Class actions will gain momentum in Europe

The enactment of a new EU directive will make it easier for individuals to take part in collective redress actions when corporate scandals occur.

After decades of discussion at the European legislative level, a more efficient way for consumers to bring collective actions will come into force in 2023. The EU Directive on Representative Actions will be a game-changer for consumers seeking redress against companies. And while we will not see a swathe of US-style collective actions, 2023 will certainly see an increase in claims.

Many EU member states already have mechanisms that enable actions seeking collective redress. But typically once a case has been decided, claimants then have to pursue quantum individually. The EU Directive on Representative Actions will supersede current national mechanisms and will enable consumers, consumer groups and small entities to bring claims in circumstances whereby individual losses may not seem significant enough to pursue, but collectively the loss is large enough to justify bringing legal proceedings.

We are unlikely to see a US-style litigation culture emerge in Europe, but there are certainly groups readying themselves to use this new law to seek to recoup losses. We can expect more claims for data privacy breaches, for example. Article 82 of the EU General Data Protection Regulation, enshrines the right to compensation and liability for breaches; the EU Directive on Representative Actions will make bringing collective actions simpler for groups of individuals whose data privacy has been breached.

Litigation funding, a major driver of collective redress actions, is likely to play an increasingly important role in individual and collective legal actions in Europe. Although the European Parliament recently voted to approve a proposal that would regulate the third-party litigation funding market and impose a 40% cap on awards and settlements, high-profile cases such as the Volkswagen diesel scandal have illustrated the growing importance of litigation funding in consumer claims and other actions against companies, directors and officers.

Undoubtedly, the new directive will spark increased volume of actions for collective redress, and insurers will watch with interest. Underwriters of Errors & Omissions, Professional Indemnity and Cyber Liability insurance, in particular can expect to see new claims patterns develop.

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