Industry Issues | ERM & Emerging Risks

Emerging Risk – Disparate Impact

Disparate Impact
(risk assessment: legal, regulatory, reputational, underwriting, financial)

Disparate Impact is a legal theory to establish liability under discrimination laws without evidence of intentional or circumstantial discrimination. To prove disparate impact, government or a private litigant may demonstrate through statistics that a neutral business practice, implemented with no discriminatory intent, has a disproportionately adverse effect on a protected class.

There has been meaningful progress made in PCI's multi-pronged, multi-year effort to prevent the U.S. Department of Housing and Urban Development (HUD) from applying its disparate impact standard to the business of insurance.

The Department of Justice, counsel for HUD, notified PCI that HUD will issue an Advanced Notice of Proposed Rulemaking (ANPR) seeking reconsideration of both the disparate impact rule, generally, and specifically, the request for an insurance industry or homeowners insurance safe harbor. Timing for issuance of the ANPR is dependent upon clearing the Office of Management and Budget (OMB). 

HUD subsequently issued a Press Release announcing that it will formally solicit public comment regarding whether the 2013 Disparate Impact Rule is consistent with the US Supreme Court's 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507 (2015). The press release notes, "[w]hile the Supreme Court referred to HUD's Disparate Impact Regulation in its Inclusive Communities ruling, it did not directly rule upon it."

Also, PCI and HUD filed a joint status report with Judge St. Eve in the form of a joint motion to continue the stay and to vacate the May 15, 2018 status hearing. A copy of the motion is attached. The motion references the HUD Press Release and requests that the stay be "continued until June 25, 2018, at which time the parties propose to file a joint status report, updating the Court on the status of HUD's consideration and proposing any next steps in this litigation."

Additional Background

At the April 10, 2018 status hearing in the PCI case, DOJ counsel Emily Newton advised Judge St. Eve that the parties would provide a proposal for how the case should proceed by May 15, 2018. In light of HUD's decision to issue the ANPR, HUD will ask Judge St. Eve to stay the litigation until 30 days after the close of the ANPR comment period and a similar request will be made of Judge Leon in the AIA/NAMIC litigation. This seems a reasonable approach and we expect that both judges will enter the requested stay orders. The litigation has been an effective advocacy tool, with legal arguments and court supervision complementing the political process.

Additionally of note, Judge St. Eve has been nominated to the United States Court of Appeals, Seventh Circuit, to fill the vacancy created by the retirement of Justice Ann Claire Williams. A Senate Judiciary Committee hearing on Judge St. Eve's nomination was held on March 21, 2018 and on April 27, 2018, Senate Majority Leader McConnell filed cloture (a motion to close or limit debate and call for a vote) on several nominations, including the nomination of Judge St. Eve. While Judge St. Eve is widely expected to be confirmed, this is not likely to occur before the May 15 status hearing. Once Judge St. Eve is elevated to the Seventh Circuit, we anticipate that her cases will be randomly re-assigned.

The FY18 federal omnibus was signed into law and the accompanying report included important report language directing HUD to address concerns raised by the insurance industry (read more here).