Claim that insurer's credit scoring system violates federal civil rights statutes not preempted under McCarran-Ferguson Act

Law Reporter, Mar 2004

INSURANCE

Dehoyos v. Allstate Corp., 345 F.3d 290 (5th Cir. 2003).

The Fifth Circuit Court of Appeals held that an action alleging insurers' credit scoring systems violate federal civil rights statutes is not reverse preempted under the McCarran-Ferguson Act (MFA), 15 U.S.C. § 1012(b).

Here, non-Caucasian insurance customers filed suit against Allstate Insurance Corporation and related entities, alleging that Allstate's insurance sales practices violate the Civil Rights Act, 42 U.S.C. §§ 1981 and 1982, and the Fair Housing Act, 42 U.S.C. § 3601. Specifically, plaintiffs alleged that Allstate employs a credit scoring system that results in more expensive policies being marketed and sold to non-Caucasian applicants than to their Caucasian counterparts.

Defendants moved to dismiss, arguing that plaintiffs' claims are preempted under the MFA. The trial court denied the motion, and defendants then filed an interlocutory appeal.

Affirming, the Fifth Circuit noted that the MFA provides that no act of Congress shall invalidate or impair any state law regulating the business of insurance, unless the act specifically relates to insurance. Citing Humana v. Forsythe, 525 U.S. 299 (1999), 42 ATLA L. Rep. 58 (Mar. 1999), the court identified three MFA preemption threshold requirements: (1) the federal law in question must not be specifically directed at insurance regulation; (2) there must exist a particular state law or policy for the purpose of insurance regulation; and (3) application of the federal law to the controversy must invalidate, impair, or supersede the state law.

Here, the sections of the civil rights statutes under which plaintiffs seek relief do not specifically relate to the business of insurance. Defendants here have not cited any law with which the federal civil rights laws conflict, however, and they have not directed the court to any declared regulatory policy that the application of the civil rights laws would frustrate. Thus, it is impossible for them to meet the third prong of the Humana test, the court said.

Defendants' contention that application of the civil rights statutes would frustrate the ability of the states to regulate insurance pricing is insufficient to meet the Humana test, the court found. The fact that a state may adopt an approach different from the approach embodied in the federal statutes is not sufficient to create a conflict. In the absence of a finding that the federal statute treads on a state's declared policy goal, preemption will not be found.

Plaintiffs' Counsel

Sanford Svetcov, San Francisco, Cal.

*Joe R. Whatley Jr., Birmingham, Ala.

Robert Q. Keith, Johnson City, Tex.

*John J. Stoia Jr., San Diego, Cal.

*Andrew Winfield Hutton, San Diego, Cal.

Christa L. Collins, Tampa, Fla.

Kendra C. Mancusi, Tampa, Fla.

*Andrew S. Friedman, Phoenix, Ariz.

*Herman Watson Jr., Huntsville, Ala.

Amicus Curiae Counsel

Cleo Fields, Baton Rouge, La.

Luis Roberto Vera Jr., San Antonio, Tex.