Scharpf v. Aig Marketing, Inc.

• Citation: 242 F.Supp.2d 455
• Decision Date: 30 January 2003
• Docket Number: No. CIV.A.3:00-CV-614(H).,CIV.A.3:00-CV-614(H).
• Parties: Kathleen SCHARPF Plaintiff v. AIG MARKETING, INC., et al. Defendants
• Court: U.S. District Court — Western District of Kentucky

242 F.Supp.2d 455

Kathleen SCHARPF Plaintiff v. AIG MARKETING, INC., et al. Defendants

No. CIV.A.3:00-CV-614(H).

United States District Court, W.D. Kentucky.

January 30, 2003.

David B. Mour and Jeffrey A. Cross, Borowitz & Goldsmith, Louisville, KY, for plaintiff.

Thomas M. Hefferon, Jaren D. Wilcoxson, Goodwin Procter LLP, Washington, DC, for defendants.

MEMORANDUM OPINION

HEYBURN, Chief Judge.

Plaintiff Kathleen Scharpf has filed a ten-count complaint alleging that, in obtaining her consumer report, Defendants AIG Marketing, Inc. ("AIG"), MBNA Insurance Agency ("MBNA"), and "Unknown Persons," violated the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., invaded her privacy in violation of Kentucky common law, and engaged in an unlawful civil conspiracy.¹ The centerpiece to Plaintiffs FCRA allegations has been her contention that AIG lacked a "permissible purpose" to obtain her credit report. The cross motions for summary judgment focused on this issue. This Court limited the parties' discovery efforts to "the issue of the applicability to the defendants' conduct of the `underwriting exception' to liability under the Act." While this may not be the only dispositive legal issue, for the reasons set forth below, Plaintiffs motion for summary judgment on this narrow issue is denied. Further discovery, however, could support the allegations contained in the complaint. Therefore, the Court will not dismiss all of Plaintiffs underlying claims.

I.

The Court is presented with a narrow question related to the legality of what transpired during an August 1999 phone conversation between Plaintiff and AIG. The facts are best considered in two parts at this stage, looking briefly at the AIGMBNA call transfer program, and then considering the phone conversation in issue.

This case arises out of a telemarketing relationship. AIG and MBNA are business partners and operate the MBNA Call Transfer Program.² In practice, according to Steven F. Wardzinski, president of the Sponsored Business Division of AIG, the Program operates as follows. While speaking by telephone to an MBNA representative about her credit card account, the MBNA account holder is typically asked if she would like to receive a "free, no obligation quote" for automobile insurance. If the consumer accepts the offer, she is immediately telephonically transferred to a waiting AIG representative who then requests information from the consumer, such as her name, address, type of vehicle, and social security number. Based on this information, the AIG representative, utilizing a computer program, calculates a quote. As part of this process, AIG's computer program automatically orders the credit score (which itself is based on information obtained from the consumer's credit report), and inputs this threedigit number into the program to determine the quote.

The relevant events begin on August 6, 1999, when Plaintiff spoke by telephone to MBNA, with whom she had a credit card, and consented to the transfer to an AIG representative. At the time, Plaintiffs current automobile insurance policy was about to expire and she decided to compare rates. During the brief conversation, the AIG representative asked Plaintiff a series of questions, including a request for her social security number. Whether or not Plaintiff provided this in response is a critical fact in dispute.³ Through some undetermined means, AIG nevertheless obtained access to her consumer report from Trans Union. As a result, AIG offered her an immediate rate quote. That rate quote was significantly higher than Plaintiffs current automobile insurance premium. So, Plaintiff stated she was not interested and terminated the conversation. Notwithstanding this rejection, AIG subsequently sent her a written application urging her to purchase the insurance at the offered rate.

Nearly one year later, while reviewing her credit report in July of 2000, Plaintiff noticed a record of AIG obtaining her consumer report on August 6, 1999. Plaintiff has now sued AIG and MBNA claiming that AIG's process of obtaining of her consumer report violated the FCRA, invaded her privacy, and was the product of an unlawful civil conspiracy.

II.

This case poses a difficult and important issue of first impression. Namely, under the FCRA, can an insurance company obtain a consumer report, prior to the consumer's unequivocal application, in order to issue an insurance quote?⁴ This is an important issue because apparently a vast percentage of insurers may obtain consumer reports in a similar manner prior to receiving a specific application.

In 1970 Congress amended the Consumer Credit Protection Act, 15 U.S.C. § 1601 et seq., by adding a number of provisions collectively known as the Fair Credit Reporting Act ("FCRA"). The FCRA provides the exclusive circumstances under which a credit reporting agency may furnish a credit report to another. See 15 U.S.C. § 1681b(a)(2). Insurance companies may be held liable under the FCRA because they must comply with the FCRA's terms in handling an insured's credit report. St Paul Guardian Ins. Co. v. Johnson, 884 F.2d 881, 883 (5th Cir.1989). As a result of congressional amendments in 1997, the FCRA now lists six limited "permissible purposes" for which a consumer reporting agency can provide a consumer report to third parties. See 15 U.S.C. § 1681b(a). The FCRA authorizes third parties, such as AIG, to obtain and use consumer reports only if they act in accordance with one of these permissible purposes. See 15 U.S.C. § 1681b(f)(1).⁵ Both sides agree that the singular "permissible purpose" applicable here is the provision that a third-party may obtain the consumer's report if it "intends to use the information in connection with the underwriting of insurance involving the customer." 15 U.S.C. § 1681b(a)(3)(C). Plaintiff s claim implicitly contains important questions of law and fact.

A.

Plaintiff first argues that, as a matter of law, the underwriting purpose is inapplicable here because she never "applied" for insurance. Because she never made an application for insurance, Plaintiff contends AIG had no right to access her credit report even if it was performing an underwriting function. The Court disagrees. Several basic principles of statutory construction compel this outcome. In addition, such a construction satisfies the balance Congress intended by enacting the FCRA.

As a starting point, to explore Plaintiffs argument fairly, the Court's analysis begins by examining that language. Community for Creative Non-Violence v. Reid, 490 U.S. 730, 739, 109 S.Ct. 2166, 104 L.Ed.2d 811 (1989). Tellingly, Section 1681b(a)(3)(C)'s text does not contain an "application" requirement, certainly not an explicit one. To the contrary, the underwriting provision permits a consumer reporting agency to furnish a report to a company which intends to use the information in connection with the underwriting of insurance. 15 U.S.C. § 1681b(a)(3)(C). This statutory language does not limit the underwriting purpose to those occasions after someone has applied for insurance; nor, as Plaintiff would prefer, does it limit this purpose to obtaining a consumer report with the consumer's knowledge. The three terms which Congress used to define this permissible purpose suggest that this conclusion is both correct and sensible within the FCRA's overall scheme.

First, Congress did not restrict the scope of the permissible distribution of a report to companies like AIG who can prove they will use a consumer report for underwriting. Rather, consumer credit companies are permitted to furnish the reports where a third party, such as AIG, demonstrates an intent to use the report for the authorized purpose. See, e.g., Yang v. Government Employees Insur. Co., 146 F.3d 1320, 1325 (11th Cir.1998) (noting that there are three potential types of use that might exist under this section: ultimate use, expectation of use, and the purpose for compiling the report, and concluding that only one of those purposes is necessary to meet a "permissible purpose" provision); Korotki v. Attorney Servs. Corp., 931 F.Supp. 1269, 1276 (D.Md.1996) ("[S]o long as a user has reason to believe that a permissible purpose exists, that user may obtain a consumer report without violating the FCRA"). Second, Webster's Dictionary defines "connection" as "an association or relationship; logical ordering of words or ideas." Webster's II New Riverside Dictionary 300 (1994). Thus, both the practical and strict definitional applications suggest that a consumer reporting agency may provide a consumer report without evidence that a consumer has made an application. Consequently, it is counterintuitive to suggest that the recipient would need an application before using the information which the consumer credit agency had legally provided.

Third, while Congress did not define the word "underwriting," the Federal Trade Commission ("FTC"), as the agency authorized with administering the FCRA, 15 U.S.C. § 1681s(a), has provided a definition. That definition states, "An insurer my obtain a consumer report to decide whether or not to issue a policy to the consumer, the amount and terms of the coverage, the duration of the policy, the rates or fees charged, or whether or not to renew or cancel a policy, because these are all `underwriting' decisions." FTC Commentary on the Fair Credit Reporting Act, 16 C.F.R. pt. 600, App.; see also Wilting, 227 F.3d at 476 (adopting the FTC's definition). Similarly, in defining "consumer report," the FCRA states that information on an individual may be obtained "for the purpose of serving as a factor in establishing the consumer's eligibility for" insurance. 15 U.S.C. § 1681a(d)(1). None of these definitions suggest that an application is the pre-condition to this permissible purpose. Rather, the terms intimate an insurer may examine a consumer's credit report to assess the risks that person poses.

Another cardinal principle of...