WASHINGTON — Supreme Court Justices criticized both sides this week in a fight between insurance companies and some customers over when to send adverse-action notices to consumers, leaving observers with few clues to how the high court will rule.
Safeco Insurance Co. of America and Geico General Insurance Co. argued Tuesday that the court should overturn two 9th Circuit Court of Appeals decisions that mandated each company notify its customers if a less-than-perfect credit score has raised their insurance rates.
But some justices expressed skepticism that insurance companies were on solid legal footing.
"They know there's a risk that this is unlawful," Justice Stephen Breyer told a lawyer for the insurance companies. "After all, that's why they went to lawyers."
But Justice Breyer was also one of several justices to take issue with plaintiff arguments that notices should be sent every time a consumer receives less than the optimal rate because of his or her credit history.
"There will be tens of millions of notices going out and they'll have the same effect on the public that these privacy notices have today," Justice Breyer told the plaintiffs' lawyer. "We get them every day - dozens of them - and they go right in the wastebasket, because they will become meaningless."
Industry representatives said that if the earlier court ruling is allowed to stand, it could have a serious impact on insurance and banking companies. The result would be sending a notice anytime someone receives a credit or insurance rate below the optimal rate.
The case turns on a provision in the Fair Credit Reporting Act, which said companies must send an adverse-action notice when a company factors in a consumer's credit score with unfavorable results, such as a higher cost or denial of service. The law also allows for putative damages against companies that "willfully" choose not to send such notices.
The plaintiffs, a group of customers whose rates were raised because of imperfect credit scores, said they are entitled to damages because the companies willfully decided not to send notices after they were not given the optimal rate available based on their credit histories.
But some justices questioned the plaintiff's definitions, arguing it was not necessarily discrimination if a consumer did not receive the highest available rate.
"The trouble that we're having on the bench is that discrimination and increase are different terms," Justice David Souter said. "Increase says the rate actually goes up from a baseline that the consumer previously had, whereas discrimination does not."
Scott A. Shorr, a lawyer representing the plaintiffs, said the statute and additional guidance from the Federal Trade Commission were clear: "The statute is defined very broadly and it includes any action that can even be considered to have a negative impact."
Justice Antonin Scalia appeared to disagree.
"It's pretty sloppy lawyering, don't you think, any action that even be considered to have - wow. This is a standard?" Justice Scalia said.
The justices' skepticism of both sides left observers uncertain how they would rule.
"I thought it was hard to read," said Steve Larson, a lawyer representing the plaintiffs. "The jury's still out on what the Supreme Court is going to do on that issue."
Mr. Larson said he did not think a ruling in his clients favor would unduly hurt insurance or banking companies.
"I don't agree with the industry's argument that it's going to be too cumbersome and cost too much," he said. "Since we filed these lawsuits, they've started complying with the law and it's not costing them too much."
Company lawyers disagreed.
"If the company willfully failed to send out a notice, damages can be up to $1,000 a person, plus punitive damages - and these are class actions," Geico lawyer Jonathan Shafner said Wednesday. "There's a huge amount of money potentially at stake here." (Geico is a member of the Berkshire Hathaway group of companies.)
Mr. Larson said he expects the high court to decide before its recess this summer.
