Justices Side with Insurers in Credit Reporting Case

Yara Zakharia, Esq.

In a decision handed down this week, the Supreme Court ruled unanimously in favor of insurance companies Safeco and Geico in a case dealing with Fair Credit Reporting Act violations. Insurance brokers and other businesses are required by law to inform their clients that they are charged a higher fee as a result of their credit ratings. The court held that although Safeco might have been in violation of the law, it did not act recklessly, and that Geico General Insurance Company complied with the law.

The insurance industry expressed a sigh of relief, stating that an adverse ruling would have exposed companies who failed to notify their clients to billions of dollars' worth of punitive damages.

Insurance commissioners of thirteen states considered that the Ninth U.S. Circuit Court of Appeals' (San Francisco) lower burden of proof on the issue of liability would encourage lawful conduct.

In the opinion, Justice David Souter wrote that, to establish liability, a company's practices must rise to a level higher than "merely careless". He argued that an insurance company's actions must involve an unjustifiably high potential of injury that is either so manifestly clear that it should have been known or that the company knew about it.

The insurance industry endorses the notification standard adopted by the Supreme Court. The requirement restricts the instances in which clients must be informed that their premiums are higher due to their credit scores. The appellate court and the attorneys representing consumers argued that notification must be provided each time they make a payment that is higher than the lowest rate offered clients with stellar credit ratings. The Supreme Court justices, however, disagreed and sided with Geico, stating that it "has the better position". The Court reasoned that the company did not owe a prospective client such a duty of notification, since Geico extended to that customer the same rate he would have been assigned had his credit rating not been taken into consideration.

As for Safeco, the Court found that it had mistakenly neglected to notify two of its clients because it incorrectly assumed that initial applications fell outside the scope of the law.

Souter concluded that Safeco therefore "was not reckless in falling down on its duty".

A host of employers, government agencies, retailers and creditors rely on consumer data, which currently concerns 200 million Americans. Each year, credit reporting agencies issue more than 1.5 billion consumer reports. In 1970, Congress enacted the credit reporting act to enhance the dependability of reports so that the business community can accurately assess risk and to protect consumers from technical errors. For consumer organizations, the notification requirement serves an essential function of eliminating erroneous information from credit reports.

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