« “Fire … FIRE!!” | Main | Erikson v. Pardus »

Supreme Court Decision Update - Safeco v. Burr

GEICO_Logo.jpgSafeco v. Burr (PDF of the Opinion) involves the Federal Credit Reporting Act (FCRA) and, specifically, when notice has to be given to consumers that an “adverse action,” has been made. As pertains to insurance companies, an adverse action 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.” The case is part of the current wave of class-actions against insurance companies, who have been sued for not telling consumers that a better credit score would’ve resulted in lower insurance rates.

In this case, the petitioners were given a particular car insurance rate by a couple of insurance companies, Safeco and Geico. Credit scores normally play into a person’s particular rate. However, here, the petitioners who applied to Geico would’ve received the same rate if the insurance companies had never even taken their credit scores into consideration — in other words, the credit scores were a neutral factor. Consequently, the insurance companies did not notify the petitioners that any adverse action had been taken. The petitioners argued that the insurance companies were required to send out notice of an adverse action, if a higher credit score would have resulted in better insurance rates. In Safeco’s case, first-time applicants received a higher rate than they would have if they had a lower credit score. The company, however, didn’t send out notices because they didn’t think that it was required for initial applications, only for “increases” in rates. The district court sided with the insurance companies, the 9th Circuit reversed, and the Supremes reversed the 9th Circuit.

The opinion, delivered by Justice Souter (in which all nine justices joined to at least some part) held that the insurance companies were not reckless in the way they handled notice procedures. As Souter wrote, “It makes more sense to suspect that Congress meant to require notice and prompt a challenge by the consumer only when the consumer would gain something if the challenge succeeded.” It was an easy call on the Geico applicants because they wouldn’t have gained anything — the credit score did not ultimately play into their insurance rates.

However, with regard to Safeco, Souter wrote that the company may or may not have violated the FCRA’s notice provisions, but it didn’t matter anyway because they were not reckless:

On the rationale that “increase” presupposes prior dealing, Safeco took the definition as excluding initial rate offers for new insurance, and so sent no adverse action notices to [the petitioners]. While we disagree with Safeco’s analysis, we recognize that its reading has a foundation in the statutory text, and a sufficiently convincing justification to have persuaded the District Court to adopt it and rule in Safeco’s favor.”

Justice Stevens, with whom Ginsberg joined, concurred in most of the opinion, but disagreed as to the meaning behind a “neutral credit score,” arguing that Congress could not have “intended for a company’s unrestrained adoption of a ‘neutral’ score to keep many (if not most) consumers from ever hearing that their credit reports are costing them money.”

Thomas, joined by Alito, also wrote separately, to concur in part, but to note that the court should not have ruled on a part of the case dealing with the meaning of “increase” because no one addressed that factor in their argument.