WASHINGTON–Insurers will argue to the U.S. Supreme Court tomorrow that they did not violate the Fair Credit Reporting Act when they failed to notify consumers they were not given the best insurance rate because of a credit report.

If that position is not upheld, the industry could be facing a hefty bill from consumers who were not advised that their poor credit score resulted in a higher premium price.

The case is based on a decision last January in the 9th U.S. Circuit Court of Appeals in San Francisco that defendants such as Safeco, GEICO and the Hartford act “in willful disregard” of the Fair Credit Reporting Act in not disclosing that the best rate was not charged a consumer, and as a result, the consumers involved have the right to recover damages.

The insurance industry, backed by the U.S. Solicitor General, will contend that the decision took three opinions before it was made final and is in conflict with opinions in other circuits, as well as the meaning of the FCRA.

Kathleen Jensen, senior legal counsel and director for Property Casualty Insurers Association of America, said in a recent statement that PCI “strongly disagreed with the lower court's ruling that these companies acted in willful disregard of the law.”

She added, “Insurers take very serious their responsibility to comply with the FCRA and operate in the best interests of their policyholders.”

Ms. Jensen argued, “The 9th Circuit used a very low standard for determining willful disregard of the law, and that lower standard could open the door to increased litigation and substantial penalties for insurers.”

She also said, “The 9th Circuit imposed a new set of rules for notice requirements that conflict with the FCRA statute and run counter to previous court decisions.”

According to Ms. Jensen, the ruling “has caused confusion because it was inconsistent with other courts around the country.”

Once the U.S. Supreme Court rules on this matter, “we will have greater certainty regarding how insurers must comply with the FCRA,” she advised.

The case has generated enormous interest, prompting a number of friend of the court briefs from consumer groups advocating a strict reading of the Fair Credit Reporting Act, a position backed by a number of state insurance commissioners in another friend of the court brief.

The U.S. Solicitor General argues in a brief and will contend in oral arguments that a less-strict interpretation of the FCRA is more appropriate.

“While GEICO's construction of the adverse-action notice requirement was erroneous, the resulting failures to notify consumers were not willful violations of the FCRA,” the Solicitor General says in its brief.

“The legal question of the FCRA's coverage was one of first impression that was not settled by statutory text, formal agency guidance, or case law,” the brief adds.

“GEICO's reading, while wrong, does not reflect the type of extreme departure from responsible judgment that amounts to reckless disregard of the law,” according to the Solicitor General.

Seeking to provide perspective on the case, the Legal Information Institute at Cornell University said in a preview of the case that “the Court's decision in this case will have an enormous impact on anyone who uses or extends credit.”

If the Court upholds the Ninth Circuit's expansive definition of “willful,” the preview said, “lenders may be exposed to staggering liability and administrative costs.”

“If the Court chooses to adopt the narrower definition, consumers whose credit information has negatively affected their insurance, mortgage, or credit rates might not be notified that such an adverse action has occurred,” the preview added.

The cases before the court are Safeco Ins. v. Burr, and GEICO v. Edo, consolidated as No. 06-100.

A number of insurance company trade groups also filed friend of the court briefs, as did the Consumer Data Insurance Association. The CDIA brief said it is “vitally interested” in the outcome of this case because the Court of Appeals' “misstatement of the 'willfulness' standard subjects CDIA's members, and the members' clients, to unforeseen, staggering liability.”

In addition, the brief said, “the Court of Appeals' error in defining 'adverse action' in the insurance context subjects CDIA's members and their clients to exponentially increased administrative costs in preparing to respond to consumer inquiries that will result if the 'adverse action' notice provisions apply to millions of consumers who were not subject to any negative action because of consumer report information.”

Special Reports /

Insurers Go To Supreme Court On Credit Scoring

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