Senate Democrats Differ On Class-Action Reform

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

Kohl said 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, Kohl said, 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 said.

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

Leahy said the availability of class-action litigation lets ordinary people 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 said.

As for payments to lawyers, Leahy noted that defense lawyers tend to be paid by the hour, and well-paid.

Plaintiffs' lawyers, on the other hand, tend to work without pay at the outset in exchange for the possibility of obtaining a portion of the proceeds if the action is successful, Leahy 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," Leahy said.

He did say, however, that he hopes to find common ground on asbestos litigation. 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 Committee's Ranking Republican, Sen. Orrin Hatch, R-Utah, told Leahy that the asbestos litigation issue is also a class-action issue.

"The abuses are reaching an epidemic level," Hatch said. "It is essential that we address the abuses."

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

Despite mountains of evidence that the system needs reform, some people will try to deny that there is a problem, Hatch said.

But nothing in S. 1712 prevents individuals from banding together to press their complaints, and suggestions to the contrary are red herrings, Hatch said.

Lawrence H. Mirel, the insurance commissioner for the District of Columbia, said he is concerned about the effect 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," 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," he said.

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

He cited a suit that is currently 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," Mirel said.

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

Mirel said that, when used properly, class-actions lawsuits have an important role to play in the nation's legal system.

But he is concerned, he said, that they do not substitute for, or interfere with, other lawful methods of protecting the public.

The American Council of Life Insurers, Washington, submitted a written statement to the committee supporting class-action legal reform.