Performance Thinking

Expert information and solutions for your business.

Housing Discrimination & Criminal Background Checks: What Property Managers Need to Know

In my service to clients as a Risk Advisor, I have a unique perspective due to my background as an attorney. By watching various legal actions, I see great opportunity to learn and help better protect the businesses and livelihoods of our clients. Specifically, as it relates to our clients in the affordable housing industry, housing discrimination cases can provide significant insights to guide the development or adjustment of risk management strategies and appropriately tailored insurance programs.  

What is Housing Discrimination?

The Fair Housing Act (FHA) was passed fifty years ago to promote equal access to housing opportunities by prohibiting lenders, property managers, and others in the housing industry from discriminating on the basis of race, religion, sex, family status, disability, and national origin.

There are thousands of cases filed every year alleging all forms of housing discrimination. A recent case draws our attention to the area of racial discrimination and provides a reminder to examine the insurance policies that address risks associated with these claims, the appropriate sub-limits, coverages, exclusions, and the various ways policies may handle legal defense costs.

New York City Commission on Human Rights v. PRC Management LLC

In December 2018, the New York City Commission on Human Rights announced the settlement of a FHA complaint against PRC Management LLC (PRC).  The complaint alleged PRC, the management company for 100 buildings and 5,000 units across the city, was discriminating against Black and Hispanic individuals by denying housing to anyone with a criminal history without performing individualized analyses. Among other conditions, the settlement stipulated that PRC pay $80,000 in fines and damages.

Claims like this are not new; however, this case is significant for property managers as it was the first time in recent history that New York investigated the way in which property managers use criminal background searches.  While criminal background searches are critical as a part of the vetting process of tenants, property managers can learn the following from this case:

1. Property managers should perform careful due diligence prior to engaging the services of a criminal background search firm.

2. If a criminal background search produces findings which are inconsistent with the applicant’s answers on a housing application, further work should be done before making an approval decision.

3. Mishandling criminal background searches can be racially discriminatory and violate the FHA.

Insurance Considerations related to Fair Housing

Coverage for FHA violations can be found in a company’s Employment Practices Liability policy or in a separate professional liability/E&O policy for property managers. Policies vary based on insurance carriers, but companies should be aware of the following:

1. Some forms of discrimination may be excluded. Sexual harassment, for example, may be available but may require an endorsement.

2. Certain types of discrimination may contain sub-limits. For example, the policy may have a $1 million limit with a sub-limit of $100,000 for sexual harassment. Consider the specific needs and risks of your company.

3. Third Party Discrimination coverage is essential. Sometimes an independent E&O policy may be the only place to find this coverage, but it may be the only way to extend coverage to owners as well as property managers.

4. Often FHA coverage on a standalone property manager’s professional liability policy is more robust and comprehensive than when included as part of an EPLI policy.

5. Owners should contractually require property managers to carry independent professional liability coverage. E&O can extend to owners.

6. Fines will not be covered.

7. Legal defense costs are high and can erode policy limits, so the insured may want to purchase additional defense coverage.

Housing Discrimination Risk Management Strategies

When making tenant decisions, property managers and/or property owners need to utilize criminal background checks. However, before categorically denying an applicant based solely on the existence of a criminal history, it is prudent to conduct and document additional due diligence. If a criminal history is found, additional follow-up questions should be asked of the applicant. Once a decision is made, it is crucial to document the reasoning. If in doubt, consult with an attorney before making a decision.  Implementing safeguards and sound policies on the front end can create significant savings in the end.

Please contact me or your Scott Risk Advisor for further guidance regarding housing discrimination and how to protect your business.

Written by Jared Karnes

Jared Karnes works out of Scott’s Knoxville office. He develops proactive risk financing and risk management strategies for middle market companies. Jared’s areas of specialization include construction/contractor, affordable housing, workers compensation, and alternative risk finance.

Call Jared at 865-684-1783 if you have any questions or need any additional assistance.

View Profile

Litigation Funding: A Backseat Driver of Commercial Auto Rates

Businesses have experienced increases in auto premiums for 29 consecutive quarters, according to the third-quarter 2018 broker survey from The Council of Insurance Agents & Brokers (CIAB).  Our Scott team discussed this trend in detail in a blog post in the fall of 2017 and again in our 2018-2019 Property & Casualty Outlook released last year, which noted:

“Distracted driving is the leading cause of accidents and losses. Increased amounts of time spent on the road, inexperienced drivers, a significant rise in fatalities, increased medical costs and increased repair costs are also key factors.”

Additionally, there has been an increase in the number of injury claims that reach litigation and settlements are rising.  One factor that is impacting claims’ litigation and, in turn, rising auto rates is the increase of litigation funding.

Read Full Story

Workplace Implications of Sleep

Sleep is a foundational element in determining one’s overall health and quality of life, with the average adult requiring at least seven hours of sleep per night for the best health and wellbeing.  Even though most people know this, sleep is severely undervalued in our culture, as revealed in a 2013 Gallup poll which showed that 40% of Americans get less than 6 hours of sleep per night.  What many people may not realize is that a lack of sleep leads to negative physical, mental and emotional consequences that have direct and meaningful implications in the workplace.  

Read Full Story

Scott Performance Thinking Resources

At Scott, we strive to create and add value for businesses. We provide expert insights and technical knowledge to help solve problems, create change and improve performance in the areas of risk management and employee benefits.

As a reader of our blog, we hope this has been your experience and that the content our team provides on a regular basis helps inform and elevate your thinking surrounding these critical components of your company’s culture and overall performance.

We’d like to introduce you to some additional free Performance Thinking resources from Scott that can help you improve your business.  

Read Full Story

Risk Considerations for the Construction Industry

In the majority of U.S. cities today, new construction is burgeoning. The Bureau of Labor Statistics and a report from Timetric’s Construction Intelligence Center (CIC) project the construction industry to be one of the fastest growing industries into 2020. With this growth, competition in the market is tough and having a risk management strategy that protects your business and gives you a competitive advantage is critical.

The information in this article can help you identify potential red flags in your organization and gain insight into construction risk management best practices that, when implemented, can help reduce your exposure to common issues in the industry.  Read Full Story