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Erie Insurance Co. settles aftermarket parts class action lawsuit for $6.25 million

Erie Insurance Group has agreed to pay $6.25 million to settle a class-action suit brought by policyholders who said the company tried to authorize the use of cheaper auto parts for repairs it covered.

The suit was filed in Philadelphia County three years ago and eventually came to include up to 600,000 policyholders as plaintiffs, who could receive as little as $10 each under the settlement.

“This is not an indication of any wrongdoing by Erie," company spokeswoman Karen Kraus Phillips said Friday. "We decided that it would be in everybody's interest, including our policyholders,' to reach a settlement and avoid the uncertain costs of litigation."

Company officials maintain that they did nothing to jeopardize the safety of policyholders and settled the suit for financial reasons.

"This is not an indication of any wrongdoing by Erie," company spokeswoman Karen Kraus Phillips said Friday. "We decided that it would be in everybody's interest, including our policyholders,' to reach a settlement and avoid the uncertain costs of litigation."

The plaintiffs said Erie violated its policies by specifying that "aftermarket" replacement parts be used to fix cars, instead of "original equipment manufacturer" parts.

The plaintiffs had all made claims since 1994.

Phillips said policyholders can choose whatever parts they want, although non-OEM parts will still be "high-quality" if they are used.

Auto insurance policies issued by Erie Insurance Co. and Erie Insurance Exchange require the company to cover repairs to damaged cars using "like kind and quality" parts. However, the lawsuit contends that "crash parts," defined by the company as, among other things, bumpers, fenders, and quarter panels, are to be replaced with "aftermarket parts" rather than "original equipment manufacturer" (OEM) parts.

A spokesperson for Erie says that nowhere in its policy does it state that aftermarket parts are to be used in repairs. The actual policy language states: "We will pay the actual cash value for loss to stolen or damaged property but no more than — what it would cost to repair or replace the property with other of like kind and quality, or the stated amount that may be shown on the declarations."

Aftermarket parts are manufactured by companies other than the original car manufacturer and are often not created using the original manufacturer's specifications. Aftermarket parts are also, according to the lawsuit, made from a different quality of steel than OEM parts.

"If an OE [Original Equipment] part is galvanized, and we use an aftermarket part that is primed, there is a difference."

According to the lawsuit, aftermarket parts are not of "like kind and quality" to OEM parts, and that in specifying the use of aftermarket parts for some repairs, Erie violated its own contractual obligation to use "like kind and quality parts" for repair.

The lawsuit, filed by Brenda L. Foultz, was granted class action status by Judge John W. Herron of the Philadelphia Court of Common Pleas. The case is similar to a lawsuit filed against State Farm in Illinois in 1999 that accused the company of violating the Consumer Fraud Act. In that case, the jury found State Farm guilty of breach of contract with its policyholders and ordered State Farm to pay out $1.2 billion in damages. State Farm won its appeal, with the court ruling that the Consumer Fraud Act does not protect plaintiffs that are not Illinois citizens.

In the State Farm case, State Farm employees acknowledged that while aftermarket parts may be functional, they are not the same as OEM parts. In an internal memo from State Farm assistant vice president of auto property claims Bill Hardt, he explains that "if an OE [Original Equipment] part is galvanized, and we use an aftermarket part that is primed, there is a difference. We may well say it is like kind and quality, but the bottom line is that it is not the same."

Erie stopped requiring aftermarket sheet metal parts for use in repairs after Feb. 1, 1999.

In the Pennsylvania case, the class was defined as: All persons in the United States who 1) Have been insured by an automobile policy issued by Erie Insurance Co. or any other member of the Erie Insurance Exchange; 2) Have made a claim at any time on or after Feb. 2, 1994, for vehicle repairs pursuant to their Erie insurance policies; and 3) Have had non-OEM crash parts specified for their repairs. Officers, directors, and employees of Erie Insurance Co., Erie Insurance Exchange, and all subsidiaries are excluded from participating in the class.

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