Insurers face class action threat

By James F Jorden

18 June 2015 at 14:01 BST

Insurers in the US are more likely to face class action threats - as new research from Carlton Fields Jorden Burt shows.

Data breach - cause of claims

Insurance companies are increasingly battling class action lawsuits, according to the fourth annual class action survey in the US recently published by law firm Carlton Fields Jorden Burt. This marks the first year that insurance was listed among the most common types of class actions. Data privacy also made its first appearance on the list. While health insurers have faced news-making data breaches and resulting class actions, other types of insurers are also likely targets due to the amount and nature of the consumer data they possess.  


The survey, which draws on 360 in-depth interviews with general counsel and chief legal officers at leading corporations, found that 6 percent of class actions filed in 2014 were insurance matters and that they accounted for 5.5 percent of class action spending. These findings are unsurprising, as the percentage of insurance-related class actions filed roughly corresponds with the 7 percent, or $1.1 trillion, that insurance companies now contribute to the gross domestic product. Similarly, the 5.5 percent spent on defending insurance-related class actions tracks the overall percentage of these matters filed.  

Types of actions

Insurers are likely to see continued class action activity. For life insurers, class action lawsuits have traditionally related to sales practices and policy provisions. The past 20 years have seen a spate of life insurance and annuity sales practice class action cases. These include “vanish premium” life insurance cases in the 1990s, and “senior citizen” annuity cases beginning in early 2000. Although most of these cases have either been resolved or are in their final stages, it is a fair prediction that we will see class actions asserting variations on these themes in the future.  

New types of action

In addition, entirely new and different causes of action may emerge. For example, on the sales practice front, life insurers are facing a potential increase in litigation attributable to the Department of Labor’s proposed rule designed to redefine and broaden the concept of a fiduciary relationship in the ERISA and IRA markets. The proposed rule would define the rendering of “investment advice” to include the sale of annuities and securities products. It will impose a fiduciary “best interest” standard accompanied by an exemption that will permit continuing “sales compensation practices” but require entering into a fiduciary contract relationship between the sales agent/broker and customer - specifically to enable new potential causes of action.   

Life insurance funds

Another series of relatively new cases related to both life insurance and mutual funds, pertains to fees charged by insurance company-affiliated investment advisers to the mutual funds underlying their variable insurance products. Most of these cases were filed in 2013 and are in their early stages of discovery. Although these cases would seem to face a steep uphill battle, given recent Supreme Court precedents in this area, in the event they gain traction, additional filings could result.   


On the policy provision front, life and annuity insurers may see an expansion of recent novel theories alleging that company reserving or pricing practices result in misrepresenting the financial strength or value of the annuity or life insurance company and its products, resulting in the sale of a product that is “worth less” than as represented. Several of the recent cases involve allegations that the use of captive reinsurance is improper under New York insurance statutes, citing reports from the New York Department of Financial Services. Similar “worth less” theories have been asserted in other types of annuity class actions attacking commission structures or other pricing methodologies.  

Claims reviews

Property and casualty insurers are likely to see the normal flurry of cases related to the construction of policy provisions such as, for example, cases involving argument over the proper method for determining “actual cash value” under the replacement cost calculation. Cases, now pending, that attack a company’s claims review processes or patterns can be expected to continue, and proliferate.  

Data breaches

Finally, as noted above, and consistent with the findings of the class action survey, both life and property and casualty insurers can be expected to confront a growing number of lawsuits stemming from data breaches as the threats from hacktivists, criminal elements, state sponsors, terrorists and insiders continue to proliferate. 

AuthorJames F Jorden, shareholder in Carlton Fields Jorden Burt’s Washington, D.C. and Miami offices, represents many of the country's largest financial institutions in national class action litigation, and has served as lead trial counsel in more than 50 individual cases in federal and state courts throughout the United States over the past 25 years.


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