State Farm Mutual Automobile Insurance Co., the largest U.S. auto and home insurer, won the reversal of a $1 billion class action in an Illinois Supreme Court judgment yesterday. The reversal is a major victory for pro-business groups hoping to limit similar class-action cases.
The court said the 4.7 million claimants who accused the company of approving the use of inferior parts in collision repairs of their cars and trucks were too varied to be grouped in one class.
The State Farm ruling could signal how the Illinois Supreme Court might rule in another major class-action suit it is considering, lawyers said. In that case, an Illinois county court ruled that Philip Morris USA Inc. had deceived consumers into believing light cigarettes are safer than regular cigarettes and ordered it to pay $10.1 billion.
The Illinois Supreme Court "really put a stamp on the case that this kind of abuse will no longer be tolerated," said Robin Conrad, senior vice president of the National Chamber Litigation Center, the U.S. Chamber of Commerce's public-policy law firm, which filed an amicus brief supporting class decertification. "I hope that it's a signal that across the country that the class-action device will no longer be taken advantage of."
In the State Farm case, customers in 48 states claimed that the generic auto parts approved by the company did not measure up, leaving them with hoods that did not close properly and other problems. Internal memos from State Farm executives disclosed during the trial raised questions about whether the parts were as good as the originals. The claimants' vehicles were repaired from July 1987 through February 1998.
In 1999, an Illinois county court ordered the auto insurer to pay $456 million to those policyholders, citing a breach of contract. The trial judge added $730 million in damages, ruling the company deliberately deceived customers.
At the time of the original verdict, insurance companies were campaigning to encourage the use of generic body parts to hold down repair costs.
"By making the hurdles higher for class actions of this type, it will mean that insurance companies, banks and other businesses that do business with consumers could have an easier time in opposing litigation on a class basis," said Michael B. Hyman, an attorney for the plaintiffs. He said they may appeal the case to the U.S. Supreme Court.
Hyman said the reversal will set a precedent for other cases of similar size. "In light of the microscope that our case was put under, you can assume the Philip Morris decision will be put under another microscope."
Conrad said the Illinois court system is "notorious" for affirming class actions. "Southern Illinois had really become the class-action magnet," she said, adding that she hopes the ruling signals a change.
"We are very pleased that the Illinois Supreme Court concluded that State Farm's actions were correct," said Dick Luedke, a State Farm spokesman. "We feel this is good for consumers and our customers who stand to benefit from a more competitive auto-parts market."