Insurers Take Fight Against Credit-Reporting Law to Supreme Court

Insurers and other financial services companies are waging what they say is a multibillion-dollar fight as the U.S. Supreme Court assesses consumers' rights under a credit-reporting law.

The justices were to hear arguments Tuesday in Washington from two insurers, Safeco and Berkshire Hathaway's Geico Corp. The companies are fighting class-action suits by consumers who sought price quotes, were not offered the lowest rates and now say they should have been told the insurer was relying on their less-than- perfect credit histories.

The companies say the 9th U.S. Circuit Court of Appeals, in letting the customers pursue their claim, made it too easy to win large damage awards in suits under the Fair Credit Reporting Act. The court said companies could be forced to pay penalties of at least $100 per customer when they violated the law based on an "implausible" interpretation of its requirements.

"The consequence would be that any creditor, any insurance company, any credit reporting agency that interpreted a law in a way different from a court could be facing literally hundreds of millions and sometimes billions of dollars in liability," said Anne Fortney, a Washington lawyer at Hudson Cook. She filed a brief on behalf of the Consumer Data Industry Association, which represents credit-reporting companies.

The high court also will decide whether insurers must notify every customer who would have received a better rate with a perfect credit score. About 2,600 lawsuits alleging violations of the fair- credit law are pending in U.S. courts, according to a filing by State Farm Mutual Automobile Insurance in a related case. Almost 1,000 of those were filed after the San Francisco-based 9th Circuit first ruled against the industry in 2005.

Consumer advocates say the 9th Circuit ruling is in keeping with Congress's goal of protecting individuals from inaccurate information about their credit histories. "The legal protections of the Fair Credit Reporting Act are really the primary way consumers can make sure their interests are protected," said Chi Chi Wu, a lawyer at the National Consumer Law Center in Boston.

Safeco is fighting a class action suit filed in a U.S. court in Oregon. The three representative plaintiffs include two customers whose cases center on their premiums - one for auto insurance and one for renters insurance - and a third who says her credit report was one reason Safeco refused to reinstate her auto policy after it lapsed.

Geico is also fighting a class action suit in a U.S. court in Oregon. The lead plaintiff, Ajene Edo, did not get the company's lowest rate when she called for a quote in 2000.

State Farm and Hartford Financial Services Group are waging similar fights and have appeals pending at the Supreme Court.

In allowing the cases to go forward on a 3-to-0 vote, the 9th Circuit said the notice requirement applies whenever a consumer would have received more favorable treatment - such as a lower insurance rate - had the person's credit rating been better.

The 9th Circuit also said the companies' decisions not to provide notice might have been willful violations. The law subjects willful violators to penalties ranging from $100 to $1,000 per consumer, plus punitive damages.

The 9th Circuit said the willfulness requirement includes actions taken in reckless disregard of the law.

The insurance industry and its allies contend the term willful encompasses only intentional wrongdoing. The companies say their lawyers made a good-faith interpretation of the law - one that was adopted by the trial judge who handled the cases.

The 9th Circuit "adopted a novel and confused definition," according to a court filing by Geico's Supreme Court lawyer, Maureen Mahoney of Latham & Watkins in Washington.

The Bush administration and the Federal Trade Commission are taking a middle position, saying that while the 9th Circuit ruling should be overturned, the insurers' approach would go too far in restricting the fair-credit law.

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