Approving filing of a Class Action: Implications for D&O Insurance
By Adv. Addy Margalith
Introduction
A recent Supreme Court judgment in Fatal v Cellcom (CM 8761/09) may have a dramatic effect on class action suits filed in Israel and, as a result, it affects liability policies such as directors' and officers' (D&O) liability policies, which provide coverage for such claims, including defence costs.
The Tel Aviv District Court approved the filing of a class action against the defendant - a large Israeli cellular telephone company - for its alleged illegal billing of its clients for emailing them a detailed account of the calls that they had made.
The Supreme Court declined a motion to file an appeal of this decision, stating that the Court of Appeals should decide the proper timing for allowing an appeal on such a motion (ie, it will not agree automatically to hear an appeal on an intermediary decision, even if such decision allows a plaintiff to file a class action).
Background
The Class Action Law 2006 stipulates that the filing of a claim by way of a class action requires the approval of the court (Clause 3(b)). Clause 8(a) of the law lists a number of criteria which should be fulfilled in order for the court to approve the filing of a class action lawsuit. Clause 8(d) stipulates that the court's decision to approve or deny a motion to approve the filing of a class action may be appealed, subject to receipt of the Supreme Court's approval to file such an appeal.
The question which arose in this case was whether a defendant's appeal against the court's decision to approve the filing of a class action should be discussed immediately after such decision has been handed down (ie, an intermediary decision), or whether such appeal should be dealt with only after the case itself has been heard and concluded.
Supreme Court ruling
The Supreme Court stated that an appeal filed immediately after the approval to regard the case as a class action may be premature. Such request will be considered according to the following factors:
- The class action may conclude in a settlement agreement or in a judgment denying the case and an appeal may therefore eventually turn out to be irrelevant;
- The Court of Appeals might find itself dealing with the same contentions twice - first when dealing with an appeal on the motion to approve the filing of a class action, and again when dealing with an appeal on the ruling of the case itself; and
- The discussion on the appeal will automatically delay the discussions on the case itself.
Therefore, the Supreme Court stated that three criteria will be taken into account when determining the proper timing for agreeing to hear an appeal:
- the implication that acceptance of the class action may have on the defendant;
- the weight of the questions which should be discussed within the framework of the appeal as compared to the weight of the questions which remain to be discussed within the framework of the class action; and
- the chances that the appeal will be accepted.
In this specific case, the Supreme Court denied the appellant's motion to appeal the District Court's decision ruling that the appeal may be filed only after the hearing of the case itself has been concluded.
Insurance implications
This decision will most likely affect the number of class action lawsuits which will be approved and discussed by the Israeli courts. In recent years there has been an increase in the number of class action claims filed against directors and officers, mainly relating to securities and particularly following the global financial crisis. D&O liability policies provide coverage for such claims and determine that the insurance policy has a duty to advance payments on account of the D&O defence.
Until the recent Supreme Court decision, D&O liability insurers had to take into account the legal expenses which had been incurred in the lower court, which was requested to decide the whether to approve the filing of a class action (ie, a relatively short process).
As a result of the recent decision, D&O liability insurers will have to advance payment for the defence of D&O class actions, which will result in lengthy litigation. This will make a substantive difference to the legal costs of the case.
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