Denials of insurance in ‘high crime’ areas seen as ‘legal redlining’

Lorraine Cochran-Johnson stands outside a strip mall on Glenwood Road in southern DeKalb County, gesturing toward a boarded-up building that once housed a Family Dollar.

Just down the street sits a long-shuttered bowling alley whose facade is a canvas for graffiti artists. Nearby, a tall fence surrounds the outdoor play area at a day care center.

Cochran-Johnson, DeKalb’s incoming chief executive, believes recruiting new businesses to this community would reverse the economic decline it has faced over the past decade.

But a major obstacle stands in the way: Insurance companies are denying essential coverage to businesses in “high crime” areas of metro Atlanta, fearing enormous legal judgments if someone is hurt or killed during a crime on the property.

Without such coverage, some businesses can no longer operate in many neighborhoods where a majority of residents are low-income people of color, Cochran-Johnson said. Some insurance companies also have stopped writing policies for apartment complexes with high “crime scores,” or are charging higher premiums, especially in communities with subsidized housing, according to real estate developers.

It’s a problem that could hinder local governments’ efforts to revitalize neighborhoods with new business and affordable housing. Cochran-Johnson and others see these denials of insurance coverage as a form of redlining, which is the practice of designating specific areas as risky for investment, often based on race.

“Regardless of the intent, the outcome is ‘legal redlining,’” Cochran-Johnson said. “That’s exactly what it is, and it has to be said.”

The term redlining comes from a practice endorsed by the federal government in the 1930s that allowed mortgage lenders and banks to deny Black Americans access to home loans, or to give them unfavorable terms.

Cochran-Johnson, a Democrat, said she understands why insurance carriers would charge higher premiums in high-crime areas, but she believes it should be illegal to deny coverage. When she takes office in January, Cochran-Johnson said she will have the county’s legal team “review potential legal actions that may be necessary to protect businesses in DeKalb.”

Credit: Arvin Temkar/AJC

Credit: Arvin Temkar/AJC

Some professionals in insurance and real estate, along with a Georgia Tech historian, agree that redlining is taking place. However, others say the insurance carriers aren’t to blame. Instead, they say the Georgia General Assembly needs to change legal rules that allow juries to award “nuclear” verdicts against businesses for crimes occurring on or near their properties.

$45M pharmacy shooting

In a pivotal case, a Fulton County jury awarded $45 million to a man who was shot during a robbery in the parking lot of a CVS pharmacy in Atlanta. The Georgia Supreme Court upheld the verdict in June 2023, finding that businesses can be held liable when someone is hurt on their premises if “the criminal act was reasonably foreseeable.”

In a concurring opinion, Justice Shawn Ellen LaGrua expressed concern that people who live in “high crime areas ... could face the harsh and mounting reality that businesses — faced with an increased exposure to liability because of the very area in which they have chosen to do business — will cease operations or raise their prices to offset the costs of additional security measures.”

“And I wonder how these forced business decisions will impact the residents who would lose ready access to resources they need for daily life because they are no longer available or affordable,” the justice continued. “I would urge our General Assembly to consider these issues as they institute laws imposing premises liability on businesses in this state.”

Gov. Brian Kemp said in January that efforts to curb “frivolous” lawsuits and limit jury awards would take a multiyear approach. This year, the General Assembly passed a bill asking the state’s insurance commissioner to gather data to assess the impact lawsuits have on businesses, on insurance rates and availability of coverage. The legislation directs the commissioner to deliver a report by Nov. 1.

Insurance Commissioner John F. King’s office didn’t respond to questions about the review, including whether the research has found evidence of insurance redlining, or if his office is even looking into that question. A spokesman for King said he was unavailable.

However, King has said publicly that insurers are “walking away” from Georgia.

During the next General Assembly session, the Georgia Chamber plans to lobby for lawsuit reform. The Chamber is leading a broad coalition of businesses including real estate developers, convenience stores, grocery stores, restaurants, day care centers and retailers — all of which either can’t afford premises liability insurance or can’t get it.

Georgia Apartment Association members have reported an average 200% increase in general liability insurance costs over the past five years. Chelsea Juras, vice president of both the Atlanta and Georgia apartment associations, said the Atlanta Apartment Association has brought the problem to Mayor Andre Dickens’ attention and had conversations with his housing team.

“Last year and this year, it’s crisis level for our members,” Juras said. “I don’t know the extent to which they will get involved, but they are aware of the issue certainly from the affordable housing standpoint.”

A request to interview Dickens was not granted.

The Georgia Trial Lawyers Association opposes reform, saying it “is taking action to ensure that the courthouse doors remain open to everyday Georgians who are harmed by the wrongful conduct of negligent persons and corporations.”

Crime scores

The state of Georgia regulates more than 1,000 insurance carriers, but many others, known as surplus lines, are not regulated, said Mike Iverson, an Atlanta-based insurance broker.

Iverson said he doesn’t know of any regulated companies that will write premises liability policies for any apartment complexes in metro Atlanta. Businesses that can’t get the insurance they need from regulated companies can go to the surplus lines, he said.

“It’s like the wild West,” Iverson said of the surplus lines. “They’re not regulated, so they can charge any rate that they want and choose to offer whatever terms they wish.”

Insurance brokers, who help their business clients find coverage, say some insurance carriers use “crime scores” to deny premises liability coverage or exclude coverage for assaults or gun-related incidents.

To give a crime score to an area or a property, some unregulated insurance carriers go to crime-tracking websites like CrimeGrade.org, which provides color-coded maps that mark areas considered high-crime in red, Iverson said. The insurance carriers also conduct searches for any crimes occurring within five miles of a property, he said.

Credit: arvin.temkar@ajc.com

The Atlanta Journal-Constitution tried unsuccessfully to interview representatives of several unregulated insurance carriers for this story.

Iverson, a past president of the Independent Insurance Agents of Georgia, said the surplus lines are “absolutely critical to the marketplace” because otherwise many businesses couldn’t get coverage at all. Bringing oversight to surplus lines would ruin the industry, he said.

He also disputed the redlining allegation, saying the companies want to be profitable like any business and avoid the risk of paying out unpredictable jury awards.

“Are they redlining for not writing flood coverage in areas that are flooding?” he asked.

The history of redlining dates to nearly a century ago. In 1933, a New Deal housing agency called the Home Owners’ Loan Corporation refinanced mortgages of about a million properties, which was about 20% of the housing stock in the U.S. at the time, said Todd Michney, an associate professor and historian at Georgia Tech.

The federal loan corporation’s maps marked virtually all Black neighborhoods in red, signaling that residents in those neighborhoods were believed to be more likely to default on mortgage loans — a claim that their own data later showed was false, Michney said.

The 1968 Fair Housing Act banned housing discrimination.

Impact on affordable housing

The current environment has been especially hard on developers, managers and owners of apartment complexes, particularly those with subsidized housing.

Jet Toney is a lobbyist for the Georgia Affordable Housing Coalition, which represents developers who compete for state and federal low-income housing tax credits. He noted that developers who are awarded the tax breaks can allocate the money to investors, and the funds can go toward the construction or rehabilitation of apartments that are leased at below-market rates.

Insurance carriers are “falsely” rating the rent-controlled properties as being a higher risk for coverage, Toney said.

“Just because multifamily development is rent-controlled for low-income or seniors, does not mean the property is likely to be a place where crimes are committed,” he said.

Credit: arvin.temkar@ajc.com

Toney said he will lobby state lawmakers to adopt “common sense legal reforms that insulate property owners from lawsuits for actions committed by persons who are not invited onto the properties that our members own and manage.”

Laurel Hart is the former director of affordable housing for Georgia and the vice president of asset management for Columbia Residential, a developer, owner and manager of multifamily homes. Columbia is a for-profit company, but its mission is to provide affordable housing in high-crime areas and rehabilitate substandard properties to make them safer and better, she said.

Hart said the cost of insurance has gone up so much in the past five years that it’s hard to afford the premiums. The company has one property south of Interstate 20 in Atlanta where it spent $1 million per year on security costs, she said. The community has high-definition cameras and license plate readers. Apartments were given to Atlanta Police officers free of charge.

“We do everything we can possibly do, but we still have crime because we’re in a high-crime area,” Hart said. “Sometimes those crime scores are not indicative of what’s happening on the property.

“The places that really need affordable housing need people to go in and renovate dangerous, blighted properties. We’re hesitant to go in there.”

Atlantica Properties is a real estate developer specializing in preserving housing for families that earn up to 60% of the area’s median income — about $58,000 for a family of four. Among the properties the company has developed is The Melody, a permanent supportive housing community of retrofitted shipping containers in downtown Atlanta that is part of a broad effort to provide more rapid housing for people who are homeless.

Darion Dunn, a managing partner for Atlantica, said rising insurance costs have a disproportionate impact on the operations of affordable, rent-restricted properties because their owners “are unable to increase rents to offset higher expenses due to regulatory caps.”

“Insurance carriers often ask about the number of subsidized units at a property, which factors into their decision to insure the property and at what price,” Dunn said in an email. “This creates a dynamic in which affordable properties are burdened with higher insurance costs because they are presumed to be inherently more dangerous than luxury properties.”

Some insurers say they won’t provide assault-and-battery coverage for any property with subsidized housing, said Adam Kaye, an attorney representing a company that owns and operates apartment complexes. He called the practice “nothing less than legal redlining.”

“It seems pretty blatantly discriminatory,” Kaye said. “They’re basically saying that if you’re low-income then we just assume you’re engaged in crime, so we’re not going to insure that.”