Huskey v. State Farm Fire & Cas. Co.
| Docket Number | 22 C 7014 |
| Decision Date | 11 September 2023 |
| Parties | JACQUELINE HUSKEY and RIIAN WYNN, on behalf of themselves and all others similarly situated, Plaintiffs, v. STATE FARM FIRE & CASUALTY COMPANY, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Plaintiffs Jacqueline Huskey and Riian Wynn, who are Black, brought claims under their homeowners insurance policies from Defendant State Farm Fire & Casualty Company. They claim State Farm handled their claims with greater scrutiny because of their race. For example, after Wynn and her white neighbor-also a State Farm policyholder-suffered similar roof damage, State Farm processed Wynn's and her neighbor's claims differently. Compared to her neighbor's claim, Wynn's claim took months longer to process, required additional paperwork and interactions, and ultimately, resulted in less coverage. Rather than discriminatory animus, Plaintiffs blame State Farm's use of algorithmic decision-making tools that allegedly resulted in statistically significant racial disparities in how the insurer processed claims. On behalf of a putative class Plaintiffs bring disparate-impact claims under three sections of the Fair Housing Act (FHA), 42 U.S.C. §§ 3604(a) and (b) and § 3605. State Farm moves to dismiss. (Dkt 24). For the following reasons, State Farm's Motion to Dismiss [24] is granted in part and denied in part.
Plaintiffs Jacqueline Huskey and Riian Wynn are Black homeowners who insured their homes through Defendant State Farm Fire & Casualty Company. (Dkt. 23 ¶¶ 11-12). Huskey had a State Farm homeowners insurance policy from around March 2021 until around February 2023. (Id. at ¶ 11). On June 12, 2021, hail damaged the roof of Huskey's home in Matteson, Illinois. (Id.) She filed a claim on her policy right away, yet she heard nothing from State Farm for over a month. (Id.) In August 2021, a State Farm adjuster visited Huskey's home and gave her an estimate for the damage to the inside of the home. (Id.) But the inspector refused to inspect the outside of Huskey's roof. (Id.) After Huskey called State Farm several times, State Farm sent a third-party adjuster to inspect the roof. (Id.) Eventually, almost four months after Huskey filed her claim, State Farm granted her claim in part-only covering repairs for internal damage. (Id.) Due to State Farm's delay in processing Huskey's claim, the unrepaired roof caused further water damage to her kitchen and bathrooms, and her home's value decreased. (Id.) In total, Huskey has spoken with State Farm employees between 20 and 30 times, and she has been unable to repair the damage to the roof. (Id.)
Wynn's story is similar. She has had a State Farm policy since 2015, when she bought her townhome in Evanston, Illinois. (Id. at ¶ 12). On March 6, 2022, the roof membrane of Wynn's home and the three neighboring townhomes blew off in a storm. (Id.) Water leaked into Wynn's home, damaging the interior. (Id.) Wynn's white neighbor, who was also a State Farm policyholder, experienced similar damage. (Id.) Although Wynn and her neighbor both filed claims on March 6, their experiences with State Farm differed. (Id.) In contrast to Wynn's neighbor's claim, State Farm scrutinized Wynn's claim by demanding additional documents, estimates, and inspections. (Id.) Wynn had “dozens more interactions with State Farm employees than her neighbor,” and her claim took about three months longer to resolve. (Id.) In the meantime, “Wynn's home experienced further damage, she lost use of her home, and her compensation was delayed.” (Id.) Further, State Farm did not cover Wynn's repairs and mitigation to the same extent as for her neighbor. (Id.) Wynn had at least 50 interactions with State Farm employees, and her claim took over eight months to process. (Id.)
According to a 2021 survey of about 800 Midwesterners with State Farm homeowners insurance, there are “large and statistically significant racial disparities between Black and white homeowners.” (Id. at ¶¶ 14-15). These disparities concern (1) State Farm's claims-processing times, (2) the paperwork it required, and (3) the number of interactions between policyholders and State Farm employees. (Id. at ¶ 15). First, while State Farm processed 39% of white State Farm policyholders' claims within one month, State Farm processed only 30% of Black policyholders' claims at that rate-meaning, white claimants enjoyed almost one-third better odds than Black claimants of having State Farm process their claims within one month. (Id. at ¶ 16). The probability that this disparity reflects random chance is less than 5%, so it is statistically significant. (Id.)
Second, State Farm asked 46% of white policyholders to submit additional materials after filing their claims, compared to 64% of Black policyholders. (Id. at ¶ 17). So Black policyholders were 39% more likely than white policyholders to need extra paperwork. (Id.) There is less than a 1% chance of this disparity occurring by random chance. (Id.) Third, 51% of white policyholders had between one and three interactions with State Farm employees before resolving their claims, compared to 42% of Black policyholders. (Id. at ¶ 18). And 49% of white policyholders interacted three or more times with State Farm employees, compared to 58% of Black policyholders. (Id.)
This means the chances of having at least three interactions were around 20% higher for Black policyholders than for white policyholders. (Id.) The probability of this disparity occurring randomly is under 10%. (Id.) Plaintiffs believe these survey results could be the tip of the iceberg: the additional burdens State Farm imposes could frustrate some Black policyholders to the point of abandoning their claims. (Id. at ¶ 19).
These racial disparities, Plaintiffs allege, stem from State Farm's use of a discriminatory claims-processing policy that scrutinizes Black policyholders' claims more than white policyholders' claims. (Id. at ¶ 20). Since at least 2018, in its initial review of claims, State Farm has relied on algorithmic decision-making tools to predict the likelihood of fraud and determine whether to pay claims immediately or trigger further scrutiny. (Id. at ¶¶ 32, 57). Machine-learning algorithms “learn” from the inputted data-which can come from the internet or a specific database. (Id. at ¶ 24). Even when users do not input data about race, for example, algorithms can learn to combine other inputs correlated with race to produce discriminatory effects. (Id. at ¶ 25). “Antifraud algorithmic decision-making tools are particularly susceptible to racial bias.” (Id. at ¶ 43). Creating a vicious cycle, a biased algorithm that imposes greater scrutiny on Black claimants will find more fraud among Black claimants, leading to even higher scrutiny. (Id.)
In its claims-processing and fraud-detection efforts, State Farm collects “extensive data about policyholders,” which includes:
classifications such as race, sex, marital status, familial status, and gender; physical characteristics and/or descriptions; education, employment, employment history, professional licenses or designations; financial information, medical information or health insurance information; personal property records, products or services purchased, obtained, or considered, or other purchasing or consuming histories or tendencies; biometric information such as genetic, physiological, behavioral and biological characteristics that can be used to establish individual identity, including but not limited to fingerprints, voiceprints, retina scans, and sleep, health or exercise data; internet usage information such as browsing history, search history, and information regarding customers' interaction with a website, application, or advertisement; geolocation data such as precise physical location or movements and travel patterns; and sensory data such as audio recordings of customer care calls.
(Id. at ¶¶ 33-34). Using this data, State Farm creates profiles for its customers that reflect their “preferences, characteristics, psychological trends, predispositions, attitudes, intelligence, abilities, and aptitudes.” (Id. at ¶ 35). These profiles help State Farm process claims and prevent fraud. (Id.) State Farm stores, manages, and accesses these “vast troves of data” on its web-based Enterprise Claim System (ECS), on which State Farm's claims associates can find and update information on claims in real time. (Id. at ¶ 36). State Farm licenses a third-party system called Technology Analytics for Claims which “uses text-based queries of claims data from ECS” to detect potentially fraudulent claims. (Id.)
In addition, State Farm has relationships with several third-party vendors offering tools for insurance-claims automation, including Salesforce and Duck Creek Technologies. (Id. at ¶ 37). Since 2018 or earlier, State Farm has used Salesforce's Financial Services Cloud, which gives State Farm employees “a holistic view” of customers. (Id.) State Farm processes homeowners insurance claims through Salesforce's platform, which increases efficiency by providing templates and guidance for common service requests, automating customer-facing tasks, and using predictive analytics tailored to insurance. (Id.) In fiscal year 2019, State Farm was one of Duck Creek's best customers. (Id.) Duck Creek, which integrates with Salesforce, offers a program called Duck Creek Claims that “uses predictive modeling or rules-based decision making” to sort claims. (Id.)
With these or similar tools, State Farm automates its initial...
To continue reading
Request your trial