Safeco Insurance Co. of America v. Burr

Background

Two groups of consumers sued two large insurers after the companies used credit scores when setting initial auto insurance rates and did not send the statutorily required notice. GEICO compared each applicant’s score to a company “neutral” score and sent notices only when the neutral score would have produced a lower-priced tier. Safeco treated initial single-rate offers as not subject to the notice rule. District courts granted summary judgment to both insurers; a federal appeals court reversed and the Supreme Court took the cases.

Reasoning

The Court addressed two questions: whether “willfully” in the Fair Credit Reporting Act includes reckless conduct, and whether offering a first-time insurance rate can be an “adverse action” requiring notice. The Court held that willful covers reckless violations. It also held that initial rates can be adverse actions, but only when the credit report was a necessary condition of the higher rate. For initial offers the proper baseline is the rate the applicant would have gotten without using the credit score (the neutral score). Applying those rules, GEICO owed no notice to the named consumer, and Safeco’s mistaken reading of the law was not reckless.

Real world impact

The decision means insurers must consider whether credit reports were necessary to any higher initial rate before skipping notice. Consumers may receive more notices when credit reports actually cause worse treatment. But the Court also protects insurers that adopted a reasonable statutory interpretation from being labeled reckless.

Dissents or concurrances

Justice Stevens would have read “based on” more broadly so examination alone suffices for notice, warning that the neutral baseline may leave many consumers uninformed. Justice Thomas agreed with the judgment but did not join the Court’s part about initial rates.