Class actions without losses
A challenging US trend
There is a growing trend in the US that first puts a relieved smile, but then a troubled frown on the faces of liability insurers.
It relates to class actions. Class actions? Smile? Yes, because this type of action does not involve claims for actual property damage, personal injury or even economic loss suffered by the plaintiffs themselves, which means it is not usually covered by liability insurance.
Instead, this type of action focuses on a breach of consumers' rights, e.g. where products are accused of failing to live up to accepted standards of safety, performance or advertising hype. No actual loss may have been suffered by the plaintiffs, but the court may recognize their right not to be offered unacceptable products that could cause loss to innocent and unsuspecting ordinary people.
Plaintiffs ask the court to award punitive damages ("punitive", means "punishing") to punish companies for putting profit before customers and to deter them from doing it again.
Examples from the real world
Why would insurers frown if such claims are not covered? Well, these actions are becoming a major headache for many of our larger clients and the question is, does it fall to us to try and help them and if so, how? Here are a few headlines from a US legal website that serve as examples of these class actions:
- Whole Foods Market Inc. was hit with a putative class action in the Illinois federal court, Monday, accusing the grocer of falsely marketing its St. John's Wort supplement product as "standardized", when testing reveals different bottles contain different amounts of the active ingredient.
- Fitbit Inc. asked a California federal judge, on Monday, to compel arbitration in a proposed class action accusing the company of making “wildly inaccurate” fitness trackers, arguing that the consumers have had a year for discovery and that the case must now go before an arbitrator.
- A Puerto Rico federal judge has put a hold on a false labeling suit over artificially colored cheese brought against Kraft Foods Group Inc., saying she is pausing the case until the U.S. Food and Drug Administration provides guidance on the use of the term "natural" on food products.
A European approach
A European approach to this sort of class action may be that they are simply inappropriate. It is the task of governmental authorities, watchdog agencies and even the criminal courts to police such failings in products and advertising. We generally consider that the civil courts should not be filled up and slowed down by mass protestors who have not suffered actual damage, themselves.
But the American spirit appears to place great faith in the individual raising his voice and demanding financial punishment of wrongdoers, which is presumably seen as the best way to prevent cynical companies from continuing with such alleged abuses.
In many countries, we try not to overburden the courts with cases. Every society needs a court system for the rule of law; but, they are a large drain on public finances. However, some jurisdictions in the US are keen to find legal grounds to open the doors of their courts to all comers who have a grievance and who want their day in court.
Claims Lawer, Liability Claims, If, Sweden