Explosion of German class actions unlikely following collective redress reform: GVNW

Risk and insurance managers need not panic about new German collective redress mechanisms that come on the back of European Union collective redress reform proposals and some experts claim will lead to US-style class actions across Europe, according to the German risk management association GVNW. Alexander Mahnke, president of the GVNW, and Joerg Henne, co-CEO of the association, told Commercial Risk Europe that there is little chance of US-style class actions suddenly exploding across Germany. The new collective redress rules are designed to make the courts more efficient and reduce cost rather than significantly increase corporate exposures to legal action, they said. Legislators in Europe, and particularly Germany, have historically been reluctant to introduce anything that may lead to US-style class actions. The recent Volkswagen ‘dieselgate’ case, however, led to pressure for more protection for consumers, and platform myRight.de filed a consolidated action on behalf of 15,000 plaintiffs in early November. This adds pressure for a legislative and governmental response, according to German legal experts. Reform was actually already underway. In July 2017, the German government published a discussion draft of its Model Declaratory Action, ahead of new EU recommendations. Dr Henning Schaloske of leading international insurance law firm Clyde & Co explained recently that this would enable consumer groups or their plaintiffs to bring action for a “declaratory judgment” which should, in principle, have a binding effect on all claimants who electronically registered their claims. Individuals would still need to enforce their claims individually, but the declaratory judgement should ensure this would be a “smooth and straightforward” exercise, he said. “’Dieselgate’ not only changed the game for consumers and car companies, it’s set to have a deep and lasting impact on the German and continental European litigation environment. In 2018, the new German government intends to bring in collective redress mechanisms that will create new exposures for insurers and fresh opportunities for the litigation funders and US plaintiff law firms now setting up shop in Germany. Could this sound the death-knell of the languishing German D&O market, or is it the trigger for hardening rates which is so badly needed?” wrote Dr Schaloske in a note on the big issues facing the German market in 2018. “Germany has long been a litigation hotspot, particularly in the field of D&O insurance where the country is counted amongst the most litigious places globally. The market has been soft for more than a decade, with D&O insurance statistics published by the German Insurance Association (GDV) for the first time in November 2017 revealing shocking combined ratios for 2015 of 145% and for 2016 of 125%. Is this the blow that finally kills off the German D&O market, or is it the trigger for hardening rates which is so badly needed? We’ll know the answer in 2018,” continued the lawyer. But Mr Mahnke and Mr Henne do not think GVNW members need to panic about collective redress developments in Germany. US-style class actions may be on the way in other EU states, such as France, but there is little scope for an explosion of litigation in Germany based on current evidence, they said. “This is nothing compared to the US and recent developments in France and Sweden,” said Mr Mahnke. “Here, the government has simply made it easier for group claims to go through the courts more efficiently, but we have not seen a flood of actions and do not expect to see it,” he added. Mr Henne explained that German reforms on collective redress have been made for practical and procedural reasons, rather than to promote class actions. Therefore, the new rules could actually be seen as a positive development for GVNW members, he added. “Individual claims for the same events clog up the courts. This is more about how to make the procedures more efficient because one claim that is repeated over and over again wastes a lot of time, effort and resource. It is about making the system more efficient. This is not going to introduce US-style class actions,” he said. Mr Mahnke said the rise of D&O exposures following the ability of claimants to bring actions directly against insurers (Direktanspruch), introduced some ten years ago, is part of the reason for discussions about legal reforms. This helped spark the growth of D&O business in Germany that is now ‘catching up’ Anglo-Saxon countries, said the GVNW president. “There has been more discussion about arbitration – this is really catching up on developments seen in Anglo-Saxon markets such as the US and UK. The D&O market is more mature now here in Germany. Ten years ago it was seen as immature but now it has grown up,” said Mr Mahnke. One solid sign of this maturity is the fact that big law firms now target insureds as customers, he added. “If you went back 15 years, a lawyer would not make a living representing the insured. They all worked for the insurers. Now, more and more law firms are hoping to represent insured companies and individuals,” explained Mr Mahnke. But the growth in financial lines insurance and related exposures in Germany is not just limited to D&O, stressed Mr Mahnke. He said German risk and insurance managers with international companies are, for example, increasingly looking at employment practices liability insurance as their organisations continue to expand globally. “There is growing interest in this form of cover. German companies with international exposures and not just the US are interested to see how this can be included in their global programmes,” he said.

Explosion of German class actions unlikely following collective redress reform: GVNW

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