September 26, 2014 Articles

Insurance Coverage for Fair Housing Act Claims

Costs incurred in Fair Housing Act cases can be significant, implicating defense and indemnity obligations under insurance policie

by Brian D. Heskamp [1]

The Fair Housing Act, 42 U.S.C. § 3601 et seq., covers a wide variety of activity that can be prosecuted by the federal government, nonprofit fair housing organizations that meet standing requirements,[2] and private individuals, or some combination of all three. Costs incurred in Fair Housing Act cases can be significant, implicating defense and indemnity obligations under insurance policies. For example, in Federal Insurance Co. v. Steadfast Insurance Co.,[3] a recent case involving coverage for Fair Housing Act claims brought by the U.S. Department of Justice against former Los Angeles Clippers owner and landlord Donald Sterling involving his refusal to rent to groups including non-Koreans[4] and families with children, defense costs exceeded $5,000,000, and settlement costs totaled $1,000,000.[5]

In Federal Insurance Co., the primary insurers provided coverage for claims of  wrongful eviction, wrongful entry, and invasion of the right of private occupancy, while the umbrella and excess insurer specifically insured against claims for discrimination.[6] The insured tendered the defense to both of its primary insurers and its umbrella insurer.[7] One of the primary insurers paid the majority of defense costs, while the umbrella insurer paid a small amount of defense costs before withdrawing.[8] In the ensuing coverage litigation, the umbrella insurer sued the primary insurers seeking a declaration that it owed no duty to defend until the primary coverage was exhausted. The primary insurers asserted cross-claims, and ultimately the parties cross-moved for summary judgment.[9] The court determined that only the umbrella insurer, which specifically insured for discrimination, was required to defend the action and that neither of the primary insurers had a duty to defend, a determination that hinged on the fact that the United States rather than an individual was the plaintiff, and the United States could not bring causes of action based on theories of wrongful eviction, wrongful entry, or invasion of the right to privacy.[10] In the end, the umbrella insurer was obligated to “drop down” and fill the gap in primary coverage with regard to the Sterling action.[11]

As noted in Federal Insurance Co., coverage for Fair Housing Act claims is possible even under a policy that does not explicitly cover discrimination. This article addresses issues that arise in the context of insurance coverage for claims involving violations of the Fair Housing Act. The importance of 42 U.S.C. § 3604 (c)—which prohibits statements and advertisements that “indicate any preference, limitation, or discrimination based on [a protected classification],” regardless of the proponent’s intent[12] —is highlighted as it is frequently alleged in fair housing cases and may help an insured avoid several coverage defenses typically asserted by an insurer. Specifically, with respect to bodily injury and property damage coverage, section 3604(c) may help an insured satisfy the definition of “occurrence” and also avoid the intended or expected injury exclusion. Regarding personal damage coverage, this provision can help an insured overcome a wrongful act or discrimination exclusion. While very few cases have specifically addressed the role of section 3604(c) in the insurance coverage context, it is frequently alleged and probably underutilized by policyholders and may provide a basis for coverage in many cases.


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