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Wednesday, 27 December 2006 08:23

Latest Industry News - 11/20/06

Class-action suit against Farmers for use of non-OEM parts winding up...

By Richard Neubauer

A class-action lawsuit against Farmers Group for the use of non-OEM parts in nine states, including California, Arizona and Texas, has been playing out quietly in Orange County (California) Superior Court over the past several months. The case, Lebrilla v. Farmers Group, is five years old and the "class" or group of affected people may include 700,000 Farmer's customers in nine states who have had their cars repaired since 1996.


The case was filed in June of 2000, in the shadow of Avery v. State Farm and, like the Avery case, claims that the Farmers insurance contract promises repairs will be made with parts of "like kind and quality" to OEM parts but that in fact the non-OEM parts used by Farmers were not of like kind and quality, instead they were inferior.


No money damages sought

The verdict in Illinois against State Farm, for more than $1 billion, rocked the industry and caused the giant insurer to stop specifying non-OEM parts for several years. That verdict was eventually overturned on appeal in 2005 when the Illinois Supreme Court found that the plaintiffs in Avery should never have been certified as a class, finding among other things that they lacked commonality of damages.


Attorneys for the plaintiffs in the Farmers case changed their lawsuit in 2001 from asking for money damages to asking only for declaratory and injunctive relief: that Farmers cease using the non-OEM parts and make restitution to those policyholders' vehicles that were repaired with non-OEM parts.


Appeals court let the case go forward

Before a class action can proceed it must be certified by the court. The Orange County trial court judge, Ronald L. Bauer, refused certification, but the California Fourth District Court of Appeal reversed the judge and certified the case.


In arguing for class certification, plaintiff's expert witness, Paul Griglio, testified that due to their manufacturing process, non-OEM parts are universally inferior to OEM and that this is common to all of the repairs made with them. Griglio testified that "[N]o vehicle that has OEM crash parts replaced with non-OEM crash parts is restored to its pre-loss condition and no individual evaluation or assessment of the vehicle would be necessary in order to make this determination."


In opposing class certification, Farmers argued nine points, among them:

"A majority of courts across the country have refused to certify non-OEM parts cases finding the claims not susceptible to common proof;


Farmers does not have a common practice regarding non-OEM parts but rather relies on the skill and experience of body shops;


Plaintiffs' expert does not provide competent support for the theory all non-OEM part are inferior.


The issue of damages is difficult to calculate and is not common."


In its decision, the appeals court noted that "most of (Farmers') arguments are premised on Farmers' different interpretation of 'like kind and quality.' It (Farmers') maintained the phrase is tied to the pre-accident condition (age, use and condition) of each class member's car and, therefore, not subject to common proof."


Farmers doesn't require non-OEM parts

Of particular interest to collision repairs shops is one argument Farmers made to the court of appeal regarding Section 2695.8(g) of the California Code of Regulations which provides, "No insurers shall require the use of non-original equipment manufacture replacement crash parts in the repair of an automobile unless: (1) the parts are at least equal to the original equipment manufacturer parts in terms of kind, quality, safety, fit and performance . . . ."


Farmers asserts the statute does not apply to them because they do not require the use of non-OEM parts" (italics added).


Case should wrap up in November

The trial, a bench trial (judge only, no jury) before Judge Jonathan Cannon in Santa Ana, California, began August 21 and both sides had concluded their presentation of evidence on Sept. 11. Plaintiffs are represented by lead counsel Timothy G. Blood of Lerach Coughlin Stoia in San Diego. The Lerach firm is nationally known for its prosecution of class action suits against large corporations on behalf of defrauded stockholders and consumers. Farmers Group is represented by Raoul Kennedy and Jose Allen of Skadden Arps in San Francisco.


Closing arguments are set for November 9 and the judge has promised a decision within a week or two thereafter.