Opinion ID: 2829342
Heading Depth: 2
Heading Rank: 3

Heading: The Legislative History of the Insurance Code Is Inconsistent

Text: with a Disparate Impact Theory of Liability In addition to the express language of the statute, courts have looked to a statute’s legislative history when determining whether the statute gives rise to a disparate impact theory of liability. See, e.g. , Smith , 544 U.S. at 238 (“[W]e think the history of the enactment of the ADEA . . . supports the . . . consensus concerning disparate-impact liability.”); Gen. Bldg. Contractors Ass’n , Inc. v. Pennsylvania , 458 U.S. 375, 389 (1982) (examining the legislative history of 42 U.S.C. § 1981 and holding the statute did not give rise to a disparate impact claim); Griggs , 401 U.S. at 436 (“From the sum of the legislative history relevant in this case, the conclusion is inescapable that the [agency’s] construction . . . comports with congressional intent.”); Dearing , 240 S.W.3d at 351 (“When ascertaining legislative intent, we may also consider . . . the law[ ’s ] . . . history . . . .”); see also Tex. Gov’t Code § 311.023(3) ( allowing courts to consider legislative history when construing statutes). We also look to legislative history in this instance because the declared policy of the MFA is to ensure that state legislatures are able to regulate the business of insurance without unintended federal interference. 8 The legislative history of the credit scoring bill and the arguments of its opponents indicates that the Texas Legislature was aware of the possibility of a disparate impact on racial minorities, yet did not expressly provide for a disparate impact claim as it did in the Texas Labor Code. Despite its longstanding prohibition of unfair discrimination, the Legislature first expressly authorized the use of credit scoring in setting insurance rates in 2003. Act of June 2, 2003, 78th Leg., R.S., ch . 206, § 3.01, 2003 Tex. Gen. Laws 916, 916–21, repealed by Act of May 24, 2005, 79th Leg., R.S., ch . 728, § 11.020(b), 2005 Tex. Gen. Laws 2188, 2217 ( recodifying the relevant credit scoring sections of the Insurance Code into Tex. Ins. Code chapter 559) (originally codified at Tex. Ins. Code Ann . art. 21.49-2U, § 7(a) (West Supp. 2003)) . Opponents of the credit scoring bill admonished: The state should ban the practice of credit scoring altogether. Tornadoes do not strike homeowners on the basis of their credit scores, and no independent studies have proven any statistical relationship between a consumer’s credit history and his or her ability to drive or maintain an automobile. . . . Credit scoring is discriminatory, especially against women, minorities, low-income consumers, and consumers who conduct all of their personal business on a cash basis. House Research Org., Bill Analysis, Tex. S.B. 14, 78th Leg., R.S., 20 (May 21, 2003). Despite those concerns, the Legislature decided to authorize credit scoring in pricing insurance, but addressed some of the concerns with certain statutory restrictions. In addition to prohibiting the use of “factors that constitute unfair discrimination,” Tex. Ins. Code Ann . art. 21.49-2U, § 7(a) (West Supp. 2003) (current version at Tex. Ins. Code § 559.051), the Legislature prohibited insurers from denying, cancelling, or refusing to renew a policy “solely on the basis of credit information,” as well as from denying coverage solely because the consumer does not have a credit card account. Id. § 3(a) (current version at Tex. Ins. Code § 559.052). Also, certain information could not be used as a negative factor in an insurer’s scoring methodology, such as a collection account with a medical industry code. Id. § 4(a )( 3) (current version at Tex. Ins. Code § 559.101). However, even with these restrictions, the Legislature included no language expressly providing for a cause of action based on disparate impact. The Legislature also directed the Commissioner of the Texas Department of Insurance (TDI) to conduct a study and submit a report to state officials and the 79th Legislature before January 1, 2005, containing, among other things: • a summary statement regarding the use of credit information, credit reports, and credit scores by insurers . . . ; • any disproportionate impact on any class of individuals, including classes based on income, race, or ethnicity . . . ; and • recommendations from the department to the [L] egislature regarding the use of credit information by insurers. Act of June 2, 2003, 78th Leg., R.S., ch . 201, § 3.01, sec. 15(a), (b)(1), (b)(5)–(6), 2003 Tex. Gen. Laws 916, 920–21 (expired Mar. 1, 2005) (emphasis added) (previously located at Tex. Ins. Code Ann. art. 21.49-2U, § 15 (West Supp. 2003)). Insurance Commissioner Jose Montemayor completed this credit scoring study and submitted his findings in December 2004, stating in part: Similar to other published studies , 9 there appears to be a strong relationship between credit score and insurance risk (or loss). . . . [With regards to auto insurance,] as credit scores improve, the frequency decreases, i.e. people have fewer accidents or claims. Tex. Dep’t of Ins., Report to the 79th Legislature: Use of Credit Information by Insurers in Texas 18–20 (Dec. 2004), http://www.tdi.state.tx.us/reports/documents/creditrpt04.pdf. These findings were supplemented with a report to the Legislature, which explained that under a multivariate analysis: For both personal auto liability and homeowners, credit score was related to claim experience even after considering other commonly used rating variables. . . . For both personal auto liability and homeowners, the difference in claims experience by credit score was substantial. Typically, the claim experience for the 10 percent of policyholders with the worst credit scores was 1.5 to 2 times greater than that of the 10 percent of policyholders with the best credit scores. The magnitude of the variation noted in the earlier report remains unchanged even after considering other commonly used rating variables. Tex. Dep’t of Ins., Supplemental Report to the 79th Legislature: Use of Credit Information by Insurers in Texas: The Multivariate Analysis 6 (Jan. 2005), http://www.tdi.state.tx.us/reports/documents/credit05sup.pdf. In a letter accompanying the report, Commissioner Montemayor explained that while disparate impacts result from the use of credit scoring, he was without authority to ban or regulate the use of credit scoring that produces disparate impacts as long as it is actuarially sound and not intentionally discriminatory. 1 0 Commissioner Montemayor stated that “credit scoring, if continued, is not unfairly discriminatory as defined in current law because credit scoring is not based on race, nor is it a precise indicator of one’s race.” Letter from Jose Montemayor to the 79th Texas Legislature (J an . 31, 2005) ( accompanying Tex. Dep’t of Ins., Supplemental Report to the 79th Legislature: Use of Credit Information by Insurers in Texas: The Multivariate Analysis (Jan. 2005), http://www.tdi.state.tx.us/reports/documents/credit05sup.pdf). In addition, Commissioner Montemayor stated that the use of credit scoring in pricing insurance inevitably carried the risk of disproportionate impacts just as any risk-based assessment would, and that to discontinue insurers’ assessment of risk factors would effectively homogenize the risk and essentially charge everyone the same insurance rate, something that would “be a set-back to all Texans, of all races, especially those of moderate to lower income whose risk remains low.” Id. “Even when a statute is not ambiguous on its face, we can consider other factors to determine the Legislature’s intent, including . . . administrative construction of the statute . . . .” Helena Chem. Co. v. Wilkins , 47 S.W.3d 486, 493 (Tex. 2001) (citing Tex. Gov’t Code § 311.023). We cite the Commissioner Montemayor’s letter and report here, however, more for evidence of the Texas Legislature’s awareness of potential disparate impacts, and to show that the Legislature, knowing this, still chose not to expressly provide for disparate impact protection as it did in the Labor Code. The Texas Legislature expressly directed the Commissioner to analyze the effects of credit scoring in insurance pricing and report back during the next legislative session. It was during this subsequent session that the Legislature re-codified various portions of the Insurance Code, including the sections on credit scoring now codified at Texas Insurance Code chapter 559, and made no relevant changes to the Code, despite the Commissioner’s warnings of the potential for disparate impacts. In fact, two bills banning credit scoring (H.B. 23 and S.B. 167), which were introduced by members of the 79th Legislature before the submission of Commissioner Montemayor’s January 2005 report, died in committee after the report was submitted. See Tex. H.B. 23, 79th Leg., R.S. (2005); Tex. S.B. 167, 79th Leg., R.S. (2005). Given the Legislature’s and the Insurance Commissioner’s awareness of the potential for disparate impacts, and the Legislature’s decision to not enact any express prohibition of disparate impact discrimination in the Insurance Code, we can only conclude that the Legislature did not intend to create a cause of action for disparate impact discrimination in insurance pricing based on credit scoring.