March 17, 2023

A Missouri federal judge declined to throw out a coverage dispute involving an insurance company in a $54 million settlement for an alleged Fair Credit Reporting Act (FCRA) violation. 

The judge reached this decision through arbitration between a background check company and a class of consumers. As such, the judge upheld the decision by the Eighth Circuit court in a related garnishment action, which would have a notable effect on the outcome of the FCRA case.

The judge noted that the material circumstances concerning the motion to dismiss had changed since the July filing. At the time, the case faced denial without prejudice. The background check company and the plaintiff then refiled their motion. They sought to dismiss the insurance company’s request to declare it had no legal obligation to indemnify the background check company for the disputed arbitration award.

The judge found this to be the best decision in the litigation due to the current dispute considered by the Eighth Circuit. At the time, the Eighth Circuit considered a case concerning the appropriate venue for a garnishment action. This action also involved a complaint against the insurance company.

The background check company and the defendant moved to dismiss the case concerning coverage by the insurance company last year. In this movement, they argued that the insurance company could bring up its policy defenses in the state court. They based this reasoning on the similarities between the garnishment and coverage cases.

However, the insurance company removed the garnishment action in a federal court on the same day the defendant filed the motion. As a result, the insurance company argued against dismissing the coverage dispute. According to its argument, they did not have a parallel state court case to involve.

A federal court granted a motion by the background check company to remand the matter. As a result, the location for the garnishment dispute would change. This ruling came after the court heard the coverage dispute.

The insurance company then gained permission from the Eighth Circuit to appeal the decision to remand the case. The judge stated that a ruling from the appellate court could prove imminent. Regardless of the decision made for the case, the judge emphasized that the decision to dismiss or stay the coverage dispute could not happen at this point. After the judge ordered not to close the coverage dispute, the insurance company filed a motion for summary judgment on the complaint it had filed for declaratory judgment.

The insurance company claims that it deserves this relief. According to it, the $54 million judgment and arbitration award comes from reckless, willful, and conscious conduct on the part of the background check company. They also cited the background check company’s policies to support the right to relief. For example, the background check company’s policies stated it would only cover damages resulting from negligent acts, errors, or omissions.

This case started with the worker who started the class action. This person applied to work for a building materials manufacturer in North Carolina. The following job offer led to a background check from the company involved in the arbitration settlement. Later, the worker learned that the company no longer considered him for the position.

The worker sued the building materials manufacturer, claiming the company violated the FCRA. This lawsuit, which settled for $2 million, claimed the company did not provide him and others with a copy of their consumer report before taking adverse action. However, the worker also filed a class action against the background check company. This lawsuit went to arbitration and settled for $54 million.

How this case ends remains unknown. However, these cases show the importance of following FCRA requirements when obtaining consumer reports. The best way to ensure you follow these requirements is to partner with a trustworthy background check company.

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