Court Opinion

ID: 8408276
Source: CourtListenerOpinion
Date Created: 2022-11-02 16:41:35.53936+00
Date Added: 2024-06-11T16:47:33.595766
License: Public Domain

EDITH H. JONES, Circuit Judge,
concurring in part and dissenting in part:
With due respect to my colleagues, I cannot agree that this nationwide class action challenging insurers’ use of credit scoring in the pricing of automobile and home owners’ policies can proceed intact under the McCarran-Ferguson Act. The allegations of intentional race discrimination under 42 U.S.C. §§ 1981 and 1982 do not appear to be preempted,1 but they are a diversion. Plaintiffs’ principal attack is under the Fair Housing Act against the alleged disparate impact of a facially-neutral component of insurance pricing decisions.
The majority, in my view, fails to recognize that a disparate impact claim goes to the heart of the risk adjustment that underlies the insurance business. The Seventh Circuit cogently observed: “Risk discrimination is not race discrimination.” NAACP v. Am. Family Mut. Ins. Co., 978 F.2d 287, 290 (7th Cir.1992). Every insurer sets its prices according to the risk embodied in covering particular categories of customers. Thus, young male drivers pay higher premiums than young females or mature drivers because of the higher incidents of policy claims made by that group. To be sure, insurers inflict a disparate impact upon young male drivers, but hardly anyone argues that the impact is unjustified. The relevant inquiries are whether the price differential reasonably conforms to the risk differential and whether, in a regulated rate system, the insurer has received an appropriate return.
State insurance commissions, like those of Florida and Texas, are set up to regulate rates by overseeing the insurance companies’ assessment of risks and differential pricing decisions. Integral to the regulatory regime is a prohibition on “unfair discrimination” in pricing. Tex. Ins. Code Ann. art. 21.21-6 (Vernon 1981 & Supp.2003); Fla. Stat. ch. 627.031(2) (2002). No matter the exact statutory regime under which the commissions go about their business, they are called upon to balance, verify and make a quasi-legislative determination concerning the adequacy and appropriateness of rates. Colo. Interstate Gas Co. v. Fed. Power Comm’n, 324 U.S. 581, 589, 65 S.Ct. 829, 89 L.Ed. 1206 (1945) (“Rate-making is essentially a legislative function.”). Their responsibility is ultimately fulfilled by evaluating the companies’ comparative risk determinations. Since risk determinations are mathematically complex and multi-faceted, unraveling a single thread, like credit scoring, that is a component of a risk *301formula necessarily affects the entire fabric.
Viewed against this backdrop, it is plain that the instant class action inevitably draws federal courts into the mechanics of insurance pricing and, by the same token, must diminish the scope of action available to state insurance commissioners. The plaintiffs really make no pretense to the contrary, as they allege that the premiums charged to them using credit scoring are discriminatory, excessive, unfair, unconscionable, and unlawful. These terms are nearly identical to those in the statutes that guide the Texas and Florida insurance commissions. The plaintiffs, however, are asking the federal courts to examine one thread from the regulatory fabric, while state insurance commissioners remain responsible for the whole. There is thus a significant difference between intentional discrimination claims and disparate impact claims for purposes of McCarran-Fergu-son.
The McCarran-Ferguson Act was designed precisely to prevent this type of federal interference with the states’ prerogative of insurance regulation. The majority have not only misunderstood the intimate connection between the plaintiffs’ claims and insurance rate-making, but they have also interpreted the scope of McCarran-Ferguson preemption too narrowly, and they have misapplied lower court precedents. These errors require brief elaboration.2 In Humana Inc. v. Forsyth, 525 U.S. 299, 119 S.Ct. 710, 142 L.Ed.2d 753 (1999), the Supreme Court’s analysis of McCarran-Ferguson preemption parallels its venerable tests for determining the supremacy of federal law over the states. Thus, the Court stated that:
While we reject any sort of field preemption, we also reject the polar opposite of that view, ie. that Congress intended a green light for federal regulation whenever the federal law does not collide head-on with state regulation. [The Court quotes a dictionary definition of “impair” in § 2(b).] The following formulation seems to us to capture that meaning and to construe, most sensibly, the text of § 2(b): when federal law does not directly conflict with state regulation, and when application of the federal law would not frustrate any declared state policy or interfere with a State’s administrative regime, the McCarran-Ferguson Act does not preclude its application.
Humana, 525 U.S. at 309-10, 119 S.Ct. 710 (emphasis added). Humana does not require a direct conflict with state law in order to compel preemption. It is enough that the federal law may “interfere with a State’s administrative regime.” The majority seems to ignore this clear alternative, however, by repeatedly, and incorrectly, demanding evidence of “an enacted law” or a “declared policy.”3
*302While I would agree that it is too broad to argue that virtually “any federal claim will ‘interfere’ with the state regulatory regime,” a contrast between the facts in Humana and the case at bar illustrates why the insurers here are not raising a field preemption defense. In Humana, the Court held that RICO law was not preempted by the McCarran-Ferguson Act. In that case, RICO claims were made against an alleged kick-back scheme between a health insurer and various hospitals in such a way that both the cause of action and its remedy ran parallel to those available under Nevada law. The RICO claim did not require a federal fact-finder to investigate the genesis of the insurer’s rates, but only whether kick-backs had been illegally made. Further, Nevada authorized the policing of this kind of activity through private citizen lawsuits in its state court.
In this case, by contrast, any post hoc declaration that credit scoring is impermissible will require a federal court to determine, in order to assess damages, what a fair and “non-diseriminatory” rate for the plaintiffs’ policies would have been. A more complete overlap with the state insurance commissions’ pricing decisions is impossible to conceive. Because of the sensitivity and complexity of the question of unfair policy price discrimination, both Texas and Florida have chosen not to permit plaintiffs to file individual lawsuits in state courts to challenge such decisions. Key Western Life Ins. Co. v. State Bd. of Ins., 163 Tex. 11, 350 S.W.2d 839, 849-50 (1961); Int’l Patrol & Detective Agency, Inc. v. Aetna Cas. & Sur. Co., 396 So.2d 774, 776 (Fla.Ct.App.1981), approved by 419 So.2d 323, 324 (Fla.1982). Instead, both states have enacted administrative corrective regimes. The plaintiffs’ disparate impact suit will thus interfere with the initial rate-making as well as the corrective procedures utilized by the states.
My colleagues take refuge in a string of appellate court decisions that they believe have approved FHA disparate impact cases against insurance companies. Unfortunately, they are wrong. Two of their principal cases pre-date the Humana decision and require direct conflict preemption, a plainly narrower test than that adopted in Humana,4 See Am. Family Mut. Ins. Co. 978 F.2d at 295-96; Nationwide Mut. Ins. Co. v. Cisneros, 52 F.3d 1351, 1363 (6th Cir.1995), cert. denied, 516 U.S. 1140, 116 S.Ct. 973, 133 L.Ed.2d 893 (1996). Additionally, both of those cases involved only intentional discrimination claims, not, as here, claims of disparate impact.
The single post-Humana appellate case in this area is Moore v. Liberty Nat’l Life Ins. Co., 267 F.3d 1209 (11th Cir.2001), cert. denied, 535 U.S. 1018, 122 S.Ct. 1608, 152 L.Ed.2d 622 (2002). Moore, however, involved claims under §§ 1981 and 1982 of intentional racial discrimination in setting *303premiums for life insurance. This case concerns auto and homeowners’ insurance, not life insurance. Moreover, what I take issue with here is the claim founded upon the allegedly disparate impact of credit history, a facially neutral risk classification factor, utilized within a complex state regulatory scheme.
The circumstances under which the McCarran-Ferguson Act was enacted by Congress further underscore the majority’s eiTor in holding that disparate impact claims under the Fair Housing Act are not preempted. In 1944, the Supreme Court held that insurance companies could be liable for antitrust violations under the Sherman Act for activities related to the setting of premiums. United States v. South-Eastern Underwriters Ass’n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944). “In reaction to South-Eastern Underwriters, Congress ‘moved quickly,’ enacting the McCarran-Ferguson Act ‘to restore the supremacy of the States in the realm of insurance regulation.’” Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 40, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996) (quoting Dep’t of Treasury v. Fabe, 508 U.S. 491, 500, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993)). In particular, one of Congress’s primary concerns in enacting the McCarran-Ferguson Act was to exempt insurance ratemaking activities from the antitrust laws. Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 221, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979). In other words, at the very core of the McCarran-Ferguson Act is the insulation of state regulation regarding the fixing of insurance rates from federal laws not specifically directed towards regulating insurance.
Whether credit scoring is useful or advisable as a device for insurance pricing, I cannot say. Florida and Texas have both recently passed laws allowing credit scoring on policies written after January 1, 2004, with numerous limitations. See Act approved June 11, 2003, 78th Leg., R.S., S.B. 14, §§ 3.01-3.04 (to be codified at Tex. Ins.Code Ann. art. 21.49-2U) (regulating use of credit scoring for purposes of rate setting and underwriting in, inter alia, residential property, insurance and personal automobile insurance); 2003 Fla. Laws ch. 407 (to be codified at Fla. Stat. ch. 626.9741) (same); see also Act of Feb. 25, 2003, 78th Leg., R.S., ch. 1, § 3(c), 2003 Tex. Gen. Laws 1, 2 (requiring residential property insurers to provide reports to the Texas Insurance Commissioner regarding the use of credit scoring in underwriting and setting premiums). Other states’ regulatory policies with regard to credit scoring differ, according to the parties’ briefs. But it seems clear to me that federal courts are not competent to tread in the essential domain reserved to state regulators. In today’s case, credit scoring is alleged to have a disparate impact. Tomorrow, some other facially neutral criterion, such as the age of one’s ear or the number of one’s dependents, or the city of one’s residence, may fall under legal attack. Disparate impact claims under the Fair Housing Act are, in my view, squarely preempted by the McCarran-Ferguson Act and by Humana. On this aspect of the majority opinion, I respectfully dissent.

. In this court, §§ 1981 and 1982 have been confined to cases involving intentional racial discrimination, not disparate impact claims. Arguello v. Conoco, Inc., 207 F.3d 803, 809 n. 9 (5th Cir.2000); Hanson v. Veterans Admin., 800 F.2d 1381, 1385 (5th Cir.1986).

. Because the majority have correctly quoted § 2(b) of the Act and explained its general parameters, I will not repeat those matters here.

. See, e.g., Maj. Opn. at 294 (stating that McCarran-Ferguson preemption "analysis will turn on one of two axises: (1) the existence of an express conflict with the letter of the state law, or (2) the frustration of an officially articulated state regulatory goal”); Maj. Opn. at 295 (noting that in Humana "the federal law did not frustrate a particular and declared state regulatory policy” and also stating that the Supreme Court "identified the following three [McCarran-Ferguson] 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 declared regulatory policy) enacted for the purpose of regulating insurance; and (3) application of the federal law to the controversy in question must invalidate, impair or supercede that state law”); Maj. Opn. at 297 ("Moreover, *302because Appellants do not identify a state law or policy that would be impaired by the application of the federal statutes, it is impossible for them to prevail on the third Humana prong, i.e., a finding of impairment caused by the application of the federal law”); Maj. Opn. at 298 (noting that Appellants failed "to direct the Court to a particular law or declared regulatory policy” or identify "an actual policy”); Maj. Opn. at 299 (stating that "[t]he approach of a federal statute must tread upon a declared policy goal of the state scheme”) and (that the appellants have not identified “any law, regulation, or decision in Texas or Florida requiring ... [or] condoning the credit-scoring practice at issue here”).

. Likewise, two other cases upon which the majority rely also pre-date Humana and require a direct conflict with a state law. See Merchs. Home Delivery Serv., Inc. v. Frank B. Hall & Co., 50 F.3d 1486, 1491-92 (9th Cir.1995); Mackey v. Nationwide Ins. Cos., 724 F.2d 419, 421 (4th Cir.1984).