Can You Count on Your Insurance Carrier to Cover Losses Resulting from a Fair Housing Lawsuit?

Insurance companies seldom pay the losses caused by a fair housing complaint or lawsuit

Fair housing lawsuits often result in further litigation by the defendant housing provider against its insurance company who refuses to pay attorney fees to defend the case and refuses to pay for settlement or damage awards at the conclusion of the case. This situation is exemplified in two fair housing lawsuits brought by the United States against two different defendants. In the first case the Department of Justice sued a property owner and his son on behalf of four individuals who were seeking to purchase a house. During investigation of the fair housing complaint, HUD determined that the owner had discriminated against prospective renters when he raises his arm and yelled, ìstop,î as prospective minority tenants approached his property with their real estate broker. The plaintiffs claimed that the ownerís voice and gestures caused them to feel threatened and they claimed economic loss, emotional distress, and a loss of housing opportunity because of the ownerís discriminatory conduct. When the defendant owners notified their insurance carrier of the lawsuit by the United States in this matter, State Farm Fire and Casualty Company refused to defend the defendants in the housing discrimination case under their homeownersí insurance policy. State Farm argued that the personal injury coverage in the policy covered only physical injury, not emotional injury, and that the insurance claim fell within an exclusion in the policy for injuries arising from the ìbusiness pursuitsî of the insured.

In another lawsuit the Department of Justice, claiming race discrimination, sued an owner of several apartment properties in Mobile, Alabama. The governmentís case was very strong and the owner settled the lawsuit prior to trial for more than one million dollars. When the defendant attempted to recover the costs of the settlement from its insurance company, the company denied coverage of the settlement for the ownerís intentional violations of the federal Fair Housing Act. The defendant owner then became a plaintiff when the owner sued the insurance company to force the company to pay part of or the entire settlement amount. The owner won at the trial court level, but the case was overturned by the Alabama Supreme Court. The ultimate result was that the owner, not the insurance company paid the cost of the settlement of the race discrimination lawsuit.

It is common for insurance carriers to pay for the costs associated with the defense of a policy holder in a fair housing lawsuit. In addition, unlike the Mobile case, insurance companies often pay some or all of settlement costs. It is very rare, however, for insurance companies to pay damage amounts awarded against policy holders after a trial, if the policy holder is determined to have violated the plaintiffís fair housing rights.

The time to know the extent of your insurance coverage is prior to the time when a resident sues you or your company claiming a violation of the Fair Housing Act. We recommend that after reviewing your insurance policy carefully, you send a letter to your carrier specifically inquiring whether the coverage applies should an applicant or resident file an administrative complaint or lawsuit alleging violations of the Fair Housing Act. You should inquire whether the policy covers the costs for defense, settlement, or a trial verdict and resulting damage awards. In addition, you should inquire whether individual employees are covered should they be named individually. And finally, remember that the answer from your insurance company must be in writing to be useful to you later.