The Illinois Supreme Court on Thursday reversed a $1 billion judgment against State Farm Insurance Co. in a class-action lawsuit alleging the company bought substandard parts to repair damaged cars.
The ruling could restrict consumers’ power to band together for class-action lawsuits.
State Farm customers accused the company of defrauding them by refusing to pay for top-of-the-line replacement parts — including hoods, bumpers and doors — on damaged cars. They argued the parts that State Farm insisted on using were not as durable or safe as the ones made to factory specifications.
That violated the company’s duty to restore cars to their condition before the accidents, the lawsuit argued on behalf of roughly 4.7 million policyholders.
But the court held that the lawsuit should never have been given class-action status. Differences in customers’ insurance policies meant they did not share the same conditions necessary to sue as a group, justices found.
It was also a mistake for an Illinois trial court to grant national class-action status when there was only one named plaintiff from Illinois and he failed to prove he had suffered actual damages, the Supreme Court found.
“It is a total pity for the consumer that somehow the court system would find that State Farm’s cheating isn’t uniform enough to be actionable,” said Patricia Murphy, one of the trial attorneys in the case. “It is a loss for the consumer, no doubt.”
Bloomington-based State Farm applauded the ruling as a victory for consumers.
“Competition is good for consumers, and consumers now stand to benefit from a more competitive auto-parts market,” spokesman Phil Supple said.
The case has been watched closely as an indicator of how the court will rule on an even larger class-action case — a $10 billion verdict against cigarette-maker Philip Morris.
Legal experts and business analysts interpreted the State Farm ruling as evidence that Philip Morris may win that decision. Even the dissenting justices in Thursday’s ruling said the majority showed “a new hostility” to class-action cases.
After news of the ruling, stocks of the biggest tobacco makers rose sharply, including shares of Philip Morris parent company Altria Group Inc., which jumped 3.7 percent to its all-time high closing price of $70.39.
State Farm has suspended the use of aftermarket parts. Supple said the company has not yet decided whether it will again require them for repairs.
In 1999, a state judge ordered State Farm to pay nearly $1.2 billion for failing to provide top-quality parts when paying for auto repairs. The company was held liable for not restoring cars to their “pre-loss condition” and defrauding customers.
At the time, it was the largest judgment in Illinois history. The damages were later reduced to $1.05 billion. Nothing has been paid to the plaintiffs, although State Farm had to post a bond of $1.3 billion while it appealed.
In the Altria case, customers argue they were misled by Philip Morris advertising into believing that “light” cigarettes were healthier than regular cigarettes. One of Altria’s arguments is that the customers should not have been given class-action status.
Citigroup analyst Bonnie Herzog called the ruling “the absolute best-case scenario” for Altria.