Housing And Civil Enforcement Cases Documents

UNITED STATES OF AMERICA,
     Plaintiff,

v.

AMERICAN FAMILY MUTUAL
INSURANCE COMPANY,
     Defendant.

_______________________________

The United States alleges as follows:

1. The United States brings this action pursuant to the Fair Housing Act, Title VIII of the Civil Rights Act of 1968, as amended by the Fair Housing Act Amendments of 1988, 42 U.S.C. 3601, et seg.
2. This Court has jurisdiction of this action under the provisions of 28 U.S.C. 1345 and 42 U.S.C. 3614(a).
3. The defendant, American Family Mutual Insurance Company, a domestic corporation authorized by the State of Wisconsin to sell insurance, maintains its home office in Madison Wisconsin, and sells insurance, including homeowners insurance, throughout the state.
4. According to documents filed with the Office of the Commissioner for Insurance for the State of Wisconsin (OCI), the defendant had 68 million dollars in homeowner insurance sales in Wisconsin for the year 1992. The defendant sold more homeowners insurance in the state than any other insurer. In 1992, the defendant's sales of homeowners insurance constituted 23 percent of all such sales in the state; the next largest insurer had 12 percent of those sales.
5. For internal administrative purposes, the defendant has divided the State of Wisconsin into three regions called sales states. The Counties of Kenosha, Milwaukee, Racine, Ozaukee, and Waukesha along with portions of Walworth and Washington Counties constitute the Wisconsin East sales state.
6. According to the 1990 Census, 219,477 African Americans lived within the Wisconsin East sales state; this represented 89.8 percent of the total African American population in the State of Wisconsin. The census further indicated that, within the Wisconsin East sales state, black persons reside in a discrete, well-defined geographic area.
7. The residential housing pattern in the Milwaukee metropolitan area is racially segregated. The 1990 Census indicates that the City of Milwaukee's total population is 31.1 percent African American and the surrounding suburbs, which comprise the remaining portion of Milwaukee County, have a black percentage of 1.2 percent. The remaining counties in the Wisconsin East sales state have a black population percentage of less than one percent.
8. According to the 1990 Census, there is a group of sixty-four (64) census tracts within the City of Milwaukee, located north and west of the city's downtown area, in which African Americans constitute a majority of the total population in each tract; in general terms, this area is circumscribed by 51st Street on the west, the Milwaukee River on the east, Interstate 94 on the south, and Hampton Boulevard on the north. There are no other census tracts within Milwaukee County in which black persons constitute a majority of the population.
9. Since at least 1968, the defendant either has denied homeowners insurance to, or has provided inferior homeowners insurance for, homes in the predominantly African American area within the Wisconsin East sales state because of racial characteristics of the area in which those properties are located. Among the standards, practices, and procedures the defendant has employed to accomplish this goal are those set forth in paragraphs 10 through 22 below.
10. The defendant has imposed geographic restrictions on writing homeowners insurance in areas where black persons are in the majority. Prior to, and for several years following the enactment of the Fair Housing Act in 1968, the defendant obtained information regarding the racial characteristics of the neighborhood in which the property was located and used this information as a factor in its decision whether to insure the home. The defendant obtained this information either on the application form or through the underwriting process.
11. At least until 1990, and in some cases, later, the defendant's employees, including district managers and underwriters, instructed sales agents that the defendant did not desire homeowners insurance business from the area of black population concentration in the City of Milwaukee. The defendant conveyed this information though the use of maps, "red flag" documents emphasizing racial considerations, and other means.
12. The defendant has directed and/or condoned a practice of making its homeowners insurance less accessible to homeowners in areas where African Americans are in the majority by placing its sales agent offices in locations designed to serve the white community. The defendant was able to implement this practice because its sales office without the prior approval of their respective district manager.
13. As the racial residential patters within the City of Milwaukee changed over the years, the defendant has closed a sales office each time the predominate racial group in the area surrounding the office changed from white persons to black persons. Further, the defendant has established only one new office in an area that was predominantly African American at the time the office opened.
14. As a part of its corporate sales strategy, the defendant instructs its sales agents to sell as many different lines of insurance as possible to prospective insureds. In business meetings and other discussions with its sales agents the defendant has conveyed and/or condoned explicit or race-based references to African Americans. One of the defendant's district managers, Michael Shannon, provided instructions to the agents in his district in how to avoid doing business with black persons and specifically criticized agents for selling too many like insurance policies to African Americans. Agents in fact acted to avoid doing business in the predominantly African American community by refusing to return telephone calls and/or by falling to keep appointments, even when a homeowner in that community sought homeowners insurance.
15. The defendant has subjected homeowners in majority African American areas to disparate treatment in the underwriting process by more frequent and more rigorous inspections of their properties. This includes such practices as training their underwriters to consider the location of a home within the African American community as a negative factor.
16. According to data filed by the defendant with the Office of the Commissioner for Insurance for the State of Wisconsin (OCI), the defendant, during the years 1985 to 1991, issued approximately 32 percent of all homerowners policies originated by the state's top twenty insurance carriers in those Milwaukee area postal zip codes in which a majority of the population were white persons. During the same time period however, in those Milwaukee area postal zip codes where a majority of the population was African American, the defendant issued approximately only eight percent of such homeowners insurance policies. This disparity in the defendant's activity is statistically significant and occurred because of race or color.
17. In those instances where the defendant has provided homeowners insurance in African American neighborhoods, it has provided inferior coverage because of race or color:
    1. The defendant traditionally has offered two basic forms of homeowners insurance: repair cost coverage policies and replacement cost coverage policies. The replacement cost policies generally provide significantly better coverage at a lower premium cost per dollar of insurance coverage than do repair cost policies. Replacement cost policies also provide for higher theft protection than repair cost policies.
    2. In 1990, the defendant maintained repair cost policies on approximately 807 owner-occupied, non-condominium dwellings which were located in majority African American census tracts; this represented approximately 40.7 percent of its total policies in those census tracts. In contrast, the defendant maintained repair cost policies on approximately 1,944 owner-occupied, non-condominium dwellings which were located in majority white census tracts; this represented approximately only 5.6 percent of its total policies in those census tracts, the remainder being the more desirable replacement cost policies.
    3. The defendant's most comprehensive replacement cost policy is called the Gold Star policy. This policy is marketed toward homes built after 1950 with a value greater than $40,000. In 1990, more than half of the policies issued by the defendant in white census tracts for home built after 1950 and had a minimum value of $40,000 had American Family Gold Star policies; only 20 percent of such homes in majority African American census tracts that were insured by the defendant had Gold Star policies.
18. Among the measures the defendant uses to determine the profitability of an insurance product are loss frequency, which is the number of claims per policy or "exposure" and the loss ratio, which is the amount of the claims the defendant paid divided by the amount of premiums the defendant received. The defendant's "loss experience data," i.e., loss frequency and loss ration, do not explain the racial disparities in the availability of homeowners insurance or in the types of policies written as set forth in paragraphs 16 and 17.
19. While the defendant and its agents have advertised the company's homeowners insurance products through general media outlets in the Milwaukee metropolitan area, they also have utilized newspapers, radio stations, and other media designated to reach discrete segments of the white community, but rarely have undertaken such advertising in media specifically oriented to the African American community.
20. Over the years, the few agents whom the defendant has placed in or near majority black areas have been assigned to serve a population equal to that of two virtually all-white, neighboring suburbs to which the defendant has typically assigned over 40 agents. The defendant also failed to provide adequate initial sales training for the agents placed in the African American community when compared with such training provided to agents serving white residential areas.
21. The defendant implemented a commission structure that further discouraged sales agents from providing homeowners insurance in the African American community by paying a lower rate of commission on repair cost policies which, as indicated in paragraph 17(b) above, where written more frequently in that area.
22. The defendant has followed underwriting criteria, such as those used to determine whether to offer a repair cost or replacement cost policy, that discriminate against homeowners in African American neighborhoods.
23. The defendant's actions as alleged herin constitute:
    1. A pattern or practice of resistance to the full enjoyment of rights secured by the Fair Housing Act, as amended, 42 U.S.C. 3601, et seg.; and
    2. A denial of rights granted by the Fair Housing Act, as amended, 42 U.S.C. 3601, et seg., to a group of persons that raises an issue of general importance.
24. The totality of the defendant's standards, practices, and procedures, as described in paragraph 9 through 22, constitute
    1. making unavailable or denying dwellings to persons, because of race, in violation of Section 804(a) of the Fair Housing Act, 42 U.S.C. 3604(a);
    2. discriminating on the basis of race in the terms, conditions, or privileges of the provisions of service or facilities in connection with the sale or rental of dwellings, in violation of Section 804(b) of the Fair Housing Act, 42 U.S.C. 3604(b); and
    3. making, printing, or publishing of a statement that indicates a preference, limitation, or discrimination based on race with respect to the sale of a dwelling in violation of Section 804(c) of the Fair Housing Act, 42 U.S.C. 3604(c).
25. Persons who have been victims of the defendant's discriminatory policies and practices as described in paragraphs 9 through 22 are aggrieved persons within the meaning of 42 U.S. C 3602(i). These aggrieved persons have suffered damages as the results of the defendant's conduct described above.
26. The actions of the defendant described in paragraphs 9 through 22 were intentional, willful and taken with reckless disregard for the rights of the aggrieved persons identified above.

WHEREFORE, the United States prays that the Court enter a judgement:

1. Declaring that the actions of the defendant described above constitute a violation of the Fair Housing Act, as amended, 42 U.S.C. 3601, et seg.;
2. Enjoining the defendant, its agents, employees, successors, and all other persons in active concert or participation with it, from discriminating in any aspect of its homeowner insurance activities because of the predominant race or color of individual insured or prospective insured, or of the neighborhood in which a home may be located;
3. Requiring the defendant to develop, and present for this Court's review, a detailed plan to ensure that the defendant's homeowner insurance is available to all persons residing in the Milwaukee metropolitan area regardless of the racial characteristics of the neighborhood in which their home is located;
4. Requiring the defendant to review applications for insurance coverage on homes located in the majority African American areas under the same standards, and according to the same non-discriminatory underwriting criteria, as applied to homes in majority white areas;
5. Requiring the defendant to restore, as nearly as practicable, the victims of defendant's past unlawful practices to the position they would have occupied but for the discriminatory actions of the defendant;
6. Awarding damages to compensate fully each victim of the defendant's unlawful actions;
7. Awarding punitive damages to each victim of the defendant's discriminatory actions; and
8. Assessing a civil penalty against the defendant to vindicate the public interest.

The United States further prays for such additional relief as the interests of justice may require together with the costs and disbursements of this action.

JANET RENO
Attorney General

DEVAL L. PATRICK
Assistant Attorney General
Civil Rights Division

THOMAS P. SCHNEIDER
United States Attorney
Eastern District of Wisconsin

PAUL F. HANCOCK
Chief, Housing and Civil Enforcement Section
Civil Rights Division
Department of Justice
P.O. Box 65998
Washington, D.C. 20035
(202)514-4713

ROBERT S. BERMAN
SUSAN BARBOSA FISCH
TIMOTHY J. MORAN
Attorneys, Housing and Civil Enforcement Section
Civil Rights Division
Department of Justice
P.O. Box 65998
Washington, D.C. 20035
(202)514-4713