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What Type of Class Litigation is Best Suited for Insurance?

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What Type of Class Litigation is Best Suited for Insurance?

Deceptive or fraudulent marketing allegations.

Employee claims (unpaid overtime, wage and hour, benefits, etc.)

Telephone Consumer Protection Act.

Defective product claims.

Breach of contract or breach of warranty.

These broad categories are just a few examples of the virtually countless types of class action litigation that can take full advantage of the benefits of Class Action Settlement Insurance from Risk Settlements.

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A “claims-made” settlement (i.e., an agreement to pay only certain claims for compensation that are submitted within a set time period by members of the class and with any unclaimed, remaining amount “reverting” to or retained by the settling defendant) is necessary to make possible the savings and other benefits available with CASI coverage. As long as the class action can be resolved by a claims-made settlement, Risk Settlements can help build a settlement structure that not only qualifies for an insurable risk at a workable price for the client but is also one that the court is likely to approve.

Parties settling a class action alleging violations of anti-trust or securities law (i.e., shareholder derivative suits) usually must employ a common fund settlement model that expends the entire fund. Because 100% of the fund is paid out regardless of the claim process, there can be no amount returned to or retained by the settling defendant. Such settlements are not able to benefit from CASI coverage. However, in most other types of class actions, a claims-made settlement (and thus the benefits of CASI coverage) is possible.

For example, a class action might be filed against the maker of a drink (or snack or nutritional supplement, etc.) alleging that the product was deceptively marketed as “all natural” despite the presence of an allegedly “unnatural” ingredient. Imagine one million units were purchased for $10 each and thus the plaintiffs seek at least $10M. Assume the parties settle the case by agreeing the company will refund 50% of the purchase price to all who make a valid claim (thus potentially exposing the company to $5M in claims). Rather than risk paying out the full settlement amount, the manufacturer could instead buy CASI coverage for far less than the $5M, be done with the case, and move on. The risk that the actual claims process will exceed the cost of the premium or even reach the full $5M is a risk borne by the insurer not the settling company.

As another example, a former employee might pursue a class action against a company on behalf of all similar employees claiming that some company practice resulted in the company failing to pay all overtime the employees should have been paid. Imagine a suit alleging a thousand employees are owed several thousand dollars each. Assume the parties ultimately settle on paying all valid claims submitted up to $1M. The settling company might obtain CASI coverage for significantly less than $1M. The case would be over for the company. It need not worry how expensive or time-consuming the claim process ultimately becomes. The company also need not worry about reporting the full potential settlement payout as a liability on financial reports or statements because the company has capped its exposure at the cost of CASI coverage.

If you are unsure whether a class action might be able to take advantage of CASI coverage, contact Risk Settlements and let us evaluate your case at no cost to you.

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