High court rules for insurers on use of credit
scores
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The 9th Circuit Court of Appeals decided the insurance
companies must tell consumers when credit scores led to higher insurance
rates. If not, they could be found financially accountable for violating
federal credit laws.
Safeco Corp., Safeco Insurance Co. of America, Berkshire
Hathaway Inc.'s GEICO General Insurance Co. unit and other insurers
appealed the decision.
The insurers argued the court of appeals set the standard
too high.
"How can it be reckless when you have a well-thought-out
method?" says Jonathan Shafner, GEICO's assistant general counsel.
The Supreme Court consolidated Safeco Insurance vs.
Burr and GEICO General Insurance vs. Edo cases for oral argument.
The justices had to determine what constitutes an
"adverse action" and a "willful violation" of
the federal law.
The court said an "adverse action," as it
applies to an insurance company, is "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."
A "willful violation," the court said, could
be a knowing violation or a reckless violation, but it describes
a reckless violation as an action that entails "an unjustifiable
high risk of harm that is either known or so obvious that it should
be known." This is a higher standard than the lower court.
The high court opinion says GEICO's decision to issue
no adverse action to Edo was not a violation, and Safeco's misreading
of the statute was not reckless.
Neither Safeco nor GEICO Insurance will face monetary
liabilities in the case. A ruling in favor of the plaintiffs could
have cost the insurers billions of dollars in statutory damages.
Attorneys for consumers dropped a request for punitive damages before
the Supreme Court decided to review the case. Schorr says they wanted
to focus on statutory damages instead.
The case now goes back to the 9th Circuit Court of
Appeals.
"We are still analyzing what will happen once
it goes back to the 9th Circuit Court. It's too early to tell. We're
still looking at that issue," says Schorr.
Deepak Gupta of Public Citizen, a public-interest
watchdog group, says the coutr's ruling will make it "much
harder to prove whether companies using credit reporting information
violated the law."
Still, Schorr says, the consumers' attorneys feel like they've
seen a positive impact from the case.
"Some insurance companies have started to provide
accurate and more complete notices," he says.
Fortney says these adverse notices to customers will
explain the effect the credit score had on their premium, be more
meaningful and given to people who are "worse off."
As for related cases, Schorr says he believes one
case against Farmer's Insurance Co. of Oregon and Farmers Group
Inc. will move forward.
He says customers who filled out their renewal applications
were charged more for their insurance because of their credit information.
"Based on the language in this Supreme Court decision, it's
clear that the case will proceed," says Schorr.
Meanwhile, he suggests that it's more important than ever for consumers
to check their credit information.
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