The Impact of COVID-19 on Class Action Settlement Take-Rates
The impact from the COVID-19 pandemic on the United States economy is staggering. For the first time since the Great Depression, we saw the GDP growth fall by over 31% while unemployment spiked to nearly 15% – the highest rate since WWII. Currently, over 12 million Americans are without jobs and it is estimated that 60% of the businesses that closed due to Covid might never reopen their doors. The impact of Covid does not stop there. The legal system, especially in the class action context, has seen the effect as well.
While consumers drive business, they also drive take-rates in class action settlements, particularly during times of financial hardship. Nothing demonstrates this better than a comparison of class action settlement take-rates from 2019 and those since the initial Covid shut-down in the Spring of 2020. In 2019, only 28% of class action settlements had high take-rates. However, of the class action settlements that have occurred since early March of this year, nearly half have experienced exceptional claim take-rates.
Since the initial shutdown, consumers are spending more time online and engaging with media to a greater degree. Grocery digital coupon programs are up 57% over 2019 and enrollment in digital coupon programs across the top 30 grocery chains is up 93%. This year, more than six in ten adults will use digital coupons. Media engagement post-Covid outbreak indicates that 51% of adults are using social media more, Facebook messaging has increased by 50%, and online media use has increased by over 45%. The more people are online, the more likely they are to learn about class action settlements since the majority of notice campaigns contain an online aspect. That awareness, coupled with economic uncertainty, has resulted in an increase in the filing of claims for settlement benefits.
The following examples demonstrate the striking effect COVID-19 has had on class action settlement take-rates:
- Two nationwide consumer products cases: both had the same notice campaigns with similar benefit amounts and settlement funds. The settlement approved in October 2020 had a 97.72% take-rate while the settlement finalized less than a year earlier, in November 2019, had a drastically lower take-rate.
- Two state FLSA cases: the pre-Covid, 2019 case had a stronger notice campaign with a benefit of upwards of $4,500 per settlement class member; however, the post-Covid case that offered a benefit of only $250 saw three times the number of claims submitted.
- Two nationwide FCRA cases, approved 8 months apart: both had the same notice campaigns with similar common settlement funds. The settlement with the $33 benefit had a take-rate of six times higher than the settlement with the $129 benefit. The only real difference between the two was that the former reached final approval post-Covid.
As outlined in the comparisons above, regardless of the amount of the benefit available, consumers are making claims under settlements at significantly higher rates since Covid hit the U.S.
Our Loss is Your Gain
If your company is defending a class action during these unsettling times, all is not lost. Do not let the unpredictability of claim take-rates prevent you from considering a class settlement. Risk Settlements offers the only post-litigation insurance product on the market that allows companies to mitigate, cap, and transfer the financial risk of settlement to the insurer. Class Action Settlement Insurance (“CASI”) removes the concerns regarding the unpredictability of take-rates from the equation and provides the company with a mechanism to resolve expensive litigation efficiently for a known, fixed cost.
In a recent case, a utility provider found itself as a defendant in a class action lawsuit in which the plaintiff claimed the defendant engaged in deceptive marketing practices that caused its customers to purchase and then pay more for electricity through their fixed term supply contracts than they otherwise would have via the local delivery utility.
After more than a year’s worth of extensive discovery, including nearly twenty depositions and review of tens of thousands of pages of documents, and with class certification pending along with multiple expert challenges, the company contacted Risk Settlements.
With the assistance of Risk Settlements, the company was able to negotiate a claims-made settlement, whereby class members could obtain a cash benefit based upon a per-kilowatt-hour payment structure. Further, the settlement resulted in a certified class that consisted of hundreds of thousands of members and a significant release for the defendant. While the claims take-rate was ultimately more than three times what it was estimated, the company was able to resolve the expensive litigation, cap its settlement exposure, obtain a class-wide release, and get back to business. In this case, our loss was the company’s gain.
Uncertainty in the economy is just one of the many factors that can affect take-rates. The ripple effects of high take-rates in class action settlements detract from business goals and can even derail M&A transactions and impact efforts to raise capital. CASI clients shed that uncertainty. With CASI, companies are empowered to mitigate, control, and shift the financial risk of settlement in class action litigation.