RESPONDENT: Charles Burr et al.
LOCATION: Carhart's Residence
DOCKET NO.: 06-84
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: United States Court of Appeals for the Ninth Circuit
CITATION: 551 US 47 (2007)
GRANTED: Sep 26, 2006
ARGUED: Jan 16, 2007
DECIDED: Jun 04, 2007
Maureen E. Mahoney - Attorney for Petitioners
Patricia A. Millett -
Scott A. Shorr - Attorney for Respondent, Attorney for Respondents
Facts of the case
In No. 06-100, Edo, a consumer, sued GEICO General Insurance Company, alleging that GEICO had violated the requirement in the Fair Credit Reporting Act (FCRA) that insurance companies give consumers notice before raising rates. Edo sought statutory and punitive damages, which the FCRA awards only when a company "willfully" violates the law. Similarly, in 06-84, several consumers sued Safeco for failing to notify them that better credit ratings would have entitled them to better premiums. It was GEICO's policy to notify new applicants only if their credit ratings were worse than a certain "neutral" (average) value, while Safeco as a matter of policy did not give "adverse action" notices to any new applicants. GEICO argued that it was unaware that the FCRA applied to the setting of premiums for new applicants such as Edo, and thus could not be considered to have acted willfully. The District Court ruled for GEICO and Safeco, holding that their actions did not qualify as willful.
On appeal, the Court of Appeals for the Ninth Circuit reversed, holding that that the concept of willfulness includes "reckless disregard" for the law as well as actual knowledge that the conduct was illegal. The ruling put the Ninth Circuit in conflict with most other circuit courts, but the court argued that its interpretation was more consistent with Supreme Court precedent and the purpose of the FCRA.
Is a company guilty of a "willful" violation of the Fair Credit Reporting Act if it shows "reckless disregard" for the law, even if the company has no actual knowledge that the conduct violates the Act?
Media for Safeco Insurance Co. of America v. BurrAudio Transcription for Oral Argument - January 16, 2007 in Safeco Insurance Co. of America v. Burr
Audio Transcription for Opinion Announcement - June 04, 2007 in Safeco Insurance Co. of America v. Burr
John G. Roberts, Jr.:
Justice Souter has our opinion this morning in 06-84, Safeco Insurance Company versus Burr, and the consolidated case 06-100, GEICO General Insurance versus Edo.
David H. Souter:
These cases come to us on a writ of certiorari to the United States Court of Appeals for the Ninth Circuit.
The Fair Credit Reporting Act required notice to any consumer who suffers from what the act calls “adverse action” based in whole or in part on any information in the consumer report which includes, credit reports and credit scores.
This notice tells the consumer about the adverse action and gives details about how to dispute the accuracy of the report used.
For purposes of this case, the act defines an “adverse action” as “an increase in any charge for any insurance existing or applied for.”
Under the act “consumers can sue businesses that fail to comply and if the business’ violation is willful the effected the consumer is entitled to actual statutory and punitive damages.”
GEICO the petitioner in number 06-100 took respondent Edo’s credit score into account when it issued him a new insurance policy.
Since the rate that Edo received was the same he would have gotten if GEICO had not looked at his credit score at all, the GEICO did not send him an “adverse action” notice.
Edo sued GEICO alleging that it had willfully violated the act’s notice requirement but the district court granted summary judgment to GEICO.
Safeco the petitioner in 06-84 also took credit information into account when it issued new insurance policies to respondents Charles Burr, and Shannon Massey.
Since Safeco did not think that the notice requirement applied to initial rates of a new insurance it did not give them notice.
Burr and Massey joined a proposed class action against Safeco alleging willful violation of the act.
The District Court granted summary judgment for Safeco.
The Court of Appeals for the Ninth Circuit reversed in both cases.
It held that an “adverse action” occurs whenever a consumer would have gotten a lower rate if his credit score had been more favorable and that the notice requirement applies to initial charges for new insurance policies.
It also held that an insurer willfully fails to comply with the act if it acts with “reckless disregard” of the act’s requirements and the Court of Appeals remanded both cases for further proceedings.
In an opinion filed with the clerk today we reverse the judgments in both cases.
Where willfulness is a statutory condition of civil liability, we have taken it to cover not only knowing violations of a standard, but reckless ones as well.
This construction is consistent with common law usage.
Since congress was presumably aware of the background and didn’t point in a different direction we agree with the Ninth Circuit the willful failure covers reckless violations of the act.
We also agree that an initial rate charged for new insurance can be an increase in an insurance charge as the act uses that term in “adverse action” requiring notice.
This reading fits with the act’s broad statement of purpose and it is unlikely that congress meant to distinguish newly insured from renewal applicants in this context.
Notice is not required however unless the credit report is a necessary condition of the increase.
This is the most natural reading of the act’s based on language and congress probably meant to prompt consumer challenges only when the consumer would gain something, if the challenge succeeded.
This conclusion leads us to hold that the comparative baseline for determining whether an initial rate is a disadvantageous increase, is what the applicant would have gotten, if his credit report had not been considered, this we think best reflects the concern for practical consequences that congress showed in adopting the causation requirement.
Therefore, Edo was not entitled to notice and GEICO didn’t violate the act.
Safeco on the other hand may have violated the act but we find that if it did it did not act recklessly.
The common law regards “recklessness” as conduct entailing an objectively high risk of harm, which here would be a risk of course of violating the act.
Safeco did not have the benefit of guidance from the Courts of Appeals or the Federal Trade Commission and his reading of the act had a reasonable foundation in the statutory text.
Since we cannot say that Safeco’s reading was even objectively unreasonable it falls well short of raising the high risk of violating the act necessary for reckless liability.