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       IntroductionCredit Score BasicsCredit Scores - AdvancedRe-ScoringObtaining Your Credit ReportReading Your Credit ReportDisputing ErrorsIdentity Theft BasicsMaking & Mixing Credit ReportsReinvestigations (or not)HistoryCredit RepairDebt CollectionAuto InsuranceHomeowners InsuranceMortgage InsuranceThe Color of Credit ScoresSpecial ChallengesOpting OutImpermissable AccessDamage & DamagesThe 2003 FACTA BattleMissing Credit LimitsConclusion |
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Credit Scores and Credit Reports, by Evan HendricksChapter 14 Homeowners Insurance You have the right to remain silent.
One ChoicePoint product that aroused controversy in recent years was "CLUE Personal Property."229 This system was designed to keep track of claims filed by homeowners going back five years. More than 90 percent of homeowner insurance companies furnish data to CLUE Personal Property, ChoicePoint said on its Web site.230Anything you say, can and will be used against you... — Criminal Suspect's Rights Under Miranda v. Arizona (45 US 123) According to the rather drab description on the company Web site, "The CLUE reports include policy information such as name, date of birth, and policy number, and claim information such as date of loss, type of loss, and amounts paid." This product became controversial for a couple of reasons. First, anecdotal information indicated there was a significant error rate that directly caused wrongful denials of homeowner policies or hikes in premiums. Second, some people have found their premiums were raised for simply asking questions about their coverage. Others saw their rates go up after they reported minor damage, but refrained from filing a claim. 229 C.L.U.E. stands for Comprehensive Loss Underwriting Exchange 230 http://www.ChoicePoint.com/industry/insurance/pc_ins_up_2.html, visited January 23, 2004 Put simply, because of ChoicePoint's CLUE, you should be very careful about communicating with your insurer about your homeowners policy, because anything you say can and might be used against you. Even what you might ask could hurt you. Complaints On The Rise For these reasons, complaints over property insurers were on the rise. The California Department of Insurance (CDI) said in 2001 it only received 318 formal complaints. By the third quarter of 2003, it had received 1,200 written complaints. In 2003, it continued receiving over 100 complaints per month.231 Some of the complaints came from Californians who simply inquired about their insurance policies, such as:
231 http://www.insurance.ca.gov/PRS/PRS2003/fs057-03.htm 232 Id. 233 Walter, Bob, "Home Insurance Now At A Premium," Sacramento Bee, March 16, 2003, Page: A1 Drawing Commissioner Attention The complaints have prompted California Insurance Commissioner John Garamendi to adopt emergency regulations to strengthen his residents' rights in regard to their CLUE data, and to curb the insurers' policy of "you use it, you lose it." Several California lawmakers have introduced bills to regulate CLUE, but time ran out before they could pass in 2003.234 "ChoicePoint, the company that owns and manages the CLUE database, is quick to compare CLUE to a credit report. Consumers are at a serious information disadvantage because they do not know the database exists, may not be told by insurers that their denial of coverage is due to a CLUE report, and do not know how to obtain a copy of their report to review it and dispute errors," his Web site stated.235 Garamendi expressed concern that CLUE reports were replacing basic underwriting principles. Instead of studying the probability of future losses, companies were making too many decisions based on CLUE loss history reports, he told the Sacramento Bee. For example, consider a water claim that results when a tree falls on a roof during a storm. "If the tree is removed and the roof is replaced and the damage is repaired," he said, "then the future risk is lower, not higher."236 Garamendi's assistant, Nanci Kramer, added, "What we can't tolerate is seeing somebody who files one claim after 15 years and finds himself in insurance no man's land. We don't want people to be afraid to use the insurance they are paying for."237 Despite these anecdotes, insurers defend CLUE reports as generally reliable and as simply one of many tools they use to assess risk. After all, they said, past history is a critical element for evaluating both properties and customers. 234 See SB 64, by Senator Jackie Speier; SB 691 by Senator Martha Escutia, AB 81 by Assemblyman Wyland 235 http://www.insurance.ca.gov/PRS/PRS2003/fs057-03.htm 236 Walter, Bob, Sacramento Bee, op cit. 237 Id. Industry: One Loss Leads To Another "Our analysis shows that if you had a loss in the last three years, you are 25-30 percent more likely to have a loss in the next 12 months," said Kevin Kelso of Farmers. "If you had two losses, it's 75 percent more likely. This seems to be pretty intuitive in auto insurance, and it's always been true in homeowners as well."238 Robert Hartwig of the Insurance Information Institute said the CLUE reports are invaluable for aspiring homebuyers as well as legitimate tools for setting rates. "Insurance inherently draws a distinction between different groups," he said. "The fact is that some people file very few claims and others file quite a few. If you restrict the tools, you create a less equitable system in which everybody pays the same... you effectively have low-risk customers subsidizing the rest." As for the issue of consumer inquiries, Ernest Burley Jr., a Maryland-based insurance agent for State Farm, told the Washington Post's Michelle Singletary that policy-holders should make it clear when they call their insurer that they are only seeking advice and do not want a claim filed.239 In July 2003, ChoicePoint sent a letter to insurers reminding them what information should be reported, according to ChoicePoint V.P. Jeffrey A. Skelton. "Claim information should be reported to CLUE when there has been a request from an insured or claimant for payment as a result of a loss," the letter stated. "Claims information should not be reported when a customer merely asks questions about their coverage or deductible."240 238 Id. 239 Singletary, Michelle, "Loose Lips, Higher Premiums?" Washington Post, October 5, 2003; pg. F1 240 Id. Important Call But insurance companies argue that calls about a possible claim can tip them off to future problems, especially in regards to such prevalent and expensive claims as mold or water damage. "The issue is not really a question of defining what is a claim and what is not, but what information has a bearing on future risk," P.J. Crowley, vice president of the Insurance Information Institute, wrote in a response to questions submitted by the Post's Singletary. "Consumers tend to look at dollar amounts and conclude that something that happened didn't cost the insurance company any money, so no harm, no foul. Insurance companies pay a lot more attention to the frequency of problems occurring in the home, as opposed to the severity, as being a key predictor of future risk and future claims." For example, suppose your home was broken into and a television set was stolen. You might call your insurance company to report the burglary but then decide not to file a claim because the television set is worth less than your deductible.241 "In the consumer's mind, there is no claim," Crowley wrote. "However, to the insurance company, there is information that is associated with higher risk, since the house was broken into." Crowley said claims or calls that indicate damage or losses in the home are used by insurers to evaluate the likelihood that another claim will be filed on that property over the next 12 months and what the homeowner should be charged in premiums as a result. Some insurance companies ignore information that didn't involve a payment, what insurers refer to as a "zero paid claim" or "claim closed without payment." Travelers, for example, did not consider zero-paid claims when considering renewals or new customers, said Travelers Spokeswoman Marlene Ibsen. 241 Id Other insurers pay attention to everything in the CLUE report. How a company treats the information will vary by company, market, and state regulation, Crowley said. Crowley recommended that when shopping for insurance, ask the agent about the insurer's policy on handling claims closed without payment. The debate assuredly will rage on and occupy state insurance commissioners and policy makers for years to come. Subject To FCRA However, it should not be forgotten that ChoicePoint, CLUE and like services are all subject to the FCRA. One consumer who remembered was Mary Boris, a Kentucky woman who sued after inaccurate data caused CNA Insurance not to renew her automobile and homeowners policies. Boris' CLUE report showed she had made four fire claims and an "extended loss" claim over a short period of time. In fact, Boris had made four water-related claims. After some back-and-forth, ChoicePoint finally corrected the errors, but they all reappeared a few months later. This frustrated Boris' effort to get affordable insurance. Although she filed suit in May 2001, the mistakes remained on her report until March 2002. In court, ChoicePoint argued that it satisfied the FCRA's requirement of reasonable procedures for accuracy (§1681e(b)) because it "accurately transcribed information from a reputable third party." It also asserted it was absolved from liability because CNA was circulating the same false information to other consumer reporting agencies. But the jury was not persuaded. It slapped ChoicePoint with $250,000 in punitive damages and $197,000 in compensatory damages. Chief U.S. District Judge John G. Heyburn II said that punitives were justified because of the need to "punish" a "corporate conglomerate like ChoicePoint." Considering ChoicePoint was notified several times about the mistakes and still didn't correct them, Judge Heyburn said, "A jury could certainly conclude that a reasonably prudent company would have prevented a similar outcome. "ChoicePoint never took responsibility for assuring that its data was accurate," he continued. "Third, ChoicePoint never really explained the computer glitches which apparently caused this problem. To this day, the court is still unclear what procedures, if any, ChoicePoint uses to insure the accuracy of its mass circulated reports." "To be sure, this is not a case, as ChoicePoint seeks to paint it, where there was an isolated instance of human error which ChoicePoint promptly cured, or where, upon discovery, ChoicePoint quickly took ameliorative action. Nor is it an instance where ChoicePoint can defend itself by simply claiming it relied on information it assumed was accurate, or where it assumed its actions were lawful," he wrote. "With that in mind, the following facts likely account for the large verdict: 1) ChoicePoint knew the FCRA's requirements; 2) it was on notice that there was a problem with Plaintiff's report, but failed to correct those problems; 3) ChoicePoint failed to take seriously the computer problems even after they became known; 4) not one of ChoicePoint's employees ever accepted responsibility for the accuracy of the claims data and, in fact, everyone blamed others; 5) ChoicePoint showed a complete lack of sympathy for Plaintiff's problems; and 6) throughout trial, ChoicePoint made several ill-advised efforts at trial to blame or criticize Plaintiff for her own problems. Second, the punitive damages are not out of proportion to the compensatory damages nor do they appear disproportional to the resources of the company. The Sixth Circuit has said, since the FCRA is intended to protect consumers, it is to be liberally construed in support of that purpose," Judge Heyburn wrote.242 In a March 15, 2005 Senate Banking Committee hearing, Sen. Jim Bunning (R-KY) cited Judge Heyburn's opinion and asked ChoicePoint Vice President Don McGuffey what procedures his company had in place to ensure accuracy. Seemingly unprepared for the question, McGuffey said the company had a dispute-handling process in place to comply with the FCRA, but would have to get back to him about the specifics.243 How To Obtain Your CLUE Reports Under the 2003 amendments to the FCRA, known as the "Fair and Accurate Credit Transactions Act (FACT Act)," consumers are entitled one free copy of their consumer file during each 12-month period. ChoicePoint said it has three "products" that are free under the FACT Act: the C.L.U.E. (auto and homeowners insurance); "WorkPlace Solutions" (employment back-ground screening) and "Tenant History" (apartment rentals). You can order these online, via toll free phone number, or through the mail. Proceed to the next page for contact information: 242 (Mary Boris v. ChoicePoint Services, Inc., et al.: USDC-W.D. Kentucky (Louisville) - No. 3:01CV-342-H; March 14) 243 http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=144; (go to "Click here to view hearing.") www.choicetrust.com C.L.U.E. Auto or Homeowners Reports ChoicePoint Consumer Disclosure Center P.O. Box 105295 Atlanta, GA 30348 1-(866) 312-8076 WorkPlace Solutions ChoicePoint Consumer Disclosure Center P.O. Box 105292 Atlanta, GA 30348 1-(866) 312-8075 Tenant History Resident Data Consumer Disclosure Center P.O. Box 850126 Richardson, TX 75085-0126 1-(877) 448-5732 © 2005 Evan Hendricks and Privacy Times, Inc. All rights reserved. |
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