Insurer's use of generic auto body replacement parts is illegal, court says.

An Illinois judge and jury found State Farm Mutual Automobile Insurance Co. violated a state consumer fraud law and broke policyholders' contracts by using generically manufactured auto-body parts to replace damaged parts. The jury's verdict on breach of contract and the judge's verdict on consumer fraud said State Farm's promise to restore policyholders' vehicles to precrash condition was unfulfilled since the generic parts, manufactured in Taiwan, were not identical to the original parts. (Avery v. State Farm Mutual Automobile Insurance Co., No. 97-L-114 (Ill., Williamson County Cir. Ct. Oct. 8, 1999).)

The verdicts awarded nearly $1.2 billion in compensatory and punitive damages to an estimated 4.7 million policyholders represented in the class action lawsuit. The class includes former and current State Farm customers in 48 states.

The judge denied the plaintiffs' request for an injunction to stop State Farm from promoting the use of generic parts as replacements for damaged hoods, fenders, grills, headlight lamps, and bumpers. Those were the only parts at issue in the lawsuit.

Based on the evidence presented during trial, Circuit Judge John Speroni wrote State Farm knew the generic parts were inferior. The generic parts are called non-original equipment manufactured (non-OEM) parts.

"Rather than telling its policyholders of the known problems with the non-OEM `crash parts,' including possible safety concerns, State Farm chose to adopt and use on its estimates the misleading term `Quality Replacement Parts,' and to tell its policyholders, in various written documents which were admitted into evidence, that the parts were as good [as] or better than OEM parts," he wrote.

"Two-thirds of the plaintiffs did not even know what OEM meant," said plaintiff attorney Patricia Littleton of Marion, Illinois. Littleton said the non-OEM parts were manufactured by a Taiwanese company that sells copies of original parts for less than the price of the originals.

In some situations, policyholders knew the difference and asked for an original part. State Farm told these customers to pay the difference between the non-OEM part and the original part.

During the trial, Littleton said, body shop repairers said generic parts took longer to install and did not fit. She said Consumers Union, publisher of Consumer Reports magazine, conducted tests on the Taiwanese parts used by State Farm and discovered they did not meet the safety standards that the automaker parts met.

Littleton said the metal used in the generic parts was thinner or nongalvanized, bumpers were lighter, and plastic parts contained a different mix of plastic materials than the automakers used. In one low-speed crash test conducted by Consumers Union, automaker parts held up to multiple tests, but generic products broke on the first test, she said.

After the Avery decision, State Farm announced it would temporarily suspend its practice of using generic parts to avoid confusing policyholders. The company said it intends to appeal the decision.