Class action defence costs rise to $2.9bn as Covid-19 boosts case numbers
More than a quarter of US corporates have faced at least one Covid-19 related claim, research finds
US companies spent $2.9bn last year defending class actions, a record that represents 13% of the litigation spending market, according to new research.
The Carlton Fields Class Action Survey reveals that the Covid-19 pandemic is playing a major role in fueling class actions, against the background of steady year-on-year increases, with the average annual number of cases per company sitting at 9.3, compared to just 4.4 in 2011.
More than 25% of the 400 companies surveyed faced at least one Covid-19-related claim in 2020. Some 1600 pandemic-related actions had been filed by the end of April 2021.
Class action spending has been on the rise for six consecutive years, and corporate counsel are estimating spending levels won’t be letting up anytime soon, with surveyed companies projecting spending will hit another new record of nearly $3.3bn in 2021.
Companies have adopted a number of strategies to reduce spending, according to the research. More than half look to forge relationships with outside counsel for the early triage stage of claims while 83% said they had modified their business practices to temper future class action issues. The use of class action waivers in contractual arbitration clauses, meanwhile, increased by nearly 20% to 74.4% last year.
The report states: ‘As the late Justice Ginsburg observed in a 2018 citation to this report, the increased use of mandatory, individualized alternative dispute resolution is not surprising, because class action waivers in arbitration clauses have been approved by the Supreme Court in a series of arbitration-friendly opinions.’
For the second successive year, meanwhile, internal staffing declined with the number of in-house lawyers dedicated to managing class action litigation falling to an average of 3.6 attorneys per company.
Carlton Fields’ national class actions practice group chair, Julianna Thomas McCabe, said: “With the pandemic, we’ve seen a groundswell of new litigation, and even those companies who have not yet faced a Covid-19 class action have considered or adopted new business practices in an attempt to address related issues and minimize risk.”
One respondent, the chief litigation and compliance counsel at an industrial manufacturer, said: “We’ve had to change the entire health and safety landscape to mitigate risk to employees. On the data side, we’ve had to create protocols and training for employees using personal computers to work remotely.”
The survey found labour and consumer fraud matters as leading categories for class actions, reporting spending figures for each category at 22% and 20% respectively.
Despite the onslaught of pandemic-related claims, data privacy and cybersecurity matters are at the forefront of corporate counsel’s minds when it comes to future class action threats, with 42% of surveyed companies predicting an influx of cases.
The high level of concern about data privacy lawsuits stems from recently enacted or imminent state privacy statutes such as the California Consumer Privacy Act, with one in-house counsel saying companies have only seen “the tip of the iceberg”.
Recent US data privacy class actions include biometric privacy cases against big tech behemoths Facebook and Tiktok, which have been accused of using users’ biometric data without their permission.