Insurer Settles Bias Suit Filed by Black Homeowners

U.S. Atty. Gen. Janet Reno announced on Thursday a landmark settlement in a homeowners’ insurance redlining case filed on behalf of this city’s African American homeowners against American Family Mutual Insurance Co.

American Family was alleged to have offered inferior coverage to blacks compared to the policies available to whites and to have avoided prospective clients who are black.

The agreement, mediated by the Justice Department, includes a payment of $16 million, the largest in any housing discrimination suit. It signals an intensifying focus by the federal government and fair-housing activists on the problem of underinsured homes in minority neighborhoods across America.

The Fair Housing Act already has been used to crack down on mortgage companies and banks. Now, for the first time, the law is being used to take on the insurance industry.

“Risk discrimination is permitted. Race discrimination is not,” Reno said at the federal courthouse here after the agreement was filed.

A Justice Department spokesman said there are no plans to open new cases, but Earl Shinhoster, acting executive director of the NAACP, said the settlement “will be reviewed, I assure you, by every insurance company in America.”

Steven Goldstein, a spokesman for the Insurance Information Institute, a New York-based trade group, agreed. “I’m surprised by the amount,” he said. “That sends a very strong message to insurance companies.”

The National Assn. of Independent Insurers, however, blasted the agreement, calling it “the ultimate affirmative-action program.”

Jack Ramirez, executive vice president of the trade association headquartered in Des Plaines, Ill., said: “To avoid bludgeoning attacks by the government in the future, insurers will have to consider lowering the cost of urban insurance despite higher risks resulting from higher crime rates, older homes with deteriorating wiring or outdated heating systems. . . . Consumers in other areas will pay the price.”

He added that insurance should be regulated at the state level, rather than by federal law.

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American Family, based in Madison, Wis., sells more than $2.6 billion annually in home, fire, marine and life insurance. The company is the dominant insurer in Wisconsin and operates in 12 other states, from Arizona to Ohio.

The company neither admits nor denies racism, said Executive Vice President James F. Eldridge. “We want to put this matter behind us,” he said.

Evidence in the case includes handwritten orders, scrawled across the bottom of a computer printout, from a district manager to an agent: “Quit writing all those blacks!!”

Another district manager wrote in a memo: “Most blacks have financial problems, to some degree.”

In addition to a total of $5 million for individual damage payments, American Family has agreed to spend $9.5 million for an array of programs similar to the community investment initiatives required of mortgage lenders. They include low-cost mortgage and repair loans, home improvement loans and an emergency repair fund.

The remaining $1.5 million will cover private attorneys’ fees for eight Milwaukee homeowners, the NAACP and the American Civil Liberties Union, who jointly brought the lawsuit in 1990.

The company also made commitments to provide a new type of policy, hire four sales agents to open offices in predominantly black neighborhoods and advertise in black-oriented publications.

Insurance companies in many cities, from Los Angeles to Pittsburgh, Pa., have been accused of practices similar to the allegations against American Family: that entire zip codes were assumed to be poor risks because of the neighborhood’s racial composition, regardless of the condition of an individual’s property, the quality of fire protection or the frequency of break-ins.

If policies are written, critics say, the companies often place limits on coverage that would not be imposed in a mostly white community. That means homeowners may not be able to fix the damage when fire, storms or vandals strike.

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“The lack of adequate insurance coverage in the central cities is the reason why they look like hell,” said Stephen Dane, a Toledo, Ohio, attorney who represents plaintiffs in a similar class-action suit pending in state court there against Nationwide Insurance.

Accusations come not only from the poorest urban areas, but from working-class and middle-class communities in cities and suburbs, also placing those areas at risk, said Shanna L. Smith, executive director of the National Fair Housing Alliance.

The plaintiffs in the American Family case live on prosperous streets, where Georgian brick homes with arched windows and stained-glass panels stand next to well-kept frame bungalows with columned porches.

Marvin Pratt, a former property appraiser, moved from a predominantly white neighborhood near the city’s northern border because he wanted to run for alderman and, as an African American, believed he would stand a better chance of winning in an area where blacks were a majority. He bought a new dwelling of similar value further to the south and east; his campaign was successful.

American Family sold him a policy for the new house with the same premium payment--but with a $1,000 limit per claim. His old, much more generous policy was not available in the new area, his agent said.

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Dorothy Listenbee, a city health inspector, failed to get insurance from two companies. To get a mortgage in 1980, she had to have insurance. She bought $65,000 worth of coverage--which would enable her to rebuild her house if it were destroyed--through the Wisconsin Insurance Plan, an expensive, last-resort program run by the state.

In 1989, she tried American Family. One agent took her name, telephone number, address and zip code, but never called back. Another said he could offer only $48,000 worth of insurance; he would not inspect her home.

She eventually obtained $84,000 in coverage from Allstate Insurance Co. But she is still affected by others’ inadequate coverage. After a fire two years ago in the upper level of their duplex, her neighbors are trying to repair it piecemeal while they live downstairs, forfeiting the rental income they used to have. “The top floor is just a shell,” Listenbee said.

The National Assn. of Insurance Commissioners, an organization of state insurance officials, studied redlining in the wake of the 1992 Los Angeles riots. The group reported in December that “there is considerable evidence that residents of urban communities, particularly residents of low-income and minority neighborhoods, face greater difficulty in obtaining high-quality homeowners insurance coverage through the voluntary market than residents of other areas.”