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State Farm appeals $1.2 billion car-parts verdict

State Farm Mutual Automobile Insurance Co. has filed an appeal of the $1.2 billion nationwide class action verdict against it for committing consumer fraud by using aftermarket car-repair parts.

Back in October 1999, a Marion, Ill., judge and jury found that State Farm violated consumer-fraud laws when it failed to disclose to policyholders the quality and use of aftermarket crash parts in vehicle repairs. Aftermarket crash parts allegedly did not return policyholder vehicles to pre-accident condition, a guarantee provided by the auto insurance policy. (Aftermarket crash parts — also known as non-Original Equipment Manufacturer (OEM) parts — include hoods, fenders, and bumpers.)

State Farm argues that the lawsuit was improperly certified as a class action.

The insurer had sought relief from the Illinois Supreme Court in the form of an expedited appeal earlier this year, but the Illinois high court refused to hear State Farm's arguments in February 2000.

State Farm's 150-page appeal — filed on May 12 with the 5th District Appellate Court in Mt. Vernon, Ill. — asks the appeals court to strike down the original verdict and decertify the class, says Dick Luedke, a spokesperson for State Farm. In addition, State Farm argues that the lawsuit was improperly certified as a class action, the damage calculation used by the plaintiffs to determine just how much damage was done as a result of having an aftermarket crash part used in repairs makes no economic sense, and the Illinois Consumer Fraud Act — which was applied in this case — can't be applied to all states as part of a nationwide lawsuit.

Six insurance industry groups and two consumer groups filed court papers on State Farm's behalf. Insurance departments in Arkansas, Colorado, Nevada, and North Carolina filed a joint "friend-of-the-court" brief on State Farm's behalf, as did the Illinois Department of Insurance and the National Association of Insurance Commissioners (NAIC), separately. The Center for Auto Safety and Public Citizen, two consumer advocacy groups founded by Ralph Nader, also filed court papers in favor of State Farm's arguments.

Public Citizen's brief argues, among other legal issues, that because of the verdict, aftermarket parts manufacturers might be driven out of business, which in turn would lead to higher prices for consumers. State Farm saved consumers an estimated $234 million in 1997 by using aftermarket crash parts in vehicle repairs, says Luedke.

The plaintiffs now have 35 days to file their response to State Farm's appeal. State Farm will then have 15 days to answer the plaintiffs. Then the appeals court will set a date for oral arguments.

State Farm's arguments are "nothing new."

Michael Hyman, one of the plaintiff class lawyers from Chicago-based Much Shelist Freed Denenberg Ament Bell & Rubenstein, says that State Farm's arguments are "nothing new." "Their brief is a lot of yelling and screaming, as you might expect from someone who's been caught red-handed defrauding their policyholders," he says. Hyman notes, too, that the "friend-of-the-court" briefs are not a surprise because the Illinois Department of Insurance, the NAIC, and Public Citizen have filed papers pertaining to this same case on State Farm's behalf before.

Hyman expects he and the other plaintiff lawyers will use the allotted 35 days to file a response to State Farm's appeal, and he predicts that oral arguments before the appellate court will commence sometime this fall.

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