State Farm Judgement


Tuesday, October 5th 1999, 12:00 am
By: News On 6


MARION, Ill. (AP) -- The $456 million jury verdict in a lawsuit
accusing State Farm of using second-rate parts for automobile
repairs could lead to higher premiums if the ruling stands on
appeal, industry experts warn.
Steve Goldstein, a spokesman for the Insurance Information
Institute, a nonprofit industry communications group, said premiums
and repair bills could soar if insurers are forced to use
factory-authorized parts.
Consumers save about $800 million a year in reduced premiums due
to the use of less-expensive repair parts, according to industry
estimates presented at trial.
"There are basically two winners: the automakers and the
attorneys who brought this suit," Goldstein said.
A trade group called Monday's verdict the largest ever against
an insurance company.
The class-action lawsuit representing 4.7 million State Farm
policyholders accused the nation's largest auto insurer of breach
of contract for failing to restore vehicles to pre-accident
condition by using "aftermarket" repair parts.
Critics contend such parts -- sheet-metal and plastic trim parts
modeled on originals but made without access to factory
specifications -- do not provide the same level of fit, finish,
corrosion resistance and, in some cases, safety, as parts made for
automakers.
State Farm spokesman Bill Sirola said the company has no
immediate plans to change its policies, but said a review is likely
if the verdict stands on appeal.
Plaintiffs are seeking an additional $4 billion on their claim
that State Farm deliberately deceived customers about the parts'
quality. A judge's decision on the fraud complaint is expected by
Friday.
The jury's award on the breach-of-contract claim amounts to
about $100 for each of the 4.7 million policyholders included in
the lawsuit. Appeals are expected to hold up distribution of the
award for years.
"It's going to provide a lot of uncertainty in the industry,
but unless there's an outright injunction, we think these parts
will continue to be used," said Mark Johnson, an analyst who
watches the aftermarket-parts industry for A.G. Edwards & Sons Inc.
in St. Louis.
Aftermarket parts are involved in one-fifth of State Farm's
auto-body repairs, and 15 percent of repairs covered by all
insurers, according to estimates.
A Consumer Reports study presented at trial found that
aftermarket parts often take longer to install and perform poorly
compared to original equipment parts. The organization urged the
Federal Trade Commission to set consumer consent and safety
standards.
Jurors also saw dozens of memos from State Farm executives in
which they raised questions about the quality of the parts, even as
they were promoting them as high-quality, low-cost alternatives.
Jury foreman Thomas Hatley said the memos were the most
compelling evidence in six weeks of testimony.
"Their own documents said there was a problem with the parts,"
he said. "We fairly quickly came to a conclusion that the parts
were not of like kind and quality."