Insurance companies often view class actions as meritless suits driven by plaintiffs’ lawyers and perhaps one or two disgruntled insureds.  But they often want to resolve small disputes with their customers, and give insureds the benefit of the doubt.  After all, keeping insureds happy and retaining their business year after year is very important.  So insurers sometimes explore whether it is possible to settle a class action in a way that allows customers who feel they were mistreated to resubmit their claims for reevaluation by the company.  Sometimes plaintiffs’ counsel objects to this and insists on a special master or some other neutral making the rulings.  The Eleventh Circuit recently upheld a settlement in which the defendant would do the reevaluations of claims.  This wasn’t exactly an insurance case but closely analogous. 

In Faught v. American Home Shield Corp., 2011 U.S. App. LEXIS 22073 (11th Cir. Oct. 31, 2011), the plaintiffs’ claims involved home warranty contracts issued by American Home Shield (AHS).  These contracts covered failures of items such as heating and air conditioning systems and appliances.  The plaintiffs claimed that AHS improperly denied claims on the ground that homeowners failed to maintain or clean the system or appliance, and that AHS had an improper practice of incentivizing repairpersons to deny claims.  The proposed settlement called for the establishment of a “Review Desk” at AHS that would reevaluate claims.  The “Review Desk” would be required to overturn the denial if it was based on the homeowners’ failure to have annual maintenance performed, with some discretion to consider other factors.  The court described the basic settlement terms as follows:

As part of the settlement, class members forfeit their right to participate in class action lawsuits against AHS and instead must pursue any future claims in individual lawsuits. In exchange, they receive a number of benefits, including the right to resubmit claims to the Review Desk, staffing requirements designed to make the Review Desk more effective, and litigation incentives aimed at ensuring that AHS treats claimants fairly. Class counsel and AHS separately negotiated the class counsel’s fee award. That award included a $1.5 million lump sum payment plus 25% of class members’ cash awards from the Review Board process.

Id. at *7-8.  The litigation incentives were that claimants who retained counsel and were awarded more in court than the Review Desk offered would receive attorneys’ fees, generally capped at $5,000.  Claimants who represented themselves in court would get an additional $1,000 payment if they won more than the Review Desk offered.  Any claimant could opt out of the Review Desk process altogether and simply file an individual lawsuit.  Id. at *16.

The main argument made by the objectors to the settlement was that it was improper to have AHS decide which claims should be paid without any review by a neutral (except if suit was filed, which would typically be in small claims court).  The Eleventh Circuit rejected this argument.  It did not explain its reasoning in detail but found that the approval of the settlement was not an abuse of discretion.

This is a model for a type of settlement that might work well in an appropriate insurance case.  Insurance companies typically would be most comfortable with having their own claim professionals reevaluate claims, as long as the workload does not become overwhelming.  The litigation incentives in this proposed settlement should ensure that settlement offers are reasonable where appropriate, without unduly penalizing the insurer if the insured chooses to go to court and collects more.   The disadvantage here is that, unlike in most class action settlements, the insurer does not get a complete release – the class members cannot pursue further class actions, but they retain the right to pursue individual claims.  In order for this to make sense from the insurer’s perspective, the carrier must be sufficiently comfortable that the chances are relatively small that the settlement will result in a large number of individual suits.  In any event, this is an interesting model that now has the blessing of a federal appeals court and is worth considering in appropriate cases.

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.