Opinion ID: 3026315
Heading Depth: 3
Heading Rank: 2

Heading: The Safeco decision

Text: The Safeco decision, 127 S. Ct. 2201, encompassed two separate cases, Safeco Insurance Co. v. Burr and GEICO General Insurance Co. v. Edo, both of which involved challenges to the failure of the insurance company to provide the adverse action notification required under the FCRA. In the course of its opinion, the Court read the statutory language “willfully fails to comply” as reaching reckless FCRA violations and rejected the insurance companies’ argument that the use of the term “willfully” limits liability under § 1681n(a) to knowing violations. Id. at 2210. The Court noted that if it were to adopt the companies’ interpretation, the use of “knowingly” in § 1681n(a)(1)(B), which sets higher damages for knowing violations, would be superfluous. Id. The Court next resolved a dispute between the courts of appeals by holding that the “increase” referred to in the statute encompasses initial rates for new applications. Id. at 2211. The Court determined that a rate is “based on” a credit report if there is a but-for causal relationship, i.e., the credit report must have been the basis for the increase. Id. at 2212. Finally, the Court rejected the Government’s argument that the baseline should be the best possible premium rate. Id. at 2213. Instead, the Court held that the baseline is what the applicant would have been charged if the company had not taken the credit score into account, i.e., the neutral rate. Id. at 2213-14. Reviewing the record in the two cases before it, the Court held that because the rate that GEICO offered to Edo was one he would have received if his credit score had not been taken into account, it had not violated the statute. Id. at 2214. There was 8 no record evidence as to any neutral rate with respect to Safeco, but the Court held that plaintiffs could not prevail on their claim against Safeco for willful violation of the FCRA because Safeco had not acted recklessly. Id. at 2215. Safeco had interpreted the statutory language to mean that no notice was required for its initial dealing with the insured, and the Court stated that although this was an incorrect interpretation it was not a reckless one. Id. Following the announcement of the opinion in Safeco, this court asked the parties to comment on the effect of the Safeco decision on the issues in this case. Radian responded with essentially the same analysis applied by the District Court. It focused on the fact that it had “sold a commercial insurance product to a mortgage lender [Countrywide], not to a consumer.” Letter from David Smith, counsel for Radian Guaranty Inc., to the Court, at 1 (June 14, 2007) (on record with the Court). It stated that the Whitfields were not a party to the insurance transaction, that it completed its transaction with Countrywide without ever receiving or considering the Whitfields’ consumer report, that the only transaction to which the Whitfields were a party was a separate credit transaction with Countrywide that was completed three days before Countrywide ever contacted Radian about purchasing mortgage guaranty insurance for itself, and that therefore the District Court was correct in holding that because Radian sold the mortgage insurance to Countrywide and not to the Whitfields, there was no violation of the FCRA as a matter of law. See id. at 4-7. Radian then argued that in any event it did not act willfully as a matter of law, relying on the Supreme Court’s Safeco decision that the insurance company (Safeco) had acted without “authoritative guidance” and therefore did not act recklessly. Id. at 5. It also argued that it was not required to give notice because it had not received any information contained in any consumer report about the Whitfields, and therefore it did not take any action based in whole or in part on any information contained in a consumer report. Id. at 6. In their response to the court’s inquiry, the amici, the Mortgage Insurance Companies of America, stated that under 9 the precedent of Safeco, Radian could not have violated the FCRA willfully, thereby continuing their support for Radian’s position in this case. Letter from Kirk D. Jensen, counsel for the Mortgage Insurance Companies of America, to the Court, at 2-3 (June 13, 2007) (on record with the Court). Not surprisingly, the Whitfields view the Safeco decision differently. Emphasizing the Supreme Court’s ruling that willful conduct must be shown to have been “objectively unreasonable,” the Whitfields noted that whether Radian acted willfully is not an issue on appeal as the question formed no basis for the District Court’s ruling and was not an issue raised on appeal by either party. Letter from Terry A. Smiljanich, counsel for the Whitfields, to the Court, at 2 (June 13, 2007) (on record with the Court). Because “the record is incomplete as to all issues involving determining whether defendant Radian’s actions were or were not ‘objectively unreasonable,’” the Whitfields argued that we should remand this case to the District Court. Id. They noted the absence of evidence that Radian (unlike GEICO) had no neutral score, and “that the Whitfields were punished with extremely high mortgage insurance premiums specifically because their credit scores were judged by Radian to warrant such high premiums.” Id. at 3. They also noted that nothing in the Safeco decision provides any basis for concluding that the District Court was correct in “grafting either a ‘privity’ requirement or a ‘direct/indirect’ category onto the FCRA.” Id. Thus, the Whitfields argued that we should allow them to proceed with the case. Finally, the Federal Trade Commission, which entered the case as amicus curiae on behalf of the position of the Whitfields, argued that “nothing in Safeco should have any impact on [our] decision,” and agreed with the Whitfields that we should reverse the District Court’s decision. Letter from Lawrence DeMilleWagman, counsel for the Federal Trade Commission, to the Court, at 3 (June 13, 2007) (on record with the Court). It noted that nothing in the Supreme Court’s Safeco decision addresses Radian’s defense that it had no obligation to provide the Whitfields with an adverse action notice. Id.