NATIONWIDE: An Introduction to USA - Nationwide

INSURANCE: DISPUTE RESOLUTION – INSURER 

Major growth areas of litigation involving insurers include ERISA class actions filed against insurers who provide retirement plan services, regulatory and enforcement investigations, patent and intellectual property suits, and cybersecurity/data privacy.

Insurance companies are major players in the retirement industry, controlling a large segment of the market as service providers for 401(k) plans. The past three years have witnessed a remarkable spate of filings against numerous insurance companies who service the retirement industry. These class actions include:

• Claims challenging the profit level and crediting rates for insurance company general account fixed, guaranteed funds offered as investment option in 401(k) plans;

• Claims challenging the investment philosophy, asset mix and duration of underlying investments for separate account stable value funds offered as an investment option for 401(k) plans; and

• Claims challenging an insurance company’s offering of proprietary mutual funds to the plan participants of the insurance company’s retirement plans.

Class actions also continue to be filed against life insurers and their agents relating to the sale of annuities, often alleging that the products are unsuitable for the consumers or that fees are not adequately disclosed. Class action filings challenging an insurer’s ability to raise its cost of insurance or insurance premium also continue unabated.

State insurance regulators and attorneys general remain focused on insurer compliance, and recent public investigations have focused on financial condition of long term care insurers, unfair discrimination in underwriting, provision of medically necessary health treatments, licensing, cybersecurity and contestable claim payments. Interpretation of the risk adjustment and risk corridor provisions of the Affordable Care Act continues to be subject to dispute. The Foreign Account Tax Compliance Act has meaningfully added to the compliance burdens of international insurers and attracted the attention of federal law enforcement. Unclaimed property auditors have moved on from the life insurance sector to the health insurance industry, although whistle-blower litigation against the life insurance industry relating to unclaimed property apparently has not yet breathed its last.

Another growth area concerns patent lawsuits filed against insurance companies. These originated with so-called “trolling” cases, which typically settled early on in the proceedings. More troubling, however, is the emergence of a number of well-funded consortiums that have started suing the insurance industry, alleging patent infringement on software that is used by almost all insurers.

Cyber risk policies continue to present high stakes coverage disputes. As policies covering cyber risk became more popular, wider in scope, and more complex, disputes have emerged between policyholders and insurers, and there can be no doubt that cyber risk coverage disputes will continue to be in the litigation spotlight. One cyber risk policy form, available online from a major insurer, features ten different insuring clauses (encompassing both first- and third-party coverages), a list of nearly 40 exclusions, and 30 total pages of policy provisions. The stakes are tremendous. The Ponemon Institute has estimated that the remediation expense of the average data breach is $6.5 million, with serious breaches at major corporations costing many multiples of that figure.