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"Crash" Course on Avery v. State Farm

A recent opinion by the Illinois Supreme Court has ignited widespread commentary by litigators, media, businesses, and consumers. In Avery v. State Farm, the Illinois Supreme Court reversed an award of over one billion dollars to a nationwide class of automobile insurance policyholders in their fraud and breach of contract claims against Illinois-based insurer State Farm. Avery v. State Farm Mut. Auto. Ins. Co., No. 91494, 2005 WL 1981444, at *1, *54 (Ill. Aug. 18, 2005) (slip op.). Did Avery v. State Farm "[smash] to splinters the hallowed halls where Abraham Lincoln once toiled?" Steve Korris, Illinois Supreme Court™s ˜Avery™ Decision Rips Through Appellate Court, MADISON COUNTY RECORD, Aug. 18, 2005, at http://www.madisonrecord.com. Did it "signal the end of [a] long history of exploitation" of the class action device? Illinois Supreme Court Reverses $1.06 Billion State Farm Auto Repair Parts Case, INS. J., Aug. 18, 2005, at http://www.insurancejournal.com (quoting amicus party). Or will the case "have no implication on the future of class actions"? Brian Mackey, Effect of Avery Case Unsettled, CHI. DAILY L. BULL., Aug. 22, 2005, at 1 (quoting trial attorney).

Plaintiffs in the case complained of State Farm's practice of using certain types of "crash parts" to repair cars damaged in automobile accidents. Avery at *1. State Farm covered their policyholders by specifying the use of "non-OEM crash parts," which are parts not produced by the car's original manufacturer. Id. According to Plaintiffs, State Farm breached its insurance agreements and perpetrated fraud. Id. Specifically, Plaintiffs alleged that State Farm (1) violated its contractual obligation to use OEM parts, and (2) violated Illinois consumer protection statutes by misrepresenting the quality of non-OEM parts. Id. at *1, *2, *25. The Circuit Court of Williamson County certified the class of plaintiffs, and following a jury trial, entered judgment for Plaintiffs for over one billion dollars. Id. at *1. The Fifth District of the Illinois Appellate Court upheld most of the trial court's holdings and reduced the award slightly. Id. at * 9. In a lengthy opinion by Chief Justice McMorrow, the Illinois Supreme Court overturned the judgment against State Farm. Id. at *54.

In its appeal to the Illinois Supreme Court, State Farm successfully argued that the class should not have been certified for the breach of contract claim because the various policies at issue were not uniform. Id. at *9 - *15. Furthermore, the Supreme Court found that no group of plaintiffs was entitled to the lower courts' awards for breach of contract. Id. at *15 - *20. As a preliminary issue, many policies could not be construed to require the use of OEM parts. Id. at *16 - *17. With regard to other policies, individualized proof would be required to show that the use of non-OEM parts constituted breach. Id. at *17 - 20. Such individualized proof was never presented in the original action, as it involved millions of policyholders from 48 states. Id. at *3, *20.

State Farm also prevailed in its defense of the fraud claim. Id. at *25 - *53. The Court held that Illinois consumer protection statutes did not apply to the many insurance claim proceedings that took place outside Illinois, and therefore a class should not have been certified. Id. at *39 - *44. Additionally, Plaintiffs' evidence did not support a consumer fraud claim. Id. at *26 - *39. The non-OEM parts were not alleged to be defective; rather, they were alleged to be inferior; and a mere breach of a contractual promise does not constitute fraud. Id. at *33 - *35, *38 - *39. Moreover, although some State Farm documents did state that non-OEM parts were at least as good as OEM parts, Plaintiffs did not necessarily read those documents. Id. at *35 - *36. The Court stated that no reasonable person would take seriously superlative descriptions of non- OEM parts such as "quality" or "very high performance." Id. at *36 - *37. In criticizing Plaintiffs' fraud claim, the Court also took note of State Farm's offer to repair or replace dissatisfactory crash parts, finding that this practice did not place an unfair burden on policyholders. Id. at *37 - *38. In sum, the Court ruled in favor of State Farm on a multitude of issues, reversing nearly all holdings of the lower courts.

In a vigorous dissent, Justice Freeman expressed not only that the majority should have upheld particular portions of the jury verdict and lower court rulings, but also opined that the majority should have remanded certain issues to the trial court. Id. at *54 - *72 (Freeman, J., dissenting). The dissent went on to state that the majority decision undermines the class action device, a "valued" and "legitimate" judicial mechanism. Id. at *70, *72. However, as mentioned above, commentators have mixed opinions about the likely effect of Avery v. State Farm on pending and future Illinois cases, and class action lawsuits in general.

(Copyright 2005, IICLE)

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