“Unfair Discrimination” Under Article 21.21-8 Takes on New Meaning

December 6, 2001

The Austin Court of Appeals, with its recent ruling in Cortez v. Progressive County Mut. Ins. Co., No. 3-99-00846-CO (Tex. App.-Austin, Sept. 13, 2001), calls into question the scope of Article 21.21, an anti-discrimination statute, and potentially expands it significantly. In its opinion, issued on rehearing, the court held that Article 21.21-8 applies to any discrimination between persons of the same class and hazard and was not limited to classically protected classes, such as race, color, religion, and national origin, as identified in Article 21.21-6.

At issue in the Cortez case was a flexible commission arrangement, under which an agent could select, within certain parameters, his commission structure. The commission selected by the agent did not affect the premium actually received by Progressive. Thus, depending upon the agent's choice, and the insured's choice of agent, some insureds could potentially be charged slightly more, for essentially the same coverage, than other insureds.

The trial court granted a no-evidence summary judgment in favor of Progressive. The Court of Appeals initially affirmed. On rehearing, however, the court withdrew its prior opinion and reversed its position, concluding Progressive was not entitled to summary judgment and remanding the case for further proceedings.

Article 21.21-8 of the Texas Insurance Code precludes unfair discrimination with respect to the amount of premium, policy fees or rates charged for insurance. The statute applies to any person engaged in the business of insurance, and requires, in part, that "no person shall engage in any unfair discrimination by making or permitting any unfair discrimination between individuals of the same class and of essentially the same hazard . . . ."

While "unfair discrimination" is not defined in Article 21.21-8, there has been an assumption, by many, that it would incorporate the definition in a preceding section, Article 21.21-6, also entitled "unfair discrimination." Article 21.21-6 concerns "unfair discrimination" and an insurer's refusal to insure, refusal to continue to insure or limitation on the amount, extent or kind of coverage available or the charging of rates. Section 3 of Article 21.21-6, defines "unfair discrimination" as it relates to individuals of different race, color, religion, or national origin, and different age, gender, marital status, or geographic location or individuals with a disability or partial disability.

In its initial opinion, the Austin Court of Appeals agreed with Progressive's argument that Article 21.21-6 and 21.21-8 were intertwined, reasoning that one addressed administrative enforcement, while the other created a private cause of action. The court also "presumed" that the term "unfair discrimination" would have a uniform meaning throughout the statutory scheme. However, on October 11, 2000, the Texas Department of Insurance issued Commissioner's Bulletin No. B-0057-00 criticizing the Austin Court of Appeals' initial opinion in Cortez. The Department's position was that Article 21.21-8 was not limited to "unfair discrimination" as defined in Article 21.21-6, but was designed to prohibit disparate treatment between insureds of essentially the same risk.

On rehearing, the Cortez court reversed its initial opinion, severed interpretation of the two provisions and broadened the range of discrimination, as prohibited by Article 21.21-8, beyond the confines of redlining and protected classes. According to the court, any underwriting distinction between individuals of the same class and hazard is a violation of the statute. Therefore, the court reversed the no-evidence summary judgment in favor of the insurer.

The Cortez opinion has potentially wide-ranging ramifications, particularly in underwriting. However, Article 21.21-8 addresses not only underwriting, but also claims, and therefore has additional implications for insurers and adjusters. Certainly, the issues are far from resolved, and appear ripe for attention by the Texas Supreme Court. Until then, the debate will likely continue as to the scope of the statute, the meaning of "unfair discrimination," and the application of the same class and hazard requirement.

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