1st Circuit holds insurer did not discriminate by not basing sober house premiums on three-family house premiums

PSI operates two sober houses for individuals suffering from substance abuse.  Each house has three floors and capacity for 30 residents.  Prior to the buildings becoming sober houses they were three-family rental properties. 


PSI sought insurance from Nautilus Insurance. Nautilus based the premiums on the category of "Halfway Houses -- Other Than Not-For-Profit."  Just as with shelters, rooming houses, transitional housing for the formerly homeless, student housing, etc., premiums were calculated according to the number of beds at the property.


PSI  sued Nautilus, alleging that its calculation of premiums violated the Fair Housing Act.  It alleged that Nautilus should have provided PSI with insurance rates applicable to three-family houses.


The FHA makes it unlawful to discriminate in the sale or rental of a dwelling because of a handicap, including substance abuse. 


In PSI, LLC v. Nautilus Ins. Co., 2014 WL 740 (D.Mass. 2014), the court first held that PSI had standing to bring the FHA suit because it properly alleged it was harmed by Nautilus's allegedly discriminatory rates.


The court held that Nautilus was not liable for discrimination on the basis of disparate treatment of PSI.  Nautilus  had a nondiscriminatory reason for classifying the sober houses as halfway houses rather than three-family dwellings: they were not operating as three-family dwellings and therefore posed a different liability risk.  The sober houses would have more foot traffic and higher turnover of tenants.  The premium determination was not made because of disability of the residents but on the same formula that applied to other types of housing such as boarding houses and rooming houses.


The court held that Nautilus also could not be liable under a disparate impact theory.  PSI alleged that because premium calculations for three-family houses are not based on the number of occupants, Nautilus' occupancy-based premium calculation for sober houses was facially discriminatory and disadvantageous to the disabled.  The court held that there was no evidence that the challenged practice caused a discriminatory effect, and that Nautilus had provided a legitimate, nondiscriminatory reason for its rates. 


The court held that the request for lower premiums was not a reasonable accommodation and was  unnecessary to allow the residents to enjoy the housing in question where there was no evidence that cost-savings would be passed on to residents. 


Finally, the court held that PSI's allegation that Nautilus violated the Americans with Disabilities Act must fail for the same reasons as the FHA claims must fail.