Trump’s Executive Order Challenges Disparate-Impact Liability in Insurance

On April 23, President Trump issued Executive Order No. 14281, "Restoring Equality of Opportunity and Meritocracy," which categorizes disparate-impact liability as unconstitutional and urges federal agencies to deprioritize enforcement of statutes involving such liability. Disparate-impact liability holds entities accountable for practices that result in unintentional discriminatory effects against protected classes, such as in insurance underwriting. Although insurance regulation largely falls under state authority, federal entities like HUD have enforced the Fair Housing Act (FHA) to regulate discriminatory effects in housing-related insurance practices. The 2015 Supreme Court decision in Inclusive Communities affirmed that disparate-impact claims are valid under the FHA, affecting the housing insurance market. However, the recent executive order challenges this precedent, at least concerning federal enforcement actions, while private discrimination claims remain unaffected under state law. HUD's 2023 reinstatement of the discriminatory effects standard emphasizes the insurance industry's crucial role in housing and acknowledges that liability arises only when practices cause unjustified discriminatory effects. This HUD rule is currently under appeal in National Association of Mutual Insurance Companies v. HUD, with HUD signaling intentions to reconsider and revise the rule by 2025. Other federal agencies have begun removing disparate-impact references from their regulatory oversight. The executive order and ensuing regulatory changes are expected to reshape the federal approach to disparate-impact liability in insurance underwriting, with ongoing monitoring of legal and regulatory developments advised for industry stakeholders.