Opinion ID: 813176
Heading Depth: 2
Heading Rank: 2

Heading: Liability Standard Under Safeco

Text: The Supreme Court‟s landmark decision in Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007), set the framework that the District Court here relied on in granting summary judgment to Southwest. Safeco involved insurance companies that relied in part on credit scores to set auto insurance premiums. Because of unfavorable credit scores, some new applicants were quoted insurance rates that were higher than the best rates available. The applicants argued that they had been subjected to an “increase” in rates (even though they had not previously enjoyed the lower rates) and so had suffered “adverse action” based on their credit reports, which required notice under § 1681m(a) of FCRA. Id. at 5455. The insurance companies argued that they did not have to comply with FCRA‟s notice requirement because the failure to offer the preferred rates to new customers could not constitute an “increase” in rates in the absence of prior dealing. See id. at 69. The plaintiffs sought statutory and punitive damages, which required that they prove that the failure to give notice was “willful.” The Supreme Court held that it was not. Although the Court disagreed with the insurance companies‟ interpretation of “increase,” it concluded that the interpretation was “not objectively unreasonable, and so falls well short of raising the „unjustifiably high risk‟ of violating the statute necessary for reckless liability.” Id. at 70 (emphasis added). The Court thus established a safe harbor against liability for willfulness. A company cannot be said to have willfully violated FCRA if the company acted on a reasonable interpretation of FCRA‟s coverage. 14 The Court derived this “reasonable interpretation” test by deconstructing the word “willfully.” FCRA imposes civil liability where the defendant “willfully fails to comply” with the statute. 15 U.S.C. § 1681n(a).12 The Court noted, however, that “„willfully‟ is a word of many meanings” and that “where willfulness is a statutory condition of civil liability, we have generally taken it to cover not only knowing violations of a standard, but reckless ones as well.” Safeco, 551 U.S. at 57 (citations and internal quotation marks omitted). Drawing on the “essence of recklessness at common law,” the Court said that “a company subject to FCRA does not act in reckless disregard of it unless the action is not only a violation under a reasonable reading of the statute‟s terms, but shows that the company ran a risk of violating the law substantially greater than the risk associated with a reading that was merely careless.” Safeco, 551 U.S. at 69 (internal quotation marks omitted). A defendant‟s conduct is reckless only if it was “objectively unreasonable” in light of “legal rules that were „clearly established‟ at the time.” Id. at 69-70 (citing Saucier v. Katz, 533 U.S. 194, 202 (2001)). Thus, even when a court disagrees with a party‟s reading of FCRA, it may not impose liability for a reckless, and therefore willful, violation of the statute unless that party‟s reading is “objectively unreasonable.” See id. at 69 (noting that the Court did not agree with Safeco‟s analysis and that its reading of FCRA was “erroneous”).13 12 FCRA also imposes liability for negligent violations. 15 U.S.C. § 1681o. However, Fuges elected to pursue only her claim for willful violations and not to press her negligence claim. 13 Although the analysis that yielded the Safeco “reasonable interpretation” test followed from the common 15 In short, the Safeco test is one of “objective reasonableness,” and the Court explicitly rejected the argument that subjective bad faith must be taken into account in determining whether a defendant has acted recklessly, and therefore willfully, under FCRA. In deciding that subjective bad faith is irrelevant, the Court said that, “[w]here … the statutory text and relevant court and agency guidance allow for more than one reasonable interpretation, it would defy history and current thinking to treat a defendant who merely adopts one such interpretation as a knowing or reckless violator.” Safeco, 551 U.S. at 70 n.20. Fuges argues in this appeal that Southwest is not entitled to the Safeco “reasonable interpretation” defense, both because Southwest had not actually interpreted FCRA law definition of recklessness, knowing noncompliance also, of course, constitutes a willful FCRA violation. See Safeco, 551 U.S. at 57; see also Cushman v. Trans Union Corp., 115 F.3d 220, 227 (3d Cir. 1997) (acknowledging that an investigative policy could constitute a willful FCRA violation if adopted either “knowing that policy to be in contravention of the rights possessed by consumers pursuant to ... FCRA or in reckless disregard of whether the policy contravened those rights”). Fuges suggests that this may represent an alternative basis on which we may find willful violations on the part of Southwest. (See Appellant‟s Opening Br. at 26 (noting that “recklessness is not the only way for a plaintiff to prove an [sic] FCRA violation was willful” and that “knowing noncompliance may also constitute a willful FCRA violation”).) However, the record contains no evidence that Southwest knew that it was in violation of FCRA, and Fuges did not make that argument in the District Court. 16 before concluding the statute did not apply to its activities and because Southwest‟s interpretation of FCRA was not objectively reasonable.14 We take each of those arguments in turn.