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04/09/2001
     
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State Farm Criminal Fraud Conviction Upheld
Penalty Reduced to $1.056 Billion !

Tempe, AZ 04/09/01 - In a forty page decision, issued on April 5 2001, the Fifth District Appellate Court of Illinois upheld the criminal fraud conviction of State Farm Insurance for having mandated the use of inferior aftermarket crash parts in the repair of consumers' vehicles. While upholding the trial court conviction, the appellate court determined there was an over-lap of financial penalties and reduced the original trial court award of $1.186 Billion to a net of $1.056 Billion (plus accruing interest). This net remaining award is one of the largest verdicts ever upheld on appeal and represents an average reimbursement of $223.40 for each of the 4.7 million members of the plaintiff class.

The class members in this case are defined as U.S. residents (except those in Arkansas and Tennessee) who were insured by State Farm, made a claim for vehicle repairs under their policy between July 28, 1994 and February 23, 1998 and either had Aftermarket Crash Parts installed on their vehicles or received compensation based upon the cost of such parts. Employees of State Farm, its officers, its directors, its affiliates and residents of California with policies issued or executed prior to September 26, 1996 are excluded from this class.

The full forty page decision can be accessed online at www.lchb.com/images/state_farm.pdf .

State Farm may now petition the Illinois Supreme Court for review. If that petition for review is denied, or if it is accepted and State Farm were to loose at that level, State Farm could then apply for review to the United States Supreme Court. The U.S. Supreme Court had previously denied State Farm's petition to review the class certification of this case.

Note . . .
Ed Rust, President and CEO of State Farm, is also a member of President George W. Bush's Transition Advisory Team on education. There is now direct communication between these two gentlemen. President Bush is an advocate of tort reform. Tort reform would have made this pro-consumer trial outcome impossible.

Elizabeth J. Cabraser, one of the trial and appellate attorneys for the plaintiff class, has commented on this decision saying "the appeals court opinion was a victory for consumers who are unable to obtain meaningful relief from large corporations on their own and a vindication of the class action device."

In its opinion upholding the trial court's verdict, the appellate court noted that . . . "State Farm's guarantee that it would replace non-OEM parts at no cost to the unsatisfied policyholder upon demand was bogus." The opinion went on to say . . . "State Farm's promise to pay for parts of ‘Like, Kind and Quality' to restore a vehicle to its ‘pre-loss condition' was breached when it specified and paid for inferior non-OEM parts."

It is now a matter of legal record. Aftermarket Crash Parts are deemed to be "Inferior" to OEM Crash Parts !

Premiums . . .
The appellate court opinion went on to say . . . "State Farm's actuary testified that any damages awarded would be paid from the company's reserves and would not affect premiums and that the amount awarded would not affect the company's financial viability or its ability to pay dividends or future claims."

The Insurance Consumer Advocate Network ["I-Can"] views this on-the-record testimony from State Farm's own actuary as flying in the face of the auto insurance industry's continuous assertions that legislative restrictions on the use of Aftermarket Crash Parts would result in auto insurance premium increases. Auto insurance lobbyists freely distribute anecdotal comments to legislators about premium increases when not under oath. However, State Farm's premium calculation expert (actuary) testifies under oath that no premium increase would be necessary.

I-Can is inclined to believe the under-oath testimony of State Farm's own actuary. This is especially true in light of the fact that State Farm, with a $1.186 Billion judgement pending against them, and having already abandoned the practice of specifying the use of Aftermarket Crash Parts, declared a record $1 Billion Premium Refund Dividend to be returned to their policyholders in June 2000 (eight months after the trial court decision).

The Insurance Consumer Advocate Network is an InterNet based consumer advocacy effort designed to Increase Consumer Awareness as to Insurance Related Issues, Encourage Consumer Involvement with Insurance Related Efforts and Facilitate Consumer Contact with Pro-Consumer Entities.

The InterNet web site for the Insurance Consumer Advocate Network is www.iCan2000.com
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