WASHINGTON–The Supreme Court has agreed to determine when insurers and other businesses must notify their customers that rate increases were based on changes in their credit rating, so-called "adverse action" reports.
No date has been set for oral arguments in the case, prompted by conflicting interpretations of the Fair Credit Reporting Act by lower federal courts in class action lawsuits.
Insurance trade groups said they were happy the high court decided to hear the appeal by carriers.
The court agreed to review the standard for notification Sept. 26 by consolidating cases involving Geico General Insurance Co. and Safeco Insurance Co. of America.
Other insurers either directly involved in the case, or whose cases were reinstated by a January decision of the Ninth U.S. Circuit Court of Appeals in San Francisco, include The Hartford, Farmers Insurance Co., State Farm and Safeco.
"We are pleased the U.S. Supreme Court is reviewing the Ninth Circuit's rulings, which created impractical new requirements and then imposed inappropriate penalties for not complying," said David Snyder, AIA vice president and assistant general counsel.
"This is a case not only insurers will be watching, but all businesses that use credit information because of the Ninth Circuit's interpretation of the terms 'willfully' and 'adverse action,'" Mr. Snyder said.
The cases involve Ninth Circuit rulings that held that an insurance company is required by the FCRA to issue adverse action notices whenever a consumer's credit information does not result in the consumer receiving the best possible rate.
In addition, the court said that by not issuing the notices, these companies had acted in "willful disregard" of the law.
The insurance companies argue that notification is not required when applicants are asked to pay more on an initial insurance policy based on a negative change in their credit rating.
Being offered a higher rate when first buying a policy does not qualify as an "increase" under the law unless a lower rate had been offered previously, the companies contend.
The issue involves conflicting interpretations of the Fair Credit Report Act.
That law requires companies to notify consumers about rate increases that are based on information in their consumer credit reports.
"We are pleased that the Supreme Court will hear these cases," said Kathleen Jensen, senior legal counsel and director for the Property Casualty Insurers Association of America.
"We strongly disagreed with the lower court's ruling that these companies acted in willful disregard of the law. Insurers take very seriously their responsibility to comply with the FCRA and operate in the best interests of their policyholders," Ms. Jensen said.
She said the Ninth 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.
Additionally, "it is our opinion that the Ninth Circuit imposed a new set of rules for notice requirements that conflict with the FCRA statute and run counter to previous court decisions," she said.
Ms. Jensen noted that the Ninth Circuit's 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 said.
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