(CN) – The 9th Circuit reinstated a class action accusing Farmers Group of using a secret, discriminatory credit-scoring system to charge black homeowners higher insurance premiums.
According to lead plaintiff Patrick Ojo, a Houston resident, Farmers used “a number of undisclosed factors” to compute credit scores and price homeowners’ insurance policies. Farmers allegedly considered “geographical distinctions” and “various other artifices” to “identify and target minorities for the purpose of charging minorities higher premiums … than the premiums charged to similarly situated Caucasians.”
As a result, Ojo and other black homeowners “have lost and face losing millions of dollars in premiums paid” as a result of discrimination, the class action claimed.
U.S. District Judge John Walter granted Farmers’ motion to dismiss the claim on the grounds that it was “reverse-preempted” by the McCarran-Ferguson Act.
“In dismissing Ojo’s claim, the district court erred in two respects,” wrote Judge Pregerson of the San Francisco-based appeals court. “First, the district court erroneously read Ojo’s claim as challenging the practice of credit scoring per se. Second, the district court erroneously interpreted Texas state insurance law as permitting disparate impact race discrimination that results from credit scoring, thereby triggering McCarran-Ferguson reverse preemption.
“Because Ojo’s federal [Fair Housing Act] claim was not reverse-preempted by McCarran-Ferguson, the district court erred in dismissing Ojo’s complaint.”
In dissent, Judge Bea said the district court “got it precisely right.” Bea argued that Ojo’s complaint failed to allege that Farmers used race-based factors in assigning the credit scores used to set insurance premiums.