Fla. Supreme Court ruling could set wind-water case precedent
An insurance company lawyer argued to the Florida Supreme Court earlier this month that his client should not have to pay full policy limits for wind damage to a home destroyed mainly by flooding during Hurricane Ivan.
Florida Farm Bureau Casualty Insurance Co. wants the justices to reverse an appellate court decision that it must pay the $65,000 policy limit although its adjusters say wind was responsible for only $11,583.93 and the policy excludes water damage.
It's the first of many wind-water cases to reach the Supreme Court and likely will set a precedent for others. But the decision will not apply to future hurricanes because the Legislature in 2005 changed state law to make it clear insurance companies do not have to pay for damages caused by excluded perils.
"It is undisputed that our covered peril did not cause the total loss," Elliot Scherker told the justices on behalf of Farm Bureau Casualty.
The 1st District Court of Appeal, though, decided Farm Bureau must pay policy limits to Eugene Cox for his home along Blackwater Bay in the Florida Panhandle. The ruling was based on a 2004 interpretation of Florida's 1899 Valued Policy Law by the 4th District Court of Appeal. That decision never went to the Supreme Court, but Scherker argued it was wrong. The 4th District ruled in favor of Zennon Mierzwa, who lost his Fort Lauderdale home in 1999 to Hurricane Irene. The appellate judges ordered the Florida Windstorm Underwriting Association to pay full wind policy limits.
Cox's lawyer, Louis Rosenbloum, argued both appellate courts had simply followed the letter of the law as then written no matter how unfair that may seem.
"The best argument from our position is the 2005 legislation itself," Rosenbloum said. "Because why in the world would they have changed it if it so clearly states what Farm Bureau says?"
Rosenbloum says no one knows how many wind-water cases are pending but there could be hundreds. The 1st District recently ruled against the state's Citizens insurer in another of those cases.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
S.C. reforms workers' comp fraud, injury reporting laws
Legislation gets tougher with cheaters and closes state's Second Injury Fund
Employers who lie about what their workers do to save money on workers' compensation premiums would face fines and prison time under an agreement reached by South Carolina legislators.
In addition to toughening fraud penalties, the legislation calls for new standards on how injuries are reported and what is covered.
The agreement reached on June 7, which needs approval from the House and Senate when they return for a special session June 19, also requires workers and their physicians to provide more specific information about their injuries.
"I think this is a fair bill that takes a first step toward improving our business climate in South Carolina," said Cam Crawford, executive director of the South Carolina Civil Justice Coalition, a business owner group.
The legislation can be particularly harsh on employers and insurers who lie and commit fraud. For example, if an employer lies about employees' work and saves more than $10,000 on premiums, the employer could be fined up to $50,000 and face five years in prison. Insurers that don't provide accurate information are subject to similar penalties.
Employers who don't buy workers' compensation would face fines of $1 for each worker, each day instead of the 10 cents under the current law. The fine would be capped daily at $100.
The measure also defines repetitive trauma as an injury; clarifies how much can be paid for shoulder or hip injuries; and allows employers more broadly to challenge back injury claims.
The legislation also phases out the South Carolina Second Injury Fund that was set up to help injured workers rejoin the work force. But changes in the law during the past few years caused its losses to balloon, and employers and insurers this year faced assessments of nearly $200 million.
The fund will be phased out by 2013 and won't consider claims from injuries that happen after next June.
Fla. court finds hospitals not responsible for docs without insurance
Hospitals cannot be held liable in medical malpractice cases for failing to ensure doctors with staff privileges meet state financial responsibility requirements through insurance or other means, Florida's Supreme Court ruled.
The unanimous ruling disapproved of decisions by three of the state's five district courts of appeal on that issue. The justices, instead, sided with the 4th District Court of Appeal in a Broward County case.
While state law says physicians must establish financial responsibility as a condition of staff privileges, it does not require hospitals to enforce that mandate, Justice Barbara Pariente wrote for the court.
Instead, it's up to physicians to comply or else face sanctions including possible license revocation, she wrote. Also, insurance companies must notify the state if a doctor's policy is canceled or not renewed.
In the first of the disapproved cases, the 5th District Court of Appeal construed various sections of law to conclude it was "the obvious intent of the Legislature" to permit injured parties to collect at least $250,000 from hospitals that fail to enforce the requirement. The other two appellate courts followed that precedent.
That may be sound public policy but it's not the "actual language" of the law, Pariente wrote.
The 4th District acknowledged it was out of step with the other appellate courts in rejecting a claim against Plantation General Hospital by Stuart and Lena Horowitz after the couple won a malpractice lawsuit against Dr. Derek V. Jhagroo. He amputated Lena Horowitz's right thumb after it had become infected.
They were unable to collect the $859,200 judgment because Jhagroo left the country, had no real property in the United States and lacked malpractice insurance.
A trial judge relied on the prior appellate decisions to order Plantation to pay the first $250,000, but the 4th District Court reversed that ruling.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Alabama lawmakers raise auto insurance limits, but delay legislation for statewide building code
The Alabama Legislature adjourned after giving final approval to a key insurance measure that will increase the state's auto liability minimum limits from 20/40/10 to 25/50/25.
Legislators deferred to the 2008 session final action on a bill establishing a building code council with the authority to adopt a statewide building code.
"The minimum limits under the state's auto financial responsibility law had not been changed since 1984," according to Cecil Pearce, AIA vice president, Southeast Region.
"While we are always concerned about the economic impact on consumers when the minimum limits are raised, this (SB 202) is an appropriate adjustment, especially in light of the fact that the state's trial lawyers were advocating making Alabama's minimum limits the highest in the country. What we ended up with is more in line with other states."
AIA is concerned about implementation of the new law, as it becomes effective immediately upon the governor's signature.
"We will be working closely with the state Department of Insurance to ensure for policyholders as smooth a transition as possible to the new, higher limits," Pearce added.
A measure supported by AIA, HB 526, that legislators failed to pass in the session's final hours, would have established a 10-member statewide building code council, including a representative from the property-casualty industry, and would have tasked this council with adopting a statewide building code.
"A statewide building code in Alabama is long overdue," said Pearce. "Establishing and enforcing strong building codes is a key part of AIA's natural catastrophe agenda, and we will continue to press upon legislators the fact that a strong building code can play a significant role in reducing deaths, injuries and property damage from natural catastrophes."
Florida and Louisiana take different paths on insurance woes
Industry prefers government approach taken by Democrat Blanco over Republican Crist
Florida and Louisiana are hurricane-prone states with similar property insurance problems, but their governors are taking wildly different approaches to fixing the insurance headaches.
Florida Gov. Charlie Crist, a Republican, has led that state's push to increase government regulation of the insurance industry, setting prices and publicly attacking insurers who oppose him.
Insurance experts prefer the path taken by Gov. Kathleen Blanco, a Democrat who has teamed with Louisiana's Republican insurance commissioner in supporting an industry-friendly approach to decrease -- not increase -- government's role in the market. Among experts, Blanco's approach is considered more likely to ease the cost of insurance in the years ahead.
"It's more tempting, more expedient, to try to address the short-term issues. But it really is an issue that needs to be addressed for the long run," said Rob Hoyt, professor of risk management and insurance at the University of Georgia.
The policies backed by Blanco and Insurance Commissioner Jim Donelon are theories: changes in state law that are designed -- not guaranteed -- to lure more insurance companies to Louisiana. They assume those moves will attract more companies and policy rates will fall as competition rises.
No immediate cure
Blanco and Donelon insist that no immediate cure exists for double- and triple-digit rate hikes -- particularly in coastal Louisiana -- and Florida-style solutions would only make things worse in the long term. They say the only way to bring rates down is to remove government regulation from the marketplace, to make the state more appealing to industry.
"I wish I could wave a wand and make rates go down," Donelon recently told the House Insurance Committee. "But it doesn't work that way."
Blanco is backing Donelon's unusual proposal to offer $100 million in financial incentives to firms that agree to begin doing business in coastal Louisiana. South Carolina has a new $6 million plan that includes tax credits for insurers, but Donelon's plan is considered the first in the nation that would offer taxpayer cash directly to private insurance firms, much as states offer money to other industries such as auto manufacturers to attract jobs.
The industry likes the plan, but Hoyt said incentives probably aren't the most important factor in solving Louisiana's insurance troubles.
"You can offer incentives for any business, but if the opportunity to succeed in the long run is not there, its success is going to be transitory and short," Hoyt said.
On that front, Blanco supports abolishing the Louisiana Insurance Rating Commission, political appointeeswho can block rate hikes of more than 10 percent. Companies regulated by the commission have long complained that the panel impedes business.
William Ferguson, professor of insurance at the University of Louisiana-Lafayette, said doing away with the commission is arguably the most important move that Blanco could make.
"It's actually a very big deal. That's a step in the right direction -- to depoliticize the insurance process is really vital to the insurance situation in Louisiana," Ferguson said. "Historically, that body has been heavily politicized. It hasn't served the interest of the citizenry, because the artificial, nonmarket-driven activity has really put a damper on things."
The House has already approved Blanco's legislation to abolish the panel.
High premiums are considered a prime reason the recovery has been so slow. "Everyone, from individuals who want to come back to companies that want to expand, finds that insurance is the last great variable," said Peter Ricchiuti, a Tulane University professor.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Inland businesses can be hurt when coastal storms strike
It took O'Charley's regional operations director in Hattiesburg, Miss., most of a week to get in touch with the restaurant chain's Nashville headquarters after Hurricane Katrina pounded the Gulf Coast two summers ago.
This summer, though, Dan Hunter has a company-issued satellite phone that doesn't need phone lines or cellular towers to operate.
It's one of the ways O'Charley's and other Middle Tennessee companies that do business along the Southeast and Gulf coasts have prepared for what forecasters warn could be a severe hurricane season. Companies such as Cracker Barrel Old Country Store and HCA Inc. have drawn up emergency plans, deployed generators and stockpiled supplies in case any of their communities are struck by a storm.
Last year's Atlantic hurricane season was unusually mild, with no storms making landfall. But forecasters say this year's season, which started Friday and ends Nov. 30, could be far different.
Nashville is far from any coast and usually sees nothing more than heavy downpours from hurricanes. But these enormous swirling storms, with sustained winds above 74 miles an hour, can cost Midstate companies millions of dollars a year in damage and lost business.
HCA, for example, has about 50 hospitals in coastal areas, said spokesman Ed Fishbough. The nation's largest for-profit hospital chain said hurricanes Katrina and Rita resulted in extensive and costly damage at its coastal properties.
O'Charley's, meanwhile, said 13 of its restaurants were closed for periods from a day to several weeks because of Katrina. One was destroyed and hasn't been rebuilt. O'Charley's said that massive hurricane resulted in $600,000 of non-recoverable costs, while $1.5 million in losses were reimbursed by insurance.
"There was a significant cost to us," said Frank Biller, executive vice president.
"The best way to sum up the Katrina experience is learning to survive from the school of hard knocks," Hunter said.
Lessons learned and applied
Among lessons that local businesses have learned and are putting into practice are:
Get a plan. Officials with several Midstate companies that do business along the coast say they are offering training and providing educational materials for employees in hurricane-prone areas.
HCA, for example, has held disaster drills and rolled out a program called Code Ready to keep disaster preparedness on the minds of employees. Lebanon-based CBRL Group Inc., owner of the Cracker Barrel Old Country Store restaurant chain, has prepared diagrams that show its managers how to pack store freezers to better preserve food in case the power goes out as a result of a storm.
Stock up. O'Charley's has begun stockpiling plywood in Mobile, Ala., so the company can protect windows in threatened areas. Before, plywood was brought from about 260 miles farther inland, and that caused delays.
HCA, meanwhile, has purchased 17 generators for its East Florida region. Hospitals also have access to 6,500-gallon water trucks. HCA also has purchased above-ground gasoline tanks for 20 hospitals across Florida, and several HCA hospitals in Florida have arrangements with gas stations where employees can fill their cars' gas tanks after a storm, he added.
Stay in touch. O'Charley's biggest problem after Katrina was communications, Biller said, so the company purchased three satellite phones, costing $700 each, for key managers.
HCA, which scrambled to set up a network of amateur radio operators after Katrina, also is using satellite phones.
Don't forget the customers. Once a storm clears, Tractor Supply Co. figuratively stocks its stores in affected areas with essential products such as generators, chainsaws and rooftop tarps. They're kept at distribution centers in Texas, Georgia and Maryland, with easy access to coastal areas.
Colonial Pipeline Co., which delivers gas and diesel fuel to the Nashville area, has bought 10 large generators or transformers that can be moved after a storm. The generators will help ensure that gasoline from Gulf Coast refineries gets to Atlanta, where the fuel can be put into tanks and pumped to Tennessee, said a spokesman.
Take care of employees. After Katrina, O'Charley's executive Hunter recalls filling a humanitarian role. He contacted employees in his region and provided supplies, including ice to one worker whose diabetic husband needed to have his insulin refrigerated.
"What to do after the hurricane is equally as important as what to do before the hurricane," Hunter said. "You have no power (for) two weeks, you can't get gas, can't take a hot shower, the water might be tainted because the filtration system is down. It's like living in a Third-World country."
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Fla. extends police, firefighter workers' compensation benefits
Florida police, firefighters, paramedics and other first responders would have an easier time becoming eligible for workers' compensation benefits, and would get a better package of benefits under legislation signed into law earlier this month by Gov. Charlie Crist.
The legislation eases requirements for benefits related to occupational diseases, increases benefits for responders who have a mental or nervous injury and extends payment of total disability benefits to certain retirees. The measure (SB 746) was sponsored by Rep. Sandy Adams, R-Orlando and Sen. J.D. Alexander, R-Lake Wales.
"These brave men and woman protect their fellow Floridians and put their lives on the line day in and day out," Crist said when he signed the bill at the Florida Professional Firefighters Conference. "Through this legislation, we have the opportunity to express in a tangible and meaningful way just how much we appreciate their service and sacrifice."
Sen. Alexander takes up nuclear workers' cause
U.S. Sen. Lamar Alexander, R-Tenn., is pressing the Bush administration to fully fund a compensation program for sick nuclear weapons workers and calling for Senate hearings on why claims have been delayed.
"It has come to our attention that critical components of (the program) face a serious funding shortfall and program offices already have taken steps to cut back on claims processing," Alexander, R-Tenn., and 15 other senators, including Tennessee Republican Bob Corker, said in the letter.
The letter to the Health and Human Services and Labor departments said radiation dose reconstruction activities and claims processing were being slowed.
"This news is extremely troubling to us," said the letter signed by four Republicans, one independent and 10 Democrats.
"In establishing the program (in 2000), Congress intended our Cold War heroes and their families to be compensated as quickly as possible. Delays resulting from insufficient programmatic funding are unacceptable."
A second letter from Alexander and 14 colleagues asked the Senate Health, Education, Labor and Pensions Committee to hold a hearing on the problems.
Tennessee has more than 23,000 health claims from more than 9,000 individual workers -- twice the number of any other state, with 7,000 Tennessee claims still waiting for a final decision, Alexander said.
"So this is very important to Tennessee," he said.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
State Farm to lower rates if Fla. lets no-fault expire in October
State Farm will be able to cut its car insurance rates by about 16 percent on average if lawmakers do not continue the state's no-fault accident system, state insurance regulators ruled recently.
The Office of Insurance Regulation granted State Farm's request to lower rates by an average of about $360 a year for two-car households, although the reduction amount would vary widely depending on coverages, discounts, geography and driver and car details.
The proposed rate decrease by State Farm Mutual Automobile Insurance, Florida's largest auto insurer, is contingent, however, on the no-fault system ending in October as it is scheduled to do.
The no-fault system requires drivers to get $10,000 in personal injury protection coverage, but puts restrictions on people's right to sue if they are hit in an accident and injured. The system will sunset in October -- although there has been talk by some legislators and Gov. Charlie Crist that lawmakers could vote to retain it when they return to the Capitol in June to work on property tax legislation.
If the no fault system, called PIP for personal injury protection, does sunset, drivers who cause accidents would be responsible for paying for the injury damages of those they hit and those who are injured would be able to sue to get that money.
State Farm and some other insurers say the PIP system has been plagued with fraud and abuse, and supported lawmakers' decision during the legislative session not to continue it.
Storms of 2007
The National Hurricane Center has identified the names that will be used during 2007 to designate storms. Names of storms that are particularly destructive or deadly are retired and replaced. Names beginning with the letters Q, U, X, Y and Z aren't used.
Andrea
Barry
Chantal
Dean
Erin
Felix
Gabrielle
Humberto
Ingrid
Jerry
Karen
Lorenzo
Melissa
Noel
Olga
Pablo
Rebekah
Sebastien
Tanya
Van
Wendy
Risk managers take strong stand against contingent commissions
RIMS issues new policy statement denouncing such incentive pay for all agents and brokers, whether Wall Street or Main Street
The largest association of commercial insurance buyers has stepped-up its opposition to the acceptance of contingent compensation by any agent or broker, calling such compensation "an inherent conflict of interest" in a strongly worded policy restatement.
The 10,000-member Risk and Insurance Management Society (RIMS) said it is "troubled" that some in the insurance industry continue to promote contingent compensation even after "recent investigations, admissions and fines demonstrate how these practices can be manipulated to the disadvantage of the insurance buyer."
"RIMS supports a business model for the insurance industry which does not provide for, offer or make available contingent commission arrangements for the brokerage industry," the group said in its revised policy statement.
For any broker or independent agent to accept these fees "represents an inherent conflict of interest," according to RIMS, which called for an end to contingencies.
RIMS had issued a policy position in 2005 that criticized contingencies but which did not call upon the insurance industry to discontinue them as the current policy does.
According to Terry Fleming, RIMS board member and risk manager for Montgomery County (Maryland), the association's members have been asking the group to come out with a stronger position against these supplemental compensation programs.
He said the organization decided to produce the new policy statement after a number of CEOs at the recent RIMS annual meeting took a "wait-and-see" attitude towards proposed alternative supplemental payment plans, some of which pay contingent fees prospectively or vary with the size of the account or brokerage involved.
Fleming said RIMS is "extremely concerned" that some of the same brokers that promised risk managers they would not accept contingent fees a few years ago are now considering reneging on that promise and accepting alternative contingent fees.
New compensation plans
The compensation plans being questioned traditionally involve payments to brokers after they place a certain volume of business with an insurer or meet other performance criteria such as profitability or business retention.
However, the structure of contingent plans has been changing in response to criticism. Several insurers, including Chubb and Travelers, are promoting alternative supplemental plans, which pay brokers prospectively for achieving certain volumes or performance goals. Critics say these prospective plans have the same effect as traditional retrospective plans.
Fleming said the RIMS opposition to contingencies applies to prospective as well as retrospective plans and to agents and brokers regardless of size.
At a CEO panel during the RIMS annual meeting in early May, executives from several large brokerages were given an opportunity to denounce contingent payments but did not clearly do so.
Marsh CEO Brian Storm claimed the issue must be addressed as part of the bigger issue of how to pay for improvements brokers make in the insurance process.
"Marsh is going to take its time with this issue. We want to know how our clients, how the industry feels about it. We certainly understand transparency as well or better than anyone. I think that we'll come to a conclusion that is good for the industry, not just for Marsh," Storms told the RIMS audience.
Gregory C. Case, president and CEO, Aon Corp., indicated that contingencies were still in play at his firm.
"One observation I would make, and from Aon's standpoint, we don't know what the definition of supplemental is. We can't take the answer as 'no' right now. I don't know what it means," Case maintained.
Patrick Gallagher Jr. chairman, president, CEO, Arthur J. Gallagher & Co., suggested that the commitment that his firm and others have made to making all compensation plans transparent eliminates any potential conflict of interest cited by critics of contingencies.
Absent from the RIMS panel was Joseph Plumeri, CEO of the large broker Willis Group Holdings. Plumeri's firm has stood out for its strong vow not to accept any form of contingent payments, which is now the RIMS position.
After a review of the prospective compensation plans recently proposed by certain carriers, Willis renewed its vow. Plumeri said his firm would not be accepting these new incentive arrangements because in its opinion they fail to fix the conflicts associated with the contingent commissions they are meant to replace.
"They have performance-driven elements that make lump-sum payments contingent on factors such as retention, growth and profitability -- features that rendered contingent commission plans incompatible with conflict-free transparency and our clients' best interests," Willis said in its statement.
Anti-contingency policy
RIMS is urging its members to enforce the anti-contingency policy in their dealings with brokers but Fleming said the risk managers would also support a prohibition through legislation or regulation.
He said risk managers can't tell the insurance industry how to structure its compensation but the group can make known its opposition to a particular form of compensation.
The large risk management organization is also supporting full disclosure of "all sources of compensation, direct and indirect, now or in the future" even where buyers fail to request it.
"Failure to disclose such arrangements runs counter to the spirit of partnership that risk managers seek to achieve with their brokers, vendors, and insurers," the RIMS policy says.
RIMS urged its members to evaluate their relationships with brokers and take action to correct situations where transparency and full disclosure are not followed.
Fast-growing, state-run property insurers pose risk for taxpayers
Exponential growth of state-run property insurers of last resort ultimately may shift much of the long-term risk of hurricane-related losses to policyholders and taxpayers, even those who live nowhere near the coast, reports the private insurance industry's Insurance Information Institute (I.I.I.).
By year-end 2006, total exposure to loss in state-run property insurers is estimated to have surged to more than $600 billion, compared with $54.7 billion in 1990. Total policies in force had also risen to in excess of two million.
The explosive growth in these plans is attributable to a number of factors, including the rapid rise in coastal development and property values, and the changing shape and role of state-run property insurers in a number of states, according to a new study from the I.I.I.
"While state-run insurers of last resort fulfill a key role by ensuring that policyholders can obtain insurance coverage, many have morphed from their traditional role as urban property insurers into major providers of insurance in high-risk coastal areas," said Dr. Robert P. Hartwig, president and chief economist of the I.I.I.
According to Hartwig, this shift of high risk exposure away from the private property insurance market is placing an enormous financial burden on state-run insurers, leaving a number of them operating at substantial deficits. As a result, state-run insurers of last resort may end up shifting the long-term risks of hurricane-related losses to policyholders and taxpayers who do not live near the coast.
"Depending on the state, the redistribution of costs is commonly achieved via laws that allow state-run insurers (which are often the largest insurers in the most hazardous areas) to recover their losses in excess of their claims-paying resources by assessing (effectively taxing) the insurance policies of homeowners and business owners throughout the state, including those well away from the coast and those who have never filed a claim," Hartwig said. "In some cases, even unrelated types of insurance such as auto insurance and commercial liability coverage can be assessed."
"Even in states where the value of insured coastal property represents a relatively small percentage of total insured property values, this does not mean that state-run property insurers are not experiencing rapid growth," added Claire Wilkinson, vice president, Global Issues at the I.I.I. and co-author of the study.
For example, North Carolina's $105.3 billion in insured coastal exposure represents just 9 percent of the state's total insured property values. Yet the state's beach and windstorm plan saw its exposure and total policy count more than double between 2003 and 2006.
"The insurance industry is committed to working in partnership with public policymakers, consumers and businesses in developing solutions to the formidable challenges posed by catastrophe risks in future," Hartwig said.
Court sides with insurers on credit reporting case
The Supreme Court has sided with two insurance companies in a case involving alleged violations of the Fair Credit Reporting Act. The law requires insurance companies and other businesses to notify customers who are charged more because of their credit ratings.The law requires insurance companies and other businesses to notify customers who are charged more because of their credit ratings.
In a unanimous decision, the justices said Geico General Insurance Co. did not violate the law and that Seattle-based Safeco might have, but did not do so recklessly.
The insurance industry said a decision against it could have subjected companies to billions of dollars in punitive damages for failing to notify customers.
The Property Casualty Insurers Association of America agreed that the ruling by the U.S. Supreme Court clarifies significant issues related to the rules regarding insurers' requirements to provide adverse action notice to consumers.
"Today's ruling reverses the appeals court decision that said the defendant insurance companies had acted in 'willful disregard' of the law for failing to send adverse action notices," said Kathleen Jensen, senior legal counsel for PCI. "We contended in our amicus that the 9th Circuit Court used a very low standard for determining whether insurers acted in willful disregard for the law."
The court also ruled that the benchmark for determining whether FCRA notice is required at new business should be the rate the applicant would have had if the company had not taken his credit score into account, not a benchmark of what the "best" rate is. The court further clarified that once a consumer has learned that his credit report led the insurer to charge more, he has no need to be told over again with each renewal if his rate has not changed.
Thirteen state insurance commissioners said that a lower threshhold for proving liability, adopted by the 9th U.S. Circuit Court of Appeals in San Francisco, would motivate compliance with the law.
To find liability, a company's conduct must be more than "merely careless," wrote Justice David Souter.
Souter said that a company's conduct must entail an unjustifiably high risk of harm that is either known to a company or is so obvious that it should have been known.
The appeals court warned companies against relying on "creative lawyering that provides indefensible answers." Liability, the appeals court said, could stem from a company's "deliberate failure to determine the extent of its obligations."
Relying on implausible interpretations of its obligations may constitute reckless disregard for the law and therefore amount to a willful violation, the appeals court said.
The Supreme Court adopted a notification requirement favored by the industry. The standard limits the circumstances in which customers must be told their premiums are higher because of their credit ratings. The appeals court and lawyers for consumers said they must be notified any time they pay more than the lowest rate available to customers with the very best credit scores.
"Geico has the better position," the Supreme Court said.
Geico did not owe a prospective customer such notification, the court said. The company had offered him a rate that was the one he would have received if his credit score had not been taken into account.
Safeco did not notify two of its customers because it thought the law did not apply to initial applications, a mistake that left the company in violation of the law.
"The company was not reckless in falling down on its duty," Souter wrote.
Under a more expansive notification standard, Safeco would be required to send adverse action notices to 80 percent of the company's new customers, Maureen Mahoney, an attorney defending the two companies, said at arguments in the Supreme Court in January. At Geico, just 10 percent of new customers qualify for the top tier of credit, Mahoney added.
There are credit reports on 200 million Americans, and consumer information is used by an array of lenders, retailers, employers and government agencies. Credit reporting agencies generate 1.5 billion consumer reports per year.
Congress passed the credit reporting act in 1970 to protect consumers from flaws in the system and improve the reliability of reports so that the business sector can accurately gauge risk. Consumer groups point to the notification requirement as the cornerstone to cleansing credit reports of inaccurate information.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
