How class action lawsuits work
March 12, 2001
Churning, vanishing premiums, and misrepresenting insurance policies as investments are just a few of the ways insurance companies have cheated their customers. When abuse by an insurer is widespread, victims often band together in class action lawsuits when they might not have the financial resources to sue alone.
But if you get a notice in the mail about a lawsuit against your insurance company, should you automatically join? Or what if you think you've been cheated but you haven't heard of any class actions against your company?
How class action suits form
A class-wide action is much more efficient for the judicial system, according to lawyers.
Who brings the suit?
How is a class "certified" by the court?
In order to be certified as a class action, these requirements must be satisfied:
There have to be enough people to justify bringing the suit as a class. Class actions have been brought with as few as 20 or 30 people and as many as millions.
2. Common facts of the case
3. Claims or defenses are typical
4. Representatives will fairly and adequately protect the interests of the class
The plaintiffs also have to show it makes sense to proceed as a class. The most common way to demonstrate that a class action is the superior avenue is to show that common questions predominate over individual questions. If there are a lot of individualized issues among disgruntled policyholders, a class action may not be the best way to proceed.
If the court certifies the class, class members will be "defined" and the class will be everybody who fits that definition. An example of a definition would be: Everyone in the U.S. who bought a life insurance policy from a certain company between 1986 and 1991. In effect, if you fit the definition, you're automatically a member of the class. Depending on the case, you're given notice that you should choose to "opt out" (which is what you do if you prefer to bring an individual lawsuit) or to stay in the class (and be bound to the ultimate settlement).
What if I never knew about the suit and I think I was cheated by an insurance company?
If opt-out notices were sent out and you missed that deadline, your right to sue on your own later has been waived because the defendant has to have a final resolution. Part of the incentive for companies to settle class action suits is that everyone who didn't opt out of the class is forfeiting all future claims. Some people may lose their claims because they didn't know about the suit and were represented without their knowledge or consent.
If no opt-out notices were sent, it may be possible to look at a settlement and decide whether to take a share or opt out after the fact. And you can ask if special circumstances, such as being the owner of a very large policy, can turn back the clock for you.
How do people find out about the suit?
How are class action suits brought to court?
How long do class action suits take?
How is settlement money handed out?
In some class actions, if the amounts would be too small to send to class members, the settlement money is given to a charity or other non-profit cause.
What does it mean to "remain in the class and object"?
How can I find out if there are any class action suits pending against my company?
Finally, look for ads in the national papers and visit insurance-related and financial-related Web sites.
What should you do if you receive notice of a class action?
You'll have to opt out of the class in order to pursue a legal action outside of it. But if you know you're not going to pursue your own lawsuit, you might get something by staying in the class and submitting a claim.
Should you opt out?
If you fit the court definition of someone eligible for a class action and you don't follow official procedures to opt out by a specified deadline, you may lose your right to sue. Remember, corporations often settle class actions in order to cut off future claims and limit their losses. That can make you a victim all over again if you don't know when to jump off the bandwagon especially if you had no idea you were riding one to begin with.
Attorneys on both sides of settlements are generally barred from reporting the terms of the settlements, but published reports following the settlement of the Allen vs. Prudential suit, which was settled in January 1999, put an average of $3,100 each in the hands of class members, and $500,000 each in the hands of mass action plaintiffs.
Some say the problem with class actions is that lawyers get exorbitant fees and the companies get an across-the-board release for wrongdoings. It's possible that, in an insurance context, many people don't know they've been harmed, won't know for a long time, and won't understand it. This is especially true with vanishing premium scams, where policy owners expect to stop paying premiums years down the road and won't know for years that they must continue to pay the premiums.
Some attorneys say, for the individual policyholders, it's better to proceed as a group, not in a class action.