Insurance Coverage for Class Action Lawsuits

At the 2018 RIMS Annual Conference, Finley Harckham with Anderson Kill discussed insurance coverage for defense costs on class action litigation.

There is a perception that there is no coverage available for class action suits and the associated defense costs. Because class action suits require common problems to prevail over individual issues, the suit often does not trigger a response from a traditional liability, D&O or E&O policy. They often involve breach of warranty and seek fines, penalties and restitution for members of the class. These elements are usually not specifically excluded by policies.

Defense costs are typically the biggest component of a class action lawsuit. The duty to defend under an insurance contract is much broader than the duty to indemnify. It is triggered if ANY of the allegations made under the suit COULD be covered under the policy. In theory, the benefit of the doubt is to be given to the policyholder in such situations. At times, the carrier will proceed under a reservation of rights, including the right to recoup the defense costs that they pay. The carrier may file for a summary judgement to get a court ruling on the coverage of defense costs quickly. When there are multiple allegations or multiple parties involved the carrier may argue they only owe a portion of the defense costs.

Class action claims that allege product defect, bodily injury, property damage, invasion of privacy, and some other areas of damage, could be covered under an organization’s existing policies. Claims for damages of “ill gotten gains” are a standard exclusion in policies because such coverage would be against public policy. However, for this inclusion to apply, the case has to be litigated and there has to be a verdict indicating the company benefited from their illegal or unethical behavior.