A federal appellate court has ruled that insurance companies must provide consumers with notice when they charge higher rates for initial insurance policies than would otherwise be charged due to information obtained from credit reports. The decision which interpreted the reach of the Fair Credit Reporting Act (FCRA) was rendered in two cases August 4 by the Ninth Circuit Court of Appeals (Reynolds v. Hartford Financial Services Group Inc. and Edo v. Geico). The court held that initial applications are covered, and also went further to state that when a company sets a higher price for the policy than otherwise have been charged because of information in a consumer credit report, it is an “increase in any charge” within the meaning of FCRA that requires an adverse action notice to the consumer.

This case had been dismissed at the lower level, and the consumer appealed that dismissal to the Ninth Circuit, asking it to decide in his favor that the issues he alleges be fully heard by the courts. In their opinion, the Ninth Circuit makes the reach in applying “adverse action” requirements extensively, as applied to insurance transactions. In simple terms, the Ninth Circuit says if any nature of insurance transaction results in a higher “rate” because of credit-related information (either because of the record or lack of a credit record) or is treated neutrally in terms of the credit-based considerations -- the transaction is subject to the full label and obligations of adverse action, as defined under FCRA. The Court further included its application to such transactions among and between affiliated insurers “when the consumer is applying to a family of insurers.” 

This decision has broad implications for insurance producers and insurers.  PIA National is considering the legal issues as the case moves to appeal.

August 16, 2005