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29 May 2012
A package of amendment to various federal laws, including the Law for the Protection and Defence of Users of Financial Services, came into effect in February 2012, allowing for the filing of class actions against insurance companies. The amendments are part of a broader legislative reform that affects not only financial services legislation, but also consumer rights, antitrust and environmental law. Several procedural changes have also been implemented.
The amendments provide that class actions against insurers may be filed by:
The Federal Code of Civil Procedure identifies three types of class action:
The remedies available depend on the type of action. Among other things, they provide for the reparation of damages caused to individuals or members of a specific group. Preventive measures (including injunctions) may be used to compel defendants to desist from actions that are allegedly causing irreparable damage or to withdraw products from the market.
Although various factual circumstances may be relevant to a class action, insurers are most likely to face homogeneous class actions. Companies engaged in life insurance, medical expenses insurance or health insurance business are most vulnerable to such actions, given that most of their insureds are individuals. For instance, if an insurer is found to be consistently charging excess premiums for a particular form of coverage, all of the insureds affected may have grounds to constitute a homogeneous action. Insurers will also be particularly exposed in the case of life insurance products with savings components, when the insurer fails to invest savings properly or maintain the guaranteed return on a particular savings product. Health insurance entities may face a greater risk of being sued in respect of services supplied by their appointed service providers.
These amendments will materially affect the conduct of insurers in relation to their clients, not only in their promotion, sale and adjustment of insurance, but also in the assessment of coverage policies, as exposure will be increased significantly.
In order to assess and avoid the risks associated with class actions, insurers will need to improve their recordkeeping with respect to insureds, coverage and services provided. It is advisable to implement additional precautions and internal compliance reviews to detect and rectify any circumstances that may give raise to class actions.
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