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State Farm consumer fraud complaint trial documents

Editor's note: The following is a verbatim copy of Judge John Speroni's ruling on the consumer fraud complaint brought against State Farm in Marion, Ill. On Oct. 4, a jury found State Farm guilty of breaching its contract with its policyholders and awarded $456 million to the plaintiffs. On Oct. 8, Speroni ordered State Farm to pay an additional $730 million in damages.

JUDGMENT

COUNTS II AND III

Counts II and III of plaintiffs Third Amended Class Action Complaint ("Complaint") assert claims under the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1, et seq. (hereinafter, "Consumer Fraud Act" or "Act") against defendant State Farm Mutual Automobile Insurance Company ("State Farm"). Under Illinois law, these claims must be decided by the court, not the jury. The bench trial on Counts II and III was conducted separately, but simultaneously, with the jury trail on Count I.

The Act declares unfair methods of competition and unfair or deceptive acts or practices in any trade or commerce to be unlawful. These include any fraud, misrepresentation or the concealment, suppression or omission of any material fact, with the intent that others rely on the concealment, suppression or omission of such material fact, as well as the use or employment of any practice in Section 2 of the Uniform Deceptive Trade Practices Act, 815 ILCS 510/2. Such methods, acts or practices are unlawful whether any person has in fact been misled, deceived or damaged.

Where private individual plaintiffs bring suit under the Act, they must prove, by a preponderance of evidence, (1) a deceptive act or practice by the defendant; and (2) defendants intent that the plaintiffs rely on the deception (actual reliance on the part of the plaintiffs is not required); and (3) the occurrence of the deception in the course of conduct involving trade or commerce; and (4) damage to the plaintiffs as a result of defendants violation of the act. Cripe v. Leiter, 184 III.2d 185 (1998); Malooley v. Alice, 251 III. App.3d 51 (3rd Dist.1993); 850 ILCS 505/10a(a). If a violation of the Act is proven, the court may award actual economic damages and "any other relief, which it deems proper". 850 ILCS 505/10a(a) and (c). In order to recover, plaintiffs must show that the violation of the Act directly and proximately caused their injury. Martin v. Heinold, 163 III.2d 33,68 (1994).

Pursuant to 735 ILCS 5/2-805, this judgment, with respect to Counts II and III, shall be binding on all class members, as certified by the court pursuant to 735 ILCS 5/2-801 et seq. on December 5, 1997, and Amendment To Order on February 11,1998, (except those persons listed on Exhibit "A" hereto, who have been properly excluded from the class under 735 ILCS 5/2-804(b)), and who come within the following definition for the purpose of the Consumer Fraud Act claims:

All persons in the United States, except those residing in Arkansas and Tennessee, who, between July 28,1994, and February 24,1998, (1) were insured by a vehicle casualty insurance policy issued by Defendant State Farm and (2) made a claim for vehicle repairs pursuant to their policy and had non-factory authorized and/or non-OEM (Original Equipment Manufacturer) "crash parts" installed on their vehicles or else received monetary compensation determined in relation to the cost of such parts. Excluded from the class are employees of Defendant State Farm, its officers, its directors, its subsidiaries, or its affiliates.

In addition, the following persons are executed from the class: (1) persons who resided or garaged their vehicles in Illinois and whose Illinois insurance policies were issued/executed prior to April 16, 1994, and (2) persons who resided in California and whose polices were issued/ executed prior to September 26, 1996.

On October 4, 1999, the jury found that State Farm was liable to the plaintiffs on Count I of plaintiffs Third Amended Class Action Complaint for breach of contract and returned a verdict in favor of the plaintiffs in the amount of $243,740,000.00 for class-wide Specification/Direct Damages and $212,440,000.00 for class-wide installation Damages. The court, prior to the commencement of the jury trail on Count I, made the following determinations (which are also applicable to the courts consideration of Counts II and III):

    1. That the contractual obligation of State Farm under its insurance policies is exactly the same whether State Farm promised to pay for "crash parts" of "like kind and quality" or promised to pay for "crash parts" which restore a vehicle to its "pre-loss condition";
    2. That the State Farm insurance policies allow State Farm to specify and pay for "crash parts" made by the vehicles manufacturer (Original Equipment Manufacturer, abbreviated OEM) or "crash parts" from other sources (non-Original Equipment Manufacturer, abbreviated non-OEM) so long as the "crash parts" are of "like kind and quality" which restore the damaged vehicle to its "pre-loss condition",
    3. That "crash parts" are of "like kind and quality only if they restore a vehicle to its "pre-loss condition"; and
    4. That " pre-loss condition" means the condition of the vehicle immediately before the time it is damaged.

This court has presided over this action since its inception and is familiar with the issues of fact and law it presents. This court has independently heard, read, and considered all of the admitted evidence and testimony pertinent to the Consumer Fraud Act claims, including the evidence and testimony presented to the jury on the breach of content claim, to the extent relevant, and the evidence and testimony pertaining solely to the Consumer Fraud Act claims, that was presented to the court outside the jurys presence. This court has had the opportunity to consider the documents and materials admitted into evidence and to observe the demeanor, evaluate the credibility, and weigh the testimony of the parties fact and opinion witness and the arguments of counsel.

The court, after considering all the evidence, finds, as did the jury, that State Farm did breach its contract with the plaintiffs, that the non-OEM "crash parts" specified and used by State Farm were not of "like kind and quality" and did not restore plaintiffs vehicle to their pre-loss condition as required by the insurance contract between State Farm and the plaintiffs. These findings do not on their own establish a violation of the Act. The court must now consider whether the evidence also establishes the elements, set forth above, which are required to prove a violation of the Consumer Fraud Act.

The plaintiffs allege, under Count II and Count III of the Third Amended Class Action Complaint, that State Farm violated the Consumer Fraud Act. The Plaintiffs allegations include, without limitation, that State Farm installed inferior non-OEM "crash parts" on the plaintiffs vehicles when it was obligated under its insurance policies with the plaintiffs to use "crash parts" of "like kind and quality" which would restore plaintiffs vehicles to their "pre-loss condition" and that State Farm failed to disclose to plaintiffs that it was using and paying for cheaper, inferior non-OEM "crash parts" to repair plaintiffs vehicles.

After considering all the testimony and evidence admitted on trial, the court finds that the plaintiffs have proven that State Farm violated the Consumer Fraud Act and that none of the defenses asserted by State Farm bar plaintiffs right to recover under the Act or reduce the amount of plaintiffs recovery.

State Farm, prior to and during the class period for Consumer Fraud Act plaintiffs, knew that the non-OEM "crash parts" it was specifying on its policyholders repair estimates were not of "like kind and quality" and would not restore their policyholders vehicles to "pre-loss condition." State Farms knowledge of the inferiority of the non-OEM "crash parts" is clearly shown the testimony of witnesses, State Farms own internal documents, CAPA documents (State Farm was instrumental in the creation of CAPA. CAPA's stated purpose was to certify quality non-OEM "crash parts" and State Farm officers and management served on CAPAs board prior to and during the class period for Consumer Fraud Act plaintiffs) of which State Farm had knowledge, and other documents, all of which were admitted into evidence and appear in the trial court record. Rather than telling its policyholders of the known problems with the non-OEM "crash parts," including possible safety concerns, State Farm chose to adopt and use on its estimates the misleading term "Quality Replacement Parts," and to tell its policyholders, in various written documents which were admitted into evidence, that the parts were as good, or better than, OEM parts. Further, the written disclosures stamped on or attached to the repair estimates or which were delivered with the repair estimates, did nothing to advise the State Farm policyholder of the inferiority of the parts. Finally, State Farms "Guarantee" improperly and unfairly placed the burden of securing a quality repair on the policyholder, not State Farm.

State Farm is a mutual insurance company, which operates for the benefit of its policyholders. State Farm occupies a position of trust with its policyholders, who pay the required premiums and are entitled to receive all the benefits State Farm promises to provide in its insurance contract with them. State Farm violated this trust. The court finds that State Farm, in light of its knowledge of the inferiority of non-OEM "crash parts", misrepresented, concealed, suppressed or omitted material facts concerning the non-OEM "crash parts," with the intent that its policyholders rely upon on these deceptions, in violation of the Consumer Fraud Act. The court further finds that as a direct and proximate result of State Farms violation of the Consumer Fraud Act, the plaintiffs were injured and incurred actual damages; namely the specification/ direct damages and installation damages which occurred during the class period for Consumer Fraud Act plaintiffs.

The jury awarded $243,740,000.00 in " Specification/ Direct Damages" and $212,440,000.00 in "Installation Damages" for the entire plaintiff class (including the Consumer Fraud Act plaintiffs) under Count I, which awards include the amounts of specification/ direct damages and installation damages sustained by the Consumer Fraud Act plaintiffs. The Consumer Fraud Act plaintiffs cannot recover damages twice and the court therefore does not award these actual damages for State Farms violation of the Consumer Fraud Act.

Having found that the plaintiffs sustained "actual damages," the Consumer Fraud Act allows the court, in its discretion, " to award actual economic damages or any other relief which the court deems proper," 815 ILCS 505/10(a), which includes equitable relief, injunctive relief, punitive damages, reasonable attorneys fees and court costs. The evidence established that during the Consumer Fraud Act class period, State Farm realized direct savings from its non-OEM practice in the amount of $130,000,000.00. The court finds that equitable relief of imposition of a constructive trust for the benefit of the Consumer Fraud Act plaintiffs on the $130,000,000.00 State Farm directly saved from its non-OEM practice is an appropriate remedy for State Farms violation of the Act. The $130,000,000.00 in this constructive trust will be disgorged and distributed for the benefit of the Consumer Fraud Act plaintiffs.

The court has also considered whether punitive damages should be awarded for State Farms violation of the Consumer Fraud Act. Punitive damages may be awarded when torts are committed with fraud, actual malice, deliberate violence or oppression, or when a defendant acts willfully, or with such gross negligence as to indicated a wanton disregard of the rights of others. Kelsey v. Motorola, Inc., 74 III.2d 172,186 (1978); Martin, 163 III.2d at 80-81. The court finds that State Farms conduct and willful violations of the Consumer Fraud Act satisfy the legal requirements for the imposition of punitive damages and that punitive damages are justified and should be awarded in this case.

Punitive damages, when awarded, are in the nature of punishment and as a warning and example to deter the defendant and others from similar wrongful conduct in the future. Kelsey, 74 III.2d at 186. A court, in determining the amount of a punitive damage award, should consider the nature and enormity of the wrong, the defendants financial status and the defendants potential liability in other cases. Heldenbrand v. Road master Corp, 277 III.app3d 664, 674 (5th Dist. 1996). The court has considered these factors and determines that an award of $600,000,000.00 in punitive damages is appropriate.

It is clear to the court, given State Farms strong financial condition, that State Farm can pay the substantial punitive damages awarded without affecting its ability to pay claims under any conceivable or foreseeable combination of catastrophes and disasters for which it currently provides coverage, without affecting the contractual rights and expectations of any State Farm's millions of policyholders and without canceling any of the insurance policies of current policyholders.

The court, under 815 ILCS 505/10a(a), also finds that declaratory relief, specifically stating the current contractual obligation of State Farm under its insurance policies is appropriate. The court hereby finds that the contractual obligation of State Farm under its insurance policies is exactly the same whether State Farm promises to pay for "crash parts" of "like kind and quality" or promises to pay for "crash parts" which restore a vehicle to its "pre-loss condition," that the State Farm insurance policies allow State Farm to specify and pay for "crash parts" made by the vehicles manufacturer (Original Equipment Manufacturer, abbreviated OEM) or "crash parts" from other sources (non-Original Equipment Manufacturer, abbreviated non-OEM) so long as the "crash parts" are of "like kind and quality" which restore the damaged vehicle to its "pre-loss condition," that "crash parts" are of "like kind and quality" only if they restore a vehicle to its "pre-loss condition" and that "pre-loss condition" means the condition of the vehicle immediately before the time it is damaged.

The last matter, which the court must consider, is whether any injunctive relief, pursuant to 815 ILCS 505/10a (c), is appropriate. The requirements for injunctive relief are (1) ascertainable rights in need of protection, (2) no adequate remedy at law and (3) irreparable harm absent an injunction. Witter v. Buchanan, 132 III. App.3d 273 (1st Dist. 1985). The court, after much thought, has decided that injunctive relief is not appropriate. In this case, State Farm has been ordered to pay money damages for breaching its insurance contracts and violating the Consumer Fraud Act. Accordingly, it is clear that an adequate remedy at law is available if State Farm again breaches its insurance contracts or violates the Consumer Fraud Act or other law. Injunctive relief cannot be awarded if there is an adequate remedy at law.

Accordingly, Judgment shall be and is hereby entered in favor of the plaintiff class and against State Farm Mutual Automobile Insurance Company on Count II and III of plaintiffs Third Amended Class Action Complaint as follows:

IT IS HEREBY ODERED, ADJUDGED AND DECREED:

  1. That a constructive trust is imposed for the benefit of the Consumer Fraud Act plaintiffs on the $130,000,000.00 in direct savings realized by State Farm from its non-OEM practice during the Consumer Fraud Act class period, which will be disgorged and distributed for the benefit of the Consumer Fraud Act plaintiffs.
  2. That the Consumer Fraud Act plaintiffs shall recover from defendant State Farm the further sum of $600,000,000.00 as punitive damages.
  3. That the current contractual obligation of State Farm under its insurance policies is exactly the same whether State Farm promises to pay for "crash parts" of "like kind and quality" or promises to pay for "crash parts" which restore a vehicle to its "pre-loss condition", that the State Farm insurance policies allow State Farm to specify and pay for "crash parts" made by the vehicle's manufacturer (Original Equipment Manufacturer, abbreviated OEM) or "crash parts" from other sources (non-Original Equipment Manufacturer, abbreviated non-OEM) so long as the "crash parts" are of "like kind and quality" which restore the damaged vehicle to its "pre-loss condition", that "crash parts" are of "like kind and quality" only if they restore a vehicle to its "pre-loss condition" and that "pre-loss condition" means the condition of the vehicle immediately before the time it is damaged.
  4. That the court reserves continuing jurisdiction over the Consumer Fraud Act plaintiffs and State Farm to enforce all provisions of this judgment and to administer and distribute the common fund resulting from this judgment among Consumer Fraud Act class members, based upon appropriate proof of class membership and claims, to be obtained insofar as is practicable from the records of State Farm, and augmented, if and as necessary, by documents and information from class members and their vehicles.
  5. That this court reserves continuing jurisdiction over the common fund resulting from this judgment to consider and award attorneys fees and costs to class counsel utilizing the fee award criteria and methodology authorized for class actions by the Illinois Supreme Court in Brundidge v. Glendale Federal Bank, F.S.B 168 III.2d 235 (1995). This determination shall be made at such time as the full extent of class counsels efforts in creating, preserving and making the common fund available for distribution to the Consumer Fraud Act plaintiff class has been determined..

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