In the wake of the February 20, 2026, U.S. Supreme Court decision to invalidate tariffs imposed under the current Administration’s use of the International Economic Emergency Powers Act (IEEPA), litigation has been filed by companies seeking tariff refunds and by shareholders alleging securities violations against a company whose operations and financial results were impaired by “tariff headwinds.”   A new category of litigation is also beginning to appear: consumer class actions alleging that companies improperly passed tariff costs on to customers.

On March 6, 2026, a putative class action filed against Fabletics, a private athleisure company, founded by actress Kate Hudson, alleged that the company violated Illinois Consumer Fraud and Deceptive Practices Act (ILFCA) by passing through IEEPA tariffs.  Days later, on March 11, 2026 another putative consumer class action lawsuit was filed against Costco Wholesale Corporation (Costco) in the Northern District of Illinois (Costco Complaint), alleging that the Costco also improperly passed through IEEPA tariffs in violation of multiple state consumer protection statutes.   

The following will discuss the Fabletic and Costco Complaint allegations and the management liability exposure faced by Fabletics, Costco and similarly situated companies that may have passed down tariff charges to customers.

The Fabletics Complaint

The putative class action against Fabletics was filed in the Circuit Court of Cook County of Illinois and alleges that the company improperly charged consumers tariff-related fees on certain purchases through its website (Fabletics Complaint). Along with violations of ILFCA, the Fabletics Complaint asserts a claim for unjust enrichment. The plaintiff alleges that these charges were presented to consumers as necessary to cover tariffs imposed on imported goods and contends that tariff charges were deceptive or otherwise improper because consumers were allegedly required to pay amounts that were not legally owed or that were mischaracterized as mandatory tariff obligations. The Fabletics Complaint alleges damages, restitution, disgorgement, and other equitable relief. The complaint also seeks attorneys’ fees and other litigation costs.

The Costco Complaint

The Costco Complaint was brought by a Costco member on behalf of consumers who purchased tariff-affected goods between February 2025 and February 2026 and alleges that the company improperly retained profits associated with tariffs imposed under IEEPA.  In particular, the Costco Complaint alleges that the company passed the cost of the tariffs on to customers through higher retail prices while simultaneously seeking refunds of those same tariffs from the federal government through litigation in the U.S. Court of International Trade. Costco’s recovery of government refunds without returning those amounts to customers would constitute unjust enrichment and deceptive business practices. The lawsuit asserts claims under multiple state consumer protection statutes as well as claims for unjust enrichment and money had and received, and seeks restitution of the tariff-related price increases, damages, and other equitable relief. 

Discussion

As we have previously discussed on the D&O Diary, the tariffs imposed under IEEPA during the second Trump administration have resulted in refund and securities claims. The Fabletics and Costco Complaints highlights what may be an expanding landscape of litigation arising out of the invalidation of the IEEPA tariffs. Specifically, an emerging effort by consumer plaintiffs to target companies that allegedly passed-through tariff costs through to customers. Both putative class actions thus raises a number of issues that may be relevant for private company management liability exposures.

In particular, the Fabletics and Costco Complaints illustrates how business decisions relating to pricing and cost pass-through strategies can become the subject of consumer litigation. During periods of economic disruption or regulatory uncertainty, companies often must decide whether to absorb increased costs or to pass those costs through to customers. In the context of tariffs, many companies elected to implement tariff surcharges or other pricing adjustments designed to offset the increased costs associated with importing goods. Shifting operational costs to consumers may result in similar consumer class actions who may implicate private company D&O insuring agreements.

Most private company D&O policies contain coverage provisions analogous to the traditional public company Side A, Side B, and Side C insuring agreements. Side A coverage generally protects individual directors and officers when the company is unable to indemnify them, while Side B coverage reimburses the company for amounts it pays to indemnify its directors and officers. Side C coverage, often referred to as “entity coverage,” typically provides direct coverage to the company itself for certain types of claims.

In the case of a consumer class action alleging deceptive business practices, potentially relevant coverage includes Side C entity coverage. Unlike public company D&O policies, where entity coverage is typically limited to securities claims, private company policies often provide entity coverage for a broader range of claims including certain consumer protection lawsuits, if not excluded or limited by endorsement.  However, allegations of fraud or deceptive trade practices could be subject to exclusions, including fraud, intentional misconduct, or the gaining of profit or advantage to which the insured was not legally entitled.  Such exclusions typically apply only after a final adjudication establishing such conduct.

In addition, the nature of relief sought in consumer class actions may include restitution, disgorgement, or other equitable relief designed to return allegedly improper charges to consumers. Whether restitutionary relief constitutes covered “loss” under a management liability policy may be disputed because it represents the return of amounts that the insured allegedly was not entitled to retain. Jurisdictions finding restitution insurable vary, and disputes over whether restitution or disgorgement constitutes covered loss may become turn into coverage litigation.

Defense costs, by contrast, may result in exposure to management liability policies, even where the underlying claims involve allegations of consumer fraud or deceptive practices. As a result, even if indemnity coverage for settlements or judgments is disputed, substantial defense costs associated with defending consumer class action may continue to be incurred during the pendency of litigation.

Consumer class actions relating to tariff-related pricing practices may also result in investors or private equity owners potentially asserting derivative claims alleging that company leadership failed to adequately oversee pricing strategies, regulatory compliance, or legal risk management. These types of derivative claims might implicate Sides A and B coverage parts if individuals are named.

Regulatory investigations represent another potential exposure. Consumer class actions sometimes attract the attention of regulators such as the Federal Trade Commission (FTC) or state attorneys general (AG). If regulators begin investigating whether tariff-related surcharges were misleading or improperly disclosed to consumers, companies could incur substantial costs responding to investigative subpoenas, civil investigative demands, or other regulatory inquiries. If a management liability policy includes formal investigation coverage, inquiries and enforcement actions brought by the FTC or AGs may trigger coverage for investigation costs.

Conclusion

Retailers, apparel companies, electronics manufacturers, and other consumer goods companies were among many businesses most directly affected by tariffs imposed on imported products. And, these companies may have adopted pricing strategies designed to offset the increased cost of imported goods, including tariff surcharges or other price adjustments. If courts determine that tariffs were improperly imposed, plaintiffs’ lawyers may attempt to pursue similar consumer claims against other companies that implemented comparable pricing strategies.

For management liability insurers, these developments highlight the importance of appreciating how continued tariff policy shifts may translate into a variety of litigation exposures for consumer-facing companies. Whether the Fabletics or Coscto litigation ultimately prove to be the beginning of a broader trend remains to be seen.

Nevertheless, the case underscores how pricing decisions made in response to government trade policy may result in management liability exposure stemming from consumer protection claims, regulatory investigations, and derivative litigation implicating corporate governance and oversight.