The Supreme Court of Texas issued its opinion in Ojo v. Farmers Group, Inc., et al. last week, holding that Texas law does not prohibit an insurer from using race-neutral factors in credit scoring to price insurance, even if doing so has a racially disparate effect. The issue reached the court via certified question from the U.S. Court of Appeals for the Ninth Circuit. The Ninth Circuit stated that the Fair Housing Act prohibits disparate-impact discrimination in the denial and pricing of homeowners insurance, but the McCarran-Ferguson Act bars federal law from interfering with state insurance law. The Supreme Court of Texas first noted that the Texas Insurance Code prohibits intentional race discrimination, but no Texas court has addressed whether the Insurance Code also prohibits disparate-impact discrimination. The court recognized that nothing in the Insurance Code prohibits race-neutral credit scoring. By comparing the Texas Labor Code and the Texas Insurance Code, the court reasoned that the Texas Legislature did not intend for a claim for disparate-impact discrimination to attach to the Insurance Code’s prohibition of intentional discrimination. The court pointed to a provision in the Labor Code that expressly outlines the burden of proof for a disparate-impact claim in the employment context. Because the Insurance Code does not include the same type of provision, nor does it define a disparate-impact claim, the court concluded that the legislature did not intend for insurers to face disparate-impact liability for using credit scores to price insurance. The court stated that the “Texas Legislature has demonstrated that it is well aware of how to create a cause of action for disparate impact in other contexts, but it has chosen not to do so in the field of insurance.”
The court also rejected Ojo’s contention that disparate-impact discrimination should apply to the Insurance Code in the same way that disparate-impact liability applies to the FHA and Title VII because they all use “because of race” language. The court pointed out that the use of “because of race” language in the FHA and Title VII did not alone prompt federal courts to hold that these acts create causes of action based on racially disparate impacts, and therefore, the similar language alone should not control the court’s interpretation here. The court concluded by stating, “The Texas Insurance Code is void of any language creating a cause of action for a racially disparate impact.”
This is an important victory for the insurance industry. Thompson Coe partners Jay Thompson and Albert Betts assisted in drafting the amicus brief on behalf of the ICT (Insurance Council of Texas).
For the full opinion click here.