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Regulation and Compliance > State Regulation

Industry Welcomes Class-Action Victory

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The U.S. Senate today voted 72-26 to pass S. 5, a bill that could discourage lawyers from organizing some types of lawsuits.[@@]

The bill, sponsored by Sens. Charles Grassley, R-Iowa, and Herb Kohl, D-Wis., would limit the ability of lawyers who organize class-action suits to shop for friendly courts. One provision would restrict “venue shopping” by transferring the jurisdiction of most large, multistate class-action suits filed in state courts to the federal courts.

The bill also would require a plaintiff to bring a claim in a venue with a substantial connection to the alleged injury; require lawyers that organize the suits to give class members a clear explanation of their rights; and require judges to take a class look at settlement arrangements designed so that class members get compensation in the form of coupons rather than in cash.

Many members of the House want stronger limits on class-action suits, but the bill appears to have a good chance of passing in the House.

Targets of major waves of class-action suits have included managed care companies and issuers of interest-sensitive life policies that performed poorly when rates started falling in the 1990s.

The American Council of Life Insurers, Washington, and the National Association of Insurance and Financial Advisors, Falls Church, Va., have released statements praising the Senate for passing the bill.

ACLI President Frank Keating says he looks forward to quick House action on S. 5.

“Cases involving people from a variety of states and millions of dollars should be heard in federal courts,” Keating says in the ACLI statement. “As it stands now, class-action lawsuits can be filed in a state court on behalf of thousands of people who are not residents of that state. Certain attorneys have been choosing states they think will award them the most, particularly in fees, and file a class-action suit there.”

“Frivolous class-action lawsuits heard in state courts are hurting the insurance industry’s ability to compete in the marketplace,” NAIFA President C. Robert Brown says in the NAIFA statement. “Passage of class-action reform will stop lawsuits that for years have diverted financial resources from product development, innovation and agent compensation, among others, to attorney’s fees and litigation costs.”

Often, much of a class-action payout goes to the lawyers who organize the suits, and the class members themselves receive only a small amount of compensation, Brown says.

Links to the text of S. 5 and other sources of information about the bill are on the Web at


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