Tuesday, September 15, 2009

Settlements, Fees Upheld in Antitrust Class Action Against Insurers

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

In a class action alleging a bid rigging and market allocation conspiracy between insurance brokers and insurance carriers, the U.S. Court of Appeals in Philadelphia has upheld final approval of a $121 million settlement with insurer Zurich Financial Services and a $28 million settlement with insurance broker Arthur J. Gallagher & Co.

An award of $29.95 million for attorney fees and expenses in conjunction with the Zurich settlement was also affirmed.

Class certification requirements of Federal Rule of Civil Procedure 23(a) and (b) were satisfied with respect to both settlement classes, and both settlements were fair under Rule 23(e). Thus, objections to the settlement agreements and attorney fees award from dissatisfied class members were properly rejected.

Private Civil Actions, State Investigations

The settlements at issue followed the consolidation of a number of private civil actions. At about the same time, insurance industry investigations were being conducted by various state attorneys general and state departments of insurance.

Under the Zurich settlement, the insurer agreed to establish a $100 million settlement fund. In addition, Zurich entered into settlements with the states, requiring monetary payments. As a result, Zurich agreed to pay $121.8 million to settlement class members.

The Gallagher settlement provided for the payment of $28 million to settlement class members and included an agreement to implement various business reforms. Gallagher agreed to pay up to $8.885 million for class counsel’s attorney fees, litigation expenses, and incentive awards, but no party objected.

Certification of Settlement Class

Objecting class members challenged certification of the settlement class, arguing that there was a predominance of individual issues as opposed to common ones. However, common questions of law and fact existed with respect to each of the elements of the Sherman Act claim, the appellate court held.

For purposes of the Zurich settlement, common questions included whether Zurich conspired with any defending insurance brokers. There were also common questions with respect to the resulting anticompetitive effects of the alleged conspiracy. Moreover, whether class members were proximately injured by Zurich’s conduct was capable of proof on a class-wide basis, even if the amount of damage that each plaintiff suffered could not be established by common proof, the appellate court noted.

Refusal to Certify Subclasses

The district court did not abuse its discretion in refusing to certify separate subclasses, despite the variety of policyholders. Objectors argued that the court should have utilized subclasses or required separate representation for complaining insurance policyholders who purchased a primary insurance policy from or through one of the defendants and policyholders who purchased additional insurance policies in excess of their primary insurance coverage from or through one of the defendants.

The decision did not render the plan of allocation unfair, according to the appellate court. Divergent interests did not exist between the allocation groups to necessitate subclasses. All of the class members shared a unified interest in establishing Zurich’s liability for engaging in anticompetitive conduct, which increased the cost of premiums for all policyholders.

Moreover, the allocation plan was carefully devised to ensure a fair distribution of the settlement fund to the various types of claimants. Policyholders who likely incurred the most damage were entitled to a larger proportion of the recovery than those whose injuries were less severe.

An objector’s “nearly identical challenges” to the Gallagher settlement were also rejected. The essential elements of the antitrust claims involved common questions of law and fact that predominated over individual issues.

Attorney Fees

An award of $29.95 million for attorney fees, expense reimbursements, and incentive awards in the Zurich settlement was upheld by the appellate court. The district court properly concluded that class counsel’s efforts produced at least $100 million for the settlement class, plus $29.95 million separately designated for their fees.

The reasonableness of the fee award was properly evaluated under a percentage of recovery method, even though the settlement was not a typical common fund. Thus, the fee award was 23% of the minimum recovery attributable to class counsel’s efforts or, alternatively, 19.9% of the minimum recovery if expenses and incentive awards were subtracted from the total award. A lodestar cross-check also supported the award, according to the appellate court.

The September 8 decision is In re Insurance Brokerage Antitrust Litigation, 2009-2 Trade Cases ¶76,733. Text of the decision appears here.

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