Mo. Court Dismisses Homeowners’ Lawsuits Alleging Discrimination

March 20, 2007

Attorneys for a group of homeowners said they will continue the fight after a federal judge dismissed their lawsuits charging some of the nation’s largest insurers with discriminating against black neighborhoods.

U.S District Judge Fernando Gaitan Jr. threw out the three 11-year-old lawsuits on Friday, saying federal law left insurance regulation to the states, not the courts.

Kansas City homeowners Cynthia Canaday and Marva Jean Saunders filed the original lawsuits in 1996, claiming 23 insurance companies were using underwriting standards that made minority homeowners ineligible for homeowner insurance.

Insurance companies deny that they engage in so-called “redlining,” or drawing boundaries around certain geographical areas to affect coverage.

Over the years, the list of defendants was whittled down through court decisions and confidential settlements. The remaining defendants were Farmers Insurance Exchange, American Family Mutual Insurance Co. and Shelter General Insurance Co.

But plaintiff attorney Michael D. Lieder said he would appeal Gaitan’s decision.

“We believe that the rulings of Judge Gaitan were incorrect,” Lieder said. “We expect to be vindicated in the 8th Circuit Court of Appeals.”

An attorney for Farmers Insurance welcomed the decision.

“We believe the judge has done the right thing here,” said Cynthia Andreason.

Gaitan threw out the plaintiffs’ cases in 1997, saying they hadn’t claimed any direct harm from the insurance companies’ policies. The homeowners then filed 10 new cases, some of which were also dismissed or settled.

The judge dismissed the remaining claims in 2005, this time determining that the homeowners didn’t show that they had applied for homeowners insurance or that the companies had rejected their applications because of redlining.

Last year, the 8th Circuit upheld most of Gaitan’s decision, but also said he improperly dismissed the homeowners’ claims that that the insurance companies’ pricing policies and practices discriminated based on race.

Gaitan reviewed the case and said Friday that a federal law called the McCarran-Ferguson Act forced him to dismiss claims of price discrimination.

He said the law leaves insurance regulation to the states and that if he determined the companies had discriminated against the homeowners, he would be interfering with Missouri’s regulatory power.

“If the McCarran-Ferguson Act were found not to apply, this court would be forced to determine what a fair and non-discriminatory rate for the plaintiffs’ policies would have been,” Gaitan wrote.

He said homeowners can challenge their insurance rates through the state Department of Insurance, so allowing fair-housing and civil rights claims to go through the courts would “clearly frustrate Missouri’s administrative regime to regulate the insurance industry.”

Still, Gaitan said he didn’t agree with the state’s prohibition on homeowners challenging insurance rates in state court.

“While it is the opinion of this court that Missouri should provide its citizens with a direct legal avenue in which to assert their claims,” he wrote. “this court is nevertheless bound by the mandates of the McCarran-Ferguson Act.”

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