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SDNY Denies Class Certification in Action Alleging Rate Regulation Violations

The Southern District of New York denied class certification to a group of plaintiffs seeking to collectively sue a group of insurers over purported regulatory approval violations regarding workers’ compensation policies. The court concluded that class adjudication was not the superior method of litigation, in part because of the significant recovery purportedly available to each of the approximately 220 members of the prospective class.

A number of New York employers filed a putative class action alleging that several insurers from whom they purchased workers’ compensation policies had violated New York law requiring regulatory approval of, among other things, rates. Specifically, the plaintiffs claimed that the insurers sold them guaranteed cost policies that were properly approved by New York’s Department of Financial Services but later entered into “reinsurance participation agreements” with the plaintiffs that were not approved by the Department and that effectively converted the guaranteed cost policies to “quasi retrospective rating plans.” In essence, the plaintiffs alleged that the insurers converted the plans from fixed premium plans to variable premium plans that created the possibility that the employers would have to pay more for coverage.

The plaintiffs sought to certify a class of New York employers who were charged more for premiums as a result of the “reinsurance participation agreements.” The putative class purportedly encompassed some 220 class members collectively owed $62 million. Approximately a dozen of those class members had already initiated their own actions. In addition, the defendant insurers noted that all of the putative class members had agreed to forum-selection clauses agreeing to litigate disputes regarding the policies in Nebraska and/or class action waivers.

The district court denied class certification after concluding that the plaintiffs had failed to establish that a class action was the superior method of litigation under Rule 23(b)(3).

Under the first factor considered under Rule 23(b)(3) — whether class members have a strong interest in individually controlling the litigation — the court concluded that the individual plaintiffs had a strong interest in individually litigating this case. The value of the case per plaintiff was high ($62 million for 220 plaintiffs), and several of the plaintiffs had already initiated individual litigation. This was not a prototypical class action in which individual litigation was precluded because the cost of litigation far exceeded the value to individual plaintiffs.

Turning to the second factor — whether members of the class had already brought suit — the court reiterated that a dozen plaintiffs were pursuing individual actions and arbitrations.

With respect to the third factor — the desirability of concentrating the litigation in a particular forum — the court noted that there was some appeal to concentrating the litigation in New York because the plaintiffs were New York businesses, but the existence of Nebraska forum-selection clauses and class action waivers precluded a finding that New York was desirable.

Finally, the court concluded that the fourth factor — the manageability of a class action — weighed against certification because of the 12 individual actions, the class action waivers, and the forum-selection clauses. The court would be required to make individual determinations as to which individual actions to enjoin and which plaintiffs could remain part of the class.

In closing, the court once again emphasized that the significant potential recovery available to each plaintiff rendered a class action unnecessary in light of the above factors.

The court, therefore, denied the plaintiffs’ motion to certify their class.

Nat’l Convention Servs., LLC v. Applied Underwriters Captive Risk Assurance Co., No. 1:15-cv-07063 (S.D.N.Y. July 27, 2019).

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About this Author

Brendan Gooley, Employment Lawyer, Workplace Discrimination, Carlton Fields Law Firm

Brendan Gooley is a litigator who focuses on employment discrimination, education, and insurance matters. He joined the firm after clerking for the United States Court of Appeals for the Second Circuit and the Connecticut Supreme Court.

Brendan defends employers, including municipalities and educational institutions, accused of various types of employment discrimination in all stages of litigation, including pre-suit, before the Connecticut Commission on Human Rights and Opportunities (CHRO), and after actions are filed. He handles complaints alleging violations of Title VII and the...