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Class Actions predictions

Ticket refund claims issues rumble on

Issues surrounding the aviation industry’s handling of COVID-19 related flight cancellations and ticket refunds continue to rumble on.  In response to mounting public concern, the UK Government stepped in during 2021 to afford ATOL protection to airline refund credit notes issued to passengers between 10 March 2020 and 31 March 2021 for an ATOL protected booking cancelled due to COVID-19.  The ATOL scheme is a UK financial protection scheme managed by the UK Civil Aviation Authority that is designed to protect air package holidays in the event of the ATOL holder ceasing to operate so this government intervention acted to extend its cover beyond its ordinary remit.  This extended protection expired on 30 September 2021.  With the reintroduction of COVID-related travel restrictions and associated flight cancellations due to new variants emerging, issues and related claims surrounding airline refund credit notes will resurface. 


Clarity in terms of collective redress following the decision in Lloyd v Google

Class actions seeking compensation for the loss of personal data are increasingly common place in the UK. Heightened awareness of data protection rights (in the wake of GDPR), eye-watering fines imposed by regulators, and the reporting of high-profile data breaches have fuelled this trend. The landmark decision of Lloyd v Google in November 2021 has curtailed but not ruled out the prospect of further data protection class actions. The Supreme Court refused permission for Mr Lloyd, a consumer protection champion, to proceed with his £3bn “opt-out” representative action against Google. Lloyd alleged that Google breached its duties as a data controller under the Data Protection Act 1998 when it collected and used the browser generated information of 4.4m Apple iPhone users during 2011 and 2012.  He claimed that there was no need to set out any distress or financial loss for each of the claimants, arguing that they had all suffered “damage” by simple virtue that each claimant had “lost control” of their personal data because of Google’s actions. The Supreme Court disagreed, determining that a breach of the Act was not evidence of damage itself. However, the door was left ajar in that future actions could proceed if they were bifurcated: a class action that would establish a legal breach had occurred with each claimant then setting out the distress or financial damages they had suffered. The Court noted, however, that this may make such class actions financially unviable.

Is data breach cover in cyber insurance a "sleeping giant"?

At the end of November 2020, the EU Parliament approved the Directive on Representative Actions for the protection of the collective interests of consumers (Directive (EU) 2020/1828). The Directive subsequently came into force on 25 December 2020. The Member States now have until 2023 to transpose the regulations into their laws. The Directive raises some new issues for German procedural law. In particular, it will enable consumer groups and associations to sue directly for damages including lump-sum compensation for non-material damages. While an individual may only seek to recover a small amount, representative claims are expected to significantly increase the risk of lawsuits and the sums claimed against companies and their insurers. The Directive also introduces a "discovery" procedure similar to the discovery procedure in the US, and the group or class will have the right to file a request for the disclosure of evidence. With the exception of antitrust law, German civil procedural law does not yet have a disclosure or discovery procedure. In Germany, there is also a parallel discussion as to whether there needs to be a low value threshold for damages under Art. 82 GDPR and it is expected that this question will be submitted to the ECJ sooner or later. 

Contributed by our German Legalign partner, BLD.


Class Actions in England and Wales are here to stay

The exponential growth in group litigation and collective redress in recent years is showing no signs of abatement. The rapid expansion of the litigation funding market, increased awareness of access to justice and consumer protectionism, and successful media campaigns by claimant law firms who target “wronged consumers” have all fuelled this trend.  Antitrust infringements, environmental damage, data privacy breaches, financial stock-drop and corporate scandals are fertile hunting grounds for claimant law firms and funders hungry to build their next lucrative claim. The Supreme Court has recently clarified that representative actions are unsuitable for claims requiring an individual assessment of loss but it held open the option for a class representative to seek a declaration that members of the class are entitled to compensation, and appetite for bringing suitable claims backed by creative funding solutions is unlikely to wane in view of this.  Given the ever-widening routes for collective consumer redress available and the Supreme Court’s endorsement of the “flexible” representative procedure, corporations must tighten up their internal policies and procedures and effectively mitigate against the risk of mass litigation.


Rising healthcare and product liability class actions

The number of COVID-19 related class actions will likely increase globally over the next 12 months, particularly in the healthcare and consumer product sectors where claims could be of a similar nature. In many nations, it is probable that public and private hospitals, healthcare providers and residential care facilities will face mass litigation based in contract or tort relating to their response to the pandemic. Allegations could focus on systematic mismanagement or lack of Personal Protective Equipment use, allowing for the spread of the virus and (preventable) deaths taking place. In addition, we have also already started to see class actions being filed against manufacturers of consumer products for mislabelling, misrepresentations and failures to warn. In the US, for example, hand sanitiser manufacturers have been accused of falsely advertising that their products are effective at preventing the flu and other viral diseases. We predict similar claims will be advanced in the UK and Europe, especially where consumer products being sold in those areas include claims of effectiveness against the coronavirus causing COVID-19.

PFAS – an imminent wave of litigation

Insurers and their commercial policyholders will need to keep a close eye on increasing regulation and litigation concerning the wide class of compounds called PFAS (per- and polyfluoroalkyl substances). PFAS are known as “forever chemicals” because they are incredibly resistant to heat, oil and water, and do not degrade in the environment. This trait becomes a problem because exposure in humans can lead to serious adverse health impacts.  As regulation tightens to include a widening group of chemicals, companies will need to reassess the use of PFAS in their own products and in the supply chain.  We expect to see litigation become more common and spread beyond the claims against chemical companies for water contamination and pollution to target industries that have used PFAS in their products.  Insurers are well-advised to take consider the impact of exposure to PFAS risks across their liability portfolio, from casualty and environmental to D&O products.

The globalisation of litigation

ESG concerns, particularly the pursuit of claims relating to social injustice and climate change, will drive transnational litigation with parallel proceedings in multiple jurisdictions.  The Dieselgate litigation serves as a case study for the pursuit of claims in many jurisdictions in relation to a single underlying issue.  We see a growing recognition by courts and legislators across the world of the need to promote access to justice and to enable citizens to obtain compensation comparable with what would be received elsewhere, namely the US.

The future for group litigation in the UK

Foreign litigants and claimant law firms will increasingly target UK incorporated companies in relation to the impact of their operations worldwide.  The Dutch courts are taking a similar approach and we expect other countries to follow suit.  After the significant Supreme Court decisions in Lungowe v Vedanta Resources plc and Okpabi and others v Royal Dutch Shell Plc and another,  the door to the English courts is now open to foreign litigants.  In July, the Court of Appeal overturned previous rulings to allow a claim by 200,000 Brazilians to pursue BHP for compensation relating to the Samarco dam tragedy, in spite of a compensation scheme being agreed in Brazil.  It seems the motive of the English courts is to give foreign litigants a voice and promote access to justice.  The practical implications for global corporates and their insurers are increased litigation risk and the need for a new strategy in defence of similar cases in the future. 

Forum shopping for collective redress in the EU

In Europe, the introduction of minimum standards (through the EU Directive on Collective Redress) but lack of a uniform regime, heightens the risk that litigants will pick the jurisdiction most likely to favour their cause. Multinational companies are having to address unprecedented issues around the regulation of product safety, supply chains, climate-change and ESG concerns. There are significant procedural and cultural difference between the Member States that means collective redress will be welcomed by some but not others.  The risk is heightened for businesses operating across multiple jurisdictions, which may be targeted in the country with the most claimant-friendly environment.

Social inflation: US phenomenon to global trend

Social inflation will become an important consideration for insurers writing business globally.  Starting as a US phenomenon in the 1970s, it has become a broad term to describe factors that drive an increase in the cost of claims but are not truly understood.  By its nature, social inflation refers to the emotive human element behind an increased frequency of litigation and higher judgments.  While the jury system is a key part of this phenomenon in the US, there is a will in other jurisdictions, including the UK, the Netherlands, Australia and Israel, to promote access to justice.  Combined with continued public distrust of private corporations and an increase in litigation funding, traditional protection for big business is being eroded.  Insurers will need to track developments closely to adjust pricing and reserving accordingly.

Australia looks to fairer returns for group members … but at what cost?

Reform in the class action space continues in Australia as the Government tries to balance the interests of funders, lawyers and group members. Recent regulatory reform now means litigation funders are required to hold an Australian Financial Services Licence and class action litigation ‘funding schemes’ are covered by the Corporations Act 2001. A significant new development is the Government’s proposal to introduce laws designed to create a guaranteed minimum return of 70% for group members. The draft also flags amendments designed to limit common fund orders, nationalise funding requirements, impose written consent requirements, and require funders to irrevocably submit to Australia’s jurisdiction. While the draft attempts to tackle many of the current issues, there’s speculation it will create new ones including incentivising plaintiff firms to seek increasingly high settlements to maintain revenue and increase ‘closed classes’, which will lead to further multiplicity issues.

Contributed by our Australian Legalign partner, Wotton + Kearney.

Backlogs in the Australian court system are expected to fuel social inflation

It is expected that the effects of the pandemic will exacerbate social inflation. In Australia through 2020 and 2021, staff have generally had to work from home and most of the court systems were significantly curtailed because of the lockdowns and social distancing measures.  Court closures have slowed the resolution of cases and resulted in a backlog.  It is expected that the backlog and delays will influence the value of the cases resulting in larger settlements and judgments.  Two class actions have recently been filed in Australia against insurers for failing to cover business interruption losses during extended lockdowns and we expect an increase in claims in the coming years. 

Contributed by our Australian Legalign partner, Wotton + Kearney.


Climate activist litigation will fuel social inflation

This year will see a new trend in social inflation emerging, with climate activist groups using the courts to compel companies to comply more definitively with existing law and regulation around reducing emissions. The first example of this was seen in the collective action initiated against Royal Dutch Shell by climate groups and 17,000 civilians in the Dutch courts. In the 2021 judgment, the court agreed that Shell was not doing enough to mitigate its impact on the climate and ordered Shell to reduce global CO2 emissions by 45% by 2030. More recently, German climate activists have issued a claim against BMW, Daimler and VW on almost identical grounds. While this type of litigation does not seek the immediate financial impact of a penal monetary award, the longer term consequences of achieving more stringent emissions targets will be significant, both in terms of increased transition risk and managing ESG disclosure obligations. This climate activist litigation will have wider implications for all large carbon producing entities, who may choose to adjust their own emissions targets for fear of being targeted directly by activists.


Glyphosates – group litigation on the European stage?

In 2015, the International Agency for Research on Cancer, an arm of the World Health Organisation, found that glyphosate was “probably carcinogenic in humans.” Bayer, the manufacturer of RoundUp (the most well-known glyphosate-based herbicide), has since been hit with 3 US judgments by claimants alleging that it caused them to develop non-Hodgkin's lymphoma and has paid $10bn to settle a class action involving more than 100,000 claimants. Class actions are also afoot in Canada and Australia. Bayer nevertheless continues to assert that RoundUp is safe, having been approved by regulators and relied upon for agricultural and domestic use worldwide. Glyphosate is currently approved in the EU until 15 December 2022, when further analysis on the causative link and minimum dose requirement is expected, although Austria, Luxembourg, Germany and France have already banned or restricted its use. Whilst group litigation in Europe is less likely, particularly in civil jurisdictions where disclosure obligations, access to litigation funding and punitive damages are more restricted, the new Directive on Representative Actions for the Protection of the Collective Interests of Consumers and social inflation factors may prove us wrong.


Construction Professionals: Carbon capture and storage will heat up PI claims in Australia

Carbon capture and storage (CCS) is poised to take a key role in Australia’s greenhouse gas emissions reduction strategy. For construction-related professionals, this creates many exciting opportunities – including those relating to the Gorgon project in WA, which is the world’s largest CCS project and the largest single resource project in Australia’s history – and some new risks. The legal risks from emerging solutions for tackling climate change are exemplified in the collapse of RCR Tomlinson resulting from its unsuccessful transition from traditional engineering projects to solar farms. This has been partly blamed on delays to projects caused by complex regulatory requirements and has resulted in class action proceedings claiming hundreds of millions in damages. The regulatory framework for CCS on and offshore in Australia varies from state-to-state and at the Commonwealth level. The regulatory structures reflect the long-term life cycle of CCS being site selection, injection, closure (including decommissioning and rehabilitation obligations) and long-term monitoring. There are risks of leakage during the injection phase with residual risk remaining after closure. CCS legislation provides for the transfer of long-term liability for stored CO2 to the government after active injection operations have been completed. However, operators must meet specified conditions before this transfer is allowed and the transfer does not provide for an absolute release from liability. Insuring CCS offers exciting opportunities for underwriters to provide cutting edge insurance solutions to a new and sizeable market - to reach net zero by 2050, billions of tons of CO2 will need to be stored. However, the lack of risk history associated with these technologies (combined with the expected rise in project numbers, the complex regulatory landscape and the long tail nature of the liabilities) will make pricing challenging.

Contributed by our Australian Legalign partner, Wotton + Kearney.

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