Supreme Court Agrees to Hear Insurance Credit Score Cases

By Patricia-Anne Tom
October 4, 2006

The U.S. Supreme Court has agreed to hear one hour of oral arguments on insurers' use of credit reports, based on appeals filed by Safeco Insurance Co. of America, GEICO General Insurance Co., which was supported by friend of the court briefs submitted by insurance associations. The insurers disagree that they should have notified people about adverse information in their credit reports.

At issue is whether the Ninth Circuit erred in holding that a defendant can be found liable for a "willful" violation of the Fair Credit Reporting Act ("FCRA") upon a finding of "reckless disregard" for FCRA's requirements. According to the court docket, the decision conflicts with the unanimous holdings of other circuits that "willfulness" requires actual knowledge that the defendant's conduct violates FCRA.

According to the questions presented with the appeal in GEICO General Insurance Co. v. Edo, the FCRA requires a user of consumer credit information to notify a consumer when the consumer has been treated adversely on the basis of his or her credit information. If a consumer shows that a user's failure to send an adverse-action notice was negligent, the consumer is entitled to recover actual damages. But, if the consumer makes a higher showing and proves that the user's failure to send an adverse action notice was "willful," the consumer is entitled to recover statutory damages between $100 and $1,000 (in lieu of actual damages) and punitive damages.

According to the Supreme Court, a conflict exists between the Fourth, Fifth, Sixth, Seventh and Eight Circuit courts, and now the Third and Ninth Circuit Courts, over the mens rea, or criminal intent, required for a "willful" violation of FCRA.

"The Ninth circuit held that a company may be deemed to have acted recklessly — and thereby willfully under the Act — if the company relied, even in good faith, upon an interpretation of the Act that a court later determines to be 'unreasonable, implausible, creative or unintenable,' even if that interpretation was derived from a legal opinion that the company sought for the very purpose of ensuring compliance with the law," the questions associated with the case state.

The high court combined Safeco Insurance v. Burr, 06-84 and GEICO General Insurance v. Edo, 06-100 when it noted it would hear oral arguments.