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LJN NewslettersNewsSectionsThe Corporate Counselor

Protecting Your Company from Consumer Protection Claims

By Jonathan M. Cohen and Kami E. Quinn
March 26, 2007

Companies in virtually every sector of the economy have become targets of allegations that their business practices or products have injured consumers. These cases often arise as class actions, frequently exposing target companies to the risk of significant defense costs, liability, or a product recall. In the face of the ever-increasing risk of consumer protection claims, most companies have put into place risk management strategies that principally rely on a variety of insurance policies. All too often, though, when a company needs its insurance most, it finds that it does not get the protection that it expects. Instead, insurers frequently make every effort to evade payment under their policies.

Plaintiffs in consumer protection or class actions have asserted that companies' business practices and products cause a wide assortment of harms, such as advertising-related injuries, damage or loss of property, consumer fraud, invasion of privacy, and improper trade practices. For example, one recent consumer class action alleged that department stores improperly collected telephone numbers from credit card customers for marketing purposes in violation of the consumers' privacy rights. Another recent class action asserted that a large retail chain violated various consumer laws that require pricing to be apparent on certain retail items. Increasingly, consumer claims allege improper conduct relating to technology, such as alleged misrepresentations in the advertising of the battery life of MP3 players or suits alleging consumer law violations by internet spammers and purveyors of pop-up ads and spyware.

In this legal environment, every company that designs, markets or sells products or services to the public must prepare for the possibility that it may face costly consumer protection claims.

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