France: The Implications Of The Expanded Scope Of The French Class Action System On Potential Liability And Insurance Coverage For Companies Domiciled And Doing Business In France

Last Updated: 19 November 2016
Article by Kevin B. Dreher and Laura Ferry

Although the French class action system has gotten off to a slow start with only 6 actions initiated to date, the recently and anticipated expanded scope of the French class action system will impact the potential liability and insurance coverage of corporations domiciled and doing business in France. For this reason, corporations domiciled and operating in France should continue to monitor the evolving scope of the class action model and consider the scope of insurance coverage available to provide a defense and indemnification in connection with any class actions initiated against them in France.

1. Mixed Results of the French Class Action System After Two Years

On October 1, 2014, a system of class action was introduced into French law to provide a procedure for consumers to seek and obtain relief on a group or class-wide basis. In the first phase under the French class action system, 15 associations representing consumers at a national level and nearly 500 associations in the health care system are authorized to initiate a class action in French court. These associations may be represented by a lawyer and they may participate in a mediation to obtain compensation for individual claimant damages suffered by consumers. In the second phase, the court rules on liability of the defendant(s) and sets the conditions under which individuals can step forward to be included in the group/class to obtain compensation for their damage (i.e., an opt-in system). The third phase involves implementation of the decision to compensate consumers, which would involve the association transferring funds to the group/class members and any related enforcement proceedings to recover compensation awarded by the court.

Under the French class action model, unlike the U.S. model, the initiation of the action has been solely entrusted to authorized "associations" in an effort by the French legislature to avoid the perceived problems with the U.S. class action system, including the perception that U.S. plaintiffs' lawyers initiate too many class action lawsuits and without adequate legal basis for such claims.

Having sought to limit the number of class actions and to narrowly define who can initiate such claims, the French class action model has not achieved any significant impact on protecting consumers since only six class actions have been filed. The class actions initiated have included claims involving rental real estate, financial services, electronic communication and tourist accommodation. One of these class actions concluded with a settlement, which proved for the indemnification of nearly 100,000 consumers. The other class action claims remain unresolved and pending before the courts.

The lack of success of the model has been blamed, at least in part, on the public's perceived ineffectiveness of the consumer associations to proactively initiate claims to protect consumers. Indeed, the media impact of French class actions should not be underestimated because, despite public acknowledgement that the associations lack personnel and financial resources, the public generally is aware that "liability" of the defendant is commonly established from the moment an association initiates a claim.

2. Expansion of the Scope of the French Class Action System May Broaden the Potential Liability of and Implicate Insurance Coverage for Companies in France

The perceived ineffectiveness and lack of success of the French class action model has led to discussions regarding potential modifications to the class regime geared toward expanding its scope and broadening protections to other groups. Because consumer associations rarely resorted to initiating a class action in the two years since the introduction of the class action model in France, the legislature, on 26 January 2016, introduced and ultimately enacted a law to broaden the scope to introduce the class action system to protect consumers in the health care field. This expansion of the scope of the model would enable any of the 486 authorized associations in the French health care system to initiate a class action for the protection of their users. Since 1 July 2016, consumers with a claim can file a class action in the health care field to obtain compensation for damages resulting from personal injuries. Class actions in the health care field extend to consumers of health care services or products, but compensation for non-pecuniary loss is excluded from this type of action.

On 12 October 2016, the law extended the scope of the French class action model to areas of discrimination (including at work), the protection of personal data, environmental issues, and trade union issues (publication in the Official Journal is pending).

Additional efforts are underway to increase the number of class actions initiated by broadening the role of private lawyers through the Paris Bar initiative. Given the lack of financial and human resources, and the perceived ineffectiveness of associations to initiate proceedings, the lawyer members of the Paris Bar created a platform 12 November 2015, called "avocats-adhésions-conjointes.com," which is a website dedicated to enabling class actions led by lawyers instead of the association. This system differs from the class action system created by the French legislature, which can only be initiated by associations and which concerns specific areas of law and specific damages. The objective of the Paris Bar's initiative is to broaden the types of actions that can be initiated, and to leverage the strength of the French class action model to obtain individual compensation for each individual victim.

Under this new process, the lawyer in charge of the case first will submit an application to an ad hoc committee within the Paris Bar. Once approved, the lawyer will then be able to publicly advertise the contemplated joint action in the media to amass a group of individuals who suffered damaged. Eighteen such actions are currently identified on the website (11 procedures are already closed).

Despite the robust support for the French class action model as advanced through the public statements and speeches from members of the French government, the model has achieved very limited success in practice, in part because of the associations' monopoly to initiate class actions. In light of the perceived ineffectiveness of the French class action model and the associations' lack of resources and personnel, the French legislature intends to broaden the scope and reach of the class action system to other fields, and increase the number of associations with authority to initiate actions.

Although the French class action system has gotten off to a slow start with only six actions initiated to date, the expanded scope of the French class action system will impact the potential liability and insurance coverage of corporations domiciled and doing business in France. For these reasons, corporations operating in France should continue to monitor the evolving scope of the class action model into new industries, and consider the scope of insurance coverage available to provide a defense and indemnification in connection with any class actions initiated against them in France.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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