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The Impact of COVID-19 on Class Action Settlement Take Rates

by | Mar 29, 2021

By now, we have become accustomed to the significant changes that the Covid-19 pandemic has brought. Online shopping, Zoom conferences, facemasks and vaccination appointment competition are all part of “The New Normal.”  And apparently, so is increased participation in consumer class action settlements.

 

The plaintiffs’ bar is incredibly creative, and the pandemic and its effects have given it more reasons to file class action lawsuits. As the first novel coronavirus wave broke last year, millions of people cancelled travel plans, and airlines, hotels, and tour agencies suddenly were on the hook for billions worth of refunds. Many companies were caught cash-poor and were slow to issue refunds, and plaintiffs across the globe sued.  

 

Online behavior suggests that more people are receptive to making claims in class action settlements as they find out about them. Employees working at home are keeping social network browser tabs open at least part of the day. And, while the unemployment situation has improved since last year, when 15 million people were out of work, a still sizable group of 10.1 million were unemployed as of January, and could read increased notices of class action settlements as they were posted on social networks like Twitter, Telegram, and Facebook.

 

Whie consumers drive business, they also drive take-rates in class action settlements, particularly during times of financial hardship. A comparison of class action settlement take-rates from 2019 and those since the initial Covid shut-down last spring illustrates this nicely. 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 2020, 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%. More than six in ten adults use digital coupons. Fifty-one percent of adults are using social media more, Facebook messaging has increased by 50%, and online media use has increased by over 45%.  The same factors — driving people to use coupons —  are the impetus to self identify in class action settlements and obtain free cash.  Due to Covid 19, record unemployment and low job prospects, people are looking for all sources of stretching their budgets including couponing and filing claims seeking a cash benefit.   

 

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 eight 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.   

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. 

If your company is facing uncertainty because of litigation and you would like to explore strategies to minimize that uncertainty, please contact us to discuss how we may be able to help.

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