*The complaint filed contains alleged
conduct. Admissible evidence is
required to prove allegations.

Written By: Scott Michael Lupiani, Esq.

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Jaqueline Husky, on behalf of herself and all others similarly situated filed suit against State Farm Fire & Casualty Company, U.S. District Court, Northern District of Illinois, Case No. 22-cv-7014, dated December 14, 2022, alleging violations of the Fair Housing Act by State Farm.

Husky, and her counsel, claim that State Farm’s use of Artificial Intelligence (“AI”) disparately treats its Black homeowners’ claims relative to white homeowners’ claims in the Midwest (Illinois, Indiana, Michigan, Missouri, Ohio, and Wisconsin). The alleged disparate treatment involves “greater suspicion than claims made by their white counterparts,” “greater inconvenience as well as detrimental impact” to property values and “quality of life,” and delays in the claim adjustment procedures.

Husky alleges that State Farm’s use of AI in automated claims processing procedures, including “machine-learning algorithms,” effects “predictions and decisions about whether a claim might be fraudulent, how much scrutiny it requires, and how it should be processed,” relying upon “(1) biometric data that function as proxies for race, such as physical appearance, genetics, and voice; (2) intrusive behavioral data that function as proxies for race, such as geolocation, social media presence, and browser search history; and (3) historical housing and claims data that are themselves infected with racial bias.”

The AI algorithms, again as alleged, “too often have discriminatory effects, even where demographic data, such as race, are not included as inputs. This is because algorithms can “learn” to use omitted demographic features by combining other inputs that are correlated with race (or another protected classification), like zip code, college attended, and membership in certain groups.”

To support Husky’s allegations, the following information was provided:
Survey of 648 white and 151 Black policyholders demonstrated large and statistically significant racial disparities, regarding (1) the time for claims to be paid; (2) the supplemental paperwork required as part of claims adjudication; and (3) the number of adjustor/claimant interactions for each claim.
(1) 39% of white compared to 30% of Black policyholders received payment for their claim within one month or less (Alleged difference would occur less than 5% of time as a result of random chance).
(2) 46% of white compared to 64% of Black policyholders were required to submit additional materials beyond the materials that initiated their claims (Alleged difference would occur less than 1% of time as a result of random chance).
(3) 51% of white compared to 42% of Black policyholders resolved their claims after only one to three interactions with State Farm, and 49% of white and 58% of Black policyholders needed three or more interactions.

The Complaint further alleges an industry shift from person-to-person claims handling to an AI-based analysis designed to separate claims into one of three buckets: “no touch,” “low touch,” and “high touch.” There is a newer reliance on analytics and AI learned algorithms to determine the level of Adjustor involvement. However, as Husky alleges, it is the social stratification of the data, the weighed importance relative to the benefits, and the AI interpretation of the data that creates the discriminatory results.

The Beckage Firm, a boutique data security and privacy firm with lawyers who are also technologists with AI backgrounds, understands AI and its positive, and potential legal compliance issues that may arise. As organizations adopt AI, or use third parties who use AI, legal compliance evaluation can help mitigate regulatory investigations and unintended outputs.