Insurers Seek Help On Class-Actions

Insurance groups are working on ways to counter the growingnumber of class-action lawsuits and are asking the NationalAssociation of Insurance Commissioners to help them.

During the NAIC's recent spring meeting here in Reno, Nev.,state regulators were asked to establish a mechanism that wouldfacilitate the NAICs filing of amicus, or “friend of thecourt” briefs in cases that involved insurance.

The growth in class-action cases, according to David Snyder,assistant general counsel with the American Insurance Associationin Washington, is undercutting the predictability of the insurancebusiness. Moreover, he said it is important for regulators toprotect state regulation from the effects of class-actionlitigation.

Insurers bear some responsibility for the growth in class-actionsuits, Larry Mirel, insurance commissioner for the District ofColumbia, told insurers. “You settle [class-action suits] formillions of dollars and feed this frenzy,” he said.

During the discussion that took place at the NAIC/Industryliaison committee, Ohio Insurance Director Lee Covington noted that“class-action suits can be a vehicle to right legitimatewrongs.”

Mr. Covington said that in meetings with insurance company chiefexecutive officers, the Ohio department has posed the question ofwhat company concerns kept them up at night and was told thatclass-action litigation was a major worry.

Philip Stano, a partner with the law firm of Jorden Burt inWashington, said plaintiffs in a current class-action suit in NewMexico are claiming that 90 percent of the policy forms filed withthe department are defective. He recommended that boilerplateprotections against such actions be included in any model NAIClegislation.

Consumer advocates asserted that class-action suits can play avalid role in protecting consumers. Class-actions serve apublic-policy purpose, and “state officials should not be throwingup firewalls” between parties that are suing and potential redress,said Kevin Hennosy, publisher of SpreadtheRisk.org in Kansas City,Mo.

Class-actions can reveal problems that are not exposed throughtraditional market conduct resources, said Jeff Williams, arepresentative of the Legal Aid Society of Western Missouri, inKansas City.

This is more so, he said, given the possibility of lessfront-end regulation and uncertain back-end regulation. (The KansasCity, Mo.-based NAIC is considering easing product filing ruleswith the promise of more back-end regulation if problems with afiled product arise.)

However, Mr. Williams said that if class-action cases result insettlements in which plaintiffs do not see awards because ofattorney fees, then that is “highly problematic.” During theindustry/liaison meeting, a settlement was discussed in which legalfees left plaintiffs with no settlement money to share.

Jim Connolly is a senior editor with NU's Life &Health/Financial Services edition.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, April 8, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.