BI insurance cases helped build record wave of class action suits

Class action lawsuits reached a fever pitch during the past year, with insurance coverage cases involving business interruption (BI) accounting for 21% of COVID-19-related litigation, according to Carlton Fields’ Class Action Survey. During 2020, spending on class action litigation grew at a rate more than double that of other litigation spending, reaching a record $2.9 billion.

Education refunds and reimbursement for entertainment, tickets and travel were the other two largest categories for COVID-related class action suits, accounting for 19% and 11% of cases, respectively.

The survey also revealed that more than a quarter of businesses from across industry sectors, including insurance, banking, education and manufacturing, have faced at least one class action as a result of the pandemic.

Overall, the survey found that slightly more than 60% of companies faced a class action suit during 2020, up six percentage points from the year prior. During the past decade, the number of ongoing class actions managed by survey respondents more than doubled to reach 9.3 matters per company in 2020. In 2011, the average was 4.4 matters per company, Carlton Fields reported.

In addition to increasing in volume, class action suits have become increasingly high-risk for organizations, according to the law firm. Companies reported that of the class action suits they have faced this year, 34.3% were high-risk or “bet-the-company” situations. In 2011, only 6.2% of respondents said the same.

‘Low exposure’ suits fall, costs rise

Conversely, class action suits classified as being “lower exposure” declined in the past year. These lower exposure suits accounted for just shy of 15% of cases, the lowest total since 2015, the law firm reported.

“With the pandemic, we’ve seen a groundswell of new litigation, and even those companies who have not yet faced a COVID-19 class action have considered or adopted new business practices in an attempt to address related issues and minimize risk,” Carlton Fields’ National Class Actions Practice Group Chair Julianna Thomas McCabe, who oversaw the survey, said in a release.

Along with a rise in volume, the cost of class action suits has also grown. Increases were seen during the past six years, and Carlton Fields reported 2021’s spending on class actions could hit nearly $3.3 billion.

As a result, more companies are now including mandatory arbitration clauses. Additionally, nearly 75% of respondents said they now deploy arbitration clauses with class action waivers, up from 55% the year prior.

While BI cases led the charge in terms of suits stemming from the pandemic, labor and employment issues continued to be the overall leading category for class action suits this past year, Carlton Fields reported, noting these cases accounted for nearly 23% of all matters and spending. Following closely were consumer fraud cases, which accounted for 21.1% of all matters, and 20% of class action spending.

However, survey respondents indicated data privacy and cybersecurity are the greatest future class action threats, the law firm reported. Driving these concerns are already enacted, or forthcoming, state privacy regulations, such as the California Consumer Privacy Act.

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