Trump Administration Likely to Shield Property Insurers From ‘Disparate Impact’ Liability Under Fair Housing Act

Disparate-impact liability refers to liability on the basis that a certain practice, such as an insurance practice, produces a discriminatory effect on a legally protected class such as race or national origin, even if the practice was not intended to cause any such effect. See e.g., 24 C.F.R. § 100.500. Thus, unintentional discrimination against a legally protected class of persons may result in liability under the disparate-impact test.

The EO clearly sets forth that “[i]t is the policy of the United States to eliminate the use of disparate-impact liability in all contexts to the maximum degree possible.” It further provides that “all agencies shall deprioritize enforcement of all statutes and regulations to the extent they include disparate-impact liability.” The EO directs, among other things, for “the heads of [ ] agencies responsible for enforcement of” “Title VIII of the Civil Rights Act of 1964 (the Fair Housing Act)” to “evaluate all pending proceedings that rely on theories of disparate-impact liability and take appropriate action with respect to such matters consistent with the policy of this order.”

Although insurance is typically regulated on the state rather than on the federal level, the US Department of Housing and Urban Development (HUD), which promulgates regulations for the federal Fair Housing Act (FHA), has consistently interpreted the FHA to govern insurance practices regarding housing, including insurance underwriting. Nationwide Mut. Ins. Co. v. Cisneros, 52 F.3d 1351, 1359 (6th Cir. 1995) (“Congress gave HUD the authority to promulgate regulations knowing that HUD had consistently interpreted the Act as governing insurance underwriting practices.”) (citation omitted). Therefore, the US Supreme Court’s 2015 holding in Texas Dep’t of Hous. & Cmty. Affs. v. Inclusive Communities Project, Inc. that “disparate-impact claims are cognizable under the FHA” was relevant to the housing insurance industry. See 576 US 519, 135 S. Ct. 2507, 192 L. Ed. 2d 514 (2015); see also “Reinstatement of HUD’s Discriminatory Effects Standard,” 88 FR 19450-01 (citing Inclusive Communities).

Though the EO puts the holding of Inclusive Communities into question at least as to actions brought against insurers by the federal government, the EO does not affect private civil actions brought by insureds, prospective insureds, or claimants against insurers alleging FSA violations based on the type of “disparate impact” claims made in Inclusive Communities. An example of such private action is Ojo v. Farmers Grp., Inc., 356 S.W.3d 421, 422 (Tex. 2011) (following certification from the US Court of Appeals for the Ninth Circuit, the Texas Supreme Court held that “Texas law prohibits the use of race-based credit scoring, but permits race-neutral credit scoring even if it has a racially disparate impact.”).

In its 2023 Reinstatement of the Discriminatory Effects Standard, HUD explained the critical role of the insurance industry in the national housing market and the operation of the disparate-impact test in the context of insurance: “Insurance plays a significant role in the housing industry and in securing equal opportunity in housing in communities nationwide. Home seekers must be able to access mortgage insurance and homeowners insurance … Multifamily housing owners and managers must be able to obtain property and hazard insurance in order to obtain financing and manage the risks of their operations … liability arises only for those insurance practices that actually or predictably result in a discriminatory effect and lack a legally sufficient justification … any conflict with a specific state insurance law can and should be addressed on a case-by-case basis in the context of that state law.” 88 FR 19450-01.

The 2023 Reinstatement is currently the subject of an appeal pending before the US Court of Appeals for the District of Columbia Circuit in National Association of Mutual Insurance Companies v. United States Department of Housing and Urban Development et al. The EO will likely impact the outcome of National Association of Mutual Insurance Companies. According to the most recent papers filed by HUD in the matter on October 6, the “appeal concerns a pre-enforcement challenge to a final rule issued by HUD in 2023 addressing the decisional framework for analyzing discriminatory-effects claims under the Fair Housing Act” wherein the National Association of Mutual Insurance Companies “has alleged that the 2023 Rule is unlawful as applied to the ratemaking and underwriting practices of homeowners’ insurers.”

In its same October 6 filing, HUD explained that it “intends to reconsider the 2023 Rule,” and to that end, “on or about August 4, 2025,” it “submitted to the Office of Management Budget a draft final rule entitled ‘HUD’s Implementation of the Fair Housing Act’s Disparate Impact Standard,’” but the draft is still “pending internal regulatory review … and thus has not yet been made public.” As of December 5, HUD reiterated in a status report to the Court of Appeals that HUD intends to reconsider the 2023 Rule and the draft final rule remains under review.

While review of the new rule is still underway, it seems quite likely that the 2023 Reinstatement will be rescinded or significantly modified in light of the EO, as other federal agencies have done. See, e.g., Fair Lending: Removing References To Disparate Impact, 2025 WL 2053443, at *1 (“the Office of the Comptroller of the Currency (OCC) has removed references to supervising banks for disparate impact liability from the ‘Fair Lending’ booklet of the Comptroller’s Handbook and has commenced removing references in other issuances”); the Consumer Financial Protection Bureau’s proposed rule and request for public comment regarding its preliminary determination that the Equal Credit Opportunity Act does not authorize disparate-impact liability. Once the new HUD rule is issued, the pending appeal becomes moot, and if not formally withdrawn, the circuit almost certainly will dismiss it.

We continue to monitor the effect of the EO and National Association of Mutual Insurance Companies on the insurance industry. Please reach out to Anna Mandel or Richard G. Liskov with questions.