FERMA advises EC to calm down on collective redress

The Federation of European Risk Management Associations delivered this damning verdict on plans hatched by the European Commission for a new collective redress system in its recently issued response to the commission’s consultation paper. The commission said that it launched the consultation, following the publication of an initial green paper, to try and find a more ‘coherent’ approach towards collective legal redress in the European Union. Current EU law makes it possible to pursue collective actions for injunctions in consumer law.hide But the EC is worried that national legal systems that cover areas such as financial markets, competition, environmental protection and other areas are simply too varied and inconsistent. And it is worried that the situation is even more haphazard when several consumers or businesses seek damages in the same case. Thus the commission followed up its wide-ranging green paper with a consultation paper that laid out some more concrete proposals and asked for input by the end of April. FERMA, along with most business representative groups, was clearly not too impressed by the proposals. “Risk management in industrial and commercial companies across the EU would...be rendered more complex and costly,” wrote Peter den Dekker, president of FERMA, in his letter to the commission. FERMA believes that the whole project has been started too early anyway. It advised the commission to hold fire, keep its options open and see how existing and recently introduced laws designed to protect and enhance the position of consumers work before it steams off on a new route. “Much of the focus during the consultation period has been on how best to set up a legal framework for CCR in the EU, rather than revisiting all four of the options outlined in the green paper,” wrote Mr Den Dekker in his letter to the commission. “FERMA members would urge the commission to keep open all options and to reflect, in particular, key European principles such as proportionality and subsidiarity, so that the least restrictive action is pursued,” he continued. FERMA would prefer cases to be argued and agreed out of the courts to save cost. Its letter therefore strongly urged the commission to opt for alternative dispute resolution as the model rather than a US-style adversarial mass tort approach. “EU and national attention should focus on ways to improve out-of-court settlement as this is the best means to provide access to quick and relatively low cost means of resolving disputes,” argued Mr Den Dekker. “The EU should continue to encourage member states to work with industry to improve the range of alternative dispute resolution schemes on offer,” he continued. But Mr Den Dekker stressed that ADR will only really work in the modern European economy if decisions are accepted cross-border. “This would require a more robust system to be in place so that mediated settlements in one member state are recognised across the EU,” he stated in his letter. FERMA pointed out that a number of EU measures are already in place to help consumers enforce their rights, including measures on cross-border enforcement and cooperation between member states. But Mr Den Dekker’s letter said that it is not clear that the value of these measures has been ‘fully appraised’ yet nor the cumulative impact of compliance worked out. The impact of a fully blown CCR system for European consumers could have a dramatic impact on the cost and availability of liability insurance too, fears FERMA. The federation stressed that any claims and premium rate inflation that resulted from a new system would simply be passed on to consumers. “FERMA shares the concerns expressed by the insurance industry that to proceed with proposals to introduce an EU CCR legal system would have a major adverse effect on the professional liability insurance market. Risk management in industrial and commercial companies across the EU would thus be rendered more complex and costly,” stated the FERMA president in his letter to the commission. “Claims would become more frequent and the risk would ultimately fall on insurers. In time, insurers would be forced to increase premiums for coverage. Risk managers would either have to increase spending on insurance or seek alternative solutions. It is likely any additional costs would have to be passed on to the consumer,” continued his letter. Mr Den Dekker therefore ‘respectfully’ requested that the commission conduct a ‘thorough’ economic assessment, including an analysis of the possible impact on the professional and product liability insurance market, before taking any further steps. In its consultation paper the EC asked whether interested parties believe that any new CCR rules would really add value for consumers. FERMA said that consumer laws are not yet fully harmonised, and their effective enforcement depends on national procedural rules. “Recently introduced EU initiatives have not yet been fully reviewed and so the introduction of a new system appears to us, at best, premature,” stated the letter. The commission’s fifth question to stakeholders was for many perhaps the scariest. This is because it asked whether it would be sufficient to extend the scope of the existing EU rules on collective injunctive relief to other areas or whether it would be appropriate to introduce mechanisms of collective compensatory address at the EU level. Scary because the latter sounds very much like US-style collective redress. “FERMA believes that US-style CCR would not be an appropriate approach for the EU. This view is shared by many other stakeholders. Much time was spent at the recent commission public hearing discussing safeguards to avoid the risk of abusive litigation: such as an opt-in rule, the loser pays principle, and bans on contingency fees and punitive damages,” stated Mr Den Dekker’s letter. FERMA said that it is not convinced that even if safeguards such as the loser pays principle were built into any EU system, they would work. “The system would have to be so intricate to avoid potential abuse that the resulting provisions may prove difficult, if not impossible, to apply in practice,” argued the letter. The EU also asked if any potential initiative on collective redress should be of general scope or whether it would be more appropriate to take action in specific policy fields. “Given the number of outstanding and interrelated issues that need to be resolved before anti-trust and consumer collective redress is a viable option at EU level, it would not be appropriate for the commission to move ahead on one initiative in a specific policy field and risk settling on solutions which are wholly inappropriate for another policy field,” stated Mr Den Dekker. He also said that the potential ‘unintended effects’ of the introduction of an EU CCR regime to business, in terms of reputational risk and the cost of finance and insurance, are so far unclear. “The dialogue on CCR must continue on a precautionary basis, with a clear focus on delivering benefits to consumers with minimum disruption of the business environment,” he wrote. “FERMA would be concerned if any new EU developments would expose companies to the risk of ‘double jeopardy’: a fine imposed for a breach of anti-trust law and a claim for compensation for the same breach,” concluded Mr Den Dekker.

FERMA advises EC to calm down on collective redress

Want to read this article?

Read Next

Healthcare and flexible/hybrid working most valued benefits

Global data breaches double in 2023 driven by extortion and third-party software attacks

Social inflation set to continue driving US liability rates: AM Best

Zurich appoints Adriana Scherzinger group head of captives

Marsh McLennan achieves ‘Autism Confidence’ status

Healthcare and flexible/hybrid working most valued benefits

Global data breaches double in 2023 driven by extortion and third-party software attacks

Social inflation set to continue driving US liability rates: AM Best

Zurich appoints Adriana Scherzinger group head of captives

Marsh McLennan achieves ‘Autism Confidence’ status

Want to read this article?

Read Next

Healthcare and flexible/hybrid working most valued benefits

Global data breaches double in 2023 driven by extortion and third-party software attacks

Social inflation set to continue driving US liability rates: AM Best

Zurich appoints Adriana Scherzinger group head of captives

Marsh McLennan achieves ‘Autism Confidence’ status

Related Articles