The RAND Institute for Civil Justice has just published a long-awaited study of Insurance Class Actions in the United States. RAND, a non-profit, non-partisan research institute based in California, is known for its comprehensive studies of the U.S. civil justice system.
The RAND study is the first comprehensive look at the impact of class action lawsuits on insurers. Many of the claims are for large amounts of money and most are settled, according to the study, rather than tried. Examples include the many cases cited in the RAND study claiming that auto insurers should be required to pay for "diminished value" of automobiles damaged in crashes even though the insurance contracts cover only the cost of repair. Settlement is far more likely once the class is certified. The study found that the median amount available to class members in those suits that were successful or were settled was less than $100, and that less than half of the money available to class members was ever applied for (the median proportion of those who applied was only 15%). Meanwhile the median amount of the judgments or settlements that went to the plaintiffs' attorneys was just under 50% of what was paid to class members. In 25% of the cases studied by RAND, the payout to the plaintiffs' attorneys exceeded 75%. In five cases it exceeded 90% of the entire amount paid out.
The RAND study focused on the years 1993 to 2002, before the passage of the Class Action Fairness Act (CAFA), and found that the number of class actions filed against insurers grew dramatically during that period, with the number filed in 2002 seven times the number filed in 1993. It is too soon to know what the impact of CAFA, which was passed in 2005, has been on this kind of litigation, but hopefully RAND will do a follow-up study in the near future.
Larry Mirel, a Wiley Rein partner, encouraged RAND to undertake the study when he was Commissioner of Insurance, Securities and Banking for the District of Columbia, and his help with the study's design and implementation is acknowledged in the study. Mr. Mirel testified on the need for CAFA before both houses of Congress. He also persuaded the National Association of Insurance Commissioners (NAIC) to create a task force to examine the impact of class actions against insurers on the authority of state insurance commissioners. Often these class actions are filed in areas subject to the statutory authority of state regulators. See, for example, Hill v. State Farm, where a class action suit filed in Los Angeles Superior Court claimed that State Farm was holding too much money in reserve to pay future claims. (Washington Perspective, September 29, 2006).