Client Alert: PART I: Supreme Court Clarifies The Meaning Of "Adverse Action" For Insurers And Resolves Circuit Conflict Over Standard For "Willful" Violations Of The Fair Credit Reporting Act (FCRA)

On June 4, 2007, the United States Supreme Court ruled on a case much-anticipated by both the insurance industry and the consumer credit industry. The case is significant from a litigation perspective because the Court provided some clarification on the meaning of “adverse action” under section 1681m(a) of the Fair Credit Reporting Act (the “FCRA” or “Act”) and more importantly, resolved a conflict among several Circuit Courts of Appeal as to the proper standard to be applied in determining whether a violation of the FCRA is “willful.” For further commentary on the Court's ruling relating to what an “adverse action” is, refer to a companion Client Alert, also dated today, issued by a Lord, Bissell & Brook regulatory team.

In an opinion issued in the consolidated cases of Safeco Insurance Co. of America v. Burr and GEICO General Insurance Co. v. Edo, 551 U.S. ___, 2007 U.S. LEXIS 6963 (June 4, 2007), both on certiorari to the United States Court of Appeals for the Ninth Circuit, the Supreme Court took up two distinct issues under the FCRA:

(1) Whether an insurer who considers an applicant’s “consumer report” – i.e. credit report or credit score – when setting the applicant’s rate has the obligation to send an “adverse action” notice pursuant to section 1681m(a) of the FCRA if the applicant does not qualify for the best possible rate the insurer offers to its customers; and

(2) Whether a plaintiff must prove a “knowing and intentional” violation of the Act in order to establish “willful” conduct under section 1681o, or whether proof of a defendant’s “reckless disregard” for its statutory obligations is sufficient to meet this standard.  more...