General Counsel Q&A: Risk Transfer with Class Action Settlement Insurance
Seth Hopson, the former General Counsel of North American Power and Gas, discusses his experience with class action litigation and the benefits of class action settlement risk transfer.
- Can you tell us about your role within the company?
I was the General Counsel of a retail energy company serving 300,000+ retail and small commercial customers in the New England, Midwest and Southern regions of the United States. As such, I was responsible for all litigation and risk management on the legal and regulatory side of the business.
- How frequently was your organization impacted by litigation?
During the seven years from the inception of the business until the sale of the business, we went to trial once and were also involved in a multi-state class action litigation covering a potential customer class of over 700,000 current and former retail residential customers. That matter included allegations that the company breached our terms of service with our customers.
- What were the unique risks that the class action litigation presented?
High eight-figure financial exposure if we lost at trial, damage to our reputation, a negative impact on sales, potential regulatory impact from state public utility commissions, as well as increased exposure to investigations and fines by multiple states’ Attorneys General. Additionally, litigation defense costs across the five actions were around $1M per year, even though they charged at an extremely reasonable rate.
- What impact did the class action litigation have on your role and the legal department in your company?
It became the focal point of many of my days for over a three year period. It created an increased workload on my Legal Department, as well as other departments (via the discovery and e-discovery that had to be produced). It created fear and anxiety amongst the executive team and the owners of the company, who received regular updates on the current status of the litigation and the proposed next steps. Basically, it exhausted the company’s time and resources as a whole, and most of all, the Legal Department.
- What was your initial impression when you learned about Risk Settlements and their risk transfer solutions, including Class Action Settlement Insurance (CASI)?
I was cautiously optimistic but wasn’t sure it would fit our needs. My initial concerns were over cost and what exact legal and financial exposures it would cover and eliminate.
- What challenges were you and your company facing during the period leading up to engaging Risk Settlements?
We were having a hard time agreeing on a range of settlement values with plaintiffs’ counsel. We were at a stalemate as we entered pre-trial discovery, and were planning to take the case to trial, despite the large potential exposure.
- Had you ever used CASI before? Did you have any reservations about the solution or the process?
I had never heard of Class Action Settlement Insurance before. Risk Settlements was recommended to me by my class action counsel. The only reservation I had was that it would take a huge amount of time to explore. It absolutely did not take as much time as I anticipated.
- Was CASI able to solve your legal and financial challenges?
Certainly. The professionals at Risk Settlements, especially Steven Schienvar, were able to provide a limit of exposure (via the premium) that the Company was willing to pay to resolve the matters entirely. The Company (and the new parent company) were happy to bring the matter to a close with cost certainty and eliminate the potential financial exposure and damage to the company’s reputation.
- How do you think CASI helps to solve the organizational challenges that class action lawsuits bring?
Quite simply by bringing the actions to an end. Risk Settlements also serves a valuable role, during settlement, in helping to itemize the potential risk of exposure, the anticipated future cost of the litigation and by providing a premium that is justifiable – under the circumstances – for all parties involved.
- Was there anything surprising about the risk transfer process?
How quickly the premium was quoted and the policy was underwritten. Considering how complex our potential damages calculation was, my company and I were impressed with the efficiency with which we had the bottom line premium and policy coverage to review. Risk Settlements was also helpful in personally meeting with (and explaining) the policy and coverages to any Executives directly.
- For other general counsel thinking of using CASI, what advice can you offer?
Carefully examine CASI as a potential option to resolve your class action litigation issues. As a risk management tool that many in-house counsel may not be aware of, it is often easy to dismiss such tools without fully vetting them. This is an option worth exploring. Risk Settlements was beneficial and necessary to ending our class action litigation and we likely would have gone to trial without them.