June 9th, 2010

Continental European Legislative and Judicial Trends: Class Action and Compulsory Mediation Enter the Italian Litigation Scene: How Will These Provisions Affect Insurance Litigation and Business?

Posted at 1:00 AM ET
2010_legislative_thumb-2David Lewin, Managing Director
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Class Action: Overview and Possible Impact

After numerous postponements, effective January 1, 2010, class action has officially entered the Italian litigation scene as a remedy for consumers against unlawful conduct committed by enterprises after August 16, 2009.

The action is structured by the law as a common initiative for the protection of consumers’ individual rights in three cases:

  • Rights deriving from contracts between consumers and enterprises;
  • Non-contractual rights consumers have with producers of goods (e.g. in cases of damages deriving from product liability);
  • Rights deriving from unfair commercial practices or anti-competitive conduct.

The action - which may be brought by individual consumers directly (with the assistance of a lawyer) or by the appointment of a consumers’ association - may seek judicial determination of the breach of consumers’ rights by the defendant, as well as the award of damages or restitution of sums paid. Unlike similar legislation in effect in other countries, which provide for the award of punitive damages, the Italian law only allows compensatory damages.

The claim is subject to a preliminary judicial review which determines whether the action is admissible. Grounds for the early dismissal of the action are clearly indicated by the law as (i) the manifest groundlessness of the action; (ii) the existence of a conflict of interest; (iii) the lack of identical individual rights for which protection is sought; (iv) the claimant’s inability to care for the interest of the entire class.

The introduction of such preliminary judicial review is particularly important as it may have the effect of avoiding a reckless and political use of the class action. Such review is performed before the action is advertised and prior to allowing any opt-in of other consumers. Moreover, when an action is declared inadmissible by the Court, the decision is advertised by means of publication and the claimant is required to bear the expenses. 

In addition to the admissibility outcome, the Court may rule for a suspension of the action if an investigation by a regulatory authority (e.g. Antitrust) on this issue is pending.

In the decision admitting the action, the Court defines the terms and conditions for advertising the action in order to allow the opt-in of interested consumers.

The rules of procedure for these actions are simpler than those stated by the Italian Code of Civil Procedure for regular actions before the civil courts. The Court handling the case establishes the procedure in compliance with the principle of equal right of defense in civil proceedings in order to ensure a fair, effective and prompt management of the proceeding.

If the Court finds for the claimants, it will liquidate the sums or state the criteria for determining the sums due to the consumers who are part of the action. In addition to ruling in favor of all the consumers who have opted in, the decision prevents any other class action against the defendant on the same issue. Individuals who have not opted in may obviously still file individual claims against the defendant in separate actions.

While the first class actions have been brought against banks and public institutions, insurance companies are potential targets of such actions.

Collective actions have been a topic of discussion between the Italian government and the Italian consumers’ association for many years. An issue relating to the motor insurance business was a key issue in the discussion seeking a collective action remedy. After the Antitrust Authority (in 2001) investigated and found a cartel among a group of motor insurers - resulting in insureds/consumers paying unfair premiums - the costs and time needed to pursue individual actions discouraged individual consumers.

In today’s legal framework, it is likely that those consumers would have grouped together with the aid of a consumers’ association to exploit the class action remedy. The class action remedy provides an advantage by reducing expenses and strengthening the consumers’ position.

Italian consumers’ organizations were ultimately unhappy with the enacted legislation creating the class action. The absence of punitive damages, the fact that publicity costs were borne by consumers rather than by the consumers’ association and the limiting of the remedy to actions occurring only after August 16, 2009, were some of the reasons. 

It is likely that the new class action remedy will impact insurance companies conducting business in areas of claims handling and underwriting. Such insurers may benefit by building a claims handling and underwriting strategy that incorporates the full ramifications of the availability of class action suits for Italian consumers.

Compulsory Mediation in Insurance Cases: Overview and Possible Impact

New legislation (D.Lgs. 4-3-2010 num. 28) has recently been enacted with the aim of reducing litigation in Italian Courts and providing compliance with Directive 2008/52/EC on certain aspects of mediation in civil and commercial matters.

The new law contains three types of mediation procedures:

  • Voluntary mediation, chosen as an ADR method by the parties;
  • Compulsory mediation: imposed by the law regarding certain issues of litigation;
  • Judicial mediation: proposed by the judge to the parties of a lawsuit at any stage prior to the submission of final conclusions.

Disagreements over insurance contracts and medical malpractice are among those for which mediation will be compulsory. Prior unsuccessful mediation will be a condition for the admissibility of an action before a civil judge. The law states that compulsory mediation will be in effect for proceedings beginning twelve months after the enactment of the law, which will occur on March 20, 2011).

Compulsory preventive mediation is not new to the Italian legal system and has been in effect for many years with respect to labor and employment disputes, albeit not very successfully. This new piece of legislation is expected to have an important impact on the Italian litigation scene. The implementation of mediation procedures in the areas of insurance contracts and medical malpractice may accelerate the settlement of a large number of disagreements. The new law states that the mediation process may last no longer than four months, ultimately rendering the judicial system more efficient.

Insurance companies are likely to see their claims handling procedures impacted by the new compulsory mediation legislation.

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