Farmers Settles Redlining Suit In Ohio

The Farmers Insurance Group is movingforward with some new standard operating procedures in Ohio afterreaching a settlement last month with plaintiffs who charged theLos Angeles-based homeowners' insurer with redlining minority urbanneighborhoods in Ohio.

A consent decree was filed in the Lucas County Common PleasCourt on Oct. 11 in the consolidated cases of Toledo FairHousing Center v. Farmers Insurance and Ohio Civil RightsCommission v. Farmers Insurance.

“The primary impetus for the lawsuits was Farmers' underwritingguidelines, particularly as they related to homeowners being unableto obtain the best insurance products if their houses were beyond acertain age,” explained attorney Stephen M. Dane of theToledo-based firm Cooper & Walinski. The firm represented thetwo individual plaintiffs, Monica Holiday-Goodman and JustinaAlsup, and the Toledo Fair Housing Center in the lawsuit.

Mr. Dane added that another challenged guideline was Farmers'determination of whether a home's replacement cost would exceed itsmarket value. The two individual plaintiffs claimed that Farmersrefused to sell them replacement-cost coverage because their homeswere built before 1950.

Mr. Dane stated that the two underwriting criteria had beenchallenged in lawsuits elsewhere over the years and that “all” theinsurance companies in Ohio except Farmers had dropped them.

However, Farmers' lead attorney, Andrew Sandler, stressed thatthe challenged criteria were legal because they had been approvedlong ago by Ohio regulators.

But because Farmers, like most if not all other homeownersinsurers, had discontinued using the objectionable guidelines yearsbefore the lawsuits began, “a reasonable resolution made more sensethan litigation,” added Mr. Sandler, a partner in the Washington,D.C., firm of Skadden, Arps, Slate, Meagher & Flom LLP.

The past two years were spent negotiating, with the parties noteven reaching the discovery phase, Mr. Dane reported.

Mr. Sandler indicated that Farmers drew up revised guidelinesthat the Ohio commissioner approved even before the consent decreewas entered. “Using the newer guidelines without question helpsextend coverage in the urban core,” said Mr. Sandler.

Under the consent decree, Farmers agreed to an immediate $1.3million cash payment to the plaintiffs for damages, including costsand attorney fees. Farmers further consented to contribute $3million in loans and grants to several community programs designedto enhance the insurability of owner-occupied dwellings of fourunits or less in predominantly African-American and other minorityneighborhoods.

Other features of the consent decree, in which Farmers admits tono wrongdoing or liability, include:

Letters from Farmers to rejected Ohio applicants and tocancelled or non-renewed policyholders, informing them aboutspecific corrections and repairs to make their properties eligiblefor insurance.

Letters from Farmers to current customers informing them how toqualify their homes for replacement-cost coverage under the revisedunderwriting criteria.

Notice to and training of Farmers employees and agents onproviding homeowners coverage on a non-discriminatory basis.

An increased Farmers presence in minority urban neighborhoodsacross Ohio.

Targeted ads and marketing that employ ethnically diverse modelsand actors.

One thing the consent decree does not require is oversight.Farmers merely has to provide the plaintiffs' attorneys withcertain documentary evidence of compliance every six months for twoyears.

“This case does have a lot less interaction” between theplaintiffs and the insurance company “than there has been in priorsettlements of this type of lawsuit,” Mr. Dane acknowledged.

“This just wasnt the kind of case that warranted oversight,”added Mr. Sandler.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, November 19, 2001.Copyright 2001 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.

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