Navigating the Storm: A Claims Manager’s Guide to Class Action Exposure, Coverage and Reserves

In 2025, corporations paid more than $70 billion to settle class actions — the highest figure in American history — while federal courts processed over 13,000 new filings, averaging 36 every single day. For claims managers, these numbers underscore an urgent reality: class action exposure demands early identification, disciplined reserving and strategic coordination across every layer of a coverage tower. This article offers a practical roadmap for navigating that landscape.

How Class Actions Come About

Class actions arise when a plaintiff alleges that a defendant’s conduct has injured not just one person but an entire class of similarly situated individuals. The triggers are wide-ranging: product defects affecting thousands of consumers, data breaches exposing millions of records, systemic claims-handling disputes, wage-and-hour violations across a national workforce and statutory violations under laws such as the Telephone Consumer Protection Act or the Biometric Information Privacy Act.

The plaintiffs’ bar has become increasingly sophisticated in identifying these opportunities, investing in elite talent and deploying data-driven strategies to aggregate small individual harms into massive collective demands. Technology is accelerating this trend — privacy class actions now target session-replay technologies, website chatbots and tracking pixels, while data breach filings grew more than 25% over 2024 and more than 200% since 2022.

Recent headlines show the scale. AT&T’s $177 million settlement of litigation over two 2024 data breaches, In re AT&T Inc. Customer Data Security Breach Litigation, won final approval on Oct. 2, 2026, along with $59 million in attorneys’ fees. The genetic company 23andMe has likewise secured approval of a $46.7 million breach settlement. According to Duane Morris, the top 10 data breach settlements alone totaled $515.79 million in 2025, and the top 10 TCPA settlements totaled $69.1 million.

For claims managers, the critical skill is early detection. A routine first-party or third-party claim may contain hidden “class potential” if it involves pattern-and-practice allegations, standardized policy language or conduct applied uniformly across a large group. Spotting these signals early — before a named plaintiff files a putative class complaint — allows the claims team to engage defense counsel, preserve evidence and begin sizing exposure while options remain open.

The Certification Stage: The Core Battleground

Class certification under Federal Rule of Civil Procedure 23 is the single most consequential event in any class action. To certify a class, the named plaintiff must satisfy four threshold requirements — numerosity, commonality, typicality and adequacy of representation — and then demonstrate that common questions of law or fact predominate over individual issues and that the class mechanism is superior to other methods of adjudication. Courts granted more than 68% of all certification motions in 2025, underscoring the importance of contesting certification aggressively.

Claims managers play a pivotal role at this stage. By working closely with defense counsel to compile policyholder data, claims-handling records and coverage analyses, the claims team can help build a factual record that highlights variations in state laws, divergent individual fact patterns and other obstacles to class treatment. The goal is to demonstrate that the putative class is not cohesive enough to warrant collective adjudication — a showing that, if successful, can reduce exposure from billions to thousands virtually overnight.

Auto total-loss valuation litigation shows how volatile this stage can be. In Clippinger v. State Farm, a 6th U.S. Circuit Court of Appeals panel reversed the certification of a Tennessee class in April 2026, blocking a class of roughly 90,000 policyholders and becoming the sixth federal circuit to reject certification in such disputes. Losing still carries a high price. Progressive agreed to a $43 million settlement covering about 151,485 Georgia policyholders, and State Farm agreed to pay $15.6 million in Arkansas after a jury ruled for about 37,000 class members.

Strategic Implications of Defending Class Actions

The mere threat of certification creates asymmetric settlement pressure. Defendants facing potential aggregate liability of hundreds of millions of dollars often find it economically rational to settle even weak claims rather than risk a class-wide trial. Deepening circuit splits across the federal appellate courts are driving strategic forum shopping by plaintiff’s counsel, further complicating defense strategy. Notably, the 5th U.S. Circuit Court of Appeals endorsed striking class allegations at the pleading stage in Elson v. Black (2023), providing defendants with a powerful pre-certification tool. Claims managers should ensure defense counsel evaluates early dispositive motions — including Rule 12(b)(6) motions to dismiss and motions to strike class allegations — before the expense of bifurcated class and merits discovery begins to compound.

Resolving Class Actions

Class action settlements take many forms, and each carries distinct implications for reserve management. Cash fund settlements establish a fixed pool from which class members draw claims; claims-made settlements cap payouts at actual take rates; coupon settlements provide noncash relief; and injunctive settlements require changes to business practices without direct monetary outlay. Settlements may occur before or after certification, and timing affects both the legal standard for judicial approval and the practical dynamics of negotiation.

Judicial approval under Rule 23(e) requires preliminary approval, dissemination of notice to the class, a fairness hearing and final approval. Claims administration costs — including notice distribution, claims processing and fund management — can be substantial and must be factored into reserve estimates. The Carlton Fields 2026 Class Action Survey, a leading industry benchmark, confirms that administration expenses continue to rise as class sizes and notification requirements expand.

Insurance Coverage Implications

Class actions present unique coverage challenges. The duty to defend is typically triggered by the mere potential for coverage within the complaint’s allegations, meaning insurers often must fund a defense even where significant coverage questions remain unresolved. Reservation of rights letters become essential to preserving the insurer’s position on mixed covered and noncovered allegations.

Policy structure adds further complexity. Occurrence-based and claims-made policies implicate different trigger analyses, and long-tail class actions frequently span multiple policy periods, requiring allocation across years, layers and carriers. Consent-to-settle clauses can create friction between the policyholder’s desire to resolve litigation quickly and the insurer’s right to evaluate settlement reasonableness. Insurers are also increasingly imposing higher “class action” deductibles, particularly in California and other plaintiff-friendly jurisdictions, shifting more of the initial exposure back to the insured.

Key Practical Tips for Claims Managers

Effective class action management requires disciplined processes at every stage. Claims managers should adopt staged reserving that updates at defined milestones — initial filing, motion to dismiss, discovery, certification and mediation — rather than waiting for a single late-stage reserve adjustment. Non-indemnity costs, including defense fees, e-discovery vendors, testifying experts and notice administration, must be incorporated into reserve models from the outset; these costs alone can rival indemnity exposure in complex litigation.

Stress-testing reserves against current venue trends is essential, as jurisdictional variations in certification standards and damages calculations can cause wide swings in expected outcomes. File splitting — maintaining separate claim files for coverage, defense and indemnity — preserves privilege and supports orderly reporting to excess carriers. Where conflicts arise, the appointment of independent counsel under Cumis or similar state doctrines must be managed proactively. Tower coordination between primary and excess layers ensures that all carriers are informed and aligned, reducing the risk of coverage gaps or late-notice disputes. Finally, claims managers must monitor bad faith exposure arising from strict time-limit demands and document the rationale for every strategy shift, building a contemporaneous record that can withstand regulatory and judicial scrutiny. Early data audits to size exposure before mediation give the claims team a realistic settlement target grounded in actual claims data rather than plaintiff’s counsel’s projections.

With certification rates above 68% and the plaintiffs’ bar deploying ever-more sophisticated strategies, claims managers cannot afford a reactive posture. Success requires early exposure sizing, aggressive pre-certification defense, tight cross-layer coordination and dynamic reserving that evolves with the litigation — disciplines that transform class action management from crisis response into a structured, repeatable process.

Kook is a partner in charge of Los Angeles at Hinshaw & Culbertson LLP. He is an experienced insurance regulatory and litigation attorney, who advises carriers, producers, and other regulated entities on rating and regulatory compliance, including licensing, underwriting and forms.