The battle over a new federal regulation barring “disparateimpact” in sale of homeowner's insurance is moving to thecourts.

The National Association of Mutual Insurance Companies and theAmerican Insurance Association June 26 quietly asked a federalcourt to vacate the rule.

The suit, filed suit in U.S. District Court in Washington, D.C.,contends that the Department of Housing and Urban Developmentexceeded its authority in imposing it.

The final rule was published Feb. 13 despite efforts dating backyears by insurance and other industries to block imposition of sucha regulation.

In comments to the agency when the rule was proposed, forexample, NAMIC said the rule could undermine the underwritingprocess and “trigger a wave of frivolous litigation.”

The rule had no effective date because it was a clarification ofwhat HUD thought it already had the authority to do, NAMICofficials said when the final rule was published.

NAMIC and AIA officials declined comment, referring all calls toWilliams and Connolly, the Washington law firm that filed thesuit.

The suit argues that interpreting the Fair Housing Act to extenddisparate-impact liability to the provision and pricing ofhomeowner's insurance “requires insurers to considercharacteristics such as race and ethnicity and to disregardlegitimate risk-related factors.”

The lawsuit claims that this interpretation “would requireinsurers to provide and price insurance in a manner that is whollyinconsistent with well-established principles of actuarial practiceand applicable state insurance law.”

The suit also contends that, “That is not only a perverseresult, but it also flies in the face of the McCarran-Ferguson Act,which entrusts insurance regulation to the states.”

The rule was first proposed in late 2011.

NAMIC lobbied extensively against the rule, and even enlistedmembers of Congress in an effort to put pressure on the agency notto finalize it.

A key concern of NAMIC and other industry lawyers is that therule ignores the question of intent, meaning that any disparateimpact could be treated as discriminatory and subject to penaltiesor litigation, regardless of how it came about.”

A key argument by insurers is that risk differentiation isessential to the business of insurance, and the pricing ofinsurance products that unintentionally produce statisticaldisparities among groups bear no resemblance to discrimination“because of” race, color, religion, sex, or disability.”

In a recent editorial, the Wall Street Journal argues that, inpractice, the rule will force insurers, as well as lenders, to usede facto racial quotas in order to avoid expensivelawsuits.