In 2022, 15 class action lawsuits resulted in settlements of $1 billion or more, with the total value of all settlements exceeding $63 billion, a report by the Duane Morris Class Action Review finds. These recent statistics show that class action litigation – from product liability and consumer fraud to data breach actions – remains a significant risk to corporations of all sizes.
Corporate legal teams might think insurance policies are the silver bullet against these class action lawsuit payouts. And while policies can help, in-house counsel must take an active role in understanding their organizations’ risk profile, what insurance policies would best respond to those risks, and when to react when a claim comes in the door.
“It’s paramount to understand the risks of your business, then build out the controls to minimize the risk that you’re going to violate consumer protection laws. Part of that is also actively engaging with your insurance portfolio,” says Lilit Asadourian, partner and co-chair of the insurance recovery practice at Barnes & Thornburg.
This is why in-house counsel must understand what insurance policies do and do not cover, and why a close working relationship among C-Suite decision-makers remains a must.
Study the Policy
So-called nuclear verdicts are becoming more common and courts are taking a more liberal approach to insurance coverage. The California Supreme Court recently ruled in Yahoo Inc.’s favor in Telephone Consumer Privacy Act (TCPA) litigation, finding insurer AIG had a duty to defend its insured in five class actions involving unsolicited text messages under a personal injury liability clause in Yahoo’s commercial general liability (CGL) policy.
“What we expect is that the industry will react by scrambling to add TCPA exclusions to CGL policies to avoid further expansion,” says Asadourian.
The lesson for GCs is clear: Understand what their company’s class action risks are – and whether their insurance provides the correct coverage.
“In financial services, for example, you must comply with consumer protection statutes on lending, foreclosures, and repossessions,” says Asadourian. “For companies that are lead generators, we see the TCPA issue over and over again. Sit down with a broker and insurance lawyer and ask whether you’re getting the best coverage and what exclusions or sub-limits are problematic.”
There isn’t one specific insurance that responds to class actions, says Asadourian, which is why understanding risks is crucial.
Partner With C-Suite Decision Makers
Purchasing and managing insurance is typically the CFO’s purview, but these priorities may not line up with the legal department.
“CFOs are often thinking, ‘what’s the cheapest policy we can get for the most coverage?’ That doesn’t always line up with the GC’s priorities,” says Asadourian. “GCs should lead a bi-annual check-in with those within their organizations who buy the policies.”
Coverage attorneys can help by giving policies a health check, she says, noting that claim advocacy starts before a claim is in the door. Legal departments should also develop a response timeline and protocol for when claims do come in.
“Notice is black and white under most claims made policies,” says Asadourian. “You could settle that one claim privately, but if you get a class action making the same allegations six months later, your carrier could say there’s no coverage because you didn’t give timely notice.”
The point, says Asadourian, is that companies have insurance for catastrophic lawsuits for a reason but knowing what policies cover and working with C-Suite decision-makers can reduce additional risk. “You want to be protected,” she says.
Barnes & Thornburg’s Insurance Recovery and Counseling practice has additional information for in-house counsel about insurance and risk.
Johanna Marmon is a writer in upstate New York who has been reporting on trends impacting the legal industry for more than 15 years.