Ojo v. Farmers Group, Inc.
356 S.W.3d 421
Tex.2011Background
- Ojo sued Farmers Group, Inc. and affiliates in federal court alleging FHA-disparate-impact claims based on credit scoring used to price homeowners’ insurance in Texas.
- Texas Insurance Code § 544.002(a)(1) prohibits unfair discrimination in rates ‘because of’ race and authorizes race-neutral credit scoring under § 559.051; § 559.052 restricts discriminatory credit factors.
- Texas courts have not expressly recognized a disparate-impact claim under the Insurance Code, and the Legislature did not create such a cause of action in credit scoring pricing.
- The MFA reverse-preemption framework requires (1) non-insurance-specific federal law, (2) state insurance regulation purpose, and (3) risk of invalidating state law by application of federal law.
- The Texas Supreme Court held that applying FHA disparate-impact liability to race-neutral credit scoring in pricing insurance could invalidate Texas law, so Texas law does not recognize such a claim.
- TFHA contains a carve-out not to affect nondiscrimination requirements in other state or federal law, and the court concludes TFHA does not create disparate-impact liability in insurance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can Texas law support a disparate-impact claim in insurance pricing? | Ojo contends Texas law bars race-based or impact-based pricing. | Farmers argues the Insurance Code prohibits only intentional discrimination, not disparate impact. | Texas law does not recognize disparate-impact liability in insurance pricing. |
| Does the Texas Fair Housing Act provide disparate-impact liability in insurance pricing? | TFHA mirrors FHA disparate-impact liability and should apply to insurance. | TFHA lacks explicit disparate-impact provisions for insurance pricing and TFHA carve-out preserves other laws. | TFHA does not create disparate-impact liability in insurance pricing. |
| Does the McCarran-Ferguson Act reverse-preempt FHA claims in this context? | FHA claims could proceed because MFA allows state insurance regulation free from federal preemption for unrelated acts. | MFA reverse-preemption applies where federal law does not specifically relate to insurance and state law regulates insurance. | Texas law prohibits racially disparate-impact claims under the Insurance Code; MFA reverse-preemption would not defeat that. |
Key Cases Cited
- Ojo v. Farmers Group, Inc., 600 F.3d 1201 (9th Cir.2010) (en banc decision addressing MFA reverse-preemption in FHA context)
- Griggs v. Duke Power Co., 401 U.S. 424 (U.S. 1971) (disparate-impact liability under Title VII framework)
- Smith v. City of Jackson, 544 U.S. 228 (U.S. 2005) (disparate-impact under ADEA and broader liability concepts)
- Village of Arlington Heights, 558 F.2d 1283 (7th Cir.1977) (legislative mandate and disparate-impact considerations under FHA)
- City of Black Jack, 508 F.2d 1179 (8th Cir.1974) (FHA disparate-impact framework and purpose)
- Ojo v. Farmers Group, Inc. (Ninth Circuit en banc), 600 F.3d 1201 (9th Cir.2010) (addressed MFA reverse-preemption questions in FHA context)