The United States Supreme Court recently sided with two insurance companies limiting their potential liability under the Fair Credit Reporting Act (FCRA) for failing to notify consumers of higher insurance rates based on lower credit ratings. In its June 4, 2007 ruling in Safeco Insurance Co. of America v. Burr, the Court unanimously held that Geico General Insurance Company and SafeCo Insurance Company were not subjected to penalties for "willful violations" under the FCRA for failing to provide consumers with adverse action notices.

The Supreme Court's decision turned, in part, on the issue of when insurance companies are required to provide adverse action notices under the FCRA to consumers who are charged rates higher than that which the consumer would have paid had their credit scores not be taken into consideration. The FCRA, under 15 U.S.C. 1681, requires that insurers provide an adverse action notice to any consumer when the use of credit scores results in "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."

Lawyers for the consumers, Edo and Burr, and for the Federal Trade Commission argued that the insurance companies did not provide the appropriate notification requirements under the statute and that such a failure, even for unintentionally doing so, was a "willful" violation.

The Supreme Court disagreed, through the majority decision written by Justice David Souter, and adopted a more flexible notification standard in that "willful" or "reckless" violations of the statute would be found when an insurer's actions subjected a consumer to "an unjustifiably high risk or harm" that is known by the insurer or is so obvious it should have been known. Even though the insurers may have read the statute or acted carelessly, their actions did not equate to "willful" or "reckless" violations subjecting them to harsh FCRA penalties.

Full text of the U.S. Supreme Court decision