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15th April 2018
Insurance Europe warns on implications of the European Commission’s proposal for a Directive on representative actions for the protection of the collective interests of consumers
Insurance Europe is concerned about the implications of the European Commission’s proposal for a Directive on representative actions for the protection of the collective interests of consumers, which was published this week. The proposal would repeal the 2009 Injunctions Directive, and govern how consumers launch collective legal actions against organisations, such as insurers.
William Vidonja, head of conduct of business at Insurance Europe, comments “While welcoming the Commission’s focus on strengthening the enforcement of EU consumer law, it is disappointing that the Commission’s own 2013 recommendations, which set out a strong basis to develop collective mechanisms in member states, have not been adhered to.
In the latest proposals, good principles that the Commission promoted to safeguard against the potential abuse of collective mechanisms—such as that the loser pays the costs of litigation and that consumers should actively choose to participate in collective actions—are compromised.”
Ensuring proper safeguards exist is important in light of the proposal’s wide-reaching implications. A successful application establishing a breach of EU law covered by the proposal can be relied on in any subsequent redress action.
The Commission’s proposals address concerns that collective actions could become investment opportunities for third-party funders with no interest in the outcome of proceedings, other than the return on investment. However, it underestimates the risk that awards can be diverted to third-party funders, instead of to claimants seeking redress.
Without proper safeguards, there could be a proliferation in collective actions motivated by the potential return on investment, rather than the legitimacy of a claim. This could increase business operating costs, to the detriment of both European consumers and insurers.
Vidonja adds “Insurance Europe is not yet persuaded of the need for such a wide-ranging proposal. This is because many member states have only recently introduced, or are in the process of introducing, collective redress mechanisms. More time is therefore necessary to see how these mechanisms function in different legal systems and how effective the safeguards against possible abuse are.”
Dr. Henning Schaloske, partner at Clyde & Co, comments "EU Commission proposals to grant consumers the right to form group actions could have a seismic impact on consumers, industry and the insurance sector.
"Currently, access to the courts on a group basis varies significantly within Europe and there is no mechanism for seeking a multi-country collective redress action at European Union level. This proposal may please consumers, but is likely to cause alarm in corporate and insurance circles.
If these proposals went ahead, it's likely to create a perfect environment in which super-charged claimant lawyers and litigation funders could thrive.
Change is not imminent given these proposals would need approval by national governments and the European Parliament. However, their backing by Vera Jerounva the EU’s Justice Commissioner combined with support from Commission President Jean-Claude Juncker suggests progress will be made.
"Insurers will need to move fast to communicate concerns around the risk of claims inflation and the unintended impact on consumers in terms of higher premiums."
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