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Class Action Suits Have Weakened State Regulation, ACLI Tells Congress

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Class action lawsuits have steadily weakened the very fabric of state regulation of insurance, says the American Council of Life Insurers, Washington.

ACLI says the life insurance industry has experienced more than a decade of abusive class actions.

In a letter to Sen. Orrin Hatch, R-Utah, in connection with a Senate Judiciary Committee hearing on class action abuse, ACLI says decisions by state judges have national implications for insurers in other states.

The letter was signed by Phil Anderson, senior vice president of government relations, and Kimberly Olson Dorgan, vice president of federal relations.

The letter cites a pending class action in New Mexico as an example of how state regulation might be affected by a single states court.

State courts in New Mexico, ACLI says, are certifying nationwide classes of plaintiffs for the manner in which their premiums are disclosed in their policies.

These cases are being certified, ACLI says, even though state insurance commissioners review and approve the disclosures.

“The result of nationwide regulation through targeted class action litigation has indirectly usurped the role and authority of state commissioners of insurance,” ACLI says.

The issue of class action litigation is controversial enough to have even divided top Senate Democrats.

The split was highlighted during the Judiciary Committees hearing on S. 1712, which would allow defendants in major, national class action lawsuits to have their cases heard in federal courts.

One of the primary sponsors of the legislation, Sen. Herb Kohl, D-Wis., insists that no one can argue that the class action process is not in serious need of reform.

“We have a simple story to tell,” he says. “Consumers are getting the short end of the stick in class action cases, recovering coupons or pocket change, while their lawyers reap millions.”

Kohl says stories of nightmare class action settlements that affect consumers across the country are all too frequent.

He cites one class action lawsuit filed against a video store that produced dollar-off coupons for future video rentals for the plaintiffs, in which the plaintiffs attorney collected $9.5 million.

In another case, Kohl says, a member of a class that technically won a case 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 says.

But Senate Judiciary Committee Chairman Patrick Leahy, D-Ver., says 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, Leahy says, allows ordinary people to band together to take on powerful corporations or even their own government.

“I am hesitant to restrict legal rights and remedies in an era of corporate irresponsibility and executive misconduct,” he says.

As for payments to lawyers, Leahy says defense lawyers tend to be paid by the hour, and 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 says.

“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,” Leahy says.

In other news, the Senate failed to pass legislation establishing a prescription drug benefit for Medicare recipients, but did approve a bill aimed at increasing the availability of generic drugs.

The failed Medicare drug effort came as an amendment to S. 812, the generic drug bill.

Under the amendment, which garnered only 49 of the 60 votes needed to be attached to S. 812, a $400 billion program would have been established to subsidize precription drug costs to Medicare beneficiaries who pay a $25 annual enrollment fee.

The amendment would have provided comprehensive coverage for all drug purchases for beneficiaries with incomes up to 150% of the poverty line and for those with “catastrophic” costs, defined as more than $4,000 in out-of-pocket spending.

The demise of the amendment makes it unlikely that Congress will establish a Medicare drug benefit this year.

The underlying bill, S. 812, however, was approved by a 78-21 vote, despite controversial language added during consideration of the bill on drug reimportation.

Under S. 812, the Food and Drug Administration would have greater flexibility in approving generic alternatives to brand name drugs.

The reimportation amendment requires drug manufacturers to charge U.S. customers no more than they charge in foreign countries.

The National Association of Health Underwriters, Arlington, Va., while praising the increased availability of generics, blasted the drug reimportation language.

“This is blatant price control,” says Janet Trautwein, vice president of government affairs.

“NAHU has never supported price controls in any area because they have a consistent history; they dont work,” she says.

Trautwein says countries that control prices have some less expensive medications, but they also have a lower variety of medications.

Indeed, she says, lower cost generics are often not readily available in countries with price controls, which could push overall drug costs higher.

The House is expected to consider S. 812 in September.

Reproduced from National Underwriter Life & Health/Financial Services 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.


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