Did American Express v. Italian Colors Let Insurance Companies Avoid Bad Faith Class Actions?
October 1, 2014
I just ran across American Express v. Italian Colors, 122 S.Ct. 2304 (2013). It holds that a class action waiver in an arbitration agreement was enforceable even though it made Italian Colors (a restaurant) financially unable to prosecute an anti-trust suit.
(This sort of thing has not come up directly in my line of work. Maryland does not allow arbitration clauses for coverage disputes in UM/UIM claims. Md. Code Insurance 19-509(j). It is not clear if a Maryland court would extend the provision to all first party insurance litigation as a matter of public policy.)
Reading Italian Colors, I think it allowed insurance companies to avoid most bad faith class actions. I do not see any distinction between American Express using a class action waiver to avoid anti-trust suits and an insurance company using a waiver to avoid pattern-and-practice bad faith class actions. Both are facing suits too expensive for an individual plaintiff to bring. (Even in Maryland, which allows Plaintiffs to recover their attorneys fees and costs in first party bad faith disputes under Md. Code Insurance §27-1001(e), the statute caps the total fee and expense recovery at one third of total damages. One third of one plaintiff’s damages will not cover the costs of litigating a class action claim.) The only thing I can see stopping an insurer from putting in the class action waiver in the insurance contract is government regulation.
I hope the Maryland Insurance Administration bans the class action waivers. While I’m generally for laissez-faire, Italian Colors let American Express make itself immune to anti-trust suits by making them too expensive to bring. That was a bad idea. Class actions might exist primarily to enrich the lawyers who bring them, but they deter large corporations from committing many little wrongs on the theory that they did not hurt anybody enough to make suing them worth it.