Decisions push life insurance class actions into state court

In the 1990s and for most of the first decade of the 21st century, the class action landscape was littered with large, nationwide cases against life insurers. The "vanishing premium" universal life class actions yielded several large eight-figure settlements, and not too long thereafter, there was a wave of national class actions involving the sale and marketing of index annuities, one of which settled for more than $250 million. All of that began to change in 2011.

The U.S. Supreme Court's landmark decision in Wal-Mart Stores Inc. v. Dukes in 2011 and the subsequent decision in Comcast Corp. v. Behrend in 2013 significantly altered the class action landscape for life insurers and issuers of annuity products by shifting the focus of such cases from point-of-sale evidence to issues more likely to meet the more rigorous Rule 23 requirements imposed by the Supreme Court. After those decisions, class representatives could no longer simply rely on the allegations in the complaint to obtain class certification. Wal-Mart's mandate that commonality under Rule 23(a) requires a "common answer" to "common questions" also shifted the basic class action inquiry from an analysis of the pleadings to a more rigorous analysis of whether the underlying evidence could support class-wide treatment of claims.

For life insurers, this meant that putative class actions arising out of point-of-sale presentations and related marketing materials that infiltrated the courts over the past couple of decades became much more difficult for plaintiffs to certify. Many types of class actions that would have been routinely certified in the pre-Wal-Mart era faced either outright denial of certification, certification of smaller classes and on narrower legal theories, or adjudication on the merits rendering the certification analysis moot.

In the post-Wal-Mart and Comcast landscape, life insurers can expect to see a decline in large national class actions premised on sales practices and related tort theories. It has simply become too costly and difficult for plaintiffs to pursue such actions under the rigorous analysis of the Rule 23 requirements that the Supreme Court has mandated along with the potential for full Daubert scrutiny of damages experts under Comcast.

It is clear, however, that plaintiffs' class action lawyers will continue to pursue certain types of cases against life insurers. They will continue to seek out areas of potential class-wide exposure and will likely turn their attention to other types of class actions that do not present the same consumer-based individualized issues that pervaded the large sales practices cases of the 2000s and early 2010s.

The focus of the plaintiffs' bar in insurance class actions has shifted and will continue to shift toward claims premised on breach of contract theories. The recent resurgence of cost of insurance class actions exemplifies how the class action plaintiffs' bar is finding ways to overcome the hurdles to class certification presented by Wal-Mart and Comcast. For example, form policies containing "uniform" cost of insurance provisions may make it easier for plaintiffs to have a common answer to a common question and allow plaintiffs to disregard the individualized evidentiary issues that were prevalent in sales practices class actions. More than two dozen such class actions have been filed around the country in the past 18 months.

Plaintiffs have also more often turned to state statutes and regulations as the basis for class actions against insurers in the aftermath of Wal-Mart and Comcast. Many of these actions are the result of the close relationship between plaintiffs' class action lawyers and proactive insurance regulators. In California, for example, there has been a growing trend of plaintiffs seeking to bring class actions against insurers for California Insurance Code violations — often for technical violations with noncompliance for certain regulatory obligations. While the Supreme Court's ruling in Spokeo v. Robins may eliminate some of these cases before they even get started, those actions could still proceed in state court since Article III only applies to standing in federal courts. Life insurers are also at risk of facing class actions brought under broader statutory schemes, such as the Telephone Consumer Protection Act, and must carefully scrutinize how they contact potential customers.

While the class action landscape has been altered in many ways that often provide stronger defenses for life insurers in class actions filed after the Supreme Court's decisions in Wal-Mart, Comcast and Spokeo, life insurers should not rest easy. The plaintiffs' class action bar does not give up easily and will continue to look for creative ways to circumvent the impact of those landmark decisions. For the near term, that will mean that more life insurance class actions will be filed in state court and pursued under state-law remedies. And for those cases filed in federal court, most will focus on contract-based claims and claims premised on statutory and regulatory violations. The landscape has changed, and plaintiffs' pathways to certification have narrowed, but life insurance class actions will continue to be filed in California and elsewhere.

Robert (Bo) D. Phillips Jr., a partner in Alston & Bird's San Francisco and Los Angeles offices, assists companies in high-stakes class actions involving unfair competition, false advertising, privacy issues, product liability, labor and employment, life insurance, financial services, trade secret litigation and food labeling.

Samuel (Sam) J. Park, counsel in Alston & Bird's Los Angeles office, represents companies in high-stakes class actions, complex commercial cases and arbitrations, and regulatory matters.