Both of these cases involve consumers who sued insurance companies because the companies offered them a higher automobile insurance rate because of unfavorable credit information in their consumer credit report, but did not send a notice informing the consumer that adverse action had been taken. Under the Fair Credit Reporting Act (“FCRA”), insurance companies are required to send adverse action notices to consumers whenever they increase the rates for insurance on the basis of information contained in consumer credit reports. Section 616 of the FCRA holds defendants liable for any “willful” violation of the statute, and allows for consumers to sue for actual, statutory, and punitive damages.
Edo sued GEICO for statutory and punitive damages for its willful violation of FCRA’s adverse action notice requirement. Edo had applied for automobile insurance with GEICO; had his credit rating been more favorable, he would have received a lower rate quote, yet GEICO did not notify him of an adverse action. The district court ruled in favor of GEICO; the Ninth Circuit Court of Appeals reversed, holding that FCRA required GEICO to send an adverse action notice to Edo if a better credit rating would have resulted in a lower insurance rate. Furthermore, the court explicitly decided to adopt the Third Circuit’s definition of “willful,” as that term is used in FCRA, holding that a company is liable for a willful violation of FCRA if it “knowingly and intentionally committed an act in conscious disregard for the rights of others,” and that "conscious disregard "means “either knowing that policy to be in contravention of the rights possessed by consumers pursuant to the FCRA or in reckless disregard of whether the policy contravened those rights.” Currently, there is a split of opinion among the federal circuits about the meaning of "willful" in FCRA; several circuits interpret "willful" to require "actual knowledge" of what the law requires.
Burr sued Safeco for failing to send an adverse action notice after he purchased an automobile insurance policy. The district court ruled in favor of Safeco, reasoning that the adverse notice requirement did not apply to the purchase of an initial insurance policy. The Ninth Circuit Court of Appeals reversed in light of ruling in Edo.
Safeco Insurance v. Burr:
Whether the Ninth Circuit erred in holding that a defendant can be found liable for a “willful” violation of the Fair Credit Reporting Act (“FCRA”) upon a finding of “reckless disregard” for FCRA’s requirements, in conflict with the unanimous holdings of other circuits that“willfulness” requires actual knowledge that the defendant’s conduct violates FCRA.
GEICO General Insurance v. Edo:
A conflict exists between the Fourth, Fifth, Sixth, Seventh, and Eighth Circuits, and the Third and (now) Ninth Circuits over the mens rea required for a “willful” violation of FCRA. Separating itself from any other circuit to have decided the issue and compounding the circuit split, the Ninth Circuit held that a company may be deemed to have acted recklessly–and thereby willfully under the Act–if the company relied, even in good faith, upon an interpretation of the Act that a court later determines to be unreasonable,” “implausible,” “creative,” or “untenable,” even if that interpretation was derived from a legal opinion that the company sought for the very purpose of ensuring compliance with the law.
Two questions are presented:
1. Whether the Ninth Circuit’s construction of “willfully” under � 1681n of FCRA impermissibly permits a finding of willfulness to be based upon nothing more than negligence, gross negligence, or a completely good-faith but incorrect interpretation of the law, and upon conduct that is objectively reasonable as a matter of law, rather than requiring proof of a defendant’s knowledge that its conduct violated FCRA or, at a minimum, recklessness in its subjective form?
2. Whether the Ninth Circuit improperly expanded � 1681m of FCRA by holding that an “adverse action” has occurred and notice is required thereunder, even when a consumer’s credit information has had either no impact or favorable impact on the rates and terms of the insurance that would otherwise have been offered or provided?
Decisions under Review:
Safeco Insurance v. Burr (unpublished)