For months now, the industry has been hearing about all these class-action lawsuits being filed against insurers, but when is something actually going to happen?
Wait no more. Our backlogged U.S. court system is finally getting to what’s become a nationally syndicated case (the Associated Press Wire and the Business Wire are both writing stories about it), catapulting the collision repair industry into the limelight.
Snider vs. State Farm (Case No. 97-L-114) is a class-action suit concerning the use of aftermarket (A/M) parts. The trial, which is expected to last two months, is currently underway in Williamson County Circuit Court in Marion, Ill. (Opening arguments were set to begin Aug. 16.)
The class action, filed on behalf of 5.5 million current and former State Farm Mutual Insurance Co. policyholders, alleges the insurance company breached its agreement with policyholders by repairing their cars with parts that didn’t return them to pre-loss condition. The suit also claims State Farm violated consumer-fraud protection laws. The class is seeking $2 billion in damages/reimbursement.
State Farm — the nation’s largest auto insurer, based in Bloomington, Ill. — has defended its use of A/M parts, saying that all parts the company recommends have the Certified Automotive Parts Association (CAPA) stamp of approval and that consumers ultimately save money by using non-original equipment manufacturer (OEM) replacement parts because the A/M parts lead to insurance company savings and thus — supposedly — lower premiums.
Public Citizen, a consumer watchdog group, filed a brief in favor of State Farm’s position in this suit and is urging the court to consider the millions of dollars at stake. "Non-OEM parts can be sold at reduced rates because their manufacturers do not bear the cost of research, development, advertising or special packaging … [Thus] the cost savings made through the use of non-OEM parts runs into the hundreds of millions of dollars" for large insurance companies, says the brief.
On the other hand, there are those who adamantly oppose imitation-parts use. "Imitation parts may be a serious safety threat," warns Steve Mitchell, an attorney with Hagens-Berman, a Seattle-based law firm that has brought repair-part lawsuits against Allstate, GEICO, Nationwide and USAA. "Repair shops call these parts ‘Taiwan trash’ for a good reason — they have substandard fit, crash resistance and mechanical operation. In a word, they’re dangerous."
Mitchell bases his conclusions on the February ’99 Consumer Reports study that shows non-OEM bumpers and fenders might cause more damage to vehicles in crashes than OEM parts and that A/M parts typically take longer to install, often don’t fit as well and are more prone to rust. Consumers Union, which publishes Consumer Reports, urged the Federal Trade Commission to require consumer consent for the use of such parts and suggested establishing safety standards for replacement parts.
State Farm, which insures one out of every five cars in the United States, tells body shops to use A/M parts if available, and about 20 percent of the company’s repairs use such parts. Plaintiffs contend the only way State Farm policyholders can be assured of getting OEM parts is to pay the extra cost themselves, which is an average of $100 to $150 per repair job.
At least 40 other companies have policies requiring or favoring the use of A/M parts, but only State Farm is named in this suit. Plaintiff attorney Don Barrett said State Farm was targeted because it’s the industry leader and because of its policy requiring customers to pay more if they want OE parts.
According to a news report, State Farm paid $100,000 to Illinois policyholders to settle a suit concerning similar allegations in 1990 and agreed in a 1995 San Diego case to pay $3.5 million toward parts testing and give $35 refunds to affected policyholders.
If State Farm loses the current trial, many are saying that insurers across the nation might have to stop insisting on the use of A/M parts in auto repairs and, that if the company is found to have been in violation of racketeering laws, State Farm might be hit with up to $6 billion in punitive damages.
It’s unclear whether policyholders would experience an increase in insurance costs if State Farm has to use only OEM parts in auto repairs.
The Appeal
The Supreme Court last year refused to hear State Farm’s argument that the case shouldn’t have been certified as a nationwide class-action claim. "The case" refers to a 1997 lawsuit (State Farm vs. Speroni, No. 97-2063) filed in Marion, Ill., state court by a main class-action plaintiff who lives there. A state judge decided to allow policyholders to pursue the case as a national class action that would resolve all such claims against State Farm, except in Arkansas and Tennessee, where similar suits already were filed.
According to news reports, the judge said the claims were similar enough to warrant treatment as a group. He also authorized notifying potential class members about the lawsuit through newspaper advertising and notices posted on the Internet, without any individual mailings to policyholders — a decision the Illinois Supreme Court refused to review.
The news report also stated that State Farm’s lawyers said the judge’s decision violated the insurer’s due-process rights by allowing Illinois law to be used to judge claims from states whose laws allow the use of A/M parts. They also reportedly said that the notice process was inadequate and that the judge unfairly decided that individual class members wouldn’t have to prove the parts used on their vehicles were inferior.
In response, the plaintiff’s lawyers reportedly said the appeal was premature, adding that it was reasonable to use Illinois law to control a case involving an Illinois insurance company.
Order!
Collision repairers have been repairing vehicles for years, but it wasn’t until the last few years that the general public became aware of the different parts used for these repairs.
Regardless of how this trial turns out, vehicle owners are becoming more knowledgable about the repair process, in part, because of this trial’s publicity — and this, in and of itself, goes a long way in repairing the industry’s parts problems.
