Insurers: Class Action Restrictions May Pass

The Senate, he said, has unanimously agreed to take up class action reform, S. 2062, after finishing work on a military defense bill. Class action reform, Mr. Karr said, has been hung up for a while, but now will be considered without any procedural votes.

He said he believes the legislation will pass and will eliminate the worst abuses in the class action system.

Anne Sittmann, a representative of the Des Plaines, Ill.-based Property Casualty Insurers Association of America, agreed.

PCI, she said, is pleased that the Senate agreed to take up the bill immediately after the defense bill.

"In fact, the timing may be better as this will allow the Senate to focus solely on class action reform," she said.

Ms. Sittmann said the bill appears to have the support of more than 60 senators and PCI is looking forward to final action.

David Winston, senior vice president of federal affairs for the Indianapolis-based National Association of Mutual Insurance Companies, said that the delay in the cloture vote, which had been scheduled for Tuesday, June 1, was simply a procedural move.

It is clear, he said, that Democrats in the Senate wanted to get the defense bill done before moving to class action. Mr. Winston said he is still hopeful the legislation will pass. If so, he said, it will defy the conventional wisdom that nothing can get done in an election year.

Senate Majority Leader Bill Frist, R-Tenn., had scheduled a cloture vote on S. 2062, but postponed it after reaching an agreement with Democrats.

The legislation represents a bipartisan compromise and it is widely believed that 61 members of the Senate, a filibuster-proof majority, have agreed to support it.

Under S. 2062, federal courts would, in general, have jurisdiction over class actions in which any member of the plaintiff class is from a different state and where any defendant and the plaintiffs are claiming damages of at least $5 million. However, the legislation also sets standards which allow some cases to remain in state courts.

If between one-third and two-thirds of the plaintiff class and the primary defendants are from the state where the lawsuit was filed, a federal judge may decline to exercise jurisdiction after evaluating several factors.

These include whether the claims involve matters of national or interstate interest, whether the class action has been pleaded in a manner that seeks to avoid federal jurisdiction, and which state's laws will govern the action.

A district court must decline to exercise jurisdiction if more than two-thirds of the plaintiff class and at least one primary defendant are from the state where the action was originally filed.

In addition, a federal court must decline jurisdiction if more than two-thirds of the plaintiff class and all the primary defendants are from the state where the action was originally filed.

Beyond federal jurisdiction, S. 2062 establishes a class action "bill of rights." These include restrictions on so-called "coupon" settlements, in which attorneys receive money while the class members receive coupons to purchase the defendant's products, and judicial oversight of settlements in which class members may suffer a net loss.

The legislation also bars settlements that pay certain class members more than other class members based solely on where they live. In addition, S. 2062 establishes new disclosure requirements to class members.