332 DEPAUL LAW REVIEW [Vol. 29:315 agents. Nonetheless, independent agents are agents of the insurer and subject it to liability to the same extent as do exclusive agents. 105 With brokers, however, it would probably be necessary to find that the racial discrimination underlying the denial of insurance occurred as the direct result of insurer authorization. In that case, the insurer would be liable directly for its express refusal to accept offers from applicants because of the applicant's race. In appropriate circumstances, the link between insurer and broker should not be difficult to find. There has been considerable testimony, for example, that some insurers have instructed brokers and agents not to accept insurance applications on property located in certain areas of the city. 106 As discussed in the first section of this article, certain areas within Chicago are readily identifiable as areas with high and low minority compositions. Also, the MSAC study reported that residents of high minority areas are far less likely to find property insurance available in the voluntary market than residents of predominantly white areas. 107 Thus, to the extent that geographic area is a subterfuge for race, the refusal to accept the application for insurance because of area of residence would be prohibited under section 1981, 108 The question of the potential liability of insurers operating through agents and brokers may turn on findings that insurers instructed the brokers to restrict their activity in certain areas and that such restriction was racially motivated. As to the latter determination, the statistical disparities in voluntary and involuntary market activity in the white and minority Zip codes reported by the MSAC study 109 should be suffcient to establish a prima facie case of racial discrimination. 110 The burden then would shift to the insurer 105. Independent agents and brokers for insurance purposes are considered agents of the insurer. 16 J. Appleman, Insurance Law and PRACTICE (8672, at 137-38 (1968). Agency principles hold that a principal is liable for the consequences of an agent's conduct resulting from the former's direction. Restatement (Second) of AgencY § 212 (1958). But see discussion, note 125 infra. 106. INSURANCE Redlining, supra note 20, at 6. 107. Id. at 8. 108. 42 U.S.C. 1981 protects both whites and blacks from the consequences of racial discrimination against blacks. Therefore, white residents of areas with large minority populations are protected against discrimination in the sale of insurance where such discrimination is based on the minority composition of the area. McDonald v. Santa Fe Trail Transp. Co., 427 U.S. 273, 295 (1976); Sullivan v. Little Hunting Park, 396 U.S. 229, 237 (1969); Clark v. Universal Builders, Inc., 501 F.2d 324, 331-32 (7th Cir.), cert. denied, 419 U.S. 1070 (1974); Winston v. Lear-Siegler, Inc., 558 F.2d 1266, 1268 (6th Cir. 1977). 109. INSURANCe Redlining, supra note 20, at 9. 110. Disparate impact has been sufficient to establish a prima facie case of racial discrimination in several areas. See, e.g., the discussions in regard to Title VII in Griggs v. Duke Power Co., 401 U.S. 424, 432 (1971) and in regard to Title VI in Lau v. Nichols, 414 U.S. 563, 568 (1974). Two federal appellate courts have adopted the discriminatory effect standard for plaintiff cases arising under Title VIII See Metropolitan Hous. Dev. Corp. v. Village of Arlington Heights, 555 F 24 1283 7th Cir 1977), cert denied, 434 U.S. 1025 (1978); Resident Advisory Bd. v. Kizzo 564 F 24 126(3d Cir 1977), cert denied, 435 US 908 (1978). In Arlington Heights, the 1980] INSURANCE REDLINING 333 to prove that some loss-related factor, e.g., arson rates or a ratio of replacement value to market value above 150%,111 and not race, was the basis for its action. Support for the finding of a prima facie case is found in Clark v. Universal Builders and Ortega v. Merit Insurance Co. 112 In both of those cases, the defendants were exploiting the consequences of racially segregated neighborhoods. In Clark, the Seventh Circuit decision which became the basis of Ortega, the court stated that a prima facie case was established upon showing that prior racial segregation created a dual housing market and that defendants had taken advantage of that market by demanding prices and terms for blacks in excess of what was being required of whites. Having 113 Court of Appeals for the Seventh Circuit held that a Title VIII violation may be proved by showing a disproportionate effect on minorities of a government housing policy. 558 F.2d at 1289. The Arlington Heights court reasoned that the result of the defendant's action in refusing to zone for low- and middle-income housing in a virtually all-white area, regardless of its motive, would be to discriminate upon the basis of race. Id. This result frustrated the national goal of integrated housing, and thus it perpetuated segregation. Id. The Court of Appeals for the Third Circuit also adopted the discriminatory effect standard for the prima facie case in the Rizzo decision. The Rizzo court held that the Philadelphia Housing Authority and the Redevelopment Authority of Philadelphia violated Title VIII because their actions, in converting an integrated area into an all-white area, had a discriminatory effect on minorities by denying them housing on the basis of race. 564 F.2d at 149-50. Rizzo and Arlington Heights demonstrate that the discriminatory effect standard is appropriate under Title VIII and that the prima facie case is a powerful evidentiary weapon in situations where the defendant has all the information and the plaintiff lacks access to the information, which is the case in insurance redlining. In addition, statistics often have been used with judicial approval to establish a prima facie case of discrimination. See, eg, International Bhd. of Teamsters v. United States, 431 U.S. 324, 339, (1977) (employment discrimination); Turner v. Fouche, 396 U.S. 346, 360 (1970) (jury selection). Recently, the Supreme Court granted certiorari only to dismiss subsequently for mootness a case that would have decided whether ◊ 1981 requires strict proof of intent to discriminate or whether proof of disparate impact will suffice to establish liability. The court of appeals had held that Title VII and § 1981 standards with regard to proof of racial discrimination are the same; both require proof of disparate impact only. Davis v. County of Los Angeles, 566 F.2d 1334 (9th Cir. 1977), cert. granted, 437 U.S. 903 (1978), vacated as moot, 99 S. Ct. 1379 (1979) (action by black and Mexican-American fire department applicants alleging discrimination in hiring by use of a height requirement not shown to be job related. Furthermore, race need not be shown to be the sole or even the primary factor underlying a refusal to issue a contract (in this case of insurance) to establish liability under 1981. The use of race even as one among many other factors is impermissible. See note 37 supra. For an excellent discussion of the prima facie case, see Schwemm, Discriminatory Effect and the Fair Housing Act, 54 Notre Dame L. REV. 199 (1978), Comment, Applying the Title VII Prima Facie Case to Title VIII Litigation, 11 HARV. C.R.-C.L. L. Rev. 128, 157 (1976). 111. The "business necessity" defense is discussed at note 207 infra. 112. Clark v. Universal Builders, Inc., 501 F.2d at 334; Ortega v. Merit Ins. Co., 433 F. Supp. at 140. See notes 93-94 supra. 113. 501 F.2d at 334. See note 94 supra. The court appears to have assumed that the racial segregation underlying the dual housing market occurred as a result of intent rather than sheer happenstance. However, the Clark defendants did not themselves create the segregated residential pattern but merely used that pattern to their own pecuniary advantage. 334 DEPAUL LAW REVIEW [Vol. 29:315 established those two factors, the burden of persuasion then shifted to the defendants to articulate some legitimate, non-discriminatory reason for their conduct. With insurance redlining, it seems reasonable to suggest that a prima facie case is established upon a showing that geographic areas have a disproportionate concentration of minority residents caused by prior racial segregation 114 and that insurers are restricting their general business in predominantly black areas, are charging excessive premiums, are requiring special terms and conditions, are limiting the extent of individual coverage, or are engaging in other discriminatory conduct. Section 1982 A contract of insurance also creates a property right. A contract of property insurance is a chose in action and is in itself a personal property right distinct from the building or contents that are insured. 115 The property right thus created is protected under section 1982. 116 An insurer's refusal to issue property insurance for reasons of race would unlawfully deny an individual the right to purchase personal property and thus would be actionable under section 1982. Further, the historical relationship between section 1981 and section 1982 suggests that the two sections reasonably may be similarly construed. 117 To reiterate a similar discussion of section 1981 earlier, the data analyzed by the MSAC report revealed that residents of high minority communities had been denied insurance for reasons either based directly on race or associated with race. Thus, it seems likely that the statistical disparities set forth in the study would sustain a prima facie case of racial discimination under section 1982 where an applicant has been denied an insurance contract and alleges a racial basis for the denial. 119 118 Section 1985(c) Section 1985 prohibits conspiracies between private persons to deprive a member of a racial minority of his or her civil rights. 120 The right of con 114. The MSAC study merely confirmed what has been demonstrated in all large northern urban-suburban areas. Segregated housing patterns are the norm. See, e.g., G. ORFIELD, Must WE BUS? 77-85 (1978). The author discusses the development of urban racial ghettos and affirmative government support of segregated housing patterns. 115. 12 J. APPleman, Insurance Law & PRACTICE 7016 (1968). 116. 42 U.S.C. § 1982 (1976). For the text of § 1982, see note 12 supra. 117. Tillman v. Wheaton-Haven Recreation Ass'n, 410 U.S. at 440. Thus, whites along with members of racial minorities are protected from racial discrimination. 118. INSURANCE Redlining, supra note 20, at 29-30. 119. Id. at 30-32. 120. 42 U.S.C. § 1985 (1976). For the text of ◊ 1985, see notes 89 and 36 supra. The specific language of the statute mandates "equal privileges and immunities under the laws." In Griffin e. Breckenridge, the Supreme Court indicated that "[t]he conspiracy... must aim at a depriva 1980] INSURANCE REDLINING 335 tract and the right to purchase property are both protected civil rights. 121 Therefore, this section prohibits agreements between insurers or with others to deny insurance on account of race. Insurers customarily meet to discuss insurance practices only under the direction of the National Association of Insurance Commissioners (NAIC) or under the direction of their individual state insurance commissioners. 122 This policy is not in response to section 1985 but rather to avoid liability under that part of the Sherman Act from which insurers are not exempt under the McCarran-Ferguson Act. 123 Nonetheless, insurers are careful to avoid even the perception that they act in concert without state authoriza tion. As stated earlier, insurers regularly conduct their affairs through agents and brokers. Independent agents and brokers are not employees of a particu lar insurer while exclusive agents are. An insurer who agrees with an exclusive agent to refuse insurance to individuals for racial reasons cannot be held liable for a conspiracy because one cannot conspire with oneself. 124 An independent agent or broker, however, legally may be capable of participating in a conspiracy with an insurer where both agree to refuse insurance because of the race of the applicant. 125 Such agreements are precisely what is prohibited by section 1985. In line with earlier discussions, the MSAC report 126 indicates that racial factors may be contributing significantly to the unavailability of insurance in the voluntary market. To the extent that insurers have agreed with independent agents or brokers or with each other to restrict insurance availability in areas with large minority population through the voluntary market, those agreements are unlawful under section 1985. tion of the equal enjoyment of rights secured by the law to all." 403 U.S. at 102 (emphasis added). 121. Because all persons have an equal right to buy property (§ 1982) and make contracts (§ 1981) and these are federally protected rights, a conspiracy to deprive an individual of these rights for reason of race constitutes an offense under § 1985. 122. The NAIC was founded in 1871. It is composed of the chief insurance regulatory officers of the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands. The organization meets twice a year to discuss matters of common interest including proposed legislation. The purposes of the NAIC include promoting uniformity in insurance law and regulation and preserving "to the several states the regulation of the business of insurance." NAIC CONST. art. 2. 123. See notes 60-61 and accompanying text supra. 124. Section 1985 embodies the well-established principle that a conspiracy requires at least two persons: "If two or more persons . . . . For the text of § 1985, see notes 89 and 36 supra. See United States v. Santa Rita Store Co., 16 N. M. 3, 9-10, 113 P. 620, 621 (1911), for an early discussion of agency issues in prosecutions for conspiracies in violation of federal antitrust laws. 125. See note 105 supra. However, the insurance agent is considered an agent of the insurer to protect the applicant. That is, because the insurance agent is the agent of the insurer as opposed to the agent of the applicant, the latter is able to rely on the agent's representations in regard to the insurer. For purposes of § 1985, however, it would be reasonable to consider the insurance agent an independent contractor acting as agent of the applicant instead of insurer in order to carry out the underlying purpose of the principles relevant here, i.e., protection of the applicant. 126. INSURANce Redlining, supra note 20, at 60. 336 DEPAUL LAW REVIEW [Vol. 29:315 128 Title VIII The Fair Housing Act of 1968 also was promulgated under the authority of the thirteenth amendment. 127 In addition to prohibiting racial discrimination in the sale and rental of housing or in associated services, the Act prohibits such discrimination based upon other factors, including national origin. The Act also expressly prohibits discrimination in the issuance of real estate and home improvement loans, but does not expressly protect insurance transactions. Insurance is a prerequisite to obtaining a mortgage, however, and no mortgagee would be willing to lend money to a potential home buyer without having his or her interest in the property protected. 129 Further, some financial companies maintain subsidiary property/casualty insurance businesses. 130 It undoubtedly would be unlawful for a financial company to deny an application for a real estate loan because of the applicant's failure to obtain insurance after the subsidiary had denied that insurance based on racial or ethnic considerations. Most insurers, however, are not directly affiliated with lending institutions and are not operating under express agreement with such institutions. In this case, denying an application for a real estate loan because the applicant could not obtain insurance is probably an activity too indirect to be reached by the present Act. 127. Fair Housing Act, 42 U.S.C. §§ 3601-3631 (1976). The Fair Housing Act was enacted as Title VIII of the Civil Rights Act of 1968. Act of Apr. 11, 1968, Pub. L. No. 90-254, 82 Stat. 81. 128. 42 U.S.C. § 3604 (1976) provides: As made applicable by section 3603 of this title and except as exempted by sections 3603(b) and 3607 of this title, it shall be unlawful (4) To refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, or national origin. (b) To discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race, color, religion, sex, or national origin. (c) To make, print, or publish, or cause to be made, printed, or published any notice, statement, or advertisement, with respect to the sale or rental of a dwelling that indicates any preference, limitation, or discrimination based on race, color, religion, sex, or national origin, or an intention to make any such preference, limitation, or discrimination. (d) To represent to any person because of race, color, religion, sex, or national origin that any dwelling is not available for inspection, sale, or rental when such dwelling is in fact so available. (e) For profit, to induce or attempt to induce any person to sell or rent any dwelling by representations regarding the entry or prospective entry into the neighborhood of a person or persons of a particular race, color, religion, sex, or national origin. 129. See, e.g., U.S. PRESIDENT'S NAT'L ADVISORY PANEL on Insurance in Riot-AFFECTED AREAS, MEETING THE INSURANCE CRISIS OF OUR CITIES 1 (1968). 130. Talman Federal Savings and Loan Association of Chicago, Illinois, is one such company that maintains a subsidiary property insurance business through the Talman Services Corporation General Insurance Division. |