U.S. Court Backs Insurance Companies on Credit Law

The Supreme Court Monday reversed a ruling against two insurance companies that were sued for violating a federal law requiring that consumers be told when their rates have been increased based on their credit reports.

The court ruled that Geico, the insurance unit of Warren Buffett's Berkshire Hathaway , did not violate the law, and that while Safeco , a Seattle-based auto and home insurer, might have, it did not act recklessly.

The companies had been sued by customers who said the insurers did not give them the best insurance rates, based on information in their credit reports, and did not notify them, as required by the law.

Justice David Souter said in the court's unanimous opinion that willful failure covers a violation of the law committed in reckless disregard of the notice obligation.

He also said that initial rates charged for new insurance policies may be adverse actions under the law.

A U.S. appeals court in California had ruled that consumers do not have to prove knowledge on the part of the insurers, but need only show the companies acted with "reckless disregard" for the law's requirements.

Although the Supreme Court said the appeals court correctly held that reckless disregard of the law would qualify as a willful violation, Souter said there was no need for the appeals court to send the cases back to a federal judge for factual development.

That is because GEICO's decision was not a violation of the law, and Safeco's misreading the law was not reckless, Souter wrote.

The Supreme Court reversed the appeals court's ruling and sent the cases back for further proceedings.