In a decision that expands the legal weapons used to combat housing discrimination, a U.S. appeals court has ruled that the federal Fair Housing Act prohibits "redlining" in insurance just as it does in mortgage lending.
The decision by a three-judge federal appeals court panel in Chicago was hailed as "a major breakthrough" by fair-housing advocates because it brings the insurance industry under the same law that has been used in the past to attack discriminatory practices by banks, other mortgage lenders and real estate agents.
The appeals court rejected arguments that the federal Fair Housing Act was not intended to prohibit insurance redlining. The court found, instead, that obtaining insurance was a key ingredient in home ownership.
"The decision sends a powerful message to all insurance companies, especially to those doing business in Chicago," said Derrick Ford, a staff attorney for fair-housing issues at the Chicago Lawyers' Committee for Civil Rights Under the Law.
But fair-housing advocates also say the decision could have nationwide implications.
"This opens the door for people in other parts of the country to scrutinize the practices of the homeowners insurance industry in urban areas," said Gretchen E. Miller, legal director for the Wisconsin American Civil Liberties Union.
"This means that people now know they have a remedy under federal law when they can show discrimination," said Ms. Miller.
Redlining is a practice that has been used by some mortgage lenders, and allegedly by some companies offering homeowner insurance, that discriminates against residents in racially changing neighborhoods.
Redlining denies loans or insurance based on ZIP code or geographical area rather than the merits of individuals or their property.
The ACLU contends that census figures show Milwaukee to be one of the more segregated metropolitan areas in the United States.
Some of the minority property owners in Milwaukee were denied insurance; some discovered they were underinsured; and others alleged that claims made under their homeowner policies were scrutinized more closely than claims made by whites, Ms. Miller said.
Lawyers for American Family Insurance in Madison, Wis., deny the charges and say they believe the company will be vindicated when the case goes to trial.
The company is one of the largest sellers of property insurance in Milwaukee's inner city, according to Thomas L. Shriner Jr., a lawyer at Foley & Lardner in Milwaukee, which is representing American Family in the case.
The appeals court ruling does not mean that redlining has been proved, but rather gives lawyers for the ACLU and the National Association for the Advancement of Colored People another legal theory to pursue at trial.
The insurance industry contends its pricing policies are based on assessments of risk rather than race.
But fair-housing advocates say that redlining by insurance companies contributes to patterns of residential segregation in Milwaukee, Chicago and other large cities.
"I think the practice is probably widespread," said Victor Bolden, a staff lawyer at the ACLU's national office in New York. "This ruling is very significant. It is the first federal court of appeals ruling that extends the protections of the federal Fair Housing Act to insurance redlining."
The ruling has an immediate impact only in Illinois, Indiana and Wisconsin -- the states over which the Chicago-based U.S. Court of Appeals for the 7th Circuit has jurisdiction.