States.

In September 1997, the Fair Housing Group plaintiffs, with the exception of FHCSP, filed a Housing Discrimination Complaint against Prudential with the U.S. Department of Housing and Urban Development ("HUD") alleging that Prudential discriminates against African-American and Hispanic homeowners and prospective homeowners through several underwriting practices and policies, many of which are challenged in this lawsuit. FHCSP filed a similar HUD action against Prudential in October 2001. The HUD complaints allege that Prudential's discriminatory acts constitute a continuing violation of the FHA. Efforts to mediate the HUD complaint filed by the Fair Housing Group plaintiffs have not been successful.

On October 23, 2001, plaintiffs filed this lawsuit against Prudential. On December 20, 2001, defendants filed a motion to dismiss.

II. Factual Allegations

In reviewing a motion to dismiss under Fed.R.Civ.P. 12(b). the Court must assume the factual allegations pled by the plaintiffs to be true. See Sparrow v. United Air Lines Inc., 216 F.3d 1111 (D.C.Cir. 2000). Therefore, the Court briefly reviews the facts alleged in plaintiffs' complaint.

Plaintiffs detail allegedly discriminatory polices and practices of Prudential, claiming that Prudential had discriminated, and continues to discriminate, on the basis of race and color, in the provision, terms and conditions of its homeowners insurance products.

In the areas of the country served by the Fair Housing Group plaintiffs, homeowners are typically required to have homeowners insurance coverage in order to qualify for a mortgage or home equity loan, and must maintain insurance for the life of the loan. Compl. ¶ 32. Thus, plaintiffs allege. adequate and cost-effective homeowners insurance is necessary to home ownership. Id.

Different types of homeowners insurance exist. For example, a "market value" policy generally only will insure up to the home's market value. Id. ¶ 31. A "replacement cost" policy commonly covers the costs of replacing the house, in the event of damage to the physical structure of the home, and "guaranteed replacement cost" provides broader replacement coverage, typically replacing the home using "substantially similar" materials. Id. The complaint notes that many homeowners prefer replacement cost or guaranteed cost coverage because the cost to replace a home that is destroyed or severely damaged may be greater than the home's market value. Id. ¶ 35. In particular, older homes in urban areas generally would have replacement costs that exceed their market values. Prudential offers various types of homeowners insurance policies, including "market value policies," and "replacement cost" and "guaranteed replacement cost" policies. Id.

Plaintiffs claim that Prudential, for several years, has engaged in and continues to engage in discriminatory "redlining" with respect to homeowners insurance throughout the country. Specifically, plaintiffs allege that certain minimum underwriting requirements for certain types of coverages, such as a "replacement cost" policy, have a discriminatory impact on past, present and prospective African-American and Hispanic homeowners in predominantly African-American and Hispanic neighborhoods. Id. ¶¶ 3, 44. According to plaintiffs, Prudential's requirements are not justified or supported by business necessity or actuarial data and there are less restrictive, non-discriminatory alternatives available to meet any legitimate business objectives. Id. ¶ 55.

Plaintiffs have "tested" Prudential to identify practices and policies that are implemented and maintained by the company, and which have a discriminatory impact on minority homeowners, or which represent disparate treatment on the basis of race or intentional discrimination. Id. ¶¶ 62-63. Plaintiffs contend that Prudential maintains underwriting policies that disparately affect minority homeowners and minority neighborhoods. Id. ¶¶ 44-56. They identify the following policies:

(1) Prudential's minimum underwriting requirements for obtaining replacement cost coverage include the age of the home, the market value of the home and the difference between the replacement cost and the market value;
(2) Since 1994, Prudential does not have a policy of selling homeowners insurance policies in the District of Columbia; to the extent that Prudential has re-entered the District, it has done so for select clients and without notice to the D.C. Insurance Commissioner or the public;
(3) Prudential rates territories by segregating neighborhoods into zones that reflect their racial composition;
(4) Prudential uses credit scores or credit ratings of applicants to determine eligibility for homeowners insurance policies.

Id. at ¶¶ 45-54.

Plaintiffs claim that Prudential has long known that its underwriting guidelines and policies have a disparate impact on the basis of race, but has deliberately chosen not to remedy the discriminatory conduct. Id. ¶ 57. As such, plaintiffs claim that Prudential has engaged in intentional discrimination on the basis of race by continuing to utilize these guidelines and policies. Id.

Plaintiffs also contend that Prudential's practices demonstrate disparate treatment of minority homeowners. In particular, Prudential points to the following alleged practices as evidence of intentional discrimination and disparate treatment on the basis of race:

(1) Prudential does not apply underwriting rules consistently to existing and potential homeowners in African-American and Hispanic neighborhoods;
(2) Prudential has chosen to place no or relatively few agent offices in predominantly African-American and Hispanic neighborhoods, as compared with other neighborhoods;
(3) Prudential has utilized sales techniques and practices that discourage existing or potential homeowners in African-American and Hispanic neighborhoods from purchasing homeowners insurance (e.g., poor agent responsiveness, not providing price quotes by telephone or by mail);
(4) Prudential has deliberately failed to train agents in anti-discrimination and equal opportunity laws, or in the benefits of assisting African-American and Hispanic customers in predominantly African-American and Hispanic neighborhoods.

Id. ¶¶ 57-66.

The individual plaintiffs, Dr. Monica Holiday-Goodman, Justina Alsup and Robert Scales, own houses in Toledo, Ohio. Id. ¶¶ 78-80. All of the individual plaintiffs are African-American, and own homes in neighborhoods that are, or were, predominantly African-American. Id. Both Dr. Holiday-Goodman and Ms. Alsup applied to Prudential for homeowners insurance in April 1997. Id. ¶¶ 78, 79. Prudential initially told Dr. Holiday-Goodman that no agent was assigned to her address. Id. ¶ 78. Later, when Dr. Holiday-Goodman was able to speak with a representative, she was told that, if the market value of her home was less than 50% of its replacement cost, she could not purchase either a market value policy or a replacement value policy. Id. She was directed to the Ohio Fair Plan. Dr. Holiday-Goodman asked that Prudential mail her a quote for a market value policy, but never received such a quote. Id. On February 6, 1998, she filed a complaint against Prudential with HUD, which is still pending. Id.

Mr. Scales had a similar experience. A Prudential agent told Mr. Scales that the company could not insure his house because of the differential between the market value and the cost of replacing the house if it were to burn down. Id. ¶ 80. The market value of his house was $41,500; when he called the toll-free number for Prudential, to which he was referred, he was told that there was a $50,000 minimum value for market value coverage. Id. On July 29, 1997, Mr. Scales filed a HUD complaint against Prudential, which is still pending. Id.

Ms. Alsup was told by Prudential that she would have to pursue the Ohio Fair Plan because she had no insurance history, and that Prudential required two or three years of insurance history. Id. ¶ 79. On December 8, 1997, Ms. Alsup filed a HUD complaint against Prudential, which is still pending. Id. ¶ 79. The complaint states that Ms. Alsup still owns a house in Toledo, but now resides in Las Vegas, Nevada. Id. ¶ 26. The complaint does not indicate when Ms. Alsup moved to Nevada.

III. Discussion

Defendants' motion to dismiss raises four primary arguments. First, defendants argue that plaintiffs lack standing to bring the instant lawsuit. Second, Prudential contends that the FHA does not apply to the provision of homeowners insurance. Third, Prudential argues that disparate impact claims are not cognizable under the FHA, and that plaintiffs fail to sufficiently state a claim of discrimination based on disparate impact. ...


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