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February 14, 2005
Avery v. State Farm and Aftermarket Parts the Basis for Class Action Tort Reform?
Martin Grace, The Risk Prof, and Evan Schaeffer are having an interesting discussion about the proposed federal class action bill. Martin used Avery v. State Farm Mutual Automobile Insurance Co., 321 Ill. App. 3d 269, 746 N.E.2d 1242, 254 Ill. Dec. 194 (2001), appeal allowed, 201 Ill. 2d 560, 786 N.E.2d 180, 271 Ill. Dec. 922 (2002),
as an example of how class actions brought in state courts can improperly impose liability under one state's law to actions or contracts created under a different state's laws.
The concept is understandable, however, I think Avery was not the best case to make the point. Avery was a case involving breach of an insurance contract. What got State Farm in trouble and allowed the Illinois court to comfortably certify a class action was the fact that State Farm was accused of representing and promising its insureds in the insurance contract that repair of their vehicles using less expensive "aftermarket" (non-original equipment manufacture) parts would be of "like kind and quality" as the OEMs and would restore the insureds' cars to "pre-loss condition".
The testimony in Avery -- particularly from collision repairers who actually fix the cars -- was that the LKQ parts were not equivalent to OEMs, often had to be retro-fitted, and sometimes were dangerous. For example, some aftermarket hood latches have been known to spontaneously release or fail while you are driving down the road, causing the hood to whip up into windshield and block your vision. (Oh, you can't see? But that hood was cheaper!) The decision found that SF was breaching the insurance contract in that the aftermarket parts were inferior to OEMs, and, therefore, SF could not claim to be restoring insureds' vehicles to "pre-loss condition" as promised in the policy.
My article, "Awaiting Avery and the Fate of Aftermarket Parts", explains the bigger problems SF faced in this trial than trying to convince people to use aftermarket parts. What created the public relations nightmare for SF was the evidence presented at trial that, while average insureds were told by SF how terrific and equivalent these parts were (and were forced to accept them), SF employees, elite insureds, and "special friends" of SF executives had their cars repaired with OEM parts.
It's rather difficult to say with a bold face, "These parts are great, of like kind and quality, and you won't have any problems with them", when you refuse to use them yourself. It's like something one of my dealer friends always says when claims representatives try to tell him how safe a clipped vehicle is and that there has been no diminished value as a result of the accident and repair. His response? "That's just fine. Why don't you send your wife or daughter over and I'll sign her up for 60 payments at the full retail price." Funny. He's never had a single taker.
But that's not all. Probably the meanest thing SF did to its insureds with the aftermarket parts was its response to the promise that it would replace, at no cost to the insured, any aftermarket part with which the insured had a problem. When insureds had problems with the non-OEM parts and they contacted SF to make good on the replacement promise, SF told them they had to get the part replaced by the manufacturer under the manufacturer's warranty. Most aftermarket manufacturers, however, are located in Taiwan, Korea, or elsewhere in Southeast Asia, creating a complete nightmare for the insured to try to get the part replaced. Besides, SF had told insureds SF would replace the problem part. To turn around and force unsuspecting insureds to stay up until 2:00 a.m. to even talk to someone in Korea about the problem was absurd. In this the Avery court agreed stating that SF's promise was illusory.
Fantasy promises. What would happen if we all just "promised" to pay our premiums but didn't? Right. We know what would happen. SF would cancel our insurance. So, what's wrong with making SF step to the plate? Besides, making fake promises just isn't very neighborly.
Posted by E L Eversman at February 14, 2005 11:31 AM
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The much-criticized 1999 verdict in a consumer class action over the insurer's use of generic aftermarket parts, in which an Illinois state court returned a $1.2 billion verdict (later reduced to $1 billion and now on appeal to the Illinois... [Read More]
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» Avery v. State Farm discussed from PointOfLaw Forum
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