On 19 May 2021, after a number of postponements, the new Italian class action bill (Law no. 31 of 12 April 2019) has finally entered into force.
The new legislation has been specifically designed to facilitate and incentivize the use of class actions, which - albeit being available in Italy since 2007 - had not proved successful due to their narrow admissibility criteria. A significant increase in collective actions can therefore be expected in the next few years and businesses, including insurance companies, shall be prepared to face them.
We have been closely monitoring the process which led to the approval of the reformed law since its early inception and, on this basis, will hereby present its main innovations (section 1), the potential impacts it may have on the insurance sector (section 2) and recommendations that players in this industry may follow to minimize risks (section 3).
The new legal framework
We have already presented the key changes of the new law in a previous article, emphasizing how businesses will be required to conceive appropriate defensive strategies to mitigate risks stemming from potential class actions. The Italian legislator’s desire to encourage recourse to collective litigation has indeed resulted in the adoption of measures that are particularly favourable to claimants, such as:
- a wider scope of application of the class action, both from a subjective and objective perspective, as this tool is no longer reserved to consumers for specific claims only, it now being available to anyone, including legal entities and parties to B2B relationships, for all violations of “homogeneous rights”;
- an expanded, two-phase opt-in mechanism, allowing claimants to join the class not only before actual commencement of the proceedings but also within a 5-month period after issuance of the Court’s judgment;
- economic incentives for the lead plaintiff’s lawyer and for the “common representative” of the class.
From a procedural standpoint, class actions shall be exclusively heard by specialized business divisions of the courts (“tribunale delle imprese”) and shall follow the rules on summary proceedings as set forth in Arts 702bis ff. of the Italian Code of Civil Procedure, with some revisions (most notably, summary proceedings in this case cannot be converted into ordinary proceedings irrespective of the complexity of the case). Proceedings will be composed of three main phases:
- a first stage, during which the court shall decide over the admissibility of the class action, which would be dismissed on such ground if (a) the case is manifestly ungrounded, or (b) claimants’ rights are not homogeneous, or (c) a conflict of interests exists between the claimant and the defendant, or (d) the claimant is not in a position to properly pursue the collective interests of the class;
- once the class action is declared admissible, the details of the case shall be published online so as to allow further potential claimants to join the class. Following commencement of the actual proceedings, the court’s role becomes material, as it is entrusted with broad powers to manage evidence-gathering: by way of example, it may ex officio direct technical operations and/or order the defendant to provide relevant evidence in its possession. In this phase, the court may also propose to the parties to settle the dispute, by submitting an agreement to be assessed by both the class members and the defendant;
- thirdly, and finally, the court shall issue a declarative judgment exclusively focusing on ascertaining the defendant’s liability. Damages shall be quantified at a later stage, on the basis of a plan drafted by the lead claimant, who shall act as a representative of the class. The court shall review the plan and issue an order quantifying damage compensation or reimbursement due to each claimant, as well as the lead claimant’s fees.
The new legal framework is applicable to class actions related to conducts performed after 19 May 2021; current and future class actions related to conducts carried out before such date on the contrary remain subject to the “old” class action rules as originally set out in the Italian Consumer Code.
What risks for insurance companies?
In addition to the risks that the renewed class action may entail for any potential defendant (such as reputational damages and impossibility of knowing ex ante the number of claimants due to the double opt-in window), players active in the insurance sector may face issues specific of their industry.
A first risk is represented by the possibility that the insurance company is summoned for insurance coverage. Two different scenarios may materialize in this respect:
- the defendant of a class action may request the joinder of the insurance company as third party for insurance coverage. Applicability of joinder to class actions, a debated issue in the past, seems however unlikely in light of the current rules: as said, the new class action is directed through summary proceedings, where courts are usually more reluctant to allow joinders unless the case is converted from summary into ordinary proceedings. Conversion will not be allowed for class actions, so that risk to be joined remains rather limited;
- insurance companies might be summoned in different proceedings by the losing party of a class action for insurance coverage. In this respect, it is advisable that insurance companies keep a close eye over class actions involving their own insureds, so as to be aware of potential risks and create adequate provision for risks in their financial statements.
A second criticality may be represented by the fact that insurance companies routinely enter into contracts by means of standardized forms and/or clauses that are oftentimes invoked as legal basis for class actions (since, of course, homogeneous claims may arise out of or in connection with these). In this context, specific types of contracts should be carefully monitored, such as for instance (i) investment insurance policies (such as unit and index-linked policies) in case of negative performance of the same (e.g. because of a default of the assets to which the policies are linked or the illiquidity of the underlying pooling investments), (ii) policies containing clauses that limit the obligations of the insurer and/or the insured events and prove to be unsuitable for a number of customers requiring coverage of the same risks (which, based on the peculiarities of each single clause, could be subject to specific requirements), (iii) claims-made clauses, (iv) insurance policies linked to loans or other financings that for their features might be challenged as unfair commercial practice (e.g. for not covering the entire amount insured or because of the way these are distributed by the same banking channel), or (v) contracts and/or practises under the length of public authorities (such as IVASS or the Antitrust Authorities) for failure to comply with transparency and disclosure requirements or because of their substantial features (e.g. because the costs of the same may have the effect to jeopardize the rights of a number of policyholders / beneficiaries).
Finally, it is noteworthy to mention that the reform broadened the insurance fields covered by the class action. For instance, insurance contracts covering business risks - which are related to B2B relations and, as such, did not fall under the scope of application of the previous class action - may now be subject to collective actions, with increased risks for insurance companies.
The above clearly shows that a true revolution in the Italian litigation arena is taking place, with all businesses - and certain industries, like insurance, more than others - facing an increased risk of collective litigation in the near future.
Actions brought by classes of thousands of claimants are no longer unconceivable, and insurance companies might in the first place address the risk by reconsidering the scope of the coverage offered to the insured and/or by adjusting the relevant premiums. Furthermore, defensive strategies in this context should be entirely redesigned to prevent or handle claims efficiently: it is extremely likely that judgments issued at the end of class actions will have a strong persuasive impact on other courts as well (also due to the media coverage which usually accompanies them), so that specialized legal assistance should be sought even before litigation actually arises.
Features of specific retail insurance products which may give rise to collective claims should undergo specialized legal assessments by insurance regulatory and litigation experts, so as to be adjusted with the aim to minimize risks of facing class actions in the future. Should a class action eventually arise, then, support of a structured team familiar with dealing with serial cases will be equally important in ensuring a timely collection and review of the (usually extensive) case documentation as well as to thoroughly assess the possibility of indemnification claims vis-à-vis reinsurers and/or third parties, notwithstanding the strict timetable followed by Italian courts in summary proceedings.
To sum up, the new class actions will present perspective claimants with a significantly increased room for manoeuvre, and insurance businesses should be ready to face them. At the same time, however, the mentioned deferral of such proceedings to the exclusive jurisdiction of courts’ business divisions will prevent forum shopping by claimants, who will not be able to trigger litigation before specific courts known to be “pro-policyholder”. This will certainly ensure an increased level of specialization and uniformity of decisions, as opposed to the current situation whereby identical claims may be heard by different judges oftentimes reaching diametrically opposed conclusions on the same issue.
Authored by Andrea Atteritano, Silvia Lolli, Francesco Di Girolamo, Giulia Angelozzi.