Credit Scores: Credit-Based Insurance Scores Page: 6 of 6
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planned such a study, eventually abandoned the effort under the threat of litigation from
the industry.18 More recently, the NAIC working group produced a white paper with a set
of "best practices" relating to the usage of credit scoring.
A number of lawsuits have been filed alleging violations of either state or federal law
relating to the usage of credit information. For example, a lawsuit against Allstate was
filed seeking class action status in U.S. District Court in San Antonio, Texas, by several
minority plaintiffs alleging that the insurer used information from credit reports and
improperly factored it into a secretive scoring formula to target non-whites for more
expensive policies than similarly situated whites. Allstate's motion to dismiss was
denied, and the case as been allowed to proceed after successive appeals to the 5th U.S.
Circuit Court and the U.S. Supreme Court. Insurers are concerned that the case could lead
to a determination of a new discrimination standard over and above the state law
prohibiting unfair discrimination, and thus usurp the authority of state insurance
regulators and state laws.19
Allstate is not the only insurer who has been to court on such an issue. In Illinois,
a suit alleged that State Farm had engaged in the practice of refusing to issue or renew
insurance policies solely on the basis of a credit report, in violation of the Illinois
Insurance Code.20 In Texas, the attorney general sued Farmers Insurance Group, alleging,
among other charges, that the insurer was "using credit history as a significant factor in
setting premiums, without disclosing the adverse impact of doing so...."21 A settlement
was reached in the Texas case in December 2002, but it was challenged by some Texas
18 Daniel Hays, "States Drop Plans For Study Of Credit Scoring," National Underwriter,
Property & Casualty/Risk & Benefits Management Edition, Aug.9, 2004, pg. 6.
19 Daniel Hays, "Federal Credit Score Case Unnerves Insurers," National Underwriter Online
Property & Casualty/Risk & Benefits Management Edition, Oct. 14, 2002, p. 26.
20 "State Farm Hit with Lawsuit over Credit-based Insurance Scoring," BestWire, June 12, 2002.
21 The State of Texas v. Farmers Group, Inc. pg. 4, available at
[http://www.oag.state.tx.us/notice/farmers080502.pdf],visited Jan. 20, 2003.
22 R.A. Dyer, "Court holds up Farmers accord," Fort Worth Star-Telegram, July 9, 2003.
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Credit Scores: Credit-Based Insurance Scores, report, January 19, 2005; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc817578/m1/6/: accessed January 16, 2019), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.