MARION, Ill. (AP) -- The $456 million jury verdict in a lawsuit<br>accusing State Farm of using second-rate parts for automobile<br>repairs could lead to higher premiums if the ruling stands on<br>appeal,
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."
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