Ferma and insurers on watch as EC paves way for more EU-wide class actions

The European risk management and insurance industries are beefing up lobbying efforts in response to the planned introduction of new European Commission (EC) rules this March that would make it easier for European consumers to bring class actions and seek compensation from companies. The EU already has a framework in place, led by the Injuctions Directive, designed to make it easier for consumers to seek redress on a collective basis across Europe. This came through a Recommendation on Collective Redress introduced in 2013. However, the EC and leading European consumer organisations such as The European Consumer Organisation (BEUC) are not convinced that this system really works and have convinced the EU leadership to include an update of the rules within its 2018 agenda. On 13 September, EC President Jean-Claude Juncker announced in his Letter of Intent a “New Deal for Consumers” that opened a consultation process. Critics of the existing non-binding system – not least Vera Jourova, European Commissioner for Justice, Consumers and Gender Equality – believe the current rules are too soft and hope a tougher system will be in place by March. The move for a more effective and consistent collective redress system across Europe has, in part, been driven by recent events, noted President Juncker when he announced the new deal for consumers. “In response to mass-harm cases, such as the 2015 ‘Dieselgate’ scandal or the massive 2017 flights cancellation affecting hundreds of thousands of consumers across the EU [Ryanair], the Commission Work Programme 2018 under the title 'A new Deal for Consumers' foresees a revision of the EU consumer directives, including the Injunctions Directive (ID). The initiative is aimed at ensuring cheaper and more effective means to stop and remedy breaches harming multiple EU consumers simultaneously,” stated the EC. Ferma has picked up on the EC’s plans to beef up its collective redress system. The federation is clearly worried about an increased risk profile for European companies if consumers are encouraged to bring class actions and the rules are more consistent across Europe. In a recent post on its website, Ferma pointed out that 26 new initiatives were proposed in the 2018 EC work programme that was released in late October. This is the last programme by President Junker in which real progress can be made before legislative momentum slows down ahead of the 2019 European elections and Brexit, noted Ferma. Seven priority areas have been agreed to maintain political momentum on 31 key proposals and the aim is to adopt as much legislation as possible before the European elections in 2019, explained the federation. Ferma said the EC has also identified 66 proposals that have been pending over the last two years that the Commission wants Parliament and Council to complete before the end of the term. These pending proposals include well-known files for Ferma such as the creation of an EU Cybersecurity Agency, the e-Privacy Directive and the Country-by-Country Reporting Proposal. The collective redress plans did not slip under Ferma’s radar. “Finally, out of the 12 EU legislative instruments under review for 2018 to ensure that they remain fit for purpose, the revision of the EU consumer directives could possibly raise some concerns. One scenario under consideration by the Commission is the adoption of consumer collective redress rules in every EU member state, which Ferma advocated against in 2013. Ferma will monitor the developments,” stated the federation. Ferma will need to step up its efforts in this area because the EC is clearly serious about the initiative this time. The EC stated that its latest initiative aims to ensure that the planned revision of consumer law directives is complemented by “strengthened procedural rules” for both domestic and cross-border breaches harming consumers’ collective interests. It explained that, subject to the results of its recent impact assessment, two initiatives would be presented as a package. These will help achieve the “overarching objective of a robust enforcement of EU consumer law by simultaneously: (1) improving public enforcement through more effective, proportionate and dissuasive penalties for breaches of EU consumer law; (2) providing for an EU-wide right to remedies for victims of unfair commercial practices; and (3) improving the procedural means for stopping infringements harming the collective interests of consumers and eliminating their effects, including possibly by providing for consumer redress”, said the EC. It explained that the initiative will build on the 2013 Alternative Dispute Resolution and Online Dispute Resolution (ADR/ODR) acquis and on the 2017 revision of the Regulation on Consumer Protection Cooperation (CPC). “This package would aim at stepping up the enforcement of EU law in a holistic way and securing more effective consumer redress in mass harm situations,” the EC stated. The BEUC consumer federation is clearly a big fan of the new plans, because it argues that the current system simply does not work. In a recent report it states: “Lack of compensation for harm suffered is a major loophole in a legal system and allows for illegal profit to be retained by business. Judicial collective redress for consumers currently operates nationally only in limited number of member states. Even where it is available, the models and effectiveness of the mechanisms vary significantly. They also do not provide for cross-border solutions. This leads to a significant discrimination in access to justice, to the detriment of consumers. “Pan-European collective redress system is long overdue in Europe. Without it, billions of euros in unrecovered damages in the EU remain in the pockets of the wrongdoers. Moreover, national collective redress mechanisms are being developed differently across the EU and, as a result, consumers are being treated differently according to their place of residence. The EU recommendation on the common principles for collective redress of 2013 did not have a satisfactory impact for this problem,” adds the BEUC report. The consumer body explains that mass claims cannot be addressed by the current injunction procedures, because injunctions have different scope and objectives. “Numerous examples prove that often amicable settlements cannot be reached while there is no judicial procedure to back them. There is a patchwork of national systems in the EU, and only a handful of them function efficiently. The gaps of the European redress possibilities are very well exposed in the Volkswagen emission fraud case, where the company refuses to compensate European car owners despite having done so for American consumers,” points out the BEUC. The BEUC therefore calls for binding EU legislation that would ensure all EU member states have collective redress procedures, based on the minimum requirements. This would include: Wide scope of application Legal standing for consumer associations Adaptation of the ‘loser pays’ principle Opt-out to be available Active role of the judge in the proceedings, to act as a safeguard Principles of how to regulate third-party funding To be applicable both for national and cross-border cases. If Ferma decides that bolstering the collective redress system is bad news, it will find support within the European insurance industry. Insurance Europe, the European insurance industry’s representative body, published a position paper on the EC’s plans towards the end of December and is clearly keeping an eye on proceedings. It argued that because many EU member states have either only just introduced, or are considering introducing, collective redress mechanisms, it is too early following the 2013 recommendations to act at EU level. In the paper, Insurance Europe reiterates its support for safeguards, such as the loser pays principle, opt-in and transparency of funding. But the body also warns about the risks of “blackmail settlements” and returns on investment for third-party litigation funders several times higher than the initial investment to the detriment of consumers alleging mass harm. “Insurance Europe welcomes the European Commission’s current focus on the need for appropriate collective redress mechanisms in the EU; a focus that is timely in the light of recent mass-harm instances (VW diesel emissions, Ryanair flight cancellations, mis-selling of horse meat) and the required European level is currently necessary. If the EC were to take action at EU level, Insurance Europe favours a soft-law approach which distinguishes collective redress from injunctive relief, and does not tag collective redress on to injunctive relief proceedings,” states the insurance industry body in its paper. “The need to balance the effect of such mechanisms between, on the one hand, achieving effective redress for consumers impacted by breaches of EU law, with, on the other hand, the effect on insurers (as defendants, legal expenses insurers or liability insurers), should not be overlooked. It is therefore imperative that any collective redress mechanism be sufficiently thought through to prevent unintended consequences such as: collective actions becoming investment opportunities for third-party funders with no interest in the outcome of proceedings other than the return on investment; blackmail settlements becoming a regular feature of business risk; and abusive use of collective redress mechanisms to pursue malicious or vexatious claims,” it adds.

Ferma and insurers on watch as EC paves way for more EU-wide class actions

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