As a threshold matter, my teenage son is wrong. Brown v. Entertainment Merchants Ass'n, Case No. 88-1448 (U.S. June 27, 2011), is not the most important case of this term to everyone, including insurers. That case recognized that minors have a First Amendment right to video games. While perhaps good news for liability insurers writing video game risks, most insurers are unaffected. As an aside, my son was frustrated to learn that the First Amendment applies only to the government and not to parents.
However, the Supreme Court issued several opinions of interest to the insurance industry. For example, it issued three decisions addressing class actions. While two were pro-business generally, they will have less impact on insurer class actions.
In Wal-Mart Stores, Inc. v. Dukes, Case No. 10-277, slip op. (U.S. June 20, 2011), the Court rejected class certification in an employment discrimination claim under Title VII. In that case, the plaintiffs generally alleged female employees suffered discrimination in promotion and pay. The Court held a class could be certified only by "significant proof that an employer operated under a general policy of discrimination." Wal-Mart Stores v. Dukes citing General Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 157-158 (1982). Because Wal-Mart's general policy forbade sex discrimination, general evidence of stereotypical thinking could not provide the glue to hold together the class. While Title VII does recognize disparate impact claims, and Wal-Mart's policy of according significant local control to employment decisions could support a disparate impact claim, class certification was inappropriate.
While Wal-Mart's central holding would apply to employment discrimination cases within the insurance industry, as much as any other, it likely will be of limited application in the typical insurance class action where a plaintiff alleges a centralized business practice that damages a class.
However, a second holding in Wal-Mart may prove more valuable. The Court also held that individualized damage claims could not be wrapped into a class action under Federal Rule 23(b)(3)'s authorization of injunctive relief. The Court recognized but did not reach the question of whether monetary relief may be allowed at all under a Rule 23(b)(2) certification but squarely held that individualized claims may not be certified under that provision.
Additionally, the Court squarely rejected individual adjudication of monetary claims via a "Trial By Formula." Wal-Mart at 27. The lower court wanted to select a sample of plaintiffs and apply a statistical analysis of their claims to the entire class.
In a different decision, the Supreme Court unequivocally upheld class arbitration waivers in consumer contracts. AT&T Mobility LLC v. Concepcion, Case No. 09-893, slip op. (U.S. April 27, 2011). As we have seen in insurance cases, the plaintiff alleged in Concepcion that the class action waiver was unconscionable under state law.
While the Concepcion decision is of great value to business generally, it will have less applicability to the insurance industry. The basis of Concepcion is that the Federal Arbitration Act preempts contrary state law. However, many states have statutes barring or restricting, in whole or in part, the enforcement of arbitration clauses in insurance contracts. See Ga. Code Ann. § 9-9-2(c); Miss. Code Ann. § 83-11-109 (uninsured motorist coverage); Neb. Rev. St. § 25-2602.01; S.C. Code Ann. § 15-48-10; Ark. Code Ann. § 16-108-230; Nev. Rev. St. § 689B.067 (group health insurance). In other states, arbitration is formally or informally barred via regulation or regulatory reluctance to approve insurance forms with arbitration clauses. See United Ins. Co. of Am. v. Fla. Office of Ins. Regulation, 985 So. 2d 665 (Fla. App. 2008) (upholding insurance department's denial of application to include arbitration clause in life insurance contracts); Appleton Papers, Inc. v. Home Indemn. Co., 612 N.W. 2d 760 (Wis. App. 2000) (arbitration clause unenforceable where form not approved by commissioner of insurance).
The majority of decisions uphold insurance-specific restrictions on arbitrability based upon the McCarran-Ferguson Act which allows state law to control the insurance industry unless Congress expressly provides otherwise. See Am. Bankers Ins. Co. of Fla. v. Inman, 436 F.3d. 490 (5th Cir. 2006); McKnight v. Chicago Title Ins. Co., 358 F.3d 854 (11th Cir. 2004). The result is that in those states that restrict arbitrability of insurance contracts, Concepcion will be of little help and may be harmful as a practical matter. As industries other than insurance continue to include class action waivers in their contract forms, the class action bar naturally will gravitate to targets in the insurance business.
The business community lost an important class action decision this term which addressed successive putative class actions. Smith v. Bayer Corp., Case No. 09-1205, slip op. (U.S. June 16, 2011). In Bayer, the defendant successfully had defeated class certification in a federal case. However, the class action bar then filed a similar action on behalf of a different putative plaintiff in state court. Bayer sought an injunction in federal court, which was granted notwithstanding the Federal Anti-Injunction Act. 28 U.S.C. § 2283. The Anti-Injunction Act bars federal courts from enjoining state actions, absent certain unusual circumstances such as when necessary to "protect or effectuate [the federal court's] judgments." Id. The federal district court concluded that an injunction was appropriate to protect the federal court's prior decision rejecting class certification, and the Eighth Circuit Court of Appeals agreed.
The Supreme Court reversed, holding that a federal injunction is inappropriate where the named class plaintiff is different or where the test for certification under state law is different from that under federal law. The Supreme Court recognized the risk of successive litigation but noted that state courts and federal courts apply principles of comity and that the Class Action Fairness Act allows broader federal jurisdiction. Bayer at 11. Of course, the reality is that class action plaintiffs intentionally design their lawsuits to avoid removal under CAFA and some state courts' approach to class adjudications manifests the antithesis of comity.
Outside of the class action context, several Supreme Court decisions are of note to business generally, including the insurance industry. For example, in Federal Communications Comm'n v. AT&T, Inc., Case No. 09-1279, slip op. (U.S. March 1, 2011), the Court held that corporations do not have "personal privacy" interests cognizable under the Freedom of Information Act. Because the open records laws of many states are based upon FOIA, and the plaintiff's bar actively seeks information through open records requests, this decision may become important to insurers in the future.
In Sorrell v. IMS Health, Inc., Case No. 10-779, slip op. (U.S. June 23, 2011), the Court accorded some First Amendment protection to data mining as a marketing tool. In Sorrell, the Court struck Vermont's Prescription Confidentiality Law which protected pharmacy records revealing the prescribing practices of doctors. The Court held that the restrictions imposed a burden on protected expression.
We do not yet know the breadth of First American protection to be accorded to data mining. In Sorrell, the law at issue allowed data mining for other purposes, so the Court viewed the prohibition as content-based. It noted that a broader prohibition may have passed muster. Id. at 24-25.
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