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Class Actions predictions

Regulators around the world will continue to focus on PFAS 

Growing environmental concern and awareness of the risks associated with PFAS (known as forever chemicals) will lead to an increase in claims by employees, consumers and the general public. Regulators around the world need to focus on the potential health risks caused by PFAS products both to those employees manufacturing the products and the ultimate consumers. PFAS are used in a wide range of commercial and consumer products such as cosmetics, textiles, furniture and food wrappers, but do not break down in the environment. Additional risks are posed by the unsuitable control of waste material containing PFAS leading to contamination of water sources. Manufacturers are already required to remediate pollution and damage caused by PFAS across Europe and in the US, following events such as environmental contamination from firefighting foams. From a casualty claims perspective, if causal links can be established between exposure to PFAS and personal injury in the US, then discussions around possible injury claims in the UK may follow. However, the prospect of large numbers of PFAS injury claims in the next year remains low, with any immediate risk of UK litigation being directed at damage caused by PFAS environmental contamination as seen in the US and Europe. 


RAAC - cladding equivalent or more millennium bug? 

Despite initial panic, how many claims will actually be made against building contractors regarding Reinforced Autoclaved Aerated Concrete (RAAC) in 2024? It is a material that mimics cement rather than concrete, and was always accepted as having a relatively short life expectancy. Was it negligent to use RAAC in the 1960s and 70s? Many prospective claims will be time barred, even under the Defective Premises Act. 30 years only takes us back to 1994. Most RAAC was in place well before then and it wasn’t often used in dwellings. We predict that the issue will be more ‘millennium bug’ and not result in a significant volume of sustainable claims against those involved in the original construction. 


UK/EU data-related class actions will continue to focus on privacy rather than security breaches 

While massive security breaches grab headlines, they pose a problem when it comes to establishing class actions (in the UK, representative actions). The security requirements of both the UK and EU versions of the General Data Protection Regulation (GDPR) are not absolute but require levels of appropriateness. This means that any security-based action presents a significant level of litigation risk as to whether a GDPR breach can be proven. Compare this to a non-security-related GDPR breach, such as failing to have correct consent mechanisms in place for processing children’s data or marketing data, where the breach is binary. The data was either lawfully collected or not. There is no interpretation of appropriateness. In such cases, class actions can skip straight to establishing commonality of damage in order to determine a viable claim. 


Low value breach claims will stack up 

Claimant representatives will continue to try and circumvent small claims allocation for data breach claims in order to seek recoverable costs. This is despite the courts clearly indicating that low value data breach claims should be allocated to the small claims track and dealt with in the County Court. Recent trends have included data breach claims being pleaded as personal injury claims, with supporting medical reports submitted, in order to seek fast track allocation. These claims are not being submitted in the appropriate low value EL/PL portal, bypassing the fixed costs regime. Another trend is to ‘stack’ data breach claims together on one claim form, bringing the total damages sum above the small claims track threshold, circumventing existing group litigation mechanisms. There is some uncertainty as to whether these are appropriate routes for such claims to be brought and it is likely that future judgments will give greater clarity on these points. 


UK companies and directors will remain under the microscope for the activities of subsidiaries and their supply chains 

While a parent company is not automatically liable for the wrongdoings of its subsidiary, a series of recent decisions in the Courts of England and Wales (culminating in the 2021 case of Okpabi v Royal Dutch Shell plc) have made it clear there are various circumstances where the parent company might inadvertently assume responsibility for its subsidiary. Companies are at the same time being required to monitor and address human rights and environmental risks along their supply chains. Last summer, the Dyson Group successfully resisted a novel and ground-breaking claim by Malaysian factory workers who accused Dyson of unjustly benefitting from forced labour conditions while they worked for a company manufacturing components in Dyson’s supply chain. The High Court’s finding that there was insufficient connection to England to allow the claim to continue will no doubt have come as a great relief for UK company directors, but unquestionably the obligations and responsibilities of parent companies are under intense scrutiny. 


Litigation funding will innovate and find creative solutions 

The litigation funding market, increasingly used by insolvency practitioners or other stakeholders to provide a ‘fighting fund’ for claims against directors, received a seismic blow last summer. In R (on the application of PACCAR Inc and others) (Appellants) v Competition Appeal Tribunal and others (Respondents), the Supreme Court held that litigation funding agreements (LFAs), where the funder receives a percentage of any damages recovered by the successful claimant, are unenforceable damages-based agreements (DBAs). Litigation funders had, until this judgment, proceeded on the basis that LFAs were not DBAs and did not need to comply with the statutory requirements for DBAs. The decision has unsettled the collective action landscape. Disputes have followed with claimants refusing to reimburse funders from damages successfully recovered on the basis their LFAs are unenforceable. Claimants are being challenged by opponents on the recoverability of costs that have been advanced pursuant to unenforceable LFAs and their ability to satisfy adverse costs orders. We have already seen funders successfully amending their LFAs (see Alex Neill v Sony Interactive Entertainment Europe Limited) to navigate the statutory obstacles. The current uncertainty dampening funding activity is therefore likely to be short-lived as greater clarity is provided from the courts or Parliament.


US style class actions are coming to the UK 

The growth of group litigation in the UK continues to be exponential. Growth has been fuelled by a booming litigation funding market and greater judicial acceptance of ‘opt out’ group claims, where a representative brings the action on behalf of a class of claimants without seeking the consent of claimants within the class. Last March, the High Court ruled an ‘opt out’ representative claim could proceed despite differences in the claims and remedies sought by the claimants. The court clarified that the “same interest” test in CPR19.6 does not require identical claims or interests, but rather confirmation that the differences can be managed with litigation safeguards to avoid conflict or prejudicing the position of other claimants within the class. The decision was hailed as signifying a willingness by the courts to evolve the legal framework and find solutions which promote greater access to the representative action regime and allow more ‘opt out’ actions. With funders and claimant law firms working together to identify new opportunities for bringing mass claims, the risk of US-style class actions for corporations and their directors has never been greater. 


Financial institutions driving efficiency and productivity through automation must manage AI-vulnerabilities and the risk of consumer claims 

AI has reshaped the financial services industry. It is widely used to interpret information, automate credit and loan decisions, detect and prevent fraud, and is said to drive operational efficiency and productivity, reducing human errors. But if AI learns from incomplete or imperfect data, there is a significant risk of unintended discrimination or unconscious bias and this might inadvertently affect a financial institution’s approach. Customer privacy and moral considerations may also be overlooked. Unchecked reliance on AI could affect large communities within a customer base and ultimately lead to large claims for consumer redress. Financial institutions that carefully manage AI vulnerabilities, balancing the opportunities against systemic risks, will be less exposed than those who only focus on efficiencies and enhanced revenue. A more holistic approach could improve the quality of management information, spot anomalies or longer-term trends that currently go unnoticed, and avoid discriminatory decision-making.


While cryptocurrencies may become less volatile, investment firms must exercise caution to avoid investor claims 

When interest rate rises are seen to have peaked and even begun to reverse, investment firms will look again at digital assets as an investment class. It is likely that sentiment will return so investment in cryptocurrencies is seen as a risky but likely rewarding venture. In a more benign financial environment, however, any investment firm taking this step for even moderately risk averse investors risks claims being made against it if further failures hit the crypto-market. Investors must understand that despite some forms of regulation, mostly around marketing to consumers, it remains largely unregulated and therefore inherently risky as an asset class.


New life in old PFAS and opioid claims yet 

Coverage discussions surrounding long-standing claims notifications arising from the use of/exposure to PFAS (perfluoroalkyl/polyfluoroalkyl substances) and opioid related exposures will move forward in 2024 after years of stasis. On PFAS, the latter half of 2023 saw settlements progressing and accelerating in relation to the first phase of the Aqueous Film-Forming Foams (AFFF) Products Liability Litigation in North Carolina. Those settlements will lead to distributors and manufacturers of AFFF products calling on their insurance carriers for coverage. The settlements will also naturally prompt a shift of focus from the current wave of water supplier plaintiffs to the next wave of individual plaintiffs. At the same time, in the long running opioids saga, the US Supreme Court heard oral arguments in December on whether Purdue Pharma’s Chapter 11 Plan of Reorganization is appropriate (focusing on whether the Plan can survive with the non-consensual third-party releases that the Sackler family has insisted on in exchange for their contribution of billions of dollars to the plan). If the plan is again approved, Purdue and its creditors committee will then look to progress the extant coverage disputes with its foreign (Bermudian and European) insurance carriers that have been sitting in abeyance as the plan worked its way through the US bankruptcy system.


The glyphosate debate, and litigation, seems set to continue 

Prospective regulation and litigation will continue to keep glyphosate on the agenda for insurers in the next year. Glyphosate is the world’s most widely used herbicide, despite the World Health Organisation describing it as “probably carcinogenic” in 2015. In the US, recent awards of $175mn and $300mn in compensatory and punitive damages against Bayer in California to those bringing claims in relation to its weedkiller, Roundup, will cause apprehension for manufacturers of like products and their insurers. However, proposed legislation in the US may prevent similar claims in the future. Pre-emption measures in the Agricultural Uniformity Labelling Act would make the Environment Protection Agency the sole US authority on pesticide labelling and packaging requirements, reducing states’ capacity to implement their own restrictions and subsequent prospect of litigation. While there are no significant examples of glyphosate litigation in Europe, an ongoing class action in Australia involving 800 plaintiffs may change that, with a judge-only decision likely to be more persuasive than decisions in US jury trials. 


Biodiversity risk will move centre stage in 2024 

While it may have been waiting in the wings of the ESG space in 2023, we predict the spotlight will fall on biodiversity risk this coming year. This is based in part on the publication in September 2023 of the recommendations of the Taskforce on Nature-related Financial Disclosures, providing companies and financial institutions with a risk management and disclosure framework to report and act on nature-related issues. Biodiversity risk also sits in the slipstream of climate change risks and will benefit from a general increase in awareness, despite being a separate risk focused on the direct harm we cause our environment and nature. For liability insurers, new laws and regulation will widen the scope for claims and litigation risks. But the big question is whether we will follow other jurisdictions, such as New Zealand, Canada and Colombia, in giving legal personhood to natural objects, such as rivers and forests. The risk of reputational harm should also not be underestimated.


Social inflation will grow in Europe 

While social inflation has been somewhat of a paper tiger in Europe in recent years, we may now see it start to affect insurance pricing across the continent. Some of the key drivers associated with the phenomenon, such as punitive damages and civil jury systems, remain largely irrelevant in Europe. However, the implementation of the Representative Actions Directive increases the likelihood of class actions across an increasing number of claim types. Public sentiment on issues such as greenwashing, climate change and corporate mismanagement will generate increased awareness of and claimant involvement in class actions. Although third party litigation funding in Europe may be the subject of further regulation, this is indicative of an expected increase in its use. These factors are all consistent with increasing social inflationary trends, and insurers will need to be mindful of their exposure.


Products will be at the heart of class action growth in Europe

The impact of the Representative Actions Directive means that manufacturers and distributors of products, as well as their insurers, will have to contend with an increase in class actions for defective or unsafe products in the coming years. At the heart of this expected increase is legislative change in relation to consumer protection in Europe. Consumer protection is nothing new but product safety is currently the focus of widespread reforms aimed at updating and enforcing standards and facilitating access to justice. The new General Product Safety Regulations will introduce new requirements on the reporting of accidents caused by products, labelling and the advertising of product recalls. In parallel, the new Product Liability Directive (PLD) is a legislative proposal intended to update the product liability framework in Europe. The PLD is intended to replace the existing 40-year old Directive, bringing software and certain digital services into the scope of EU product liability, raising the prospect of mass claims following incidents such as defective software updates. 


Technology Professionals: More AI in judicial decisions 

The topic of AI will feature increasingly in judicial decisions. We already have the first cases which discuss the use of AI in an intellectual property, regulatory and data protection context. The prevalence of (elements of) AI in software will mean that the use of AI and the AI’s performance itself will soon become the central topic of legal proceedings. While we expect the resulting decisions to be made along previously established principles governing the liability of the individuals behind the development of the software, the ability of AI to change the human output and to do so at a scale and speed otherwise not achievable means an increased exposure to risk for insurers (including the risk of class actions should the software be widely enough used). 


COVID-19 BI litigation: will it be resolved by the five year mark? 

2024 is set to be another crucial and busy year for COVID-19 litigation. At the time of writing, we anticipate that the Court of Appeal judgment in Various Eateries in early 2024 will bring further clarity to the insurance market on aggregation. Although policyholders continue to seek blanket recoveries under the various “at the premises” disease clauses, insurers’ appeals in the London International Exhibition Centre litigation are also due to be heard early in the Summer of 2024. The “prevention of access” clauses test cases should also have judgment handed down in early 2024 and insurers will then be able to determine the extent to which the Divisional Court’s findings in the FCA test case remain unaffected by the Supreme Court. Coverage, causation and evidential issues arising from deaths, long COVID and cancellations have yet to be aired. Should certain aspects of these cases go to the Supreme Court, the five year mark may only signal the end of the beginning.

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