Saunders v. Farmers Ins. Exchange

• Citation: 537 F.3d 961
• Decision Date: 12 August 2008
• Docket Number: No. 07-1903.,No. 07-1897.,No. 07-1894.,07-1894.,07-1897.,07-1903.
• Parties: Marva Jean SAUNDERS, et al., Plaintiffs-Appellants, v. FARMERS INSURANCE EXCHANGE, et al., Defendants-Appellees. Marva Jean Saunders, et al., Plaintiffs-Appellants, v. American Family Mutual Insurance Company, Defendant-Appellee. Coleman McClain, et al., Plaintiffs-Appellants, v. Shelter General Insurance Company, et al., Defendants-Appellees. United States of America; Lawyers' Committee for Civil Rights Under Law; National Community Reinvestment Coalition, Amici on Behalf of Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

537 F.3d 961

Marva Jean SAUNDERS, et al., Plaintiffs-Appellants, v. FARMERS INSURANCE EXCHANGE, et al., Defendants-Appellees.

Marva Jean Saunders, et al., Plaintiffs-Appellants, v. American Family Mutual Insurance Company, Defendant-Appellee.

Coleman McClain, et al., Plaintiffs-Appellants, v. Shelter General Insurance Company, et al., Defendants-Appellees.

United States of America; Lawyers' Committee for Civil Rights Under Law; National Community Reinvestment Coalition, Amici on Behalf of Appellants.

No. 07-1894.

No. 07-1897.

No. 07-1903.

United States Court of Appeals, Eighth Circuit.

Submitted: January 17, 2008.

Filed: August 12, 2008.

Thomas J. Henderson, argued, Michael D. Lieder, on the brief, Washington, DC, for appellant.

John Oberdorfer, argued, Washington, DC, for appellee. Denise K. Drake, on the brief, Kansas City, MO, for appellee, Shelter General Ins. R. Lawrence Ward, Mark A. Olthoff, Kansas City, MO, and Cynthia T. Andreason, Washington, DC, on the brief, for appellees, Farmers Insurance, Fire Insurance, and Mid-Century Insurance. Jamie S. Gardner, Washington, DC, and Alok Ahuja, Kansas City, MO, on the brief, for American Family Mutual Insurance.

Karl Gellert, argued, Washington, DC, Dennis J. Dimsey, and Gregory B. Friel, Washington, DC, on the brief for amicus, USA, John C. Brittain, Michael L. Foreman, Audrey J. Wiggins and Nichole Birch, Washington, DC, Joe R. Whatley, Jr., W. Tucker Brown and, Adam P. Plant, Birmingham, AL, for amicus, Lawyers' Committee for Civil Rights.

Before LOKEN, Chief Judge, HANSEN and MURPHY, Circuit Judges.

LOKEN, Chief Judge.

These are purported class actions on behalf of persons living in a "single, contiguous black community in Kansas City." Plaintiffs allege, inter alia, that defendant insurance companies ("the Insurers") violated the Fair Housing Act, 42 U.S.C. §§ 3601 et seq., and 42 U.S.C. §§ 1981 and 1982, by "charg[ing] higher premium rates for the same type of homeowner's coverage to homeowners in the Community ... than [they] charged homeowners in white communities." In Saunders v. Farmers Insurance Exchange, 440 F.3d 940 (8th Cir.2006), after years of related litigation, we affirmed the dismissal of other claims that minority residents of the community were denied coverage due to the Insurers' discriminatory underwriting criteria. But we reversed the district court's dismissal of the price discrimination claims under the "filed rate doctrine," and we remanded those claims.

In remanding, we noted that the discriminatory pricing claims might be barred by the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015, as construed by the Supreme Court in Humana Inc. v. Forsyth, 525 U.S. 299, 119 S.Ct. 710, 142 L.Ed.2d 753 (1999). Enacted in response to the decision in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944), the McCarran-Ferguson Act preserves the traditional role of state insurance regulation by providing, in pertinent part, that no federal statute "shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance ... unless such Act specifically relates to the business of insurance." 15 U.S.C. § 1012(b). In Humana, the Court construed the word "impair" to mean, in addition to a "direct conflict" with state law, any application of federal law that would "frustrate any declared state policy or interfere with a State's administrative regime." 525 U.S. at 310, 119 S.Ct. 710. We concluded that the record on the prior appeal was not adequate to decide that issue.¹

On remand, the Insurers renewed their Rule 12(b)(6) motions to dismiss, arguing that analysis of plaintiffs' lengthy complaints and the Missouri insurance laws establishes that the McCarran-Ferguson Act bars plaintiffs' price discrimination claims. Without objecting to deciding the issue on Rule 12 motions, plaintiffs argued that the McCarran-Ferguson Act does not preclude their federal civil rights claims. The district court² granted defendants' motions, concluding that the price discrimination claims would "impair" the Missouri laws that regulate the business of insurance within the meaning of 15 U.S.C. § 1012(b) as construed in Humana. Saunders v. Farmers Ins. Exch., 515 F.Supp.2d 1009 (W.D.Mo.2007). Plaintiffs appeal. Reviewing de novo the grant of motions to dismiss, we affirm. Benton v. Merrill Lynch & Co., 524 F.3d 866, 870 (8th Cir.2008) (standard of review).

I. Plaintiffs' Price Discrimination Claims.

Plaintiffs' complaints allege that the Insurers "used a multi-tiered rate structure based in whole or in part on the racial composition of Kansas City zip code areas" with the "intentional and/or unintentional unlawful effect of extracting higher premium rates from homeowners" in the predominantly black community. Their allegations of issues common to the class include:

Whether [the Insurers] used separate rating territories to charge higher premium rates for risks located in the Community ... than for comparable risks located in white communities.

Whether [the Insurers] can provide any loss histories, or other actuarial or statistical data, to support [their] use of such segregated and discriminatory rating territories.

Plaintiffs allege that the Insurers violated 42 U.S.C. § 3604(b), which bars race discrimination "in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith," as well as § 1981 and § 1982. Their prayers for relief seek a declaration that the Insurers violated these civil rights statutes, an injunction against "any further conduct violating plaintiffs' rights," compensatory and punitive damages, and attorneys' fees and costs.

Plaintiffs' allegations of unintentional unlawful discrimination seek relief on a disparate impact theory of Fair Housing Act liability, that is, challenges to "practices that are fair in form, but discriminatory in operation." Griggs v. Duke Power Co., 401 U.S. 424, 431, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971). In a number of prior cases, we have recognized a disparate impact cause of action under the Fair Housing Act against governmental authorities. See, e.g., Darst-Webbe Tenant Ass'n Bd. v. St. Louis Hous. Auth., 417 F.3d 898, 902-03 (8th Cir.2005). Applying Department of Housing and Urban Development standards, we have recognized a disparate impact Fair Housing Act claim against private actors in another context. See United States v. Badgett, 976 F.2d 1176 (8th Cir. 1992). But at least with respect to insurers, the question is not free from doubt. See NAACP v. Am. Family Mut. Ins. Co., 978 F.2d 287, 290-91 (7th Cir.1992). However, the Insurers have not raised the issue and therefore we assume, without deciding, that private insurers may be liable under the Fair Housing Act on a disparate impact theory.³

Seeking to deflect the significance of their disparate impact theory on the McCarran/Ferguson Act analysis, plaintiffs on appeal note that they "complain of racially disparate treatment, or intentional discrimination, as well as disparate impact." They did not argue this distinction in the district court, which is reason enough to ignore it on appeal. Moreover, after twelve years of litigation, plaintiffs provide no factual basis for their conclusory allegations that the Insurers intentionally charged rates based on a homeowner's race. Their factually explicit allegations are that the Insurers used rating zones based on facially neutral risk factors that have a disparate racial impact. It is these disparate impact allegations that satisfied the threshold pleading requirement of Rule 8(a)(2) — "allegations plausibly suggesting (not merely consistent with)" unlawful conduct. Bell Atl. Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1966, 167 L.Ed.2d 929 (2007). Viewing the complaints in their entirety, the lengthy litigation history, and plaintiffs' categorical argument that no Fair Housing Act claims are barred by the McCarran/Ferguson Act, we conclude their conclusory allegations of discriminatory intent are mere "labels ... and a formulaic recitation of the elements of a cause of action." Id. at 1965. The point is important. Our opinion should not be read as deciding whether disparate treatment claims against Missouri insurers are barred by the McCarran/Ferguson Act. In this case, "[t]he allegations of intentional race discrimination ... do not appear to be preempted, but they are a diversion." Dehoyos v. Allstate Corp., 345 F.3d 290, 300 (5th Cir.2003) (Jones, J., dissenting).

II. Missouri's Regulatory Regime.

Like most States, Missouri thoroughly regulates the business of insurance. The premium rates charged by property and casualty insurers are governed by Chapter 379 of the Missouri Statutes. Insurers must file their rates and policy forms and, in the case of homeowners insurance, may only charge the filed rates. See Mo.Rev. Stat. §§ 379.321, 379.356. In setting rates, insurers must consider "past and prospective loss experience within and outside this state," "catastrophe hazards," "past and prospective expenses both countrywide and those specifically applicable to this state," "a reasonable margin of underwriting profit and contingencies," and "all other relevant factors, including trend factors." § 379.318(1). In establishing rates, insurers may group risks by classifications that "measure any differences among risks that can be demonstrated to have a probable effect upon losses or expenses." § 379.318(2). Missouri prohibits rates that are "excessive ... or unfairly discriminatory," terms carefully defined in § 379.318(4):

No rate shall be held to be excessive unless such rate is unreasonably high for the insurance coverage provided and a reasonable degree of competition does not exist in the area.... Unfair discrimination shall be defined to include, but shall not be limited to, the use of rates ... which unfairly...