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How Insurance Can Protect Against Criminal Background Checks

Criminal Background Checks
December 2016

The criminal history policy of apartment communities can have discriminatory effect when interacting with the general public.

According to the Bureau of Justice Statistics, one-third of the U.S. population has a criminal record of some sort. When these individuals are released from jail or prison, their ability to access safe, secure and affordable housing is difficult.

Refusing to rent based on a criminal record is a form of racial discrimination.

Apartment community owners and managers should be familiar with the Fair Housing Act, which prohibits discrimination in the sale, rental or financing of dwellings and in other housing-related activities on the basis of race, color, religion, sex, disability, familial status or natural origin.

While having a criminal record is not a protected class under the Fair Housing Act, criminal history-based restrictions on housing opportunities violate the Act if, without justification, their burden falls more often on
renters of one race or national origin over another—and that is exactly what the Department of Housing and Urban Development (HUD) is warning owners and managers about.

Refusing to rent based on a criminal record is a form of racial discrimination due to the perceived racial imbalances in the U.S. justice system, according to HUD’s news release dated April 4, 2016.

Housing providers with blanket policies that simply “reject” ex-offenders might be unintentionally discriminating based on race, according to HUD.  A housing provider violates the Fair Housing Act when the provider’s policy or practice has an unjustified discriminatory effect, even when the provider had not intended to discriminate.

Depending on the alleged violation, owners or operators who violate the Fair Housing Act can be hit with civil fines ranging from thousands to millions of dollars.
A recent case exemplifies how compliance with the fair housing laws as interpreted in the HUD guidelines can impose a burden on owners or operators.

A social services group filed a lawsuit in federal court in October 2016, contending that a New York City owner has a policy of not renting to people with criminal records. The lawsuit was brought against the owners and managers of a rental community in Queens because of concerns about legal restrictions that could hinder former prisoners’ efforts to find homes. The suit argues that the rental policy should be replaced with one that allows for an individualized review that consider factors other than a criminal history to determine a person’s security risk as a resident. The outcome of the case is still pending.

Owners can protect themselves by learning the laws and how to enforce regulations and by having adequate insurance coverage for when problems do arise.

Part of the solution for property owners and managers is understanding the security offered through the proper insurance coverage. Multifamily housing property owners and managers have the option to add third-party coverage to their Employment Practices Liability Insurance policies to cover liability claims brought by customers, vendors or clients against them. The coverage works as an add-on to commercial general liability (CGL) polices.

Rethinking Insurance

The added coverage is a safeguard to any business or operation that has direct contact with the public and is at risk for claims of actual or alleged harassment or discrimination from a third-party.

After the HUD guidelines were issued in April, Rosemary Spohn, Esq., Associate General Counsel for Morgan Properties, says, “We reviewed our resident screening process to make certain we complied with the recommended guidelines. We also implemented a process for an individualized assessment, as recommended by HUD, wherein applicants who are denied for a criminal history are offered the opportunity to request reconsideration.

“In this process, applicants may present additional information, and their criminal history is reviewed more closely to determine if there is a substantial, legitimate, nondiscriminatory justification for the denial. The key to successfully defending a discrimination lawsuit is to have a clear criminal screening policy in place that complies with the HUD guidelines, and to be sure that the processes set forth in the policy are strictly followed.” Spohn says that HUD guidelines open the door to discrimination lawsuits based on criminal history denials even when there may have been no discriminatory intent, as HUD determined that routine denials for criminal history without further inquiry may result in a discriminatory disparate impact on certain protected classes. It therefore becomes even more important for apartment owners and managers to
have third-party liability insurance in place for their protection.

Steven M. Williams, Partner, Cogen Seglias Pallas Greenhall & Furman PC, says that while HUD has issued guidance on how landlords should handle criminal background checks, there is very little actual guidance provided by HUD.

“What is clear is that landlords cannot have a blanket policy that they will refuse to rent to anyone with a criminal history,” he says. “What is also clear is that landlords cannot consider arrests while qualifying prospective tenants. However, there is very little else clear from HUD.

“What crimes can be considered by a landlord, how far back landlords can look and what other factors landlords can or should be considering are all uncertain. These gray areas leave even the most diligent landlord exposed to potential liability. Having insurance coverage to protect against such liability is one thing that landlords can do to limit such exposure.”

Katie Gouldner is a Public Relations and Communications Specialist at Millers Mutual, Harrisburg, Pa.