NZ review recommends class action reforms

A New Zealand Law Commission report has proposed that new class actions legislation should be developed to improve access to justice, with the review unconvinced about adverse implications for insurance.

“In our view, the potential impact of class actions on the insurance market is not a compelling argument against class actions provided there are mechanisms in place to discourage meritless litigation,” the report says.

The commission’s final report makes 121 recommendations on class actions and litigation funding, including that there should be a “certification test” before a proceeding goes ahead, which would help limit meritless actions. It says funding agreements should be subject to court approval and proposes both opt-in and opt-out class actions should be permitted.

The report, which takes into account overseas experience, says it’s not persuaded that litigation funding will have a significant impact on the availability and affordability of directors’ and officers’ or other types of insurance.

“We recognise there has been a hardening of the insurance market in recent years, which has seen premiums increase and the availability and coverage of insurance decrease in Aotearoa New Zealand and particularly in Australia,” it says. “However, a number of factors may be contributing to these changes.”

In the absence of meritless cases, any impact litigation funding has on the insurance market can only come from meritorious cases that are presently being hindered by barriers to access to justice in New Zealand, the report says.

The Insurance Council of New Zealand (ICNZ) says the risk of a negative impact on directors’ & officers (D&O) cover should be limited if a new regime is appropriately regulated.

“While supportive of the Law Commission’s recommendations, it remains to be seen whether the Government accepts them and then what legislation might look like,” a spokesperson told insuranceNEWS.com.au.

“It will only be once any regime commences, that we will able to see whether there is any actual impact on D&O.”

ICNZ’s submission to the inquiry argued class actions should be limited to an opt-in basis, where claimants have to proactively sign up, rather than being automatically included unless they opt out.

Opt-out class actions, combined with interest from litigation funders, could lead to an increase in speculative litigation, particularly following large-scale disasters and regulator action, which could impact on insurance availability and affordability, it said.

Litigation funder Omni Bridgeway says it welcomes the recommendations and the commission’s recognition of the benefits of funding, particularly given high costs that can limit access to justice by individuals.