As we near the end of the year, from what I have seen in monitoring new class action filings against the insurance industry, a main focus of the plaintiffs’ bar in 2013 has been on what might broadly be characterized as compliance issues. In most cases, this involves an allegation that the insurer’s claim or underwriting practice fails to comply with a technical requirement of a state statute, regulation or insurance department bulletin. Sometimes the plaintiff proffers an interpretation of the statute or regulation that is colorable, but contrary to the way the insurer interpreted the requirement, and there may be no court decision or even insurance department bulletin providing guidance. In other cases, the allegation is that the policy fails to comply with a statute or regulation. In other cases, the class action may be premised on a new state supreme court decision. Here are a few examples:
- In what I believe was the largest group of class actions filed against the industry this year, numerous class actions were recently filed in Arkansas following the Arkansas Supreme Court’s decision that insurers may not apply depreciation to labor costs in calculating the actual cash value of damage on property insurance claims. (See my November 21 blog post for more on that.)
- Auto insurers have been sued for allegedly failing to comply with statutory requirements with respect to payment of PIP and Medpay claims. Florida is a particularly hot jurisdiction on this issue (and others).
- Auto insurers have been sued for allegedly failing to comply with statutes, regulations, or their own policy provisions with respect to the calculation of payments on total losses of vehicles.
- With respect to underwriting, cases have been filed alleging that the insurer is selling too much insurance (more than is needed), either because the value of the property being insured as estimated by the insurer is too high, or the offer of coverage in some respect allegedly fails to comply with a statute or regulation.
So what is my big picture takeaway here? If I were involved in running an insurance company and focused on reducing potential class action exposure, I would lean strongly towards investing in the company’s compliance department (which sometimes is part of the legal department and in other cases is its own separate department). One way to try to head off these types of cases, and also make them easier to defend when they are filed, is by being very proactive on compliance issues. If a statute, regulation or bulletin is unclear, there is usually an option to obtain guidance from the insurance department as to how to implement it, and there should always be an option (if necessary) of filing a declaratory judgment lawsuit to obtain definitive guidance from a court. When it comes to decisions by state supreme courts or appellate courts that create potential compliance issues, those can be more difficult to head off. But if the company is sufficiently wired into the jurisdiction to know that an important case is coming down the pike, steps can potentially be taken to try to have influence into the result (through an amicus brief) or to prepare in advance for the potential for an adverse result.