very, very nice neighborhood.
Chairman Barrett. Now, when you learned about the denial or
the limitation for the replacement value, the $1,000 replacement,
did that apply only to burglary or did that apply to, say, fire dam-
age as well?
Mr. Pratt. The replacement costs â€” basically what they said was
that they could not replace the house that we were in, they couldn't
nearly match it insofar as what went into building the nouse. So
I think even the replacement cost was lessened. But it only â€” it ap-
plied to â€” for burglaries and for thefts and for certain damages to
the house, it was only max $1,000, while the other policy was
whatever â€” let's say for the replacement cost, what was lost was
$6,000 and they determined that $3,000 was after they depre-
ciated, that would be the cost, they would give you the $3,000. We
never suffered a burglary there at the previous house, but they
would have given us $3,000 based on the policy that we had.
Chairman BARRETT. Finally, what was the difference in price be-
tween the two policies?
Mr. Pratt. Price was the same because I think â€” for the most
part, my wife handled most of that, but the price was the same be-
cause I know she never did mention to me that it changed one way
or the other. Kept the same price, but we got a lesser product.
Chairman Barrett. OK. Well, I appreciate very much your tak-
ing the time to testify today.
Mr. Pratt. Thank you very much. Congressman Barrett.
Chairman Barrett. Thank you very much.
What we would like to do now is have the next panel of individ-
uals. I think we have room for them all to sit at the table here,
if we could, James Hall, Dale Latus, Eric Englund, Carla
Wertheim, Bill Tisdale, and Jim Brown. If you could each grab a
spot at the table, we would appreciate it.
I also would like to introduce Sean Cassidy, who is from Con-
gressman McCandless' staff, representing the minority, who is also
here today. There he is.
James Hall is our first witness in this panel. Mr. Hall is a mem-
ber of the board of directors and chairman of Legal Redress from
Milwaukee's NAACP chapter. He is the lead attorney for the plain-
tiff in the NAACP v. American Family Mutual Insurance case. The
case is pending before the Federal District Court, with a trial date
set not before spring of 1995.
Thank you for being with us today, Mr. Hall. If you could
STATEMENT OF JAMES HALL, ESQUIRE, HALL, FIRST &
PATTERSON, S.C, MEMBER OF THE BOARD OF DIRECTORS
AND CHAIRMAN OF LEGAL REDRESS, NAACP MILWAUKEE
Mr. Hall. Thank you. Good morning. Congressman Barrett, con-
gressional and subcommittee staff members, ladies and gentlemen.
I appreciate the opportunity to appear before this subcommittee
today to speak with regard to H.R. 1257. Speaking on behalf of
many of us in Milwaukee, Congressman Barrett, your efforts, your
persistent efforts at bringing about insurance reform are greatly
We know that you were one of the primary advocates in this area
while in the State legislature and we appreciate the fact that this
continues to be a priority for you.
We are very pleased that this subcommittee has come to Milwau-
kee to gather testimony. You have alluded to the lawsuit which is
pending in the matter of NAACP v. American Family Mutual In-
surance Co. I am a member of a team of attorneys representing the
plaintiffs in that lawsuit.
Bill Lynch, who is also here in the audience, is an attorney in
that matter as well, and actually Bill is now functioning as the
lead attorney in that case. But we have a team of about six or
seven attorneys working on the matter and we have been working
on it for about 5 years now. Much of my testimony is derived, at
least in part, from my experience and involvement in that matter.
The letter regarding testifying referred to three areas of testi-
mony, and I will speak to each of those three areas in turn. First,
the availability, affordability, and adequacy of insurance in minor-
ity neighborhoods in Milwaukee.
Recent studies show that upward of 95 percent of homeowners
across the Nation have some form of insurance, of homeowners' in-
surance. It is significant, however, that recent studies also show
that approximately 90 percent of African -Americans, as compared
to just 3 percent of whites, are not insured by private companies,
and instead must obtain insurance through some form of a "FAIR"
plan. In Wisconsin, that plan is called the Wisconsin Insurance
Plan, or WIP. In Milwaukee as well as other communities around
the Nation, almost all FAIR plan policies are issued in minority
There is clear evidence of unwillingness on the part of agents
and insurers to offer the same level of services and products in mi-
nority areas as in other neighborhoods and there is evidence that
the products available in minority neighborhoods are inferior, as
just testified to by Alderman Pratt. So the real issue has changed
from the total unavailability of insurance to the availability of
quality insurance at an affordable price.
With regard to the adequacy of existing law to remedy discrimi-
natory practices, existing law provides very limited remedies to
persons who are victims of discrimination by insurance companies.
A variety of regulations of varying strength exist among the var-
ious States concerning discrimination by insurance companies. Wis-
consin's regulations are some of the most protective of consumer in-
terest in the country. For example, Wisconsin regulations explicitly
forbid discrimination on the basis of race, on the basis of the age
of a dwelling, and on the basis of geographical location of the risk,
which is oflen used as a proxy for race.
However, in the case which is currently pending here in the
Eastern District of Wisconsin, the Federal District Court ruled that
insurers who violate these State insurance regulations are not sub-
ject to suit by private persons who are denied insurance because
of their race, the age of the dwelling, or the location of their
Thus, in Wisconsin, a consumer has no effective remedy for red-
lining under those State insurance laws. I say insurance laws
because it is worth noting that Wisconsin also has a State Fair
Housing Act which provides a theory of relief, but the point is the
insurance regulations, at least as ruled by this court in this dis-
trict, don't provide a private right of action.
Federal remedies are also inadequate. The plaintiffs in the
NAACP case won a significant victory for fair housing by obtaining
a ruling from the Seventh Circuit Court of Appeals in Chicago that
the Federal Fair Housing Act applies to insurance companies as
well as to realtors, lenders, and other actors in the real estate
Earlier this year, the U.S. Supreme Court refused to hear an ap-
peal from that decision. Thus, in this Federal Circuit at least, and
presumably across the country, victims of insurance redlining have
some means to challenge redlining by a homeowner's insurer.
However, a remedy under the Federal Fair Housing Act provides
a hollow hope to most victims of redlining. Importantly, the Fed-
eral Fair Housing Act applies only to the provision of insurance for
dwellings; it does not address auto insurance redlining, which af-
fects even larger numbers of urban consumers.
In addition, like most persons who are denied credit, most per-
sons are not told the real reason for an insurer's refusal to insure
or a decision to cancel insurance. They do not have information
from which they can determine whether a pattern of discriminatory
conduct is occurring. They do not have the resources to engage in
significant factual investigation to determine the common practices
of insurers in their locations. Thus, current laws do not adequately
permit individual consumers to evaluate whether redlining is
Legislation is needed to inform consumers about the patterns of
insurance activities in their communities and to provide a means
of remedying racially discriminatory patterns.
In this regard, H.R. 1257 is valuable and important legislation,
because to the extent that it introduces the idea of disclosure at the
Federal level, it provides the first steps necessary for an analysis
of industry practices and for fashioning additional laws to remedy
If I may mention on that point, in the lawsuit which is presently
pending, Alderman Pratt referred to a town meeting which he at-
tended and there was a discussion about this type of issue and that
is where he sort of recognized his situation.
The lawsuit was filed in 1990. Those of us working on the case
spent at least 3 years prior to filing the lawsuit collecting data and
information and just investigating the matter, I mean, 3 solid years
of work. And it was only through marshaling resources of the
ACLU, the NAACP, the Legal Aid Society, as well as the private
lawyers involved for some 3 years, that we were able to gather the
data necessary to analyze tne situation and ultimately bring the
I will move to the third area, the benefits of disclosure under
Several aspects of H.R. 1257 are critically important. First, it is
important that insurers be required to disclose information by cen-
sus tract rather than ZIP Code.
I heard of or possibly saw, I thought at least, an earlier or an-
other version of legislation which referred to disclosure by ZIP
Code rather than census tract, and if I may just speak to that, the
version that I have reviewed, dated August 5, 1993, I believe refers
to census tract.
But just to speak to that point, it is important that insurers be
required to disclose by census tract rather than ZIP Code. In Wis-
consin, the commissioner of insurance has for several years re-
quired the largest companies doing business in the State to provide
quarterly reports disclosing homeowners' insurance activity by ZIP
While this information is helpful in creating a broad view of the
insurer's market activity in an urban area, it may mask the racial
effect of a particular insurer's practice.
For example, a ZIP Code may consist of two nearly identical con-
tiguous residential neighborhoods, one predominantly white and
the other predominantly black. If an insurer did a large business
in the white neighborhood and no business in the black neighbor-
hood, the statistical evidence for the ZIP Code would indicate that
the insurer was doing an average business in the ZIP Code as a
whole, while masking the discriminatory practice.
By contrast, the census tract is a much smaller and more dis-
crete geographical unit. Demographic information gathered that
way permits researchers to adjust for differences in the population
and housing characteristics between census tracts so that different
areas may be more effectively compared.
We would point out that the burden, the reporting burden on in-
surers would not be significantly increased by this unit of compari-
son as opposed to ZIP Codes.
The bill delegates authority to the Secretary of HUD to further
define the precise data which will be collected from insurers. While
it is advisable to give the Secretary some discretion in this matter,
no doubt, it is important to make clear the basic information nec-
essary to any serious regulatory effort.
For example, section 204(a)(1) of the bill describes reporting re-
quirements as the total number of policies, total exposures, total
premiums, and total cancellations and nonrenewals by designated
line and geographical area. However, it would be extremely critical
to know the underwriting criteria used to qualify a person or prop-
erty for insurance.
Without an understanding of the criteria employed to accept or
reject a risk, consumers cannot evaluate the justifications for deni-
als and cancellations of insurance.
Many underwriting criteria may be based on subjective ideas
about characteristics of groups of persons, which ideas have not
been scientifically tested. Vague and subjective criteria such as evi-
dence of pride of ownership are things that we have heard of in the
So the point is underwriting criteria is something that we would
suggest that the subcommittee consider as a requirement for
In addition, it would also be critical to gather the following infor-
mation from homeowners' insurers by census tract.
A: The number of applications written.
This would assist in determining whether agents are even sub-
mitting applications on behalf of homeowners in the region or
whether they are discouraging people from even applying for
Insurers could also be required to request that applicants dis-
close racial characteristics and gender. This would further assist in
determining the types of applications solicited from an area.
I would point out on the issue of the requirement of disclosure
of racial â€” race on an application at the point of application, I think
that's a tricky one because it could very well discourage the very
people we are trying to benefit by this if all of a sudden applicants
are asked their race at the time of seeking insurance. Particularly,
much insurance business is conducted by telephone, and if someone
calls an agent and the agent wants to know the race, it â€” I think
that is tricky as it may discourage applicants and may even pro-
vide a further basis for agents to discriminate.
But the point is if there is a way of gathering this type of infor-
mation, perhaps not at the time of the application â€” I don't know
how it would be framed, but this would be useful information in
determining whether applications are coming from a particular
I will move to point B: The number of policies issued by type or
form of the policy.
This would assist in determining whether inferior types of poli-
cies, including such things as higher deductibles, greater exclusions
on coverage, coverage for only the cost of repair as opposed to the
cost of replacement, are being sold in particular neighborhoods.
C: The reasons given for cancellation and/or nonrenewal.
This would uncover patterns of use of improper or unjustified un-
D: With regard to aggregate loss data, losses should be itemized
by the covered peril, such as water, wind, fire, theft, and so forth.
This would enable consumers to evaluate whether the underwrit-
ing criteria and rates for various kinds of coverage are rationally
related to the risk of insuring for that peril in that community.
I do have a couple further comments, if I may.
Section 204(c) of the bill provides an opportunity to insurers to
protect information entitled to protection as what's called trade se-
crets. While we understand that point, we believe an opportunity
should exist for consumers to challenge this designation so that in-
surers' efforts to utilize this section to hide information indicative
of discriminatory practices is not aided. Otherwise, that exception
could swallow the rule, swallow the bill.
I would assume that even with regard to underwriting criteria,
which I suggest if that were in here, insurers would object that it's
trade secrets, but â€” we recognize that problem.
Section 213(a)(2) of the bill, with regard to timing of availabihty
of information, as drafted, the bill appears to permit the Secretary
to withhold all information submitted by insurers from the public
for a minimum of 9 months and for longer if the information to be
reported by the Secretary is not available in its entirety.
This unnecessarily frustrates private enforcement efforts. Infor-
mation should be available under the general provisions of the
Freedom of Information Act, we believe, within a reasonable time
after request is made.
We don't see any reason to delay private enforcement efforts be-
cause of delays caused by the government or by insurers in disclos-
ing the information.
Those are my comments. If I may point out one additional thing,
in that other version that I alluded to, I believe there was â€” the ver-
sion I have refers to 150 areas, metropolitan areas, as the applica-
ble areas covered by the act. I thought another version referred to
25. Is that correct?
Chairman Barrett. That's correct.
Mr. Hall. We would strongly urge that the 150 areas is much
better, because with this type of disclosure bill, much of the en-
forcement or much of the effectiveness of what comes out of this
relates to local organizing.
As you alluded to at the beginning. Congressman Barrett, this
problem is sort of by nature localized, and the more areas that are
involved in the process, the more situations around the country
where you have, you know, people organizing around the data, con-
sumers gearing up and being in a position to do something about
the information which has come forth in their particular commu-
nity, the media is interested, and we think there is a much greater
likelihood that there would be broader impact if there were more
areas covered than with just 25 areas. It is much less likely that
someone in an area which is not 1 of those 25 areas will be in a
position to benefit from the legislation.
[The prepared statement of James Hall can be found in the
Chairman Barrett. OK. Thank you for your testimony. I think
what we will do is we will hear the testimony of all the speakers
and then we will have some questions.
I should also point out that we do have a statement that has
been submitted by Senator Feingold. I have copies of that that are
available to the public as well over on the side.
I also mention that when we are done with this panel, if there
are individuals in the audience who wish to give public testimony,
we would be more than happy to stick around with that.
If you could sign with Jack O'Meara if you want to give public
testimony, that would be very helpful.
Finally, for those of you who came in late, Congressman Joe Ken-
nedy, who is the Chair of this subcommittee, was struck by some
bad weather in Boston. Logan International Airport was closed this
morning. I felt that anybody who lives in Wisconsin would be em-
phatic to that problem and if any place would understand the prob-
lem of being snowed in, we would understand it here. So I am sorry
he is not here today, but obviously what we are doing is moving
forward with the testimony so that we can enter it in the record
I think what we will do is we will move right across the table,
so our next speaker, then, will be Dale Latus. Mr. Latus owns and
runs Latus Financial and Insurance. He has 20 years of experience
in the insurance industry, formerly was with American Family Mu-
tual Insurance before opening his own company.
Thank you for being with us today, Mr. Latus.
STATEMENT OF DALE LATUS, LATUS FINANCIAL AND
Mr. Latus. Thank you, Mr. Barrett, the rest of the subcommit-
tee. I want to thank our congressional leader Joseph Kennedy's of-
fice for allowing me the opportunity to give more â€” if I could just
preface this report before I get into it, it is more of a testimonial
as to what my experience was as an agent with the company, with
American Family, versus testimony. I decided to put together a bio
and just go through some of the past years' experience with Amer-
I own and run an insurance business at 5232 West Oklahoma
Avenue in Milwaukee. I presently reside at 5339 West Coldspring
Road in Greenfield. I have been an insurance agent in the Milwau-
kee area for over 20 years. I spent the first 17 years of that career
with American Family Mutual Insurance.
My prehigh school years were spent at Dover Street Grade
School, Frische High School, and I graduated in 1968 from Water-
ford High. I participated in baseball, football, basketball, and track.
I received conference mention in football, helped our basketball
team as a starter, ranked 20th in the State of Wisconsin in 1967.
I spent 1968 through 1970 at Spencerian Business College. I
then took a job position at Marquette Cement Manufacturing Co.,
in Milwaukee until 1974, when I was recruited by American Fam-
ily Mutual Insurance to be one of their Milwaukee insurance
My first child was a daughter, born July 16, 1970, named
Michelle, our second and last child a son bom October 10, 1976. We
named him Damon.
My career with American Family started by my district manager
at the time telling me that if I worked hard for 5 years â€” I think
this is what every insurance agent hears from a district recruiting
manager at the time of application â€” he said I could expect a life-
time of financial results, along with freedom of hours from employ-
ment, take vacations whenever I wanted, build a new home, and
own nice vehicles, and that sounded real good to me back in 1973.
Well, I listened well and had a very enjoyable career up until No-
vember 26, 1990, when I lost my agent's career position with this
company. My career, however, did start off with a so-called bang.
I was Wisconsin East Agent Rookie of the Year. I had not only
outproduced all new agents that year, but had written more life in-
surance than any other veteran agent that year in Wisconsin East.
The territory is divided into three areas â€” Wisconsin East, South,
I loved the business and enjoyed helping those who called on me.
My career started by American Family allowing me to practice with
225 accounts. That is what they transferred over to me when I
came into the business. And in 17 years, I had built those accounts
up to 3,450 accounts. My volume of premium went fi*om approxi-
mately $30,000 per year to $1.5 million business. I was at the time
considered one of the company's fastest growing agents.
I spent 5 days a week in the office, plus 4 nights per week on
appoints in the evening, and Saturday mornings at the office, to
build this agency for myself and my family's financial future. I was
told from the very beginning by then Casey Lucchesi, my district
manager, that I was a career agent and I could retire from this po-
sition with American Family if I so chose to.
In my report I listed five items. Item number 1 gives a synopsis
of some of my â€” if I could just insert this. I don't know if time al-
lows me to spend too mucn time on those items. But item number
1 gives some of my accolades with the company through my 17
years with them, and this is just a brief idea as to what it was.
Below is a list of my most honorable accomplishments during my
17 years with American Family Mutual Insurance: Rookie of the
Year; Agent of the Year 8 times; most applications in district 15
years in a row; top 3 in life production in district for 17 years;
Agent of the Month 40 different times; outproduced all Wisconsin
agents 3 different times; top 100 of the company in productivity in
1982; finished fifth out of 3,500 agents in May 1984 in production;
finished first in 1987 in life production; finished first in health, cas-
ualty, and property lines in 1988; won the Spring Convention 1,000
Point Club award in 1989, and I know none of you know what this
is. It is just some top awards that the company gives for produc-
tion; finished seventh in American Standard Business in 1989.
I was for 17 years and still remain after 3 years of not being with
the company District 36's only Hall of Fame Agent. I still remain
Casey Lucchesi's District 36's only Hall of Fame Agent in his 27-
year career, and I think I am certain he has probably had in excess
of 100 agents in his 27-year career. I was his only agent to date
that has ever produced this much production.
In January 1989, I was invited to attend a company meeting.
The reason I was invited because I had been the Agent of the Year
award winner the previous year. So with this type of production,
my ideas and thoughts would be shared with those in the con-
ference room. Those in attendance were 10 other Agent of the Year
award winners, State director Jerry Cutsforth, regional vice presi-
dent James Johnson, and 11 district managers.
During this meeting, the issue of the Milwaukee Yellow Pages
came up for discussion by vice president Jim Johnson. He had in-
structed that all of the agents in Wisconsin East were to pull out
the Milwaukee Yellow Page ads. We, however, pay for the ads en-
tirely by ourselves. He, personally, indicated to me that if I did not
pull out my Yellow Page ad that he would deal with me on a one-
to-one basis down the road, and he did. He had taken my contract
with American Family and had it terminated on November 30,
The business for the most part from the Yellow Pages, if I can