After a long spell of waiting, the Illinois Supreme Court finally decided the Avery v. State Farm Mutual Automobile Insurance Co. appeal of the $1 Billion verdict rendered against SF in 1999 for mandating the use of aftermarket parts in vehicle repairs for its insureds.
This is a lengthy decision, but here’s what it boils down to:
1) A national class should not have been certified for either the breach of contract or the consumer fraud claim.
2) No subclasses are entitled to recover as the jury instructions and verdict form were tainted.
3) The policies stating that “you agree” that State Farm can repair your car with either original equipment manufacture (OEM) or aftermarket parts mean that insureds have expressly authorized SF to repair your car with aftermarket parts, even if those parts are inferior to OEM and State Farms knows they are inferior.
4) Although never defined in the policy, the phrase like, kind, and quality is not ambiguous. It cannot not mean that aftermarket parts have to be of equivalent quality to OEM parts, because the betterment clause in the policy implies that there could be a situation in which a repair (presumably made with aftermarket parts) was better than a repair with OEM parts.
While I agree with the decision that a national class should not have been certified and, therefore, have no problem with points 1 and 2, the remainder of the majority’s opinion displays such repugnant reasoning that the decision is an embarrasment to the court. The dissent of Justice Freeman, with which Justice Kilbride concurs, is substantially better reasoned and is written in keeping with fossilized precedent.
After making the initial statement that the national class should not have been certified (for the contract breach issue — the majority later decides the consumer fraud claim certification was also inappropriate) because there was no single insurance policy at issue, the majority wonders if the verdict could be upheld for any subclass. It answers with a definitive NO on the basis that the jury instructions and verdict form stating that there was a single contract at issue was incorrect. (So far, so good.)
In what plainly is an attempt to avoid remanding the decision for further proceedings on the subclass issue (and I ascribe no motive here, whether good or bad), the majority delves into the nitty-gritty of the case, including reviewing evidence and interpreting policy language. (Now things get weird.)
One of the things I found notable in this decision is that the court oddly never identifies its standard of review — and it doesn’t appear to follow one.
In its discussions of the “you agree” policies, the court essentially says that each insured agrees that aftermarket parts can be put on the vehicle and extrapolates from that, that if those aftermarket parts are of inferior quality, you have agreed to let those parts be put on your car. The Illinois Supreme Court, however, fails to look at the standards for aftermarket parts required by its own State’s laws. The unfair claims handling section of the Illinois administrative code controls the types of replacement crash parts that insurers may specify for repair and requires that these parts be “of the same quality as the original part”.
Because contracts made in violation of the law cannot be upheld, it is inappropriate for the Avery court to suggest that insureds agreed to have their vehicles replaced with inferior parts (at least those insureds in Illinois). Moreover, other states’ laws expressly require the aftermarket parts to be of quality equal to or better than the original equipment manufactured part, e.g. California Code of Regulations, Title 10, Chapter 5, Section 2695.8 (g), an insurer that requires a policyholder to use non-OEM crash parts must warrant that the non-OEM crash parts are “at least equal to the original equipment manufacturer parts in terms of kind, quality, safety, fit and performance.” Of course, applying the standards of other states’ laws is simply another argument demonstrating why a national class is not appropriate in this matter. Nonetheless, it underscores the ridiculousness of the Avery court’s assertion that insureds expressly agreed to have inferior parts used in their car repairs.
As Justice Freeman points out on this subject in the dissent:
The court avoids discussing the evidence presented by plaintiffs by holding that State Farm never promised any policyholders that repairs would utilize parts of equal quality to OEM parts. Thus, according to my colleagues, it does not matter whether State Farm was knowingly repairing its policyholders’ vehicles with inferior parts, because State Farm never promised to use noninferior parts. I suggest that the court has perhaps insufficiently considered the policy implications of overturning a billion dollar verdict on the basis that an insurer’s knowing usage of inferior parts is “good enough.”
(p. 72-73 of PDF opinion).
The dissent goes on to note:
The average person has no ability to bargain over the individual clauses of his or her auto insurance policy. The court ignores this fact, and seriously damages the credibility of its analysis by doing so. The notion that a policyholder has entered into a binding, factual admission simply by purchasing an auto insurance policy would merely be laughable if the court was not seriously suggesting it as a basis for overturning a billion dollar verdict produced by a two-month-long trial in which the evidence supports the conclusion that an insurer knowingly specified inferior crash parts for repairs of its policyholders’ vehicles.
The standards of those states expressly requiring replacement crash parts to be of equivelent quality to that of the OEM parts also turns the court’s analysis of the “Like, Kind, and Quality” policies on its head. Had the court considered the basis for this policy language, it would have reasoned that this language is there for the purpose of complying with the law of states requiring parts to be equivalent to OEM parts.
Shockingly, the Illinois Supreme Court turns to Florida, Texas, and Washington decisions to undergird its reasoning that the LKQ language merely means the parts have to be as good as the smashed parts they replace. These court decisions interprete their own insurance codes and state laws as to what standard an aftermarket part must meet. (This should have told the Illinois Supreme Court something.) But does the Illinois Supreme Court ever look to its own state laws to interpret this standard? No. Instead, the court goes to extreme lengths to develop a convoluted interpretation of what this policy language means.
Which brings us to an significant point. Why is this court interpreting policy language? Additionally, it is absolutely plain that the phrase “like, kind, and quality” is subject to at least two reasonable definitions. Therefore, the policy language must be deemed ambiguous, and, under the long-standing rules of insurance policy interpretation, must be construed against the insurer. The Illinois Supreme Court majority fails to apply this rule, which, at at best, destroys its credibility, and at worst, raises all of the ugly suggestions of bias, patronage, and conspiracy — all of which the majority hotly denies.
Lastly, the court appears to ignore significant evidence adduced at trial as to what State Farm understood and believed it owed to its insureds and the insurers’ own company philosophies. The differences between the evidence discussed by the Illinois Supreme Court and the appellate court are so stark that the courts’ opinions appear to address two entirely different cases.
This decision is deeply troubling. If the majority had stuck to overturning the certification of the national class and overturning the verdict because the jury instructions and verdict form were erroneous, this decision would be sound. In its zeal, however, the majority did not content itself with a decision based on sound judicial reasoning. Instead, it has set out on a frolic from which it may never be able to return.
Avery v. State Farm Mutual Automobile Insurance Co.