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NAIC Urged To Act To Discourage Early Class Settlements By Insurers

By E. E. Mazier

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NAIC Urged To Act To Discourage Early Class Settlements By Insurers

The National Association of Insurance Commissioners can and should take decisive steps to discourage insurers from settling class actions too soon, according to an industry insider.

At least one regulatory member of the NAIC/Industry Liaison Committee criticized insurers for the early settling of class actions that may pose a threat to the authority of insurance regulators. (See NU, March 25.)

But David Snyder, assistant general counsel for the American Insurance Association, Washington, D.C., told National Underwriter the criticism ignores certain realities facing insurers in class actions.

First, insurers could be accused of acting in bad faith for not settling an expensive class action lawsuit, he indicated. This could make the insurer liable to the policyholder for damages.

Second, the punitive damages exposure in a class action can be staggering, Snyder said.

He suggested if the NAIC spent as much energy on dealing with class actions as it does on other matters, such as optional federal chartering, the threat from these cases and the frequency of early settlements would be reduced.

Class actions present “issues today,” he said, and are not a mere threat sometime in the future.

Snyder also explained that if regulators became more proactive by filing more amicus briefs asserting their primary jurisdiction over certain areas of insurance, this would send a clear signal to insurers not to settle the cases before a regulator or the NAIC has a chance to intervene.

Nevertheless, encouraged by the regulators reception of his identification of two discrete class action scenarios that threaten their authority, Snyder predicted “heavy involvement” by the NAIC Executive Committee and leadership in efforts to “streamline” the process by which the NAIC files amicus briefs.

He further noted that the House of Representatives had just approved a bill that grants federal district courts jurisdiction over major class actions, such as those involving damage claims of more than $2 million. The Senate is considering similar legislation.

Snyder said that such legislation if enacted would effectively move many class actions from state to federal court, which in turn could lead to fewer settlements because of the stricter class action rules in the federal realm.

E. E. Mazier is an assistant editor of NU’s Property & Casualty/Risk & Benefits Management Edition.

Reproduced from National Underwriter Life & Health/Financial Services Edition, April 8, 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.