Court Rules Insurance ‘Redlining’ Practice Illegal : Discrimination: Fair Housing Act guards against homeowner’s coverage being based on the ethnic makeup of a neighborhood.

In a decision that expands the legal weapons used to combat housing discrimination, a U.S. appeals court ruled that the federal Fair Housing Act prohibits “redlining” in insurance just as it does in mortgage lending.

The three-judge panel in Chicago on Tuesday unanimously reversed a lower court and said that a group of Milwaukee-area residents may use the Fair Housing Act in their suit against an insurance company that they say overcharged or refused homeowners coverage in black neighborhoods.

“This means that people now know they have a remedy under federal law when they can show discrimination,” said Gretchen Miller, a lawyer for the American Civil Liberties Union in Milwaukee.

Among the evidence gathered in the case against American Family Mutual Insurance Co. was a handwritten “redlining” note to an agent from his supervisor instructing him to “quit writing all those blacks.”

The suit was brought in 1990 by the Milwaukee branch of the National Assn. for the Advancement of Colored People and eight residents who claim to be victims of racial discrimination. They claim that Madison-based American Family, one of Wisconsin’s leading homeowner’s insurance writers, engaged in a broad array of unfair practices aimed against black neighborhoods in Milwaukee and the nearby cities of Racine and Kenosha.

They also argue that insurance redlining--overcharging or denying coverage in certain neighborhoods, sometimes defined literally by red lines drawn on a map--restricts housing opportunities as surely as redlining by bankers or real estate agents.

The U.S. 7th Circuit Court of Appeals said in its decision: “Lenders require their borrowers to secure property insurance. No insurance, no loan; no loan, no house; lack of insurance thus makes housing unavailable.”

Marvin Pratt, a Milwaukee alderman and a plaintiff in the case, recalled attending a hearing on insurance redlining several years ago, when it suddenly dawned on him that he and his wife might be victims.

When they moved to the central city from a predominantly white neighborhood in 1983, they asked their insurance agent for a homeowner’s policy similar to their old one, which provided full replacement value for theft or fire losses. Pratt never read the new policy, but he discovered a big difference when his home was burglarized in 1988: Theft coverage was limited to $1,000.

Asked why, the agent said that it was “because of my ZIP code,” Pratt said. “It was a de facto higher premium because of racism.”

The appeals court didn’t address whether American Family actually engaged in redlining. It sent the case back to the U.S. District Court in Milwaukee for that to be determined at trial.

However, Tuesday’s ruling contained language that NAACP attorneys believe will make it easier for them to win. The court said the standard of proof will be whether the impact of the insurer’s practices was discriminatory, not whether their intention was .

The company hasn’t decided whether to appeal the ruling to the U.S. Supreme Court, but it issued a statement Wednesday that said: “American Family does not now and never has discriminated against African Americans or any other minority group, and we look forward to establishing that fact before . . . a jury.”