DeHoyos v. Allstate

United States Court of Appeals
Fifth Circuit
F I L E D
Revised November 13, 2003
September 3, 2003
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT Charles R. Fulbruge III
_________________ Clerk

No. 02-50721

JOSE C. DEHOYOS; EVA PEREZ-DEHOYOS;
GEORGIA HARRISON; CHARLES WHITE;
SHERYL H. FRANKS; MARTEL SHAW,

Plaintiffs - Appellees,

v.

ALLSTATE CORPORATION; ALLSTATE
INSURANCE COMPANY; ALLSTATE TEXAS
LLOYD’S; ALLSTATE INDEMNITY COMPANY,

Defendants - Appellants.

Appeal from the United States District Court
for the Western District of Texas

Before DAVIS, JONES, and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

This interlocutory appeal presents a preemption question.

Six members of a proposed class of non-Caucasian insurance

customers instigated this Civil Rights action against Appellants

Allstate Insurance Corp. et alia (Appellants or Allstate),

alleging that Allstate engages in racially discriminatory

business practices in violation of 42 U.S.C. §§ 1981 and 1982 of

the Civil Rights Act of 1866, and in violation of the Fair

Housing Act (FHA), 42 U.S.C. §3601 et seq. Appellants filed a
Rule 12(b)(6) motion to dismiss, arguing that the anti-preemption

provision of the McCarran-Ferguson Act, 15 U.S.C. § 1012(b),

precludes application of federal anti-discrimination laws to the

controversy at bar. The district court denied the motion, finding

that the application of the civil rights statutes was not

precluded by the McCarran-Ferguson Act, but simultaneously

granting leave for this interlocutory appeal. We find that the

McCarran-Ferguson Act does not bar Appellees’ claims, and

consequently we affirm the ruling of the district court.

I.

Appellees are six non-Caucasian Allstate policyholders who

instigated this action alleging racially discriminatory pricing

practices on the part of Appellants Allstate, et al. in violation

of 42 U.S.C. §§ 1981 and 1982 of the Civil Rights Act of 1866 and

in violation of the FHA, 42 U.S.C. §3601 et seq. Specifically,

Appellees allege that Allstate uses a “credit-scoring system” to

target non-Caucasian customers for the sale of more expensive

insurance policies than those directed at Caucasian customers.

Similarly, the credit-scoring system is allegedly used to “place”

non-Caucasian applicants into more expensive policies than those

polices into which Caucasian applicants are placed.1

1
The dissent invites us to label Appellees’ claims under §§
1981 and 1982 a diversion and to comment on the merits of those
claims. We decline to go beyond the preliminary questions
presented by this interlocutory appeal.

2
 Appellees filed a three-count class action complaint.

Appellants filed a motion to dismiss, arguing, inter alia, that

Appellees’ claims are preempted by the McCarran-Ferguson Act. The

district court denied the motion to dismiss in all regards.

However, at the conclusion of its memorandum opinion, the

district court noted that the order involved “controlling

questions of law as to which there are substantial grounds for

difference of opinion.” The district court went on to suggest,

sua sponte, that it would “look favorably upon a properly and

timely filed motion for leave to file an interlocutory appeal.”

Appellants so filed, and that interlocutory interrogatory is now

before this Court. See 28 U.S.C.A. § 1292. The preemptive effect

of the McCarran-Ferguson Act constitutes the sole point of

appeal.

II.

Where, as here, a district court’s ruling on a 12(b)(6)

motion to dismiss is based entirely on conclusions of law, this

Court reviews that determination de novo. See Malina v. Gonzales,

994 F.2d 1121, 1124 (5th Cir. 1993). The sole issue before this

Court is whether the McCarran-Ferguson Act precludes the

application of §§ 1981 and 1982 of the Civil Rights Act of 1866

and the FHA to the insurance pricing schemes at issue here. The

McCarran- Ferguson Act (MFA) provides in pertinent part:

No Act of Congress shall be construed to
invalidate, impair, or supersede any law

3
 enacted by any State for the purpose of
regulating the business of insurance...unless
such Act specifically relates to the business
of insurance.2

15 U.S.C. § 1012(b).

A. Humana Inc. v. Forsyth

The Supreme Court outlined the framework in which MFA

preemption questions are to be addressed in Humana Inc. v.

Forsyth, 525 U.S. 299 (1999). In Humana, the Court reviewed

whether the application of RICO in an insurance context was

preempted by the MFA. In finding that RICO was not preempted by

the MFA, the Court expressly rejected the view that the MFA

authorized a state-supremacy “field preemption” approach to the

application of federal law to the insurance industry. Instead,

the Court emphasized that MFA preemption is to be examined within

a “conflict preemption” rubric, and that, as such, the analysis

will turn on one of two axes: (1) the existence of an express

conflict with the letter of the state law; or (2) the frustration

of an officially articulated state regulatory goal. Moreover, the

Court rejected an implicit presumption against the application of

federal law in insurance contexts, stating instead that federal

law is to be applied in an insurance context where it can be

2
The Act goes on to expressly exempt the Sherman Act (1890),
the Clayton Act (1914), and the Federal Trade Commission Act
(1914).

4
applied in harmony with state law.

Additionally, the Humana Court found that RICO could be

applied in harmony with the state law because, inter alia, the

federal law did not proscribe conduct that the state insurance

laws permit; the existence of different remedial regimes does not

constitute an impairment of the state regulatory scheme; the

federal law augmented and advanced state regulatory goals; and

the federal law did not frustrate a particular and declared state

regulatory policy.

In sum, in extremely clear and specific language the Court

identified the following three MFA preemption threshold

requirements:(1)the federal law in question must not be

specifically directed at insurance regulation; (2) there must

exist a particular state law (or declared regulatory policy)

enacted for the purpose of regulating insurance; and (3)

application of the federal law to the controversy in question

must invalidate, impair or supercede that state law.3

We have not yet had occasion to pass upon the MFA preemption

3
With similar clarity the Humana Court went on to articulate the following MFA
"impairment" standard:

[1] When federal law does not directly conflict with state
regulation, and [2] when application of the federal law would not
frustrate any declared state policy or interfere with a State's
administrative regime, the McCarran-Ferguson Act does not
preclude its application.

Id. at 307, 310.

5
standard outlined by Humana within the context of applying

§ 1981, § 1982, or the FHA. However, this Court did recently

consider MFA preemption in the context of the Federal Arbitration

Act, 9 U.S.C. § 4 (FAA). In American Heritage Life Insurance Co.

v. Orr, 294 F.3d 702 (5th Cir. 2002), we reviewed and rejected a

challenge to the application of the FAA in an insurance context:

The test under McCarran-Ferguson is not
whether a state has enacted statutes
regulating the business of insurance, but
whether such state statutes will be
invalidated, impaired, or superseded by the
application of federal law. Appellants fail
to identify any statute that would be
impaired, invalidated, or superseded by the
application of the FAA. Instead, Appellants
try to perpetrate a judicial end-run by
asserting that an attorney general's opinion
or insurance department's regulatory,
administrative policy is the functional
equivalent of a state law relating to
insurance, thereby triggering the provisions
of the Act. Appellants' arguments are
without merit.

Id. at 708. (emphasis added)(internal citations and quotation

marks omitted). Thus, in American Heritage this Court concluded

that MFA preemption would not be found merely because the state

has a mechanism in place for regulating insurance contracts, nor

could the state's putative disfavor of arbitration in the

insurance context serve as a sufficient ground upon which

conflict with the FAA could germinate. We found instead that

[t]he party seeking to avail itself of the
[McCarran-Ferguson] Act must demonstrate that
application of the FAA would invalidate,
impair, or supersede a particular state law

6
 that regulates the business of insurance.

Id. (emphasis in original).

Moreover, several of our sister circuits have passed

squarely upon the question of MFA preemption with respect to

§ 1981, § 1982, or the FHA. Every circuit that has considered the

question has determined that federal anti-discrimination laws may

be applied in an insurance context, even where the state

insurance agencies have mechanisms in place to regulate

discriminatory practices. Specifically, the Eleventh, Seventh,

Fourth, Sixth, and Ninth Circuits all have determined that the

MFA does not prevent the application of federal anti-

discrimination laws to the insurance industry.4

In Moore v. Liberty National Life Insurance Co., 267 F.3d

1209 (11th Cir. 2001), the Eleventh Circuit considered a

4
See Moore v. Liberty Nat’l Life Ins. Co., 267 F.3d 1209
(11th Cir. 2001); NAACP v. Am. Family Mut. Ins. Co., 978 F.2d 287
(7th Cir. 1992); Mackey v. Nationwide Ins., 724 F.2d 419 (4th
Cir. 1984) (application of FHA in insurance context would not
impair or supersede any state law, although North Carolina
forbids discriminatory rates in the insurance business);
Nationwide Mut. Ins. Co. v. Cisneros, 52 F.3d 1351 (6th Cir.
1995)("We conclude that the presence of additional remedies in
the Fair Housing Act does not cause the Act to invalidate, impair
or supersede Ohio insurance law. Accordingly, we hold that the
McCarran-Ferguson Act does not preclude HUD's interpretation of
the Fair Housing Act."); Merchants Home Delivery Serv., Inc. v.
Frank B. Hall & Co., 50 F.3d 1486, 1491-92 (9th Cir. 1995)
(following American Family and holding that federal regulation
that provides additional remedies to those provided under state
insurance plan does not violate MFA).

7
challenge to the application of §§ 1981 and 1982 to allegedly

racially discriminatory "red-lining" insurance practices. The

Eleventh Circuit upheld the application of the federal anti-

discrimination laws despite the fact that Alabama law purportedly

implicitly authorized racially discriminatory practices which

have an "actuarial basis." The Eleventh Circuit rejected the

contention that allowing the application of federal civil rights

statutes would frustrate or interfere with Alabama's policy of

allowing discriminatory practices which were based on actuarial

reality:

We are asked to assume that the abolition of
one form of discrimination, as codified in
section 27-11-12, amounts to a clear
declaration by the state that all other forms
of discrimination, however invidious, are
acceptable. We cannot construe Alabama's
scheme of insurance regulation in such a
formalistic and narrow way. Absent more
convincing evidence that racial
discrimination in the insurance context is an
integral part of Alabama's regulatory scheme,
Liberty National's argument must fail.
. . . .
. . . [W]e . . . cannot conclude that
Alabama intended to condone racial
discrimination in its scheme of insurance
regulation. We therefore see no inconsistency
between the state's interest in preventing
"unfair discrimination" between individuals
with similar life expectancies and the
paramount national interest in preventing
racial discrimination in the contexts
articulated by §§ 1981 and 1982. The two
nondiscrimination principles complement each
other, and Liberty National has not
demonstrated that the federal statutes at
issue impinge on any declared state policy in
the insurance context. Therefore, the

8
 McCarran-Ferguson Act does not require the
reverse-preemption of plaintiffs' §§ 1981 and
1982 claims.

Id. at 1222-23 (emphasis added).

Similarly, in NAACP v. American Family Mutual Insurance Co.,

978 F.2d 287 (7th Cir. 1992), the Seventh Circuit found an FHA

challenge to an allegedly racially discriminatory practice of

"red-lining" was not barred by MFA preemption. The Seventh

Circuit noted that:

If Wisconsin wants to authorize redlining, it
need only say so . . . . American Family has
not drawn to our attention, however, any law,
regulation, or decision in Wisconsin
requiring redlining, condoning that practice,
committing to insurers all decisions about
redlining, or holding that redlining with
discriminatory intent (or disparate impact)
does not violate state law . . . . No
official of Wisconsin has appeared in this
litigation to say that a federal remedy under
the Fair Housing Act would frustrate any
state policy. Although the McCarran-Ferguson
Act gives states the final word on the
regulation of insurance unless Congress
specifically overrides their choices,
Wisconsin's word is consistent with the Fair
Housing Act.

Id. at 297.

Additionally, the same issues were reached and accord was

found in every circuit which has reviewed a MFA preemption

challenge to the application of § 1981, § 1982, or the FHA in an

insurance context.

B. Humana Standard Applied to the Controversy at Bar

9
 Here, all parties agree that the sections of the civil

rights statutes under which Appellees seek relief do not

“specifically relate to the business of insurance.” Therefore,

the first Humana threshold requirement is met. The resolution of

the preemption question then turns on whether the second two

prongs can be met: whether there exists a state law or official

policy which is directed at the regulation of insurance, and

whether application of § 1981, § 1982, and the FHA to the

insurance practices at issue here would “impair” that state

insurance law. Here, however, Appellants' ability to invoke the

MFA preemption fails on both fronts. First, and most importantly,

Appellants do not point to any law with which the federal civil

rights laws conflict, nor do they direct this Court to any

declared regulatory policy which the application of these

statutes would frustrate. Moreover, because Appellants do not

identify a state law or policy that would be impaired by the

application of the federal statutes, it is impossible for them to

prevail on the third Humana prong, i.e., a finding of impairment

caused by the application of the federal law.

The above analysis notwithstanding, Appellants generally

contend that the application of federal law to the practices at

issues here would impair the state law of Florida and Texas.

Under Humana, to impair state law, the federal law must either

10
directly conflict with state regulation, frustrate a declared

policy, or interfere with an administrative regime.5 Appellants

5
Appellants also urge us to entertain two additional theories of preemption. The first
argument, dubbed the "filed rate" argument, is presented to us for the first time in this
interlocutory appeal. As an initial matter, we observe that we consider issues raised for the first
time on appeal “only ‘in extraordinary instances . . . to avoid a miscarriage of justice.’” Martinez
v. Tex. Dep’t of Criminal Justice, 300 F.3d 567, 573 (5th Cir. 2002)(emphasis in
original)(quoting Doleac v. Michalson, 264 F.3d 470, 492 (5th Cir. 2001)). Moreover,
although we have discretion to review on interlocutory appeal
those issues which are "fairly included" in the appeal, we do not
deem this argument to be fairly included, as it is, at best,
ancillary to Appellants' primary arguments in support of
preemption. See Reserve Mooring Inc. v. Am. Commercial Barge Line
LLC, 251 F.3d 1069 (5th Cir. 2001).
Regardless, however, we find Appellants’ “filed rate”
argument unpersuasive. The application of anti-discrimination
laws cannot reasonably be construed to supplant the specific rate
controls of Florida and Texas. The application of the civil
rights laws cannot even supplant whatever anti-discrimination
components may be inherent or express in the insurance rate
controls which Florida and Texas may choose to adopt. If Florida
or Texas had adopted a specific rate control law or policy that
conflicted with the anti-discrimination policies manifested in
the civil rights statutes, those states needed only to direct us
to that specific law and we would have obligingly considered the
purported conflict.
Here, however, Appellants do not direct this Court to a
direct conflict or to a frustrated and declared policy with
respect to their filed rate argument. Florida and Texas have
recently passed laws regulating credit scoring. See Act of June
26, 2003, 2003 Fla. Laws ch. 407, § 3 (to be codified at Fla.
Stat. ch. 626.9741); Act of June 11, 2003, ch. 206, § 301, 2003
Tex. Sess. Law Serv. 907, 916 (Vernon) (to be codified at Tex.
Ins. Code § 21.49-2U); Act of Feb. 25, 2003, ch. 1, § 3, 2003
Tex. Sess. Law Serv. 1, 2 (Vernon) (to be codified at Tex. Ins.
Code § 5.141). However, these laws are not retroactive and thus
have no bearing on Appellees’ cause of action. Consequently,
even were we inclined to address this argument for the first time
on appeal, we would find it unavailing.
Appellants’ “super actuary” argument is similarly flawed.
Appellants argue that "if this case were allowed to proceed and
the plaintiffs were able to show disparate impact, the district
court will be required to . . . substitute its judgment for the
judgment of each of the 50 state insurance departments regarding
whether the use of credit scoring is appropriate." This

11
argue that the application of the civil rights statutes at issue

here would frustrate Texas and Florida state insurance policy by

frustrating the ability of those states to regulate insurance

pricing policies. However, in this argument Appellants adopt

entirely a "field preemption" posture, declining to direct the

Court to a particular law or declared regulatory policy, and

instead confining their argument to the observation that states

regulate insurance pricing and then vaguely conjecturing that,

construction, although colorful, is incorrect. Appellants'
ominous description of the court's role as "super actuary"
sitting in judgment on the specific insurance-rate policy
preferences of Florida and Texas is fanciful. In engaging in the
unremarkable task of determining whether specific conduct falls
within the ambit of federal civil rights law, a court would no
more become a "super actuary" than the court becomes a "super
entrepreneur" each time the court must determine whether a
discriminatory practice constitutes a business necessity.
Appellants' attempt to distinguish the business of insurance from
other businesses is unpersuasive. The business of insurance is
distinguishable only in that Congress has protected the business
of insurance from inadvertent federal preemption. Thus, our
analysis is concerned only with whether the civil rights laws are
in harmony with state regulation. We are not dissuaded from our
preemption conclusion merely because a court may eventually be
required to determine whether the complained-of conduct actually
violates federal law.
Thus, if Appellants were to bring a proper motion to dismiss
the disparate impact claims under this new theory, and the
district court were to decline to dismiss the claims, it would be
because the federal regulatory goal of disallowing racially
discriminatory insurance pricing is in harmony with the state's
goal of disallowing racially discriminatory insurance pricing.
While Appellants persist in trying to mold the issues of this
appeal into federalism questions, Humana makes clear that the
field of insurance regulation is not reserved to the states
exclusively, that federal law governs concurrently in the area,
and that federal law will only be preempted where there is a
statutory or policy conflict. Therefore, allowing the states to
exercise exclusive or autonomous discretion in insurance
regulation is not a valid rationale for finding MFA preemption.

12
somehow, "federal civil rights laws will interfere with and

frustrate the abilities of states to regulate insurance rate
6
making."

Obviously this assertion is not nearly enough to withstand

Humana scrutiny. Appellants cannot demonstrate that the federal

law in question frustrates a policy associated with the

regulation of insurance pricing without identifying an actual

policy. Even filling in for Appellants the fact that Florida and

Texas might adopt an approach different from the approach

embodied in the federal statutes, the mere fact that the two

approaches are different is not sufficient to create a conflict.

6
In support of this general impairment argument, Appellants
rely heavily on Doe v. Mutual of Omaha Insurance Co., 179 F.3d
557 (7th Cir. 1999), a case which is entirely inapposite. In Doe,
there was an actual state insurance law which purportedly
conflicted with the application of the ADA to the particular
insurance question at issue. There, Illinois enacted a law which
permitted caps on health care insurance for patients with AIDS.
The state insurance law was challenged under the ADA, and the
defendants raised a MFA defense. The Seventh Circuit was required
to consider whether the state law conflicted with the ADA,
because, if it did, then it would be necessary for the court to
determine whether application of the ADA to the AIDS-cap question
violated the MFA anti-preemption provision. The Seventh Circuit
concluded that the state law did not violate the ADA, so no
preemption was found.
Here, however, we have no state law which purportedly
conflicts with the application of the civil rights statutes to
the particular question of credit-scoring. Therefore, obviously,
we cannot consider whether the nonexistent law violates the civil
rights statutes such that the application of the civil rights
statutes could potentially violate the MFA. The problem here, as
elsewhere in Appellants’ analysis, is that there simply is no
state law for us to consider.

13
The approach of the federal statute must tread upon a declared

policy goal of the state scheme. Here, as the district court

correctly noted, "Defendants have not drawn the court's attention

to any law, regulation, or decision in Texas or Florida

requiring . . . [or] condoning" the credit-scoring practice at

issue here.7

Instead, in adopting this view, Appellants and their

supporting amici have implicitly adopted the position that the

Humana Court's use of the phrase "or interfere with a State's

administrative regime" means that if the state has a mechanism in

place for performing an insurance-related function and the

federal law enters that regulatory arena, then the federal law is

"interfering" with the state's administrative regime. This

interpretation, however, is manifestly at odds with both the

facts and express holdings of Humana. In Humana, the Court

expressly rejected a "field preemption" approach to MFA

preemption, holding instead that federal and state law can

concurrently affect the same issues and further the same goals as

long as the federal law does not frustrate the state's declared

7
Appellants argue that disparate impact claims are
particularly likely to impair state law. We do not agree, and in
any case the conflicts Appellants warn of are entirely
conjectural. The dissent reiterates Appellants’ argument but
offers no more convincing evidence that disparate impact suits
will necessarily impair state insurance regulation. We therefore
decline to differentiate claims of disparate impact and claims of
intentional discrimination at this preliminary stage of
litigation.

14
policy. "Interference," then, is not synonymous with "a presence

in the regulatory field." For example, in Humana, the Court

found that although states have administrative regimes and

mechanisms in place to regulate insurance fraud, the question is

not whether the state administrative regime has "occupied that

field." Instead, the question is whether the regulatory goals

are in harmony. RICO, the Court found, supplemented the state’s

mechanisms for eliminating insurance fraud, and consequently the

purpose and goals of both RICO and the state insurance law were

in alignment rather than conflict. This line of reasoning clearly

demonstrates that the Court has rejected an interpretation of

“interference” which is premised on the mere presence of federal

law within a facet of insurance regulation for which the state

already has an administrative regime in place.

Appellants, however, do not point to an insurance pricing

regulatory goal which is hampered by the application of the civil

rights laws to the credit-scoring practice at issue here, save

the implied goal of allowing the states to pursue their pricing

regulatory goals in isolation, which the Humana Court clearly

rejected as a relevant state policy goal. We conclude,

therefore, that the MFA does not preclude Appellees’ claims.8

8
Appellants raise two additional arguments. First, Appellants contend that the
enforcement of “private actions for damages” which are available under the civil rights statutes
but not under the state scheme would serve to impair the state regulatory scheme. However, it
is well-settled that the existence of additional remedies does
not create a conflict with state law such that MFA preemption may

15
 III.

For the foregoing reasons the ruling of the district court

with respect to the question of McCarran-Ferguson preemption is

herein AFFIRMED.

be found. This argument has been expressly rejected by the
Supreme Court in Humana, by the Fourth Circuit in Mackey, 724
F.2d at 421, by the Seventh Circuit in American Family, 978 F.2d
at 296, by the Sixth Circuit in Nationwide Mutual, 52 F.3d at
1363, and by the Ninth Circuit in Merchants Home Delivery, 50
F.3d at 1491-92. We likewise reject it here.
In a similar vein, Appellants argue that the fact that the
Florida and Texas departments of insurance regulation are
investigating the practices at issue here demonstrates that the
application of the federal laws in question would impair state
law. Here, Appellants’ argument is simply that Florida and Texas
both have dedicated mechanisms for regulating discriminatory
insurance rates, and that these departments regulate insurance
prices with a particular expertise. However, the fact that the
state also has a mechanism in place for performing a function
which the federal law would affect does not create a conflict.
Appellants must show that a conflict exists with a particular
law, or that an inconsistency exists with state regulatory
policy. Here, Appellants only argue that the states already have
a scheme in place, and that is not enough to create an MFA
preemption.

16
EDITH H. JONES, Circuit Judge, concurring in part and dissenting in

part:

With due respect to my colleagues, I cannot agree that

this nationwide class action challenging insurers’ use of credit

scoring in the pricing of automobile and home owners’ policies can

proceed intact under the McCarran-Ferguson Act. The allegations of

intentional race discrimination under 42 U.S.C. §§ 1981 and 1982 do

not appear to be preempted,9 but they are a diversion. Plaintiffs’

principal attack is under the Fair Housing Act against the alleged

disparate impact of a facially-neutral component of insurance

pricing decisions.

The majority, in my view, fails to recognize that a

disparate impact claim goes to the heart of the risk adjustment

that underlies the insurance business. The Seventh Circuit

cogently observed: “Risk discrimination is not race

discrimination.” NAACP v. Am. Family Mut. Ins. Co., 978 F.2d 287,

290 (7th Cir. 1992). Every insurer sets its prices according to

the risk embodied in covering particular categories of customers.

Thus, young male drivers pay higher premiums than young females or

mature drivers because of the higher incidents of policy claims

made by that group. To be sure, insurers inflict a disparate

9
In this court, §§ 1981 and 1982 have been confined to cases involving intentional racial
discrimination, not disparate impact claims. Arguello v. Conoco, Inc., 207 F.3d 803, 809 n.9 (5th
Cir. 2000); Hanson v. Veterans Admin., 800 F.2d 1381, 1385 (5th Cir. 1986).

17
impact upon young male drivers, but hardly anyone argues that the

impact is unjustified. The relevant inquiries are whether the

price differential reasonably conforms to the risk differential and

whether, in a regulated rate system, the insurer has received an

appropriate return.

State insurance commissions, like those of Florida and

Texas, are set up to regulate rates by overseeing the insurance

companies’ assessment of risks and differential pricing decisions.

Integral to the regulatory regime is a prohibition on “unfair

discrimination” in pricing. Tex. Ins. Code Ann. art. 21.21-6

(Vernon 1981 & Supp. 2003); Fla. Stat. ch. 627.031 (2) (2002). No

matter the exact statutory regime under which the commissions go

about their business, they are called upon to balance, verify and

make a quasi-legislative determination concerning the adequacy and

appropriateness of rates. Colo. Interstate Gas Co. v. Fed. Power

Comm’n, 324 U.S. 581, 589 (1945) (“Rate-making is essentially a

legislative function.”). Their responsibility is ultimately

fulfilled by evaluating the companies’ comparative risk

determinations. Since risk determinations are mathematically

complex and multi-faceted, unraveling a single thread, like credit

scoring, that is a component of a risk formula necessarily affects

the entire fabric.

Viewed against this backdrop, it is plain that the

instant class action inevitably draws federal courts into the

mechanics of insurance pricing and, by the same token, must

18
diminish the scope of action available to state insurance

commissioners. The plaintiffs really make no pretense to the

contrary, as they allege that the premiums charged to them using

credit scoring are discriminatory, excessive, unfair,

unconscionable, and unlawful. These terms are nearly identical to

those in the statutes that guide the Texas and Florida insurance

commissions. The plaintiffs, however, are asking the federal

courts to examine one thread from the regulatory fabric, while

state insurance commissioners remain responsible for the whole.

There is thus a significant difference between intentional

discrimination claims and disparate impact claims for purposes of

McCarran-Ferguson.

The McCarran-Ferguson Act was designed precisely to

prevent this type of federal interference with the states’

prerogative of insurance regulation. The majority have not only

misunderstood the intimate connection between the plaintiffs’

claims and insurance rate-making, but they have also interpreted

the scope of McCarran-Ferguson preemption too narrowly, and they

have misapplied lower court precedents. These errors require brief

elaboration.10 In Humana Inc. v. Forsyth, 525 U.S. 299 (1999), the

Supreme Court’s analysis of McCarran-Ferguson preemption parallels

its venerable tests for determining the supremacy of federal law

over the states. Thus, the Court stated that:

10
Because the majority have correctly quoted § 2(b) of the Act and explained its general
parameters, I will not repeat those matters here.

19
 While we reject any sort of field preemption, we also
reject the polar opposite of that view, i.e. that
Congress intended a green light for federal regulation
whenever the federal law does not collide head-on with
state regulation. [The Court quotes a dictionary
definition of ‘impair’ in § 2(b).] The following
formulation seems to us to capture that meaning and to
construe, most sensibly, the text of § 2(b): when federal
law does not directly conflict with state regulation, and
when application of the federal law would not frustrate
any declared state policy or interfere with a State’s
administrative regime, the McCarran-Ferguson Act does not
preclude its application.

Humana, 525 U.S. at 309-10 (emphasis added). Humana does not

require a direct conflict with state law in order to compel

preemption. It is enough that the federal law may “interfere with

a State’s administrative regime.” The majority seems to ignore

this clear alternative, however, by repeatedly, and incorrectly,

demanding evidence of “an enacted law” or a “declared policy.”11

11
See, e.g,., Maj. Opn at 4 (stating that McCarran-Ferguson preemption “analysis will
turn on one of two axises: (1) the existence of an express conflict with the letter of the state law,
or (2) the frustration of an officially articulated state regulatory goal”); Maj. Opn. at 5 (noting that
in Humana “the federal law did not frustrate a particular and declared state regulatory policy”
and also stating that the Supreme Court “identified the following three [McCarran-Ferguson]
preemption threshold requirements:(1)the federal law in question must not be specifically directed
at insurance regulation; (2) there must exist a particular state law (or declared regulatory policy)
enacted for the purpose of regulating insurance; and (3) application of the federal law to the
controversy in question must invalidate, impair or supercede that state law”); Maj. Opn. at 10
(“Moreover, because Appellants do not identify a state law or policy that would be impaired by
the application of the federal statutes, it is impossible for them to prevail on the third Humana
prong, i.e., a finding of impairment caused by the application of the federal law”); Maj. Opn. at 12
(noting that Appellants failed “to direct the Court to a particular law or declared regulatory
policy” or identify “an actual policy”); Maj. Opn. at 13 (stating that “[t]he approach of a federal
statute must tread upon a declared policy goal of the state scheme”) and that the appellants have
not identified “any law, regulation, or decision in Texas or Florida requiring . . . [or] condoning
the credit-scoring practice at issue here”).

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 While I would agree that it is too broad to argue that

virtually any federal claim will “interfere” with the state

regulatory regime,” a contrast between the facts in Humana and the

case at bar illustrates why the insurers here are not raising a

field preemption defense. In Humana, the Court held that RICO law

was not preempted by the McCarran-Ferguson Act. In that case, RICO

claims were made against an alleged kick-back scheme between a

health insurer and various hospitals in such a way that both the

cause of action and its remedy ran parallel to those available

under Nevada law. The RICO claim did not require a federal fact-

finder to investigate the genesis of the insurer’s rates, but only

whether kick-backs had been illegally made. Further, Nevada

authorized the policing of this kind of activity through private

citizen lawsuits in its state court.

In this case, by contrast, any post hoc declaration that

credit scoring is impermissible will require a federal court to

determine, in order to assess damages, what a fair and “non-

discriminatory” rate for the plaintiffs’ policies would have been.

A more complete overlap with the state insurance commissions’

pricing decisions is impossible to conceive. Because of the

sensitivity and complexity of the question of unfair policy price

discrimination, both Texas and Florida have chosen not to permit

plaintiffs to file individual lawsuits in state courts to challenge

such decisions. Key Western Life Ins. Co. v. State Bd. of Ins., 350

S.W.2d 839, 849-50 (Tex. 1961); Int’l Patrol & Detective Agency,

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Inc. v. Aetna Cas. & Sur. Co., 396 So. 2d 774, 776 (Fla. Ct. App.

1981), approved by 419 So. 2d 323, 324 (Fla. 1982). Instead, both

states have enacted administrative corrective regimes. The

plaintiffs’ disparate impact suit will thus interfere with the

initial rate-making as well as the corrective procedures utilized

by the states.

My colleagues take refuge in a string of appellate court

decisions that they believe have approved FHA disparate impact

cases against insurance companies. Unfortunately, they are wrong.

Two of their principal cases pre-date the Humana decision and

require direct conflict preemption, a plainly narrower test than

that adopted in Humana.12 See Am. Family Mut. Ins. Co. 978 F.2d at

295-96 ; Nationwide Mut. Ins. Co. v. Cisneros, 52 F.3d 1351, 1363

(6th Cir. 1995), cert. denied, 516 U.S. 1140 (1996). Additionally,

both of those cases involved only intentional discrimination

claims, not, as here, claims of disparate impact.

The single post-Humana appellate case in this area is

Moore v. Liberty Nat’l Life Ins. Co., 267 F.3d 1209 (11th Cir.

2001), cert. denied, 122 S. Ct. 1608 (2002). Moore, however,

involved claims under §§ 1981 and 1982 of intentional racial

discrimination in setting premiums for life insurance. This case

12
Likewise, two other cases upon which the majority rely also pre-date Humana and
require a direct conflict with a state law. See Merchs. Home Delivery Serv., Inc. v. Frank B. Hall
& Co., 50 F.3d 1486, 1491-92 (9th Cir. 1995); Mackey v. Nationwide Ins. Cos., 724 F.2d 419,
421 (4th Cir. 1984).

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concerns auto and homeowners’ insurance, not life insurance.

Moreover, what I take issue with here is the claim founded upon the

allegedly disparate impact of credit history, a facially neutral

risk classification factor, utilized within a complex state

regulatory scheme.

The circumstances under which the McCarran-Ferguson Act

was enacted by Congress further underscore the majority’s error in

holding that disparate impact claims under the Fair Housing Act are

not preempted. In 1944, the Supreme Court held that insurance

companies could be liable for antitrust violations under the

Sherman Act for activities related to the setting of premiums.

United States v. South-Eastern Underwriters Ass’n, 322 U.S. 533

(1944). “In reaction to South-Eastern Underwriters, Congress

‘moved quickly,’ enacting the McCarran-Ferguson Act ‘to restore the

supremacy of the States in the realm of insurance regulation.’”

Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25, 40

(1996) (quoting Dep’t of Treasury v. Fabe, 508 U.S. 491, 500

(1993)). In particular, one of Congress’s primary concerns in

enacting the McCarran-Ferguson Act was to exempt insurance

ratemaking activities from the antitrust laws. Group Life & Health

Ins. Co. v. Royal Drug Co., 440 U.S. 205, 221 (1979). In other

words, at the very core of the McCarran-Ferguson Act is the

insulation of state regulation regarding the fixing of insurance

rates from federal laws not specifically directed towards

regulating insurance.

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 Whether credit scoring is useful or advisable as a device

for insurance pricing, I cannot say. Florida and Texas have both

recently passed laws allowing credit scoring on policies written

after January 1, 2004, with numerous limitations. See Act approved

June 11, 2003, 78th Leg., R.S., S.B. 14, §§ 3.01-3.04 (to be

codified at Tex. Ins. Code Ann. art. 21.49-2U) (regulating use of

credit scoring for purposes of rate setting and underwriting in,

inter alia, residential property insurance and personal automobile

insurance); 2003 Fla. Laws ch. 407 (to be codified at Fla. Stat.

ch. 626.9741) (same); see also Act of Feb. 25, 2003, 78th Leg.,

R.S., ch. 1, § 3(c), 2003 Tex. Gen. Laws 1, 2 (requiring

residential property insurers to provide reports to the Texas

Insurance Commissioner regarding the use of credit scoring in

underwriting and setting premiums). Other states’ regulatory

policies with regard to credit scoring differ, according to the

parties’ briefs. But it seems clear to me that federal courts are

not competent to tread in the essential domain reserved to state

regulators. In today’s case, credit scoring is alleged to have a

disparate impact. Tomorrow, some other facially neutral criterion,

such as the age of one’s car or the number of one’s dependents, or

the city of one’s residence, may fall under legal attack.

Disparate impact claims under the Fair Housing Act are, in my view,

squarely preempted by the McCarran-Ferguson Act and by Humana. On

this aspect of the majority opinion, I respectfully dissent.

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