In Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507 (2015), one of the most watched cases of 2015, the Supreme Court held that plaintiffs may rely on a disparate impact theory to establish a violation of the Fair Housing Act (“FHA”). Unlike direct discrimination claims, disparate impact liability does not require any evidence of intentional discrimination by a defendant. Historically plaintiffs have often established liability or at least compelled defendants to entertain plaintiff-friendly settlements by relying almost exclusively on statistical evidence to show that a facially neutral policy was discriminatory because of the particularly negative impact it had on a protected class. In recent years, the plaintiffs’ bar, as well as the Department of Housing and Urban Development (“HUD”), have increased their efforts to utilize disparate impact analysis to challenge insurance underwriting practices that many in the industry long thought were beyond the scope of the FHA. As a result of the Texas Department of Housing decision, that trend is likely to continue and a different landscape will emerge as the government and plaintiffs’ attorneys attempt to employ disparate impact allegations within the broad framework outlined by the Court, while insurers and state regulators adjust and adapt to the business implications of the Court’s decision.

Although the Court’s 5 to 4 opinion, written by Justice Kennedy, was most notable for the holding that disparate impact claims are cognizable under the FHA, the Court also noted that disparate impact claims were not without limits. For example, the Court made clear that disparate impact liability based solely on a showing of statistical disparities would not be sufficient to establish liability under the FHA and could present serious constitutional questions. The Court also emphasized that disparate impact liability is not intended to overturn legitimate governmental or business decisions. Accordingly, the Court instructed trial courts to “… examine with care whether a plaintiff has made out a prima facie case of disparate impact.” Id. at 2523. The Court also broadly outlined an approach to resolving disparate impact claims that begins with the requirement that the plaintiff plead facts sufficient to demonstrate that the defendant has a concrete policy or practice that caused a disparate impact on a protected class, but also permits the defendant to establish a “valid interest” in the subject policy or practice that, at least in some circumstances, will outweigh the negative impact on the protected class.