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TCL > September 2001 Issue > From The Wool-Sack

September 2001       Vol. 30, No. 9       Page  59
From The Wool-Sack

From The Wool-Sack
by Christopher R Brauchli

Carriages without horses shall go,
And accidents fill the world with woe.
A prophesy attributed to the fictitious Mother Shipton (1641)

Insurance companies are once again in the news. This time it is because of a creative new approach to deciding how much to charge people for car insurance. Historically, insurance companies set the premiums they charged their insureds to the kinds of risk they were assuming. Thus, someone who lived in the country in a wooden house surrounded by trees, with no ready source of water to extinguish fire, expected to pay more than his cousin who lived in the city in a brick house next door to a fire hydrant. A driver repeatedly convicted of driving offenses expected to be "rewarded" for the offenses by fines imposed by the state and higher insurance premiums imposed by the companies. If the offenses were of the sort that insurance companies (as well as society) found particularly offensive, such as drunk driving, the insured was apt to discover that insurance, if available at all, would cost many times more than the same coverage for people without such offenses on their records.

People who buy insurance also are accustomed to the fact that insurance companies will try, when they discover that they have inadvertently insured against a peril they did not think of when writing the policy, to amend the policy so as to exclude such coverage from future claims of that sort. Thus, some years ago, when a young woman sued her former paramour, alleging that he had given her herpes, the young man did what anyone in his position would do: he checked his homeowner’s policy and discovered that it insured him against exactly this sort of thing. He notified the company of her claim and, in due course, agreed to pay the young woman $25,000. Insurance companies have since, not surprisingly, modified their policies to exclude coverage for this kind of an incident.

In addition to constantly rewriting policies to limit coverage as much as possible, without appearing to dislike the line of work in which they are engaged, that is, insuring against misfortune, insurance companies writing car insurance have come up with a creative new way to increase premiums while appearing to be doing their policy-holders a favor. They have discovered that not only should they concern themselves about a person’s driving record when setting premiums for car insurance, but they also should consider a person’s credit rating.

According to a recent report from the Associated Press, more than half of auto insurance companies are now believed to be using credit ratings in setting rates. Some companies reportedly place greater emphasis on how quickly a person pays his or her bills than on how quickly he or she drives through a school zone. Such checking is considered quick and easy for the insurance company. People who pay their bills on time are people who, the insurance companies believe, make good drivers. Someone who is chronically late paying bills, so the thinking goes, is probably someone who, when driving, is worried that the car behind is a creditor or a collection agent getting ready to seize the car or garnish wages as soon as the creditor can figure out where the debtor lives or works.

Here is how this new system worked for one consumer in Colorado. June Dailey, an 80-year-old woman who lives in Fort Lupton, got a notice from Horace Mann Insurance Co., saying it was raising her premiums by 47 percent. She has had one accident in sixty-four years of driving, and that was seven years ago when she had a "fender bender." Her credit history is what did her in. She has none. She pays for everything in cash. She has no credit cards and, therefore, nothing of interest that the insurance company can look at to determine what kind of a debtor she is.

The one place it could have looked was at its own records. She has been insured with the company for forty-seven years, and its records would have disclosed that she paid her premiums on time for all of those forty-seven years. However, it didn’t bother to check. Instead, since she had no credit history, it raised her premiums. Paul Wappel, a spokesman for the company explained it this way: "Credit history provides a consistent, reliable tool to evaluate the risk of insuring someone without unfairly discriminating against any specific group of customers." The company could not make an exception for Dailey because, in Wappel’s words, "we have to treat everyone equally."

Wappel did not explain how treating differently people who pay bills on time by check from those who pay through credit constituted equal treatment. He also did not explain how the company’s evaluation of Dailey, who has a fine credit history, fit in with his description of credit history as a "consistent, reliable tool to evaluate the risk of insuring" her. He probably was unaware of a 1998 study made by the Public Interest Research Group that said 28 percent of the 133 credit reports it reviewed contained serious errors. He didn’t explain anything. He doesn’t have to. He makes the rules and he’s sure he’s right. It’s too bad he’s wrong.


The views expressed in From the Wool-Sack are those of the author and not necessarily of the Colorado Bar Association or The Colorado Lawyer. Material published by Mr. Brauchli in The Colorado Lawyer may have appeared previously in other publications. Christopher Brauchli can be reached at

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