On July 16, 2024, housing provider Mill Creek Management and Real Estate Sales, Inc. (Mill Creek) filed suit in the Superior Court of California against its insurance company provider, United States Liability Insurance Company (“USLIC”). Mill Creek alleges USLIC unlawfully refuses to defend the company in a lawsuit where tenants have alleged discrimination under the Fair Housing Act of 1968 (the “Act”) and related state laws after a request for accommodation was made for an emotional support animal.
Background
On January 17, 2024, Elias and Alice Flores, along with their daughter Cynthia Flores, filed suit against Nash Rock Solid, LLC (“Nash”), the owner of the property where they had entered into a written lease, and Mill Creek, the property management provider of the property in question. The Flores’ complaint alleges they were discriminated against in violation of the Act and related state laws after Cynthia Flores requested accommodation for a dog to serve as an emotional support animal because of her medical condition, which includes anxiety and depression. The Flores’ complaint claims Mill Creek terminated the lease as a result of this requested accommodation. (The Flores’ complaint against Nash and Mill Creek is presently set for trial in October of 2025.)
In accordance with its insurance policies, Mill Creek timely notified USLIC regarding the complaint. On April 10, 2024, USLIC denied coverage and refused to provide any defense to Mill Creek. On April 17, 2024, Mill Creek wrote a letter requesting reconsideration to USLIC, complete with an explanation of the facts, applicable policy provision analysis, and relevant case law. The letter requesting consideration asked that a response be provided within 15 calendar days. Having received no response or acknowledgment of receipt, counsel for Mill Creek emailed USLIC several times. Except for one phone call on June 20, 2024, Mill Creek was unable to make any additional contact with USLIC regarding its letter for consideration.
On July 16, 2024, Mill Creek filed suit against USLIC, after still not having received a written response regarding its letter for consideration. In its complaint, Mill Creek argues USLIC’s decision to deny coverage, and its refusal to defend Mill Creek against the Flores’ complaint “was done without a reasonable basis for doing so, based on an inherently unreasonable interpretation of the facts and law, done without making a good faith attempt to conduct a proper, fair and unbiased investigation of the facts and circumstances of the loss . . . .” The complaint included a claim of fraud, alleging USLIC expressly and intentionally misrepresented through its promotional materials that potential purchasers would receive “coverage for Discrimination/Fair Housing complaints coverage for both damages and defense up to policy limits, of $1,000,000.” The complaint stated USLIC intended for purchasers, such as Mill Creek, to rely on these misrepresentations and have no reasonable basis to expect USLIC would include language within the policies that “effectively eliminate any coverage for tenant discrimination claims that might be asserted against purchasers such as Mill Creek.”
In its answer to the complaint filed on August 19, 2024, USLIC denied all the allegations and stated Mill Creek is not entitled to any recovery.
On August 19, 2024, USLIC filed a request to remove this matter to federal court in the U.S. District Court for the Eastern District of California. The federal court will determine if this matter should be heard in state or federal court. NAA will continue to update its members as the case proceeds.
From skyrocketing costs to a decline in coverage, insurance continues to be an important conversation in the rental housing industry. The fluctuations in the insurance market in recent years have made it difficult for housing providers to expand the nation's housing stock. NAA and the Housing Affordability Coalition wrote to encourage the Administration, Congress, and all federal policymakers to address the causes of rising insurance premiums across the nation’s housing market. As stated in the letter, “[o]nly in partnership can the public and private sectors successfully identify solutions to this crisis and support housing providers as they work to expand the supply of quality housing.”
Mark Poist is a Staff Attorney with NAA.