It seems that at every opportunity, the Supreme Court sets the bar higher and higher for class action plaintiffs. Nevertheless, plaintiffs’ attorneys continue to file class action lawsuits at a record pace, even where the merits seem questionable.
Despite the continuing prevalence of class filings, being named as a class action defendant can be a momentous event for any company, particularly one that is not accustomed to litigation, in part because the costs required to gain dismissal of even groundless lawsuits can be substantial. A defendant’s inability to fund a vigorous defense can make it susceptible to agreeing to a quick settlement, thereby perpetuating the cycle of baseless lawsuits. For these reasons, immediately upon receipt of a class action complaint, defendants must remember to take a step back and examine whether they have insurance that might provide coverage for the lawsuit.
The value of available liability insurance for class action defendants cannot be overstated. In fact, from a practical standpoint, coverage for defense costs is likely to be the most critical function of liability insurance for most class action defendants. For this reason, liability policies may well be considered “litigation insurance.”
As soon as a company learns that it is being sued in a class action, it should review all of its insurance policies to determine whether any of them potentially provide coverage. Deciding what policies are potentially triggered by a class action lawsuit can be tricky because the complaint may not contain complete information about important details impacting the insurer’s coverage obligations. But because the duty to defend typically is much broader than the duty to indemnify, insureds should err on the side of giving notice under all potentially implicated policies. Vague or meritless allegations and the absence of class certification may not preclude an insurer’s immediate defense obligation.
Class actions can raise some unique insurance coverage challenges, and the results can seem counterintuitive at first blush. For example, in Hartford Accident and Cas. Co. v. Beaver, a nursing home care case, the court held that the class action defendant was entitled to a defense even though the named plaintiff’s claim, in isolation, clearly was not covered. The only named plaintiff after an amendment to the complaint did not reside at the facility until after the insurer’s policy had expired. However, the court held that if an insurer’s liability depends on whether a class is certified, the duty to defend is triggered as long as the underlying class action complaint alleges facts that fairly and potentially bring the suit within coverage. Because “[t]he factual averments bearing on class certification [were] detailed and extensive,” the court was “satisfied that the Underlying Complaint ‘alleges facts that fairly and potentially bring the suit within policy coverage.’”
The court also addressed the pragmatic realities of class action litigation, observing that “the fight over class certification is often the whole ball game … The overwhelming importance of class certification to the ultimate resolution of the case militates strongly against leaving the insured without a defense until after a decision on class certification.” Finally, the court dismissed Hartford’s argument that the duty to defend should not be triggered because the class may never be certified. The court stated, “If the duty to defend arises in spite of the uncertainty and impracticality of defending wholly meritless individual claims, we think it equally clear that the duty to defend is not defeated by some uncertainty as to the merits of class certification.”
In Omega Flex, Inc. v. Pacific Employers Ins. Co., the Appeals Court of Massachusetts followed suit, holding, “we do not believe that an insured must demonstrate that the plaintiffs will satisfy Rule 23 in order to receive a defense from its insurer… The fact that some of the claims may ultimately be deemed unsuitable for class treatment should not deprive the insured of the benefit of a defense, provided the complaint fairly can be read to assert one or more claims that fall within the scope of the policy.”
Recently, in Illinois Tool Works, Inc. v. Travelers Cas. & Sur. Co., an Illinois trial court held that an insurer must defend its insured even if facts discovered in the underlying cases prove that the allegations against the insured were baseless and that its insurers had no duty to indemnify. Since ITW purchased “litigation insurance” in order to enable it to defend against baseless claims, the insurers were required to pay for its defense.
Accessing ligation insurance to mount a vigorous and potentially case-dispositive defense to a class action complaint can make all the difference for a class action defendant. Defendants are urged to conduct a thorough review of all potentially implicated insurance policies and to provide notice in accordance with the policies’ provisions without delay.