State Farm told to pay $456 million in car-parts case

Largest U.S. insurer of autos will appeal, faces larger penalties

Insurance

October 05, 1999|By BLOOMBERG NEWS

MARION, Ill. -- State Farm Mutual Automobile Insurance Co. was ordered to pay policyholders $456 million yesterday for requiring auto body shops to use less-expensive, duplicate parts to repair cars.

The largest U.S. car insurer, with a 20 percent share of the market, breached contracts with consumers by refusing to pay for parts made by the original automaker, using generic car parts instead, the jury in the Illinois class action suit found.

State Farm of Bloomington, Ill., called the conclusion by the jury "legally wrong" and vowed to appeal. "Jurors were not allowed to hear why State Farm uses these parts," said State Farm spokesman Murray Payne. The parts are of equal quality and save money for policyholders, he said.

Yesterday's verdict addresses only part of the penalties State Farm faces to compensate about 4.7 million policyholders. Judge John Speroni of Williamson County Circuit Court is expected to rule this week on fraud charges, for which plaintiffs are seeking $725 million of compensatory damages and additional punitive damages, an attorney for the plaintiffs said.

"They misrepresented these parts" to policyholders, said the attorney, Michael B. Hyman of Chicago's Much, Shelist, Freed, Denenberg, Ament & Rubenstein. "We feel very confident that the court will come back with a verdict in our favor."

State Farm policyholders whose cars were repaired as long ago as 1987 may be eligible for portions of the payments.

Other insurers also use duplicate parts to cut the costs of repairing damaged cars. "The whole industry has to change its practice of putting in these parts, which the jury has found to be inferior," Hyman said. "We intend to file other cases."

"If this verdict is allowed to stand, it will mean a move toward a parts monopoly," said Payne, the State Farm spokesman. "It will mean higher repair costs and higher insurance costs for everyone."

State Farm said it guarantees parts installed under its insurance, and that no evidence suggested drivers or their cars were hurt by the use of imitation parts.

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