A new French law (the Consumer Act) which took effect on 18 March 2014 allows consumers to bring class actions in France (French Class Actions). The actions are inspired by US federal law but the scope of applicability and the role of lawyers and consumer associations are substantially different.
What does this mean for insurers?
The ability to bring a French Class Action increases the exposure of insurers:
- for the insurance products they sell to consumers
- for the coverage of their insureds’ liability to Class Actions
to numerous small individual claims that may not otherwise have been brought.
Consumer associations have a monopoly on French Class Actions
Contrary to the US class action, consumer associations will be given a central role in French Class Actions. Only accredited nationally-representative consumer associations are allowed to initiate class actions before a Civil Court or take part in mediation procedures. This monopoly means that lawyers may not initiate class actions.
Only 16 associations have been accredited so far. Among them are associations such as UFC-Que choisir, CLCV and AFOC, which deal with consumer matters in general.
French Class Actions are restricted to the consumers who opt-in
Consumers must opt-in to French Class Action proceedings. Non-natural persons are excluded from bringing a French Class Action, and there are a number of conditions which consumers must fulfil to be part of a class:
- The consumers must be in the same or in a similar situation.
- The consumers must have sustained an economic loss. French Class Actions are not allowed for indemnification of non-economic loss (including bodily injury, moral loss, pain and suffering).
- The economic loss suffered by the consumers must result from:
- the conduct of a same proposed defendant
- breaches of contract or statutory duty in the context of a contract for the sale of goods, a contract for the supply of services or anti-competitive practices under French and European Law (e.g. agreements between two or more professionals about pricing for products on the same market)
Health and Environmental losses are currently excluded from the scope of the French Class Action (a proposal for a new law aiming to include them was filed on 14 January 2014).
The Tribunal de Grande Instance has exclusive jurisdiction to hear French Class Actions. There are two procedures which may be followed: standard and simplified.
The standard procedure
The court will check whether the action relates to one of the matters for which class actions are available. It will establish the defendant’s liability in the circumstances of the relevant case. To that end, the judge determines the group of consumers that can obtain compensation, the conditions to be satisfied to belong to this class and the amount of the compensation.
In the court ruling, the court will provide for information, advertising and publicity to be produced at the company’s expense. It will also set a deadline for consumers to join the group, which must allow for a joining period of between two and six months. This is intended to ensure consumers will be able to opt-in to the French Class Action.
At the end of the procedure, the amount of the compensation is received by the consumer association. The consumer association must then directly transfer the compensation to the Caisse des Dépôts et Consignations.
The simplified procedure
This procedure is used when:
- the identity and the number of consumers are known; and
- the consumers have incurred a loss of the same amount.
The court can decide that the professional shall pay the amount of the compensation directly to each consumer.
Increased risk for insurers
The ability to bring a French Class Action increases the risk for the insurers. Such actions will be initiated for numerous small individual claims that would probably not have been initiated otherwise. The total amount for the class could be high. There is a double exposure for the insurer: a direct risk that they themselves will face claims, and the indirect risk that claims against their insureds will increase.
It is likely that insurers will face increasing risks relating to insurance products sold to consumers. The wide range of insurance products and distribution channels used means that it is therefore not possible to assess the risk. However, insurers should take particular care that they:
- provide full, accurate and transparent information to consumers
- review the wording of the insurance policies for such products
- appreciate of the insurance needs of the consumers (which would increase the risks for the insurance intermediary). One of the accredited associations criticized recently highlighted the fact that overlapping or unnecessary insurances are sold to consumers.
In addition to the direct risk of facing a French Class Action, insurers should be aware that their insureds may face class actions. It is not possible to estimate at this stage the financial impact the French Class Action will have on Professional Indemnity insurance. The type of activity of the policyholder will be important - financial institutions that deal with consumers and large providers of goods will be more at risks than others that do not sell products or services to consumers.
The 16 accredited consumer associations will determine the type of class actions to be initiated against the insurers and the practices that are not fair or not good practice in their view of the market.
Insurers should monitor the activity and reports of consumer associations that can initiate class actions. It is also important that insurers continue to assess the practices of insured parties who sell goods and services to consumers.