Ill. Supreme Court Overturns $1 Billion Aftermarket Parts Decision in Favorof

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This is huge for the old car hobby, as you know the aftermarket sheet metal guys like Goodmark rely on crash part sales to form the base of their operations.  Success here allows them to continue to develop more replacement parts for our old cars.  Can a full 63-5 Plymouth or dodge two door quarter panel be far behind?
 
WHS
 
CHICAGO (BestWire) - Robert Hurns said he used to joke his grandkids would be the ones who found out the conclusion of an Illinois class-action lawsuit against State Farm over the use of aftermarket parts. 
In the original 1999 decision, a jury in the class-action lawsuit Avery vs. State Farm awarded the plaintiffs $1.2 billion in damages. An appellate court lowered the award to $1 billion but let the decision stand. In 2002, the Illinois Supreme Court agreed to hear the case (BestWire, Oct. 4, 2002). 
"It was worth the three-year wait," Hurns, a spokesman and aftermarket parts expert for the Property Casualty Insurers Association of America, said. That's because the Illinois Supreme Court not only overturned the $1 billion award against State Farm and found the use of aftermarket parts did not breach the company's contract with policyholders, nor violate the state's Consumer Fraud Act, but also found the class action was improperly certified. 
"Categorically, this is a huge win for the insurance industry and for consumers, for competition and for class action reform," Hurns said. "The message here is there are rules for class certification, and those rules were bent and ignored in order to reach a conclusion favorable to the plaintiff. The Illinois Supreme Court here is clearly saying this is wrong. The huge message here is to courts who would twist the rules to bring class actions. I think courts are going to be a lot more careful now." 
American Insurance Association vice president David Snyder said the case was a "classic example of class-action abuse."
The court decision found the lower court improperly certified the class status of the case and that there was no commonality amongst the State Farm policies on which to base a class-action suit. The decision called the lower court's certification of the class status "an abuse of discretion." 
Sherman Joyce, president of the American Tort Reform Association, praised the decision for its "common sense approach" and "respect for the rule of law." 
State Farm spokesman Dick Luedke said the company was "very pleased."
"This really touches everyone," Snyder said "A legal cloud over the ability to have a competitive market has been lifted. A major obstacle to use of aftermarket parts has been removed." 
State Farm voluntarily suspended use of aftermarket parts three days after the 1999 verdict (BestWire, Oct. 4, 2002). Other insurers have been watching the case with trepidation. 
"The initial verdict had a chilling effect," Hurns said. "Now companies are free to evaluate whether or not they want to use the parts." 
Luedke said the decision allows State Farm "to review market developments" as far as use of aftermarket parts goes.
Aftermarket crash parts are generic sheet-metal components of vehicles, such as fenders, hoods and door panels. These generic parts can be used in auto repairs instead of parts from the vehicle's original manufacturer, or OEM parts. According to the Insurance Information Institute, OEM parts used to sell at "much higher prices than they can today" before the advent of generic parts. But once aftermarket parts hit the market in the 1970s, the price of OEM parts dropped an average of 30%, the Institute said. 
"The presence of competition holds down the price of OEM parts," Snyder said. In addition, the price difference between an aftermarket part and an OEM part can be as much as 40%, he said. 
Hurns said an OEM car hood could fetch as much as $400, while an aftermarket hood of similar quality would cost $100.
"If this case went the other way, it would have affected premiums," Hurns said. "We would have gone back to the stone age with the OEM parts." 
Snyder said the cost of some sheet metal parts rose by nearly 300% following the 1999 decision.
While the plaintiffs in the case argued aftermarket parts are "categorically inferior" to OEM parts, the Insurance Institute for Highway Safety's crash tests found no safety problems with aftermarket parts. Sometimes they actually scored better than OEM parts, Hurns said. 
But the court decision said even if the aftermarket parts were not as good as OEM ones, an insurer specifying their use is not fraudulent, overturning the lower court ruling. The court used the example of selling "Chevrolet automobiles while knowing that they are not as good as Cadillacs." No one would call that fraudulent, the court reasoned. 
In 2004, the top five writers of private passenger auto insurance in the United States, according to A.M. Best Co. state/line data based on direct premiums written, were: State Farm Group, with 18.24% market share; Allstate Insurance Group, with 10.37%; Progressive Insurance Group, with 7.25%; Berkshire Hathaway Insurance Group, with 5.58%; and Farmers Insurance Group, with 4.97%. 
(By Rick Cornejo, associate editor, BestWeek: rick.cornejo@xxxxxxxxxx)
Copyright 2005 A. M. Best. Source : Financial Times Information Limited. 

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