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Nevels v. Western World Insurance Co.

Update: Western World agreed in August 2006 to settle the case for $2 million. The company acknowledged that it cut off coverage of places that housed people with mental illnesses, but its attorneys argued that federal housing laws didn't apply to the type of insurance covering the properties in the lawsuit.

The lawsuit, Nevels v. Western World Insurance Co., was brought by the operator of a Seattle family home for three residents with mental illnesses and two Fair Housing Councils (South Puget Sound and Oregon) that had received calls from other family home providers. Western World, a New Hampshire-based company selling commercial malpractice liability insurance, had cancelled or refused to renew the providers’ policies because they operated housing for residents with mental illnesses.

Penny Nevels refused to remove the “mental illness” designation from the license for her family home and lost her insurance. She got a policy at a much higher rate from another company, but ultimately couldn’t afford it. She now has no liability insurance.

After insuring Becky Marie and Steven Abrams’ family home for nearly a year, the company sent them a notice stating:

WESTERN WORLD INSURANCE COMPANY DOES NOT WRITE ADULT FAMILY HOMES WITH MENTAL ILLNESS DESIGNATION ON THEIR ... LICENSE OR HOMES WHO CARE FOR MENTAL ILLNESS RESIDENTS.

The Abrams removed the mental illness designation and turned away applicants with mental disabilities. But they couldn’t fill the vacant beds otherwise, so in December 2003 they sold the home.

Without insurance, Judge Thomas Zilly ruled, providers of housing for people with disabilities cannot stay in business and thus “cannot insure that non-segregated, community-based housing for people with mental disabilities will remain available.”

The ruling came in response to Western World’s motion to dismiss the case. While it allows the lawsuit to continue toward trial, explains Bazelon Center senior staff attorney Michael Allen, who assisted in the lawsuit, “it sends a clear signal to the insurance industry that discrimination does not pay.”

Judge Zilly’s decision, also “forcefully rejects the company’s contention that insurance matters are the purview of state regulators,” adds Allen. “It validates our position that refusal to provide insurance because of residents’ mental disabilities is a form of interference with the rights of providers and their residents.”