Product Liability: Class Actions Are Increasingly Using Economic Loss To Bring Claims

A trend in product liability litigation has emerged over the past few years: Plaintiffs’ attorneys are increasingly choosing to bring class actions based on “economic loss” instead of the more traditional personal injury claim.

Economic loss refers to circumstances in which an individual or organization loses money. Andrew Kaplan, a partner in Crowell & Moring’s Mass Tort, Product, and Consumer Litigation Practice and co-chair of the firm’s Litigation Group, offers an example.

“Let’s say a person unwittingly buys a pharmaceutical product that contains a proven or alleged carcinogenic  ingredient,” Kaplan says. “The person could say that she suffered an economic loss because she bought a product that shouldn’t have been sold and decides to sue the product’s manufacturer on the grounds that the product was either worthless or worth less than what she paid for it.”

Defendants Face Big Risks

The risk of an adverse outcome in court isn’t the only risk that class action defendants face. Kaplan cites several others as particularly significant:

Ease of bringing class actions: Unlike mass actions, class actions are relatively inexpensive for plaintiffs’ attorneys and require only a few named plaintiffs.

More than one definition of “winning” for plaintiffs: Achieving victory at trial isn’t the only way class action plaintiffs can win their case. The sheer size of a certified class often gives plaintiffs economic leverage that can induce a settlement by trial-wary defendants. As Kaplan puts it, “Class certification is the defining moment in these cases. For defendants, the risks and stakes are much higher once a class is certified.”

Endless universe of potential claims: The opportunities for product-based lawsuits are endless because the number of products is endless. Whether the claim is based on economic loss or personal injury—or anything else that a creative plaintiffs’ counsel might come up with—unexpected litigation can hit product manufacturers at any time.

Denial of insurance coverage: Increasingly, insurance companies are denying defendants’ claims for reimbursement of economic loss. This is becoming a major cause of disputes between defendants and their liability insurers. Not only does it raise the threat of additional litigation related to the class action, but it also increases the stakes for defendants if they lose at trial or settle.

Forum shopping: Plaintiffs’ attorneys tend to seek out jurisdictions that they consider plaintiff friendly. The fact that many products for which they claim liability are nationally distributed gives them more latitude in choosing a forum for their cases.

Preference for State Consumer Protection Claims

Typically, class actions pursue claims under state consumer protection statutes for several reasons.

Importantly, it is easier to get class certification of purely economic claims under consumer protection statutes than personal injury claims. Since class certification puts enormous pressure on defendants, consumer protection claims are popular. 

Plaintiffs’ attorneys also prefer state consumer protection laws because they tend to require a lower burden of proof for plaintiffs than standard personal injury claims. Kaplan explains that “plaintiffs may not have to prove physical injury or that they relied on the defendant’s alleged misrepresentations about the product. Usually, it’s sufficient to show that the manufacturer’s communication about the product would be deceptive to a reasonable consumer.”

Another big incentive to class actions based on state consumer protection statutes: These statutes sometimes allow for multiplication of damages and payment of attorney fees.

Expect More Class Actions

Kaplan believes that the number of economic-loss class actions will continue to rise over the next few years. “In addition to being relatively cheap to bring, easier to prove, and potentially providing big paydays for plaintiffs’ counsel,” he says, “the simple fact is that courts haven’t shut them down and plaintiffs have won some cases. That alone suggests that there will be more.”