News Analysis - Reinsurance renewals weather storms.

(From Reinsurance)

"A tremendous, meaningful step forward in the fight to tame an out-of-control court system was taken with the Senate passage of the Class Action Fairness Act (S.5),"f according to Melissa Shelk, vice-president of federal affairs for the American Insurance Association (AIA). Property Casualty Insurers Association of America's senior vice-president for government affairs, Carl Parks, agrees that the move is positive. "The Class Action Fairness Act is a model of legislative compromise. It should serve as a framework for future reforms and give hope to businesses and consumers across the country who have been saddled by the extraordinary costs of the American tort system." Ramani Ayer, chairman and chief executive officer of The Hartford said the passing of the Act is important for all Americans, for the companies who make products for them and for the insurers whose policies protect those companies."

The bill, which had struggled to get through the Senate since its introduction in 1998, has finally achieved bipartisan support by a vote of 72-26 and this has resulted in a lack of amendments to the bill. "Sending a clean bill to the House of Representatives is critical for swift action and success," Ms. Shelk said. The House of Representatives passed it unchanged, in line with class-action reform measures it has passed on three previous occasions. Now that it is through the House, the president has made it clear that he considers signing the bill a priority.

Federal authority

S.5 will re-establish federal authority over interstate cases in which plaintiffs' claims are over $5m in the aggregate, while maintaining exclusive state authority over truly intrastate cases. S.5 also limits the so-called 'venue shopping' to prevent litigants from seeking out favourable court jurisdictions, requiring that claims be brought in a venue with a substantial connection to the injury. Under the former system, companies and lawyers have been able to create 'coupon settlements' instead of administering judgments. This system allows the defendant to pay damages to the small minority of claimants that redeem them, while at the same time allowing lawyers to value their fees based on the full coupon amount, according to the reform group.

There is the suggestion that the Senate success creates momentum for passage of other tort reforms. Supporters of the Act claim it will be a good first step for reform. In a statement, Democrat Senator Cantwell said she stands by the moderate reforms of the Act: "The Class Action Fairness Act improves the process of organising and trying class-action cases, by moving most of the larger cases into federal court. I value efficiency and common sense in our justice system, and a single federal court can better streamline and manage a large multi-state lawsuit, than can numerous state courts all over the country."

However, opponents of the Act claim it will make it too difficult for people to get their case to court. The attorney generals of 15 states sent letter to the Senate leadership before the bill passed, arguing that it would "result in far greater harm than good." It says that many class-action cases will not be certified by federal court if they are from more than one state because the court would be required to apply the laws of different jurisdictions to different plaintiffs. Cases commenced as state class actions and then removed to federal ...