Collective redress procedures

Class actions

Class actions or collective redress procedures, in which several plaintiffs with similar or related interests join together to file a joint action against a defendant or group of defendants, are becoming increasingly important in civil litigation.

Loading ...

In most democratic industrialised countries, where serious injuries or significant financial losses lead to mass claims, litigation follows. In most of these jurisdictions, class action lawsuits have been brought primarily to facilitate the resolution of such claims.

Facilitating the enforcement of legitimate claims that would otherwise not be asserted because the amounts in question are too small is another reason that has contributed to the acceptance of class actions in some countries as a method to dispel existing "access to justice" concerns. The latter was one of the main reasons that propelled the initiative to have common European principles on collective redress. This initiative has resulted in the introduction of Directive (EU) 2020/1828, which was already implemented in several member states starting as of 25 June 2023.

The availability and impact of class actions / collective redress differ widely between jurisdictions. Some countries have embraced the concept and permit collective actions. In most jurisdictions where class actions are already known, plaintiffs seek (often considerably high) damages in the form of money or a declaratory judgment. In some other jurisdictions only a declaratory relief is possible. A declaratory relief is a judgment that determines the rights of the parties without making specific orders or awarding a specific amount of damages.

In some other jurisdictions, additional punitive damages may be claimed. Punitive damages are considered punitive and are usually awarded at the discretion of the court if the defendant's conduct is found to be particularly harmful. Such punitive damages may make the outcome of a class action very expensive from an insurer's perspective if it is covered or insurable.

In others, the procedure may only be used in limited circumstances and for specified causes of action. Today, several jurisdictions in addition to Australia, Canada, and the United States, including most of the largest economies in the world, permit class actions / collective redress for some or all legal claims.

So far, the following claim areas are most likely to produce class actions / collective redress:

  • Product liability claims
  • Tax disputes
  • Environmental claims
  • Claims relating to financial investments / shareholder claims

For the future the following areas seem to be particularly important:

  • Actions in respect of environmental and human rights issues
  • Data and privacy actions

In some cases, particularly those concerning new collective redress procedures, it is too early to assess their impact on the insurance or reinsurance market, as the procedures are still at the very early stages of testing. However, the developments should be observed carefully, since the introduction of new procedural rules will make courts more accessible for individuals.

The possibility to group potential claimants should allow a more efficient protection of the claimants’ interests due to shorter litigation times, lower legal representation costs and court fees. This could result in an increase in the number of claimants against businesses, employers, banks, insurance companies (in particular in the area of consumer protection and product liability). From the insurance point of view, this could lead to more expensive claims in connection to mass litigation.

Important to consider is that class actions legislation in several jurisdictions allow for claims to be financed by investor groups (litigation funding). This means that claimants under such procedures do not carry any risk and accordingly the willingness to file or join mass claims could increase.

For (re)insurers this would mean that general, commercial and product liability policies, workers compensation policies, professional liability, D&O policies could be affected more frequently, and in particular the defence of class actions could be much more expensive. It seems to be also necessary to keep an eye on clash exposure and adjust limit management accordingly.

Want to learn more?