PCI Urges Appeals Court to Rehear Case

The Property Casualty Insurers Association of America (PCI) is urging the 9th U.S. Circuit Court of Appeals to rehear a case that would require insurers to send adverse action notices to virtually every insurance consumer in order to comply with the Fair Credit Reporting Act (FCRA).

In August, the 9th Circuit Court ruled in Reynolds v. Hartford Financial Services Group and Edo v. GEICO Casualty Co. that the FCRA requires an insurance company to issue adverse action notices whenever a consumer’s credit information does not result in the consumer receiving the best possible rate. In addition, the court said that by not issuing the notices, these companies had acted in “conscious disregard” of the law. PCI recently submitted an amicus brief to the court in support of a petition for rehearing the case.

“In this case the court imposed a new set of notice requirements that are in conflict with the FCRA statute,” said Kathleen Jensen, senior legal counsel and director for PCI. “The FCRA has guidelines in place that identify the requirements for a valid adverse action notice by an insurer and they bear no relation to the court’s opinion. In fact, this ruling runs counter to previous court decisions.”

The purpose of the FCRA and its notice requirements are to safeguard the public against the improper reporting of information and disclosure of a credit report. The 9th Circuit concluded that to satisfy the FCRA, the notice must specifically state that an adverse action was taken, describe the action, specify the effect on the consumer and identify the party or parties taking action.

“Setting rates is a very complex process that involves many variables,” said Jensen. “Credit information, driving record, and age of vehicle are all factors that can result in an individual not receiving the lowest price. It’s absurd to assume that just because credit is used, it was the only factor that resulted in an individual paying more for his or her insurance. Additionally, the requirements outlined by the 9th Circuit would result in a very complex and detailed disclosure that would not contribute to ensuring the accuracy of a credit report.”

The court’s opinion also has the potential of harming consumers by increasing the cost of insurance. The notice requirements would place an enormous operational burden on insurers. In addition, the 9th Circuit used a very low standard for determining reckless disregard of the law, which could open the door to increased litigation and substantial penalties.

“Given the number of notices that would be required to be sent each year and the potential for significant penalties, this ruling could discourage the use of credit information. The impact could be that consumers would lose the benefit of a very accurate underwriting and rating tool that ensures they pay premiums that are appropriate to the risk of loss. These potential results are far removed from Congress’s intent in enacting the FCRA,” said Jensen.