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 Privacy and Confidentiality Issues
At law, “privacy” is shorthand for different interests that do not have much to do with one another, and often do not have much to do with what you would think of as “privacy”. Because of these dual disconnects, calling these interests “privacy” is not very helpful. However, that is what we call them, and until we all agree to stop, carriers should move beyond idiosyncratic connotations of privacy and seek to understand the denotations of privacy at law.
There is no general “right of privacy” in the federal constitution, and the courts have not created one either. Planned Parenthood v. Casey, 505 U.S. 833, 951 (1993). However, courts have recognized several un enumerated “zones” of privacy. Griswold v. Conn., 381 U.S. 479, 484 (1965) (“[S]pecific guarantees in the Bill of Rights have penumbras, formed by emanations from those guarantees that help give them life and substance. . . . Various guarantees create zones of privacy.”).
For our purposes, it suffices to say that while whether courts should recognize un enumerated zones of privacy is controversial, this controversy has no real bearing on SIU. This is because in order to maintain a cause of action against a private party for a constitutional violation, the claimant must show that the defendant’s actions constituted “state action.” Houghton v. New Jersey Mfrs. Ins. Co., 615 F. Supp. 299, 306 (E.D. Penn. 1985) (Houghton I); rev’d on other grounds, 795 F.2d 1144, 1150 (3d Cir. 1986) (Houghton II). The same holds true for alleged violations of state constitutional privacy guarantees. Houghton I, 615 F. Supp. at 307.
Typically, an insured cannot invoke the Fifth Amendment privilege against self incrimination at an examination under oath. Pervis v. State Farm Fire & Cas. Co., 901 F.2d 944, 947 (11th Cir. 1990), cert. denied, 498 U.S. 899 (1990); Mello v. Hingham Mut. Fire Ins. Co., 656 N.E.2d 1247, 1251 (Mass. 1995) (citations omitted). This is true even though generally one who invokes the privilege cannot be penalized for that invocation, as such a penalty would create an impermissible compulsion to testify. Mello, 656 N.E.2d at 1250. The most common reason for this distinction offered by the courts is that the state is not compelling the testimony, but rather the insured’s own contractual obligation. Id. at 1251; Hickman v. London Assurance Corp., 195 P.2d 45, 49 (Cal. 1920). One case went against this general rule. Weathers v. Am. Family Mut. Ins. Co., 793 F. Supp. 1002, 1022 (D. Kan. 1992). In Weathers, the insured invoked the Fifth Amendment privilege at the EUO. Id. At trial, the insurer asserted a lack-of-cooperation defense, and the trial judge instructed the jury that it could not find the insured breached the policy if, by doing so, she was exercising her Fifth Amendment privilege. Id. The insurer objected to this by citing a number of cases, including Pervis. Id. The court noted that the insurer was complying with the Kansas Arson Reporting Immunity Act. Weathers, 793 F. Supp. at 1022. The court found that none of the cases the insurer cited, including Pervisii, involved an insurer “conducting itself pursuant to an arson reporting immunity act,” id. The court found there was “no doubt” that any information revealed to the insurer during the insured’s examination would have been disclosed to the state for use in the criminal proceedings. Id. Because of this, the insured’s dilemma became one of breaching her insurance contract or revealing information to state authorities, which could then be used against her in a criminal prosecution. Id. The court found the insurer’s position that the insured could not invoke the Fifth Amendment at her examination “absurd” and “simply unacceptable and offensive to constitutional sensibilities.” Id. Weathers represents a striking departure from the generally accepted rule that insured's cannot invoke the Fifth Amendment at an EUO. In State Farm Indem. Co. v. Warrington, the court noted that it was the only decision cited that held an insured could invoke the Fifth Amendment in that context. 795 A.2d 324, 328 (N.J. Super. Ct. App. Div. 2002). The only distinction between Weathers and the contrary weight of authority is that, in the words of the Warrington decision, the insurer “was, in effect, a conduit for information for the state’s criminal investigation.” Id. Another insured argued that the entry of private insurance investigators on his property, without a warrant and without the insured’s consent, violated the insured’s Fourth Amendment rights. Conn. v. Smith, 673 A.2d 1149, 1151 (Conn. App. Ct. 1995). The trial court held that the insurer’s investigators were agents of the state and therefore violated the insured’s rights. Id. In support of its ruling, the trial court noted that the policy of turning over insurance reports to the state was required by Connecticut’s immunity reporting act; that the state police would sensibly want to see the reports; and that the state fire marshal typically requested fire scene investigation reports from insurance companies, incorporated those reports into the marshal’s file, and provided them to the prosecutor’s office. Id. at 1152. On appeal, the state argued that the trial court found that the insurer was an agent of the state by virtue of Connecticut’s immunity reporting act. Smith, 673 A.2d at 1155. The appellate court found that the Act did not require insurance investigators to act for the state or to conduct an investigation in any particular way. Id. The court noted further that the statute did not require insurers to investigate every fire, nor did the statute indicate that insurers have accepted such an endeavor. Id. Finally, the statute did not provide that the state exercised any degree of control over insurers in conducting cause and origin investigations. Id. Accordingly, the court concluded that the immunity act did not create an agency relationship between the insurer and the state by operation of lawiii. Id.
According to the United States Supreme Court, state action may be found where “there is a sufficiently close nexus between the State and the challenged action of the regulatory entity so that the action of the latter may be fairly treated as that of the State itself.” Houghton I, 615 F. Supp. at 306 (citations omitted). State action may also be found where the state “has so far insinuated itself into a position of interdependence with [the defendant] that it must be recognized as a participant in the challenged activity . . . .” Id. (citations omitted). It seems fair to say that the as the level of coordination between the insurer’s investigation and the state’s investigation increases, the chances of a finding the insurer is acting under color of state action increase concomitantly. See Cromley v. Ohio Casualty Ins. Co., 1987 U.S. Dist LEXIS 8731 (E.D. Penn. 1987) (holding that where insured alleged insurance investigator acted in concert with state law enforcement officer to maliciously prosecute insured, the insured presented a jury question on whether the investigator and officer conspired to maliciously prosecute insured. If the jury so found, the investigator was considered a state actor for purposes of the Civil Rights Act). Unfortunately, coordination with the state can be helpful and is often required. Since coordination cannot be avoided, insurers must instead avoid the appearance (or reality) of being an agent of the state. To help do so, note that after the court in Smith found that the immunity act did not create an agency relationship as a matter of law, the court turned its attention to whether the particular facts of the case supported an agency relationship. 673 A.2d at 1155. The court found there is no bright line test for determining whether a private citizen or entity is acting as an agent of the state. Id. at 1156. Some factors include whether the action was initiated by the private citizen or entity; who decides whether “the fruit of the action” is given to the state; who determined the way in which the action was conducted; and whether the private citizen or entity receives some kind of inducement from the state. Id. at 1157. The court found no evidence that the state coerced, suggested, or initiated the insurer’s investigation. Id. Instead, the court found that the investigators acted at the behest of the private insurers. Id. The court also found that there was no evidence that the state maintained any control over the insurer’s investigation, noting that while the immunity reporting act required the insurer to turn over its investigative reports, the act did not require any investigation at all. Id. Finally, the court found that while the trial court’s factual findings were largely correct, they did not equate to a finding of agency. Id.
Strictly speaking, Smith, Pervis and Weathers do not involve a purported violation of an insured’s “right to privacy”. However, they do involve an insured’s Fourth and Fifth Amendment rights. To the extent that there are “zones” of privacy in the constitution, those zones stem, in part, from the Fourth and Fifth Amendments. Griswold, 381 U.S. at 484 (“Various guarantees create zones of privacy. . . . The Fourth Amendment explicitly affirms the ‘right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures.’ The Fifth Amendment in its Self-Incrimination Clause enables the citizen to create a zone of privacy which government may not force him to surrender to his detriment.”) Accordingly, the analyses in these cases will inform an analysis of an insurer’s purported violation of an insured’s constitutional right to privacy.
“The law of privacy comprises four distinct kinds of invasion of four different interests of the plaintiff, which are tied by the common name, but otherwise have almost nothing in common . . .
Figured v. Paralegal Tech. Svcs., Inc., 555 A.2d 663, 665 (N.J. Super. Ct. 1989) (internal quotations and citations omitted). These four variations of the tort called “invasion of privacy” are widely recognized, although some states have adopted less than all of them. Even among those states that have adopted all four, the specific elements as to each vary from state to state. Accordingly, any recitation of the elements of a tort in this paper is illustrative only. Most privacy claims in the SIU context arise from the conduct of the investigation itself. In an early invasion of privacy case against an insurance company’s investigator, the Supreme Court of Pennsylvania noted: It is not uncommon for defendants in accident cases to employ investigators to check on the validity of claims against them. Thus, by making a claim for personal injuries appellant must expect reasonable inquiry and investigation to be made of her claim and to this extent her privacy is circumscribed. Forster v. Manchester, 189 A.2d 147, 150 (Penn. 1963) (emphasis added). No claimant is entitled to be free from a reasonable investigation—so long as the investigation is reasonable, the claimant’s privacy is “circumscribed.” Rather, claimants are entitled to be free from an unreasonable investigation. A Florida appellate court explained why: Because of the public interest in exposing fraudulent claims, a plaintiff must expect that a reasonable investigation will be made subsequent to the filing of a claim. However, there should be certain limits as to how the investigation is conducted, because there is also a social utility in not permitting a defendant to harass or intimidate a plaintiff into settling a claim on less favorable terms than those which he would voluntarily accept. Tucker v. Am. Employers’ Ins. Co., 171 So. 2d 437, 438 (Fla. 2d DCA 1965).
Invasions of privacy in the conduct of investigation usually implicate the interest of “intrusion”—specifically, “an intentional substantial intrusion, physically or otherwise, upon the solitude or seclusion of the complaining party that would be highly offensive to the reasonable person.” Turner v. Gen. Adj. Bureau, 832 P.2d 62 (Utah Ct. App. 1992) (citing W. Page Keeton et al., Prosser and Keeton on the Law of Torts, § 117, at 855 (5th ed. 1984)), overruled on other grounds, Campbell v. State Farm Mut. Auto. Ins. Co., 65 P.3d 1134 (Utah 2001). The court in Turner observed further: “the language ‘highly offensive to the reasonable person’ suggests a determination of fact for which a jury is uniquely qualified.” Id. As with so many things in law, the bottom line answer to the question is “whatever a jury says.”
“[F]reedom from extensive shadowing and observation has come to be protected in most . . . jurisdictions.” Figured, 555 A.2d at 256 (citations omitted). The question becomes the point at which a reasonable person would find the investigation constitutes “extensive shadowing and observation”. The issue in Tucker was whether the claimant could state an invasion of privacy claim against an insurer for the conduct of its investigation, no matter how it was conducted (keep in mind this was 1965). 171 So. 2d at 438. The court ultimately remanded the case because the record did not show how the investigation was conducted. Id. at 439. Before doing so, the court discussed Forster, in which two investigators were tasked with reporting on the claimant’s activities and obtaining “motion pictures.” Id. at 438. The investigators tried to remain inconspicuous, but were not always successful. Id. The court found that the few times the claimant saw the investigators was “purely inadvertent, [and] that the investigators did not intentionally expose themselves . . . .” Id. The court held these facts would not support an invasion of privacy claim. Id. The Tucker court then described a case on the opposite end of the spectrum. 171 So. 2d at 438 (citing Pinkerton Nat’l Det. Agency, Inc. v. Stevens, 132 S.E.2d 119 (Ga. Ct. App. 1963)). Stevens does not focus on any one particular egregious act; rather the cumulative weight of the investigator “in shadowing, snooping, spying and eavesdropping upon plaintiff was done in a vicious and malicious manner not reasonably limited and designed to obtain information need for [the claim,] but deliberately in a way calculated to frighten and torment her.” Id.iv
A worker’s compensation insurer retained a detective agency to conduct surveillance of a claimant. DiGirolamo, 1999 Mass. Super. LEXIS 190. The court, citing Forster, acknowledged it was “perfectly appropriate” to conduct surveillance of an insurance claimant so as to guard against fraud. The court found that observing, photographing or videotaping someone in a public place does not equal a violation of privacy. However, the court had to decide the closer question of whether any of these constituted an invasion of privacy:
The court (unwisely in my view) looked to criminal cases for guidance on when the Fourth Amendment deems a particular search unreasonable. DiGirolamo, 1999 Mass. Super. LEXIS 190. The court cited a federal appellate case for the proposition that “any enhanced viewing of the interior of the home does impair a legitimate expectation of privacy and encounters the Fourth Amendment warrant requirement . . . .” Id. (citing U. S. v. Taborda, 635 F.2d 131 (2d Cir. 1980)). From this, the court recognized a dichotomy between enhanced and unenhanced vision, finding “that which can be seen with the naked eye without trespassing is in plain view; that which only can be seen with a telescopic lens is not.” Id. (citing U. S. v. Kim, 415 F. Supp. 1252, 1256 (D. Haw. 1976)). Accordingly, the court found that because a person has no reasonable expectation of privacy in what can be seen in plain view, a person cannot as a matter of law rest an invasion of privacy claim on an investigator’s observation of something with the naked eye. The court found that the first two scenarios did not give rise to a cause of action, but the fourth could.
As for the third scenario, the one involving the balcony, the court looked to the private/public place distinction. The balcony was plainly visible from the street, and anyone on the balcony was in plain view of anyone on the street. Under these facts, the claimant had no greater right of privacy to be free from enhanced viewing than she did while standing on the street. Accordingly, the claimant’s balcony was not a private place and she could not state a cause of action for being videotaped while on her balcony. In a footnote, the court cautioned that some other, more isolated, balcony could warrant a different privacy analysis. In Creel v. I.C.E. & Assoc., Ms. Creel was a worker’s compensation claimant and her husband was a pastor. 771 N.E.2d 1276, 1278 (Ind. Ct. App. 2002). An investigator posed as a congregant at Mr. Creel’s church, concealing a video camera in a sling on his arm. Id. The investigator secretly videotaped Mr. Creel as he conducted worship services and Ms. Creel as she played the piano during church service. Id. The Creels sued the investigator for invasion of privacy. 771 N.E.2d at 1279. The Creels alleged two different strands of the tort under Indiana law: intrusion into “emotional privacy” and intrusion into “physical solitude and seclusion”. Id. at 1280. As for “emotional privacy”, the court found that even if Indiana recognized that intrusion into emotional privacy established an invasion of privacy, the Creels were unaware of the videotaping as it occurred. Id. at 1281. Thus, the Creels “could not have suffered any emotional disturbance from being filmed.” Id. As for the Creels’ allegation of physical intrusion, the court found that the church services were open to the general public. 771 N.E.2d at 1281. There were no signs prohibiting videotaping. Id. Ms. Creel played the piano on stage and Mr. Creel conducted services and led prayer in full view of 140 people. Id. The court found that “[w]hile the Creels object to the covert videotaping, it simply captured activity that was open to the public, observed by many, and which . . . the church attendees could have testified to witnessing at trial.” Id. The court upheld the trial court’s order granting summary judgment to the investigator. Id.
At first glance, this case involves nothing more than allegations of “rough shadowing” arising out of a claim for a stolen Jaguar. However, there are some unusual aspects that bear comment:
In Ellis, the investigation focused not only on the claimant, but also the claimant’s friends and housemates. 672 N.E.2d at 981. The claimant, as well as her friends and housemates, alleged that that the investigator followed each extensively and made numerous phone calls to each at home and work. Id. at 984. The court found that each had stated a cause of action.
The level of shadowing in Ellis does not come close to that described in Tucker. To account for how the plaintiff’s action could go forward, consider that a housemate alleged that an investigator asked, “How can you people (blacks) afford this type of car?” Ellis, 672 N.E.2d at 634 (parentheses in original). The claimant alleged an investigator asked, “How can you black people afford this type of expensive car?” Id. The claimant presented an affidavit from the investigator’s former supervisor attesting that he observed the investigator’s hostile treatment of insured's, particularly minorities. Id. at 633. Another court interpreted Ellis as standing for the proposition that “[o]therwise lawful conduct may become unlawful if done with a racial animus or with a purpose to harass.” DiGirolamo v. D. P. Anderson & Assoc., Inc., 1999 Mass. Super. LEXIS 190 (Super. Ct. Mass. 1999).
Because the claimant failed to sit for an EUO despite the insurer’s repeated requests, the court upheld summary judgment in favor of the insurer on her breach of contract claim. Ellis, 672 N.E.2d at 639. Also, the Jaguar had been found years before the opinion was rendered, id. at 633, so it is difficult to see how the claimant could have recovered on the policy anyway. However, the privacy claim was unaffected.
After Mr. Paul’s house was destroyed by a fire, Aetna hired a private investigator. Paul v. Aetna Cas. & Surety Co., 831 F.2d 1064 (6th Cir. 1987) (not recommended for full-text publication). The investigator asked two of Mr. Paul’s neighbors “whether they knew that Mr. Paul had been involved in a grand theft auto ring, had committed criminal fraud, had committed arson, was involved in illegal drug trafficking, and had killed a man.” Id. Apparently Mr. Paul had pleaded guilty to a charge of negligent vehicular homicide, but there was no foundation for the other representations implicit in the investigator’s questions. Id. Aetna denied Mr. Paul’s claim and Mr. Paul sued to recover under his policy, as well as for invasion of privacy and slander. Id. The jury found for Mr. Paul on his invasion of privacy claim. Id. The appellate court affirmed the jury’s verdict on the theory of “false light disclosure of private facts.” Id. Aetna denied that its investigator disclosed any fact unnecessarily, a required element under Michigan law. Id. The court disagreed, finding that there was no reason to inform Mr. Paul’s neighbors about Mr. Paul’s involvement with the death of another. Id. In another case, a detective hired by an insurer asked the claimant’s neighbor whether the claimant was in the hospital because she was pregnant. Schupmann v. Empire Fire & Marine Ins. Co., 689 S.W.2d 101, 102 (Mo. Ct. App. 1985). The claimant sued for invasion of privacy. Id. The court found that while the question “may have been beyond the scope of the investigation[,]” the question “did not assume or suggest the reason for plaintiff’s hospitalization.” Id. at 103. The court found: “Asking one non-assuming question of one neighbor is not sufficient to constitute an intrusion into the private seclusion around plaintiff’s affairs.” Id. The court distinguished this case from one in which the investigator asked a claimant, “How did you set the fire?” See id. at 102.
In Tureen v. Equifax, an insurer tasked Equifax with the investigation of a health insurance claim. 571 F.2d 411, 413 (8th Cir. 1978). The court summarized the tort of public disclosure of private facts as “one who gives publicity to a matter concerning the private life of another is subject to liability to the other for invasion of his privacy, if the matter publicized is of a kind that (a) would be highly offensive to a reasonable person, and (b) is not of legitimate concern to the public.” Id. at 419 (quoting Restatement (Second) of Torts § 652D, at 383 (1977)) (emphasis in original). The court then quoted a comment to the Restatement observing that, in context, “publicized” means the matter is made public, by communicating it to the public at large, or to so many persons that the matter must be regarded as substantially certain to become one of public knowledge. The difference is not one of the means of communication, which may be oral, written or by any other means. It is one of a communication that reaches, or is sure to reach, the public. Id. The investigator engaged in no such publication. Id. Thus, although the jury held the investigator liable for its conduct, the court overturned that verdict for lack of evidence. Id. at 419.
In Sterling v. Commercial Union Insurance Company, a claimant was injured in an elevator accident, and the elevator company’s insurer hired a detective to investigate the claimant’s physical activities. 674 F.2d 697, 698 (8th Cir. 1982). The detective inquired into the claimant’s sexual activities. Id. at 699. The claimant sued both the insurer and the detectives. Id. At trial, the insurer’s claim supervisor testified that he learned (through the claimant’s letters of protest) that the detectives may have inquired into the claimant’s sexual activities. 674 F.2d at 700. The claim supervisor contacted the detectives to ask about the propriety of the investigation, and the detectives assured him that the investigation was proper. Id. The claim supervisor also testified that the insurer had no interest in the claimant’s sexual activity. Id. The jury exonerated the detectives, but found the insurer liable for invasion of privacy, awarding actual and punitive damages. Sterling, 674 F.2d at 699. The insurer argued that because the detectives were exonerated, the insurer could not be liable. Id. The trial court agreed, id. at 699-700. The appellate court reversed, finding that the claim supervisor learned of the direction the investigation was taking, but “did not take steps to curb this unnecessary inquiry . . . .” Id. at 701. Accordingly, the court found the jury’s verdict was consistent. Id.
A corporation cannot state a cause of action for invasion of privacy. N.O.C., Inc. v. Schaefer, 484 A.2d 729, 730-731 (N.J. Super. Ct. Law Div. 1984) (citing Restatement (Second) of Torts § 6521 cmt. c (1981)).
Seeking to curb perceived abuses in credit reporting, Congress passed the FCRA in 1970. Hovater v. Equifax, Inc., 823 F.2d 413, 416 (11th Cir. 1987), cert. denied, 484 U.S. 977 (1987). The FCRA regulates the practices of both credit agencies and the recipients of their reports. Id. at 417. The FCRA seeks to establish credit reporting practices that use “accurate, relevant, and current information in a confidential and responsible manner.” Id.
Consumer reports and Investigative consumer reports defined The FCRA limits the dissemination of “consumer reports” to certain specified circumstances. 15 U.S.C. §1681b(a) (2004)v. These specified circumstances do not include insurance claim investigation. Id. The FCRA also imposes conditions on people who want to procure or receive an “investigative consumer report”. 15 U.S.C. § 1681dvi. Accordingly, most cases in which an insurer requests a report from a credit reporting agency hinge on whether the report the insurer requested is a “consumer report” or “investigative consumer report” as defined by the FCRA. The idea is that if the report is not a “consumer report” or an “investigative consumer report”, the FCRA does not apply. The FCRA defines “consumer report” as any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for— purposes; [15 U.S.C. § 1681b; see endnotes]. 15 U.S.C. § 1681a(d)(1) (2004). An “investigative consumer report” is a consumer report in which information on a consumer's character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends, or associates of the consumer reported on or with others with whom he is acquainted or who may have knowledge concerning any such items of information. However, such information shall not include specific factual information on a consumer's credit record obtained directly from a creditor of the consumer or from a consumer reporting agency when such information was obtained directly from a creditor of the consumer or from the consumer. 15 U.S.C. § 1681a(e).
Donna Houghton was in a car accident with an NJMIC insured. Houghton I, 615 F. Supp. at 301. NJMIC asked Equifax to investigate Ms. Houghton and to prepare a written report. Id. This investigation included activities since the accident, medical history, and general financial information. Id. Neither Equifax nor NJMIC notified Ms. Houghton that a report was requested. Id. Shortly afterward, Equifax provided a report, noting that it “check[ed] available credit files through a confidential source, and we are unable to come up with any financial irregularities.” Houghton I, 615 F. Supp. at 302 n.2. NJMIC settled Ms. Houghton’s claim a few months later. Id. at 302. However, Ms. Houghton learned of the Equifax report 4 years after settling, and demanded that NJMIC produce it. Id. When NJMIC refused, Ms. Houghton sued on various theories, including violation of the FCRA. Id. NJMIC conceded that it requested and received the Equifax report without notifying Ms. Houghton and that it refused to disclose the report to her. Houghton I, 615 F. Supp. at 302. NJMIC argued that the Equifax report was not a “consumer report” or an “investigative consumer report”, so the FCRA did not govern. Id. NJMIC premised its case on the definition of “consumer report”: it contended that if the requester of the report did not use or intend to use the report for one of the purposes enumerated in section 1681a(d), then it is not by definition a consumer report. Id. The court disagreed, finding that whether a report is a “consumer report” turns on the purpose for which the information was originally collected as well as on the information’s ultimate use. Houghton I, 615 F. Supp. at 303. Thus, the court agreed with NJMIC to the extent that the report presented information collected for the purpose of investigating the claim only, e.g., interviews with the claimant’s neighbors and court records. Houghton I, 615 F. Supp. at 303. However, the report also presented information from Ms. Houghton’s credit files—information collected, at least in part, to determine Ms. Houghton’s eligibility for credit, insurance, employment, or one of the purposes listed in section 1681b. Id. The court found that the Equifax report was, to this extent, a consumer report under the FCRA. Id. at 304. The court then found that because the consumer report contained information on Ms. Noughton’s character and general reputation obtained through interviews, the report was an “investigative consumer report”. Id. at 305. As such, the court found as a matter of law that NJMIC violated the FCRA by failing to disclose it requested a report and by failing to disclose the contents of the report to Ms. Houghton. Id. On appeal, the Third Circuit Court of Appeals reversed the trial court. Houghton II, 795 F.2d at 1150. The appellate court found that NJMIC did not request an investigative consumer report, because its request for a report focused on Ms. Houghton’s insurance claim and not her eligibility for credit, insurance, or employment. Id. at 1148. In other words, the Third Circuit agreed with NJMIC’s argument that the purpose for which the report was sought governs whether the report is a “consumer report” (and, by extension, an “investigative consumer report”). See id. In Hovater, the insured claimed a fire loss to the family home. 823 F.2d at 413. In light of a finding of arson, the insurer’s lawyer hired Equifax to obtain background information on the insured. 823 F.2d at 413. The insurer initially denied the claim, but eventually settled. Id. at 414. Nevertheless, the insured sued Equifax under the FCRA for its preparation and dissemination of the report. Id. After a careful evaluation of the FCRA, the court found that “it is clear that a transference of information by a credit reporting agency to an insurance company for the sole intended purpose of evaluating a claim for insurance benefits under an existing policy is not a ‘consumer report’ nor an ‘investigative consumer report’ under the Act.” Hovater, 823 F.2d at 418. The court based this finding on the statutory language, id. at 418-419, the legislative history, id. at 419-420, and precedent, including Houghton II, id. at 420-421. A few years later, the same court considered an FCRA claim against GEICO. Yang v. Gov’t Employees Ins. Co., 146 F.3d 1320, 1321 (11th Cir. 1998). Yang was in a car accident with a GEICO insured, and GEICO’s SIU obtained an Inquiry Activity Report, or IAR, on Yang from Equifax. Id. IAR’s are preexisting, non-customized documents that contain employment information as well as a record of entities that requested an IAR or a credit report. Id. The lower court, citing Hovater, granted summary judgment to GEICO. Id. at 1322. The Eleventh Circuit found that the lower court’s reliance on Hovater was misplaced. Yang, 146 F.3d at 1324. The court noted that the Hovater report was created for use as a claim evaluation tool, that Equifax expected it would be used a claim evaluation tool, and that it was used as a claim evaluation tool. Id. at 1325. In contrast, the IAR in Yang was compiled, and expected to be used, for credit-related purposes. Id. The court agreed with a Fifth Circuit case that found that “‘the purpose for which the information was collected governs whether [a] report is a ‘consumer report’ under the FCRA[,]’ despite that the insurance company ultimately used the information for the sole purpose of evaluating an insurance claim.” Id. n.5 (quoting St. Paul Guardian Ins. Co. v. Johnson, 884 F.2d 881, 884-885 (5th Cir. 1989)) (internal quotations and brackets in original). The reason for compilation/purpose for use distinction delineated in Yang is completely legitimate; the FCRA can be read either way and courts have done so. The problem with Yang is that this distinction formed the basis of Houghton I, which was overruled by Houghton II, and in Hovater, the Eleventh Circuit “chose to align” itself with Houghton II. 823 F.2d at 421. In Yang, the Eleventh Circuit did not address its earlier embrace of Houghton II. This failure probably makes Yang less honest, but it does not affect its bottom line—in the Eleventh Circuit, IAR’s and similar pre-existing reports are consumer reports for the purpose of the FCRA.
Interestingly, Yang does not mention what FCRA provision GEICO was supposed to have violated. In Johnson, the court noted that the insured did not allege any specific violation of the FCRA by the insurer, nor had the insured shown any damages. 884 F.2d at 885. The court found that it was incumbent on the insured to name those provisions that the insurer violated and to make a showing of damages. Id. Unfortunately for the insurer, it failed to raise these issues on appeal, so the court declined to consider them. Id. Based on Yang and Johnson, it seems that insured's are under the impression that an insurer violates the FCRA simply by asking for or using a consumer report. This does not seem to be the case. An insurer can violate the FCRA by procuring or causing the preparation of an investigative consumer report and not complying with the notice provisions of section 1681d, giving rise to civil penalties. Also, a credit reporting agency can violate the FCRA by furnishing a consumer report for purposes of claim evaluation. This does not implicate insurers directly, but will make it difficult to talk a credit reporting agency into giving you a consumer report.
“Congress recently singled out financial information for special privacy protection when it approved an overhaul of the nation's banking regulations. See Gramm-Leach-Bliley Act of 1999 (GLB Act), Pub. L. No. 106-102, §§ 501-510 (1999) (codified at 15 U.S.C. §§ 6801-6809 (2000)).” U. S. v. Connolly, 321 F.3d 174, 190 (1st Cir. 2003) (parentheses in original). During the debates in Congress, legislators noted that the proposed Act would "provide some of the strongest privacy protections to ever be enacted into any federal law,” and would “represent the most comprehensive federal privacy protection ever enacted by Congress.” Landry v. Union Planters Corp., 2003 U.S. Dist. LEXIS 10553 (E.D. La. 2003) (citations omitted). “The GLBA sets forth a procedure whereby financial institutions falling within the purview of the Act may not disclose nonpublic personal information without first notifying its clients of the financial institution's disclosure policies and affording them the opportunity to bar any disclosure of such information by “‘opting out.’” Martino v. Barnett, 595 S.E.2d 65, 69 (W.V. 2004) (citing 15 U.S.C. § 6802 (a) and (b)). While enacting GLBA, Congress expressed its hope “that State insurance authorities would implement regulations necessary to carry out the purposes of this title and enforce such regulations as provided in this title.” Id. at 70 (citation omitted). Many states have done so to one degree or another; the degree to which any particular state has done so is beyond the scope of this paper.
This part of the GLBA makes it a crime for “any person to obtain or attempt to obtain, or cause to be disclosed or attempt to cause to be disclosed to any person, customer information of a financial institution relating to another person (1) by making a false, fictitious, or fraudulent statement or representation to an officer, employee, or agent of a financial institution; (2) by making a false, fictitious, or fraudulent statement or representation to a customer of a financial institution; or (3) by providing any document to an officer, employee, or agent of a financial institution, knowing that the document is forged, counterfeit, lost, or stolen, was fraudulently obtained, or contains a false, fictitious, or fraudulent statement or misrepresentation.” Violation of the statute subjects the violator to fines and imprisonment of not more than 5 years. 15 U.S.C. § 6823. ENDNOTES Actually, the insured in Pervis argued that the insurer only sought an EUO after it became aware of a grand jury indictment, which the insurer assisted prosecutors in obtaining. 901 F.2d at 946 n.4. The insurer maintained that it did not know about the indictment before it requested the EUO, and at any rate was required to cooperate with law enforcement. Id. The court found that “[w]hether or not [the insurer] knew of and cooperated with the prosecution of [the insured], [the insurer] was entitled under the contract to seek a sworn statement and [the insured] is not excused for this reason.” The reasoning of the court’s opinion on this point could be an effective counterweight to the Fifth Amendment ruling in Weathers. In Smith, the court observed that “[s]tate action can exist by legislative fiat only when the legislation confers on private parties a power that traditionally belongs to the government and grants coercive power or provides significant overt or covert encouragement to private parties to engage in a particular act.” 673 A.2d at 1155 (citing San Francisco Arts & Athletics v. U.S.O.C., 483 U.S. 522 (1987)). An insurer could argue that a state immunity act does not confer upon them a power that traditionally belongs to the government, as the contractual right to question insured's under oath about their claim is long-standing and exists apart from the state. Moreover, the immunity acts do not grant coercive power to the insurers. (In Mello, the insured apparently argued that because Massachusetts prescribes policy terms by statute, by requiring a provision for questioning under oath, the state effectively mandated an EUO. Mello, 656 N.E.2d at 1247. The court rejected this argument, noting this statute “was but a statutory restatement and formalization . . . of the general obligation of insured's in many kinds of contracts of insurance to cooperate with the insurer in the investigation and verification of his claim.” Id. at 1247 n.6.) Finally, immunity acts do not overtly or covertly encourage the insurer to take EUO’s; insurers have plenty of incentive to do so without an immunity act. Accordingly, the insurer could argue that the immunity act does not convert taking an EUO into state action for Fifth Amendment purposes. The Stevens investigator “would peep through the hedge adjoining plaintiff’s home, slink around her house, snoop and eavesdrop upon her activities herein, park near the house where the could watch her through a hole in the hedge, and later park across the street from early morning until late at night, follow her, especially at night, in automobiles staying only a few car lengths behind. In particular, they drove past the house several times on several days before April 13, 195, and almost every day toward the end of April, during May and June, July 2, six occasions between July 25 and August 13, August 20, and two occasions between August 20 and the first part of September; came upon her premises at night near her windows and ran on being observed several nights . . . ; peeped in the windows her house several nights . . . ; eavesdropped and listened in on conversations inside the house . . . ; went into the woods behind her house on July 2, snooped behind the hedge, eavesdropped, and peeped in, . . . on July 2 cut a hole in the hedge alongside the street in order to peep into the windows; came to the door on July 27 pretending to be television salesmen and on July 12 pretending to have business with her; followed her closely in an automobile on given dates, into stores and public places; on July 10 followed her into a named restaurant and were waiting outside a restroom door, and so on. On one occasion the plaintiff returned home at night was so closely followed that she ran into the house in panic, hit a piece of furniture, and knocked herself unconscious.”
Permissible purposes of consumer reports (1) In response to the order of a court having jurisdiction to issue such an order, or a subpoena issued in connection with proceedings before a Federal grand jury.
Disclosure of investigative consumer reports [Note: this provision applies only to the party which requests preparation of the report, not the credit agency that prepared it. Ben-Hur, D.V.M. v. Equifax Info. Svcs., 976 F. Supp. 795, 805 (E.D. Wisc. 1997).] |
