WASHINGTON–Several Supreme Court justices voiced concern todayabout the practicality of an appeals court decision implyinginsurers must notify consumers when their credit record results ina higher premium.

At issue is a ruling by the 9th U.S. Court of Appeals in SanFrancisco that implied insurers must send an adverse action noticeto customers whenever they are not given the best possible ratebased on credit scoring.

“If the court adopts the consumers' argument, there will be tensof millions of notices being sent out,” said Justice StephenBreyer, during oral arguments in Safeco Ins. v. Burr, and GEICO v.Edo, consolidated as No. 06-100. He said that, based on informationhe found on the Internet, perhaps 99 percent of consumers have lessthan a perfect credit rating.

In a preview of the case, the Legal Information Institute atCornell University said that “the Court's decision in this casewill have an enormous impact on anyone who uses or extendscredit.”

If the Court upholds the 9th Circuit's expansive definition of“willful,” the preview said, “lenders may be exposed to staggeringliability and administrative costs.”

Maureen Mahoney, representing Safeco, told Justice Ruth BaderGinsburg that two class action lawsuits have already been filed inthe case, and with the potential that, under the law, consumerscould be awarded $1,000 each if an adverse action notice was notsent, insurers could be liable for ” billions of dollars” inclaims.

She also told the Court that if the 9th Circuit decision stands,Safeco will have to provide the notice to 80 percent of customers,and GEICO to 90 percent of its customers.

This would be the outcome, she said, despite the fact thatcredit scores constitute only one of 15 criteria used indetermining a rate for a personal lines insurance policy.

A lawyer for the consumer plaintiffs argued that adverse noticeswould prompt consumers who receive them to determine if theircredit ratings were accurate.

Justice Stephen Breyer disagreed. “This will result in the needfor tens of millions of notices to be sent out,” he said. “It willhave the same effect as consumers receiving privacy notices. Itwill become meaningless and they will all wind up in the wastebasket.”

Regarding the expansive notification views implied in the 9thCircuit decision, “I don't understand where that comes from,”Justice Samuel Alito told Scott Shorr, of Portland, Ore., lawyerfor plaintiff Ajene Edo of Portland.

The 9th Circuit's decision came in a case last January in whichthe court found defendants such as Safeco, GEICO and The Hartfordacted “in willful disregard” of the Fair Credit Reporting Act innot disclosing that the best rate was not charged a consumer, andas a result, the consumers involved have the right to recoverdamages.

Responding to concerns by Chief Justice John Roberts, JusticeAlito, Justice Breyer and Justice John Paul Stevens about thepractical impact if the 9th Circuit decision is upheld, Mr. Shorrresponded, “That is what the law requires.”

The justices also voiced a number of concerns about the 9thCircuit's interpretation that insurers acted “willfully” when theydidn't send out adverse action notices in every case where aconsumer did not get the best rate on an insurance policy.

The justices noted in their comments that there were no judicialor regulatory interpretations of what constituted “willful,” norwas there clear congressional intent that failure to providenotices in such cases constituted a “willful” violation of thelaw.

They also suggested that perhaps it would be more appropriate ifa baseline level triggered an adverse action notice, with mailingsgoing only to those who fell below an average credit rating, as anexample.

Kathleen Jensen, senior legal counsel and a director forProperty Casualty Insurers Association of America, said after theoral arguments that if the justices decide the case on the adverseaction issue, “the Court doesn't necessarily have to address the'willful' issue.”

But, she added, it is more likely that the Court will alsoaddress the “willful” issue in its decision based on the fact thatthe justices were explicit in saying that the court had notinterpreted what constituted “willful” in prior decisions.

David Snyder, American Insurance Association vice president andassistant general counsel, noted that the justices had questionedthe standard for “willful” damages, whether those damages arejustified, and the practical and legal issues in sending adverseaction notices in a much broader context as defined by the NinthCircuit.