Dems Divided On Class Action Reform

Sen. Kohl said that stories of nightmare class action settlements that affect consumers across the country are all too frequent. He cited one class action lawsuit filed against a video store that produced dollar-off coupons for future video rentals for the plaintiffs, while the plaintiffs attorney collected $9.5 million.

In another case, Sen. Kohl said, a member of a class that technically won a suit ended up owing $75 to her lawyers, and then had to defend a lawsuit that her lawyers filed against her in state court. "Under our bill, that will never happen again," he said.

But Senate Judiciary Committee Chairman Patrick Leahy, D-Ver., said he believes some special interest groups have distorted the state of class action litigation by relying on a few anecdotes.

The availability of class action litigation, he added, allows ordinary people to band together to take on powerful corporations or even their government. "I am hesitant to restrict legal rights and remedies in an era of corporate irresponsibility and executive misconduct," he said.

As for payments to lawyers, Sen. Leahy said that defense lawyers tend to be paid by the hour, and be well paid. Plaintiffs lawyers, on the other hand, tend to work without pay for the possibility of obtaining a portion of the proceeds, if successful, he said.

"To those who think it is good politics to attack the plaintiffs lawyers, who risk much so that their clients may obtain a measure of justice, I hope they will think again," Sen. Leahy said.

He did say, however, that he hopes to find common ground on asbestos litigation. Sen. Leahy said he wants to work with all senators to see if the Senate can devise a better process for fairly compensating those suffering from asbestos-related illnesses.

But the Committees ranking Republican, Sen. Orrin Hatch, R-Utah, told Sen. Leahy that asbestos litigation is also a class action issue. "The abuses are reaching an epidemic level," he said. "It is essential that we address the abuses."

Too often, he said, judges approve settlements of class actions that benefit the lawyers, but not the class members.

Despite mountains of evidence that the system needs reform, Sen. Hatch said, some people will try to deny that there is a problem. But nothing in S. 1712, he said, prevents individuals from banding together to press their complaints. Suggestions to the contrary are red herrings, Sen. Hatch said.

Lawrence H. Mirel, the insurance commissioner for the District of Columbia, said he is concerned about the impact of class action lawsuits that interfere with his ability to carry out his statutory duties as insurance commissioner.

"Large-scale nationwide litigation against major insurance companies frequently goes around or simply ignores the role of state regulators," Mr. Mirel said. "Class action lawsuits against insurers can, and often do, directly impact our statutory authority to regulate the business of insurance in our jurisdictions."

Indeed, Mr. Mirel said, class actions are frequently designed to produce small, if not negligible, benefits to a large class of policyholders–and huge legal fees to the lawyers who bring them–without regard to the impact on the insurance market as a whole and the cost to the insurance-buying public.

He cited a suit pending before the California Supreme Court that claims that Bloomington, Ill.-based State Farm keeps too much money in reserves, thus depriving its policyholders of the benefits of that money in the form of refunds or reduced premiums. "The suit ignores the fact that insurance commissioners, such as myself, require insurance companies to maintain adequate reserves so that we can assure the public that their covered claims will be paid," Mr. Mirel said.

Who, he questioned, should decide the adequate level of reserves to protect D.C. policyholders–the statutory commissioner of insurance for D.C., or a jury of laymen in California?

Mr. Mirel said that when used properly, class action lawsuits have an important role to play in the nations legal system. But he is concerned, he added, that they do not substitute for, or interfere with, other lawful methods of protecting the public.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 5, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.