The spread of collective redress around the world means risks and opportunities for liability underwriters 

lloyds building

Demand for directors’ and officers’ liability (D&O) coverage could increase with the global spread of class action lawsuits and other types of collective redress litigation.

That was according to James Cooper, a partner and global chair for insurance at legal firm Clyde & Co, speaking at an Insurance Institute of London (IIL) briefing held at Lloyd’s today.

Countries such as Australia, Saudi Arabia, Germany and the UK are among those seeing an increased appetite for collective redress cases.

“There is an appetite for litigation outside the US. Class actions and other forms of collective address have now spread around the globe,” Cooper told the IIL gathering at the Lloyd’s Library.

“I have no doubt that collective redress is coming and is here to stay. It’s an exciting challenge for you guys to sell your products,” Cooper added.

The US market

The US remains the class action litigation leader as the most litigious country on the planet, Cooper noted, but has exported much of its culture for entrepreneurial plaintiff lawyers and for funding litigation.

Recent class actions trends include liability for sexual misconduct, climate change, and data breach and privacy risks, he observed.

Securities class actions were at near record levels in 2018, Cooper said, with 403 new filings in the US.

“2018 securities class actions filings were some 210% above the 1996-2016 average,” he added.

Many class actions stop at the “motion to dismiss” stage, he noted. Cooper added that for a typical US D&O policy the excess is set to be at least the value of the cost of the motion to dismiss stage, at which point about half of class actions are dismissed.

Australian hotspot

Australia has grown into a major class action market. More than 500 cases have been filed in the past 26 years, Cooper said, with 10-15 class actions typically going on at any one time.

“Australia is the real hotspot for D&O underwriters,” said Cooper. 

“Businesses in Australia, US aside, are the most likely to face class actions globally. Australia’s class action regime is among the most plaintiff friendly in the world,” he said.

Securities class actions have become particularly more frequent, their annual number rising 375% between 2012-2016.

Cooper cited the low barriers to launch class action, government support for around half of such litigation, and “an entrepreneurial plaintiff bar”.

Litigation funding, by plaintiff law firms themselves and through hedge fund financing, aside from government support, has also been a stimulant to class actions, by taking a cut of winnings and pay legal fees, removing risk for the plaintiff.

“Some of the biggest litigation funders have arisen out of Australia and looked to fund litigation around the world,” said Cooper.

Some 36% of US law firms in 2017 used litigation funders, Cooper noted. “It’s making it even easier for law firms to operate. Using hedge fund money,” he added.

Middle East & Asia

The Kingdom of Saudi Arabia introduced its first mechanism for collective redress in December 2017.

“Saudi Arabia is the area of greatest interest from a class actions perspective in the Middle East,” said Cooper.

The kingdom’s new rules relate to securities disputes and civil claims. Suits must be identical to join the collective.

“For one of the most conservative regimes in the Middle East…there’s a recognition that to encourage foreign investment there has to be expediency in court requests,” Cooper added.

Dubai, and particularly the Dubai International Financial Centre (DIFC), does not have a specific mechanism for class action.

Instead the DIFC’s regime is based on the UK system of group litigation orders (GLOs).

This remains untested, he admitted. “There has been no DIFC case yet where a GLO has been approved,” said Cooper.

Further east, many Asian countries either have no class action regimes (Hong Kong, Singapore, Malaysia) or if they do, they are unused (China, Taiwan).

“Japan has a class action mechanism, but it’s limited to consumer actions,” Cooper noted.

One notable Japanese case was the $1.7bn Olympus accounting fraud.

“In that case, US law firm DRRT was involved. We see that a lot, US law firms acting behind the scenes on collective actions around the world,” said Cooper.

“They’re unbelievably entrepreneurial - they can sniff out a dollar like you wouldn’t believe,” he added.

European changes

Most European countries offer some sort of collective redress for consolidating individual actions, Cooper emphasised.

“This is where we sense the real change. Because Europe is such a large economy with serious investors,” he said.

In 2014 there was significant legal change in France - a country not known for a litigious legal culture - meaning that certain licensed consumer organisations can bring class actions.

The Netherlands has probably the most widely understood form of mass redress in Europe, Cooper suggested, with two avenues open to plaintiffs.

“Amsterdam courts issue verdicts binding across Europe, which is a great way of settling a claim early,” Cooper said.

In Germany, the government had become concerned in recent years that there was no real ability for consumers to get together to take on corporations, particularly concerning the VW emissions scandal.

“The German system wasn’t working well,” said Cooper, adding that Germany’s new MDP system has been in operation since November 2018

In the UK, GLOs are an opt-in regime and not used often, according to Cooper.

Competition claims are the only UK area where there is an opt-out system, under the Consumer Rights Act 2015.

One such case, brought against Mastercard, which could involve millions of UK customers, was initially dismissed but is currently being considered for appeal. 

UK supermarket chain Morrisons was also taken to court after a disgruntled employee misused the firm’s data.

“Morrisons is an interesting case because it’s changing the law on vicarious liability,” said Cooper.

Other notable UK cases have been an RBS rights issue litigation, Lloyds Bank over misleading statements about HBOS’s financial position before its acquisition, and supermarket chain Tesco for accounting fraud after a £263m overstatement of profits for 2014.

He is keeping track of another ongoing case involving foreign exchange sales practices.

“Another claim issued on December 31 by 350 investors against several banks for FX mis-selling,” Cooper added.

Cooper thinks we are seeing the beginnings of collective redress in the UK.

“We’re starting to see collective redress get up and running,” he said.