Safeco Ins. Co. of America v. Burr - 06-84 (2007)
OCTOBER TERM, 2006
SAFECO INS. CO. OF AMERICA V. BURR
SUPREME COURT OF THE UNITED STATES
SAFECO INSURANCE CO. OF AMERICA et al. v. BURR et al.
certiorari to the united states court of appeals for the ninth circuit
No. 06–84. Argued January 16, 2007 —Decided June 4, 2007
The Fair Credit Reporting Act (FCRA) requires notice to a consumer subjected to “adverse action … based in whole or in part on any information contained in a consumer [credit] report.” 15 U. S. C. §1681m(a). As applied to insurance companies, “adverse action” is “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.” §1681a(k)(1)(B)(i). FCRA provides a private right of action against businesses that use consumer reports but fail to comply. A negligent violation entitles a consumer to actual damages, §1681o(a), and a willful one entitles the consumer to actual, statutory, and even punitive damages, §1681n(a).
Petitioners in No. 06–100 (GEICO) use an applicant’s credit score to select the appropriate subsidiary insurance company and the particular rate at which a policy may be issued. GEICO sends an adverse action notice only if a neutral credit score would have put the applicant in a lower priced tier or company; the applicant is not otherwise told if he would have gotten better terms with a better credit score. Respondent Edo’s credit score was taken into account when GEICO issued him a policy, but GEICO sent no adverse action notice because his company and tier placement would have been the same with a neutral score. Edo filed a proposed class action, alleging willful violation of §1681m(a) and seeking statutory and punitive damages under §1681n(a). The District Court granted GEICO summary judgment, finding no adverse action because the premium would have been the same had Edo’s credit history not been considered. Petitioners in No. 06–100 (Safeco) also rely on credit reports to set initial insurance premiums. Respondents Burr and Massey—whom Safeco offered higher than the best rates possible without sending adverse action notices—joined a proposed class action, alleging willful violation of §1681m(a) and seeking statutory and punitive damages under §1681n(a). The District Court granted Safeco summary judgment on the ground that offering a single, initial rate for insurance cannot be “adverse action.” The Ninth Circuit reversed both judgments. In GEICO’s case, it held that an adverse action occurs whenever a consumer would have received a lower rate had his consumer report contained more favorable information. Since that would have happened to Edo, GEICO’s failure to give notice was an adverse action. The court also held that an insurer willfully fails to comply with FCRA if it acts in reckless disregard of a consumer’s FCRA rights, remanding for further proceedings on the reckless disregard issue. Relying on its decision in GEICO’s case, the Ninth Circuit rejected the District Court’s position in the Safeco case and remanded for further proceedings.
1. Willful failure covers a violation committed in reckless disregard of the notice obligation. Where willfulness is a statutory condition of civil liability, it is generally taken to cover not only knowing violations of a standard, but reckless ones as well. See, e.g., McLaughlin v. Richland Shoe Co., 486 U. S. 128, 133. This construction reflects common law usage. The standard civil usage thus counsels reading §1681n(a)’s phrase “willfully fails to comply” as reaching reckless FCRA violations, both on the interpretive assumption that Congress knows how this Court construes statutes and expects it to run true to form, see Commissioner v. Keystone Consol. Industries, Inc., 508 U. S. 152, 159, and under the rule that a common law term in a statute comes with a common law meaning, absent anything pointing another way, Beck v. Prupis, 529 U. S. 494, 500–501. Petitioners claim that §1681n(a)’s drafting history points to a reading that liability attaches only to knowing violations, but the text as finally adopted points to the traditional understanding of willfulness in the civil sphere. Their other textual and structural arguments are also unpersuasive. Pp. 6–10.
2. Initial rates charged for new insurance policies may be adverse actions. Pp. 10–17.
(a) Reading the phrase “increase in any charge for … any insurance, existing or applied for,” §1681a(k)(1)(B)(i), to include a disadvantageous rate even with no prior dealing fits with the ambitious objective of FCRA’s statement of purpose, which uses expansive terms to describe the adverse effects of unfair and inaccurate credit reporting and the responsibilities of consumer reporting agencies. See §1681(a). These descriptions do nothing to suggest that remedies for consumers disadvantaged by unsound credit ratings should be denied to first-time victims, and the legislative histories of both FCRA’s original enactment and a 1996 amendment reveal no reason to confine attention to customers and businesses with prior dealings. Finally, nothing about insurance contracts suggests that Congress meant to differentiate applicants from existing customers when it set the notice requirement; the newly insured who gets charged more owing to an erroneous report is in the same boat with the renewal applicant. Pp. 10–13.
(b) An increased rate is not “based in whole or in part on” a credit report under §1681m(a) unless the report was a necessary condition of the increase. In common talk, “based on” indicates a but-for causal relationship and thus a necessary logical condition. Though some textual arguments point another way, it makes more sense to suspect that Congress meant to require notice and prompt a consumer challenge only when the consumer would gain something if the challenge succeeded. Pp. 13–14.
(c) In determining whether a first-time rate is a disadvantageous increase, the baseline is the rate that the applicant would have received had the company not taken his credit score into account (the “neutral score” rate GEICO used in Edo’s case). That baseline comports with the understanding that §1681m(a) notice is required only when the credit report’s effect on the initial rate is necessary to put the consumer in a worse position than other relevant facts would have decreed anyway. Congress was more likely concerned with the practical question whether the consumer’s rate actually suffered when his credit report was taken into account than the theoretical question whether the consumer would have gotten a better rate with the best possible credit score, the baseline suggested by the Government and respondent-plaintiffs. The Government’s objection to this reading is rejected. Although the rate initially offered for new insurance is an “increase” calling for notice if it exceeds the neutral rate, once a consumer has learned that his credit report led the insurer to charge more, he need not be told with each renewal if his rate has not changed. After initial dealing between the consumer and the insurer, the baseline for “increase” is the previous rate or charge, not the “neutral” baseline that applies at the start. Pp. 15–17.
3. GEICO did not violate the statute, and while Safeco might have, it did not act recklessly. Pp. 18–21.
(a) Because the initial rate GEICO offered Edo was what he would have received had his credit score not been taken into account, GEICO owed him no adverse action notice under §1681m(a). P. 18.
(b) Even if Safeco violated FCRA when it failed to give Burr and Massey notice on the mistaken belief that §1681m(a) did not apply to initial applications, the company was not reckless. The common law has generally understood “recklessness” in the civil liability sphere as conduct violating an objective standard: action entailing “an unjustifiably high risk of harm that is either known or so obvious that it should be known.” Farmer v. Brennan, 511 U. S. 825, 836. There being no indication that Congress had something different in mind, there is no reason to deviate from the common law understanding in applying the statute. See Beck v. Prupis, 529 U. S., at 500–501. Thus, a company does not act in reckless disregard of FCRA unless the action is not only a violation under a reasonable reading of the statute, 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. The negligence/recklessness line need not be pinpointed here, for Safeco’s reading of the statute, albeit erroneous, was not objectively unreasonable. Section 1681a(k)(1)(B)(i) is silent on the point from which to measure “increase,” and Safeco’s reading has a foundation in the statutory text and a sufficiently convincing justification to have persuaded the District Court to adopt it and rule in Safeco’s favor. Before these cases, no court of appeals had spoken on the issue, and no authoritative guidance has yet come from the Federal Trade Commission. Given this dearth of guidance and the less-than-pellucid statutory text, Safeco’s reading was not objectively unreasonable, and so falls well short of raising the “unjustifiably high risk” of violating the statute necessary for reckless liability. Pp. 18–21.
No. 06–84, 140 Fed. Appx. 746; No. 06–100, 435 F. 3d 1081, reversed and remanded.
Souter, J., delivered the opinion of the Court, in which Roberts, C. J., and Kennedy and Breyer, JJ., joined, in which Scalia, J., joined as to all but footnotes 11 and 15, in which Thomas and Alito, JJ., joined as to all but Part III–A, and in which Stevens and Ginsburg, JJ., joined as to Parts I, II, III–A, and IV–B. Stevens, J., filed an opinion concurring in part and concurring in the judgment, in which Ginsburg, J., joined. Thomas, J., filed an opinion concurring in part, in which Alito, J., joined.
Together with No. 06–100, GEICO General Insurance Co. et al. v. Edo, also on certiorari to the same court.