The decision involved an interpretation of the Fair Credit Reporting Act. Under the law, adverse action notices must be sent to homeowners in some cases where credit reports are used to determine rates. The decision marked the first time a federal appeals court has interpreted the definition of "adverse action" in the law.

The law authorizes consumers to seek damages of between $100 and $1,000 per person, plus attorney's fees, if a "willful" violation of nondisclosure has been determined, as the lower court did in this case.

The ruling by the court, which handles appeals from California, Washington and Oregon, does not apply to California because under state law credit scores cannot be used by insurance companies in California.

The Property Casualty Insurers Association of America filed a separate brief, saying an additional point not raised in the other briefs needs to be considered by the court.

Its brief also described the potential impact of the three-judge panel's decision as "having potentially devastating implications for the insurance industry." The PCI brief also noted that, "coupled with the broad standard of 'willfulness' adopted by the panel, these notices could potentially subject some insurers to statutory liability of staggering proportions."

The PCI projected that if the current ruling is sustained, as many as 18-to-36 million adverse action notices would have to be filed annually based on the number of homeowner policies issued in 2005.

Moreover, if the penalty provision of the law mandating filing of notices is enforced, "it could threaten the solvency of insurers and negatively affect the availability and affordability of personal lines insurance," the PCI brief said.

The briefs were prepared by lawyers before the full implication of Hurricane Katrina became known, so the need for the industry to focus on the case as well as dealing with Katrina claims and paying for thee huge costs could exacerbate the ruling's impact on the industry, according to trade groups.

The AIA/NAMIC/IIABA brief seeking review by the full court argues that the decision "created a standard of conduct that conflicts with the plain language of the FCRA–penalizing companies that employed reasonable procedures to comply with the statute."

To hold that an insurer's interpretation of the law is "nonsensical" and "willfully" disregards the law and, "at a minimum, ignores the fact that this same interpretation had been adopted by the lower federal court–the only court to have previously ruled on the issue," the AIA/NAMIC/IIABA brief said.

"In addition, the new requirements were handed down by the panel without any fact-finding about what insurers do and why they do it, add no value for consumers, and should never be the basis for a finding of willful violation because no court or regulatory agency had previously imposed the panel's new requirements, and indeed the only court to have ruled did so in support of the insurer's interpretation," the brief for the three trade groups said.

In a statement, David Snyder, AIA assistant general counsel, said, "The panel's decision demonstrates the dangers of a court acting far beyond the factual record in front of it, exceeding its authority by acting as a legislator or regulator, and being so anxious to punish perceived infractions that it ignores the reasonableness and legal basis of the punished actions, including prior judicial opinions at odds with the panel's views."