On January 20, 2017, the Ninth Circuit Court of Appeals issued an opinion with far-reaching consequences for employers’ liability under the Fair Credit Reporting Act (15 U.S.C. § 1681b(b)(2)(A)), and which could impact insurance coverage for such liability. In Syed v. M-I, LLC, et al., 2017 WL 242559 (9th Cir. Jan. 20, 2017), the court held that a prospective employer willfully violates the Fair Credit Reporting Act (FCRA) when it procures a job applicant’s consumer report after including a liability waiver in the same document as the statutorily-mandated disclosure.
Plaintiff Syed applied for a job with M-I in 2011. As part of the application process, M-I provided Syed with a document labeled “Pre-employment Disclosure Release.” The Disclosure Release informed Syed that his credit history and other information could be collected and used as a basis for the employment decision, authorized M-I to procure Syed’s consumer report, and stipulated that by signing the document, Syed was waiving his rights to sue M-I for violation of the FCRA. Syed filed a class action lawsuit on behalf of himself and all others that had received the same disclosure document, arguing that M-I had violated the FCRA, which requires that the disclosures given to job applicants before obtaining their consumer reports consist “solely” of the disclosure. The United States District Court for the Eastern District of California dismissed the class action complaint, concluding that Syed had not sufficiently pled willful violation of the FCRA. Syed appealed.
In a matter of first impression, the Ninth Circuit reversed the district court’s dismissal, holding that M-I’s inclusion of a liability waiver in the same document as the disclosure willfully violated the FCRA as a matter of law. In reaching its holding, the court emphasized that the FCRA requires that the disclosures given to job applicants consist “solely” of the disclosure that the report may be obtained for employment purposes. Therefore, the court concluded that an employer’s inclusion of any terms in addition to that disclosure language, including a liability waiver, constitute a “willful” violation of the statute. The court explained that “solely” unambiguously means “alone”, “singly”, “entirely”, or “exclusively” such that M-I’s inclusion of a liability waiver on the same document was a plain violation of the express terms of the statute. The court further elaborated that the inclusion of a waiver “does not comport with the FCRA’s basic purpose…[and] [t]o the contrary, it would frustrate Congress’s goal of guarding a job applicant’s right to control the dissemination of sensitive personal information.”
The Syed case could have a significant impact, opening the door to claims under the FCRA, because employers routinely utilize consumer reports as part of their job application process. Under the statute, Plaintiffs are limited to their actual damages unless they can prove that the employer “willfully fail[ed] to comply” with the statute. In such instances, plaintiffs can recover statutory damages ranging from $100 to $1,000, punitive damages, attorney’s fees, and costs of suit. In light of these exposures, employers often look to their liability policies to pick up the defense costs and indemnity exposure associated with these claims.
The Ninth Circuit’s holding that the employer willfully violated the FCRA is likely to create coverage defenses to these claims, as many states have public policy limitations prohibiting insurance coverage for an insured’s willful acts. In California, the limitation is further codified by statute in Insurance Code Section 533, which expressly provides that “[a]n insurer is not liable for a loss caused by the willful act of the insured.” Thus, in situations like Syed, where employers have not followed the express requirement of the statute to have disclosures in a standalone document, they will now be facing increased exposure for claims arising under the FCRA without the assured safeguard of insurance coverage to help pick up the tab.
The Syed case is an important reminder for employers to take a fresh look at their application forms, and specifically, their consumer report disclosures under the FCRA to ensure they comport with the express requirements of the statute and, as appropriate, to seek the advice of counsel. Otherwise, employers may face much more than they bargained for with their liability waivers. Rather than escaping liability under the FCRA, they may face exposure for additional remedies resulting from the willful violation of the statute and risk the loss of insurance coverage as a consequence.