Thanks to the persistence of Joseph and Lori Pallozzi, mentally disabled individuals notched a significant legal victory in December in their battle to end the discrimination they are forced to confront on a regular basis.

The target in this latest skirmish was the mammoth Allstate Life Insurance Company, which had refused to issue a joint life insurance policy to the Pallozzis, a married couple, both of whom have been diagnosed with major depression.

The couple had applied for a $65,000 Allstate life insurance policy in October 1996. The company issued a temporary policy, but then cancelled it based on information it obtained from the couple’s psychiatrist in a check of the Pallozzis’ medical history. Allstate, which calls itself the "good hands" people, refused to extend its good hands to the Pallozzis, however, which it could have done by issuing a new policy after terminating the temporary one.

The insurance company would not provide the Pallozzis with a reason for its denial, supplying them instead with a copy of their application and the suggestion that they contact their psychiatrist if they wanted additional information about why Allstate would not insure them.

In February 1997 the couple filed suit in U.S. district court against Allstate, alleging that the company’s refusal to issue the policy was a "subterfuge to evade the purposes of Title III of the" Americans With Disabilities Act (ADA). The Pallozzis wanted a declaratory judgment in their favor and an order directing the insurance company to issue the life insurance policy they wanted "at a price [that] is based on sound actuarial principles, or actual or reasonably anticipated experience."

The case was filed with the U.S. District Court for the Northern District of New York in Albany, which agreed to Allstate’s request that it dismiss the case. The grounds on which the company asked for dismissal were that the section of the ADA cited by the plaintiffs, Title III, did not cover insurance companies’ underwriting practices and that the Pallozzis did not provide facts to show that Allstate made its decision on other than sound actuarial practices.

The Pallozzis quickly filed an appeal of the dismissal, and on December 1, 2000, they learned that they had won and that their case was still alive.

The appeals court faulted the lower court for its dismissal reasoning and remanded the suit to the district court, where it will proceed using the opinions of the appeals court.

The appeals court ruled that the language of Title III of the ADA does indicate Congress’s intention to have the law encompass insurance companies’ underwriting practices. That section explains that the statute prohibits disability discrimination in "public accommodations" that can interfere with an individual’s access to "the full and equal enjoyment of goods [and] services."

The appeals court said that the statute specifically includes insurance offices in the public accommodations category, and then the court determined that insurance policies qualify as goods and services.

The court said that the ADA’s discrimination ban does not prevent insurance companies from classifying risks in its underwriting process, but does extend to companies’ refusal to sell policies to people based solely on their particular disability.

The appeals panel also faulted the district court for basing its dismissal in part on its determination that the Pallozzis failed in their complaint "to allege that Allstate’s denial of insurance coverage was without actuarial justification."

The ADA exempts some discriminatory actions if a company or organization can provide a sound actuarial reason for its decision. The appeals court said, however, that the lower court "misconstrued" this provision "and imposed an unwarranted pleading burden" on the Pallozzis.

They did meet the obligation, the appeals court stated, to show that the practice they are complaining about is "inconsistent" with state law regarding underwriting procedures and risk classification. This was sufficient grounds for the case to proceed.

It’s not clear whether the future of the case will be affected by an expected Supreme Court ruling.