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DAMAGES UNDER THE FAIR CREDIT REPORTING ACT ARE NOT PENALTIES, INSURANCE POLICY EXCLUSION OF COVERAGE FOR PENALTIES DID NOT APPLY.

The First Department rejected plaintiff insurer’s argument that it was not required to pay the cost of its insured’s settlement of a class action claim under the Fair Credit Reporting Act (FCRA) because the settlement constituted a penalty (not covered by the policy) rather than compensatory damages:

To make out a claim under the FCRA (15 USC § 1681 et seq. ), the complaint must allege, inter alia, injury in fact, a “concrete and particularized” and “actual or imminent” “invasion of a legally protected interest,” i.e., the statutory right to the fair handling of the plaintiff consumer’s credit information … . The remedy for “willful” failure to comply with a requirement of the statute is “any actual damages sustained by the consumer by the failure or damages of not less than $100 and not more than $1,000,” and “such amount of punitive damages as the court may allow,” as well as costs and reasonable attorneys’ fees … . Since the consumer must elect the option of either actual or statutory damages, and may also recover punitive damages, it is reasonable to infer, as the motion court did, that the actual and the statutory damages serve the same purpose … . Moreover, the statute provides separately for a civil penalty (recoverable by the Federal Trade Commission) … . Plaintiff argues that the limitation of damages to a “willful” violation of the statute evinces a legislative intent to penalize intentional misconduct, rather than compensate for actual damages sustained, but this is not so, since willfulness as a statutory condition of civil liability “cover[s] not only knowing violations of a standard, but reckless ones as well” … . Thus, it is clear that Congress intended the statutory damages provided for by the FCRA to be compensatory and not a penalty … . Navigators Ins. Co. v Sterling Infosystems, Inc., 2016 NY Slip Op 08941, 1st Dept 12-29-16

INSURANCE LAW (DAMAGES UNDER THE FAIR CREDIT REPORTING ACT IS NOT A PENALTY, INSURANCE POLICY EXCLUSION OF COVERAGE OF PENALTIES DID NOT APPLY)/FAIR CREDIT REPORTING ACT (FRCA) (INSURANCE LAW, DAMAGES UNDER THE FAIR CREDIT REPORTING ACT IS NOT A PENALTY, INSURANCE POLICY EXCLUSION OF COVERAGE OF PENALTIES DID NOT APPLY)

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