FCRA Class Action Defense Cases-Safeco Insurance v. Burr: U.S. Supreme Court Holds Willful Misconduct Under Fair Credit Reporting Act Includes Reckless Disregard But Insurers Did Not Violate FCRA
In Seminal FCRA (Fair Credit Reporting Act) Class Action Cases, Supreme Court Holds (1) “Willful” Failures Under FCRA § 1681n(a) Include Acts of “Reckless Disregard,” (2) “Adverse Action” in Determining Insurance Premiums Includes Setting First-Time Insurance Rates, (3) Review of Credit Report must have Impacted Rate Charged Consumer, and (4) Insurers did not Violate FCRA
Plaintiffs filed two separate putative class action lawsuits against GEICO and Safeco Insurance, respectively, alleging willful failure to give notice of adverse actions under the federal Fair Credit Reporting Act (FCRA) in violation of § 1681m(a). Safeco Ins. Co. of America v. Burr, __ U.S. __, 2007 WL 1582951 (June 4, 2007) [Slip Opn., at 4]. The questions before the United States Supreme Court in the consolidated cases were “whether willful failure covers a violation [of the FCRA] committed in reckless disregard of the notice obligation, and, if so, whether … Safeco and GEICO committed reckless violations.” Id., at 1. The Supreme Court held that a “willful” violation of the FCRA included “reckless disregard,” but that neither GEICO nor Safeco recklessly violated the FCRA, id., at 1-2.
The class action complaints were filed by individuals who purchased car insurance from GEICO and Safeco, each of which rely upon credit reports in setting insurance premiums. Safeco, at 4-5. In these consolidated class actions, defendants allegedly offered plaintiffs auto insurance at rates that were higher than the most favorable rates offered by the companies. Id., at 4. However, the insurers did not send plaintiffs notices of adverse action, id., at 4-5. The FCRA requires that “any person [who] takes any adverse action with respect to any consumer that is based in whole or in part on any information contained in a consumer report” must provide notice to the consumer. 15 U.S.C. § 1681m(a). For these purposes, an “adverse action” includes “a denial or cancellation of, an increase in any charge for, or a reduction or other adverse or unfavorable change in the terms of coverage or amount of, any insurance, existing or applied for.” § 1681a(k)(1)(B)(i). The Supreme Court explained that these notices “must point out the adverse action, explain how to reach the agency that reported on the consumer’s credit, and tell the consumer that he can get a free copy of the report and dispute its accuracy with the agency.” Safeco, at did not allege actual damages; rather, it sought statutory and punitive damages under § 1681n(a). Id.