France: In The Wake Of France's Adoption Of A Class Action Model, Companies Domiciled And Doing Business In France Should Ensure Insurance Coverage Is In Place To Respond To These New And Uncertain Risks

In the wake of the institution of class action claims in France, where, unlike the U.S. class action model, liability and damages are assessed prior to "massification" of the class, corporations should prepare for these new risks by guaranteeing that insurance coverage is in place for defense costs and potential losses arising from class-based claims in France.

Following years of tense discussions, France adopted a class action proceeding known as "action de groupe" to resolve mass claims. The reform was a response to overburdened judges and major scandals involving large-scale claims that stemmed from either personal injuries sustained from various pharmaceuticals or global awareness of injuries caused by breast implants. Since its adoption in October 2014, five group actions have been filed based on claims arising from undue fees, unfair contractual terms, breach of contractual obligations and misleading information against telecommunications companies, banks and insurance companies. Although class action proceedings in France to date have been restricted to claims involving consumer and competition law, they can be used exclusively to claim compensation for material damage sustained by a group of claimants and the group action may soon be extended to include health-related claims and discriminatory practices.

In contrast to the U.S. model, the French group action is comprised of a three-step approach. During the first phase, a group claim is filed by an association before High Courts of First Instance. According to the French Consumer Code, only authorized associations for the defense of consumers can bring class actions, in both competition and distribution law. After the claim has been filed, the High Court of First Instance issues a declaratory ruling on liability in which judges establish liability on the basis of the model cases brought by the filing association. During this phase, judges determine the scope of the defendant's liability, ensure the publicity of the case in the media at the expenses of the defendant and may determine the amount of damages awarded to each individual plaintiff.

In the second phase, the plaintiff group is constituted through judicial oversight of an opt-in system whereby individuals must step forward to be included in the plaintiff class. In the third phase, parties who have opted-in can obtain compensation based on the amount of damages previously set by the judge.

In contrast to the U.S. class action model, where class certification is the first phase in the process, under the French system liability and damages are determined prior to "massification of the dispute" – i.e. a determination of the number of claimants entitled to compensation from the defendant. By way of further contrast with the U.S. model, the second phase of the class model in France, the opt-in phase, is not contested by the defendant but is at the election of the individual plaintiff.

Although the French class action model was designed as an alternative to and improvement upon the U.S. class action system, the French model has been portrayed as a "procedural monster" potentially fraught with uncertainty where the role of lawyers and available defenses have been limited in contrast to the U.S. model. As a result, corporations domiciled and operating in France face a new set of risks and an uncertain and potentially heightened exposure from class action claims. In response to these new risks and uncertainty, corporations domiciled or operating in France seeking to mitigate or avoid such risks posed by the new class action model should reassess risk management strategies and ensure appropriate insurance coverage is in place to provide for payment of defense costs and indemnification in the event class action claims are brought against them under the new French system.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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