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Illinois Supreme Court Overturns Avery v State Farm

The billion-dollar judgment against State Farm for deceiving policyholders by specifying the use of non-OEM parts was tossed on a technicality — while massive amounts of evidence went unnoticed (or, as one justice contends, ignored).

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State Farm, it would seem, got off on a technicality.

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After almost three years of deliberation, the Illinois Supreme Court has overturned Avery v State Farm, ruling that the Williamson County Circuit Court erred in certifying a nationwide class in the Avery case because of differing language in policies. A 4-2 majority also found that the plaintiffs failed to establish breach of contract damages or consumer fraud.

Within the hour, A/M crash parts proponents had issued press releases that A/M parts had been vindicated — when, in reality, no such vindication occurred. Besides all the testimony, deposition and evidence regarding the quality of A/M parts, buried deep in the 82-page opinion of the court is a sentence that reads: “The court does not dispute that the crash parts State Farm was actually specifying for repairs were inferior to their OEM counterparts.”

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Says a Pennsylvania post-repair inspector: “Even though the original court’s findings and evidence offered are undisputed, the insurance spin doctors will call this the vindication of bootleg parts and will get some mileage out of the decision. People in general prefer simpler who-won/who-lost characterizations, and what will remain in their collective mind is that State Farm won this case.”

And the losers? Consumers. 

In the 1999
class action, plaintiffs alleged that State Farm had deceived policyholders by specifying the use of non-OEM parts for collision repairs and breached its contract with the plaintiff class. A Williamson County jury agreed, resulting in a judgment against State Farm of $1.18 billion: $456 million for breach of contract, $600 million for punitive damages under the consumer fraud law and $130 million for disgorgement damages — representing direct savings realized by State Farm from use of non-OEM parts.

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In 2001, the 5th Appellate Court affirmed the judgment but reversed a portion of the damages, lowering the total award to $1.056 billion.

The Supreme Court of Illinois, however, ruled that the Williamson County Circuit Court erred in certifying a nationwide class in the Avery case and overturned the verdict. Though the court’s decision touched on the quality of non-OEM parts, the quality issue took a back seat to the legalities of this case qualifying as a class action suit. (It’s worth nothing that, in 2004, State Farm helped to get Lloyd Karmeier elected to the Illinois Supreme Court, defeating appellate court Judge Gordon Maag, who’d written the appellate court’s decision. Also worth noting: Karmeier’s vote made the difference in the 4-2 decision since a tie would’ve gone to the plaintiffs.)

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The majority of the court also ruled that the jury’s breach-of-contract verdict cannot be affirmed with respect to any subclass of policyholders. Justice Freeman and Justice Kilbride dissented. Justice Freeman even went so far as to accuse the court of “bending over backwards” to find in favor of State Farm and of practically ignoring the evidence presented in the case.

“I concur in the judgment that the nationwide class certification cannot stand,” wrote Justice Freeman. “ … [But] the court errs in its conclusion that plaintiffs cannot prove a breach of any of the various insurance policies in effect during the class period. …

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“The court avoids discussing the evidence presented by plaintiffs by holding that State Farm never promised any policyholders that repairs would utilize parts of equal quality to OEM parts. Thus, according to my colleagues, it does not matter whether State Farm was knowingly repairing its policyholders’ vehicles with inferior parts because State Farm never promised to use non-inferior parts.

“ … Even if the court were correct to so blatantly ignore the evidence, its analysis of the contracts is logically faulty. For instance, in what the court calls ‘The You Agree Policies’ … State Farm promises to restore the insured’s vehicle to its ‘pre-loss condition’ … [and] ‘you agree with us that such parts may include either parts furnished by the vehicle’s manufacturer or parts from other sources including non-original equipment manufacturers.’ … The court reasons that by agreeing to this language, a policyholder has implicitly admitted that there must exist at least some non-OEM parts capable of satisfying State Farm’s promise. … The notion that a policyholder has entered into a binding, factual admission simply by purchasing an auto insurance policy would merely be laughable if the court was not seriously suggesting it as a basis for overturning a billion dollar verdict produced by a two-month-long trial in which the evidence supports the conclusion that an insurer knowingly specified inferior crash parts. … More overridingly … the court’s analysis is logically flawed. The ‘you agree’ language is not an admission that there exist non-OEM parts which will restore vehicles to preloss condition. It is merely an agreement that if State Farm proposes to perform a repair with a non-OEM part which is sufficient to restore a vehicle to preloss condition, the insured cannot object to the part simply because it is non-OEM.

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“ … I believe the appropriate [action] with regard to the breach of contract claim is to remand the cause to the circuit court to determine whether there exists any subclass of the nationwide class with respect to which the verdict may be upheld. … If there was a wrong committed here — as the jury found, the trial court agreed, the appellate court confirmed and I would affirm — State Farm ought to be held accountable. … ”

Not surprisingly,
soon after the court overturned the case, State Farm announced that it “will consider resuming the use of aftermarket parts, a practice it suspended after the 1999 ruling.”

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Since insurers writing for A/M parts is undoubtedly about to increase, it’s important for shops to remember that if it can be shown that a shop owner knew — or should have known — the A/M parts were defective, questionable or dangerous, the shop will be held responsible for the consequences. Ignorance is no defense.

“There have been enough rear-hinged hood disasters publicized to serve as evidence for avoiding the use of the hoods,” says the Pennsylvania post-repair inspector. “The other parts have some problems, not the least of which is their notoriously poor long-term performance. The initial fit and finish are minor by comparison.”

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When an insurer wants A/M parts utilized, the shop need only do one thing: Let the vehicle owner decide — to pay the difference or sign a hold harmless agreement. As for DRP shops, “if I was one,” says the post-repair inspector, “I’d want a hold harmless agreement signed by the customer and an indemnity clause by the insurer that mandates the part use in their DRP agreement.”

Always remember and never forget: A shop owner cannot use the excuse, “They told me to” as a defense. Don’t take this reversal as an excuse to ignore your professional judgment.

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