Insurer rolls the dice on an FCRA class action … and loses

« Back to list

Aug 11, 2015

Insurers hate Fair Credit Reporting Act litigation, particularly class actions. Over the last 5 – 7 years, there has been an avalanche of these cases, resulting in significant settlements funded with insurance proceeds.

As I’ve noted in previous posts, insurers are doing what they can to exclude coverage for alleged FCRA violations on a going forward basis. However, when faced with a claim on an older policy that does not expressly exclude FCRA cases, some insurers have chosen to litigate. Such was the case in Navigators Insurance Co. v. Sterling Infosystems, a declaratory judgment action in which an insurer sought to avoid covering an FCRA claim on an errors and omissions policy.

The Navigators case presents the prototypical fact pattern. Sterling, a consumer reporting agency, and several of its end-user customers were sued for FCRA violations. The cases were pursued as putative class actions. The complaints alleged only willful violations of the FCRA and sought only statutory and punitive damages. Sterling notified its insurance carrier, Navigators, of the claims. Navigators denied coverage and filed a declaratory judgment action in state court in New York. Disputing coverage, Navigators made the predictable argument, i.e. the Policy excludes coverage for penalties and statutory damages under the FCRA are penalties.

It did not take the court long to dispose of Navigators’ argument. The court held that statutory damages are compensatory if they substitute for actual damages, which is the case under the FCRA. FCRA statutory damages facilitate litigation when “actual damages are difficult or impossible to calculate,” and the FCRA separately provides for a penalty by allowing for the recovery of punitive damages.

Thus, Navigators not only lost the case, but also established a precedent that will rightly be used against insurers in the future. A copy of the decision can be foundhere.

Craig E. Bertschi, Partner — McRae Bertschi LLC