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Illinois Supreme Court Overturns $1 Billion State Farm Judgment

Consumer Advocates See It As A Bad Omen for Other Class Action Cases

August 19, 2005
The Illinois Suprme Court has thrown out a $1 billion class action judgment against State Farm Insurance over the use of so-called aftermarket auto parts for repairs.

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The court said that the national class was improperly certified in 48 states. It threw out all of the monetary damages awarded by lower courts and ruled that the use of aftermarket auto parts did not breach the insurance company's contract with its policyholders.

The case -- Avery, et al -- was originally filed in Illinois state court in 1998 on behalf of all automobile insurance policyholders in Illinois and nearly every other state, charging that State Farm used generic auto collision repair parts, also known as "aftermarket" or "non-OEM" (original equipment manufacturer) parts.

A Williamson County, Illinois judge awarded a total of $1.18 billion in damages: $456 million for breach of contract, $600 million for punitive damages under the consumer fraud law and $130 million for disgorgement damages - representing direct savings realized by State Farm from use of non-OEM parts.

An intermediate appellate court later reversed the award of disgorgement damages and upheld the rest, for a total judgment of $1.06 billion.

Business Group Jubilant

Insurers and business groups hailed the reversal.

The American Insurance Association called the decision "a win for all consumers," claiming it will foster price competition in automotive repair costs.

"Today the court addressed all of the harm that was done to consumers in the state of Illinois and in states nationwide, including the many issues arising out of the establishment of the national class action, and Illinois imposing its public policy on the legislatures and insurance regulators of other states," stated David Snyder, AIA vice president and assistant general counsel.

Snyder claimed that the costs of some sheet metal parts rose by nearly 300 percent within a few months of the original decision, and car companies were charging 60 percent more than the distributors selling identical certified aftermarket parts."

"It's encouraging news, because we have a serious image problem regarding lawsuit abuse in the state," said Doug Whitley, president and CEO of the Illinois Chamber of Commerce. "We've had, for some years, a bad reputation for big awards in questionable cases and it's good to see the Supreme Court be firm."

The United States Chamber of Commerce also welcomed the ruling.

"This is a victory for businesses and it sends a strong signal that class action abuse won't be tolerated," said Robin Conrad, senior vice president of the National Chamber Litigation Center, the Chamber's public policy law firm, which filed an amicus brief supporting class decertification.

"The aggregation of 4.7 million claims in one lawsuit defied common sense and violated State Farm's due process rights. Had this case gone forward as a class action, it would have been a travesty of justice."

The National Association of Mutual Insurance Companies (NAMIC) used the occasion to call upon lawmakers to establish safeguards for preventing further supposed instances of class action abuse.

"In overturning the trial court's ruling that State Farm's use of non-OEM parts violated Illinois' consumer fraud act, the state supreme court effectively vindicated insurers' use of non-OEM parts as a cost-effective alternative to OEM parts, the use of which benefits consumers by lowering repair costs and, thus, premiums," said NAMIC Public Policy Director Robert Detlefsen.

Consumer Representatives Fume

Lawyers representing State Farm customers decried the ruling.

"It is a total pity for the consumer that somehow the court system would find that State Farm's cheating isn't uniform enough to be actionable," attorney Patricia Murphy said.

Michael Hyman, a lawyer representing the plaintiffs in the State Farm case, said it was "a bleak day for auto insureds and insureds generally in Illinois."

Spencer Waller, a law professor who is director of consumer antitrust studies at Loyola University in Chicago, said Illinois' role as a consumer-friendly state that attracts national consumer class-action cases may end if the ruling is indicative of the state court's attitude in future cases.

"It will be more difficult to bring large national class-action suits here," Waller told the Chicago Tribune. "Some cases will have to be brought separately in 50 different states, which is more difficult, costly and less likely to succeed."

If that occurs, consumers may suffer, since class-action lawsuits were devised as a way for people with small claims to band together to press cases against large, well-funded corporations, countered Michael J. Kaufman, associate dean and professor of law at Loyola University of Chicago School of Law.

"Without these lawsuits, large corporations are free to defraud consumers with impunity," Kaufman said.

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