Avery v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 05 April 2001
• Docket Number: No. 5-99-0830.,5-99-0830.
• Citation: 254 Ill.Dec. 194,746 N.E.2d 1242,321 Ill. App.3d 269
• Parties: Michael E. AVERY et al., on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

746 N.E.2d 1242

321 Ill. App.3d 269

254 Ill.Dec. 194

Michael E. AVERY et al., on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellant.

No. 5-99-0830.

Appellate Court of Illinois, Fifth District.

April 5, 2001.

Michele Odorizzi, Bradley J. Andreozzi, Allan Erbsen, Mayer, Brown & Platt; William R. Quinlan, Gino L. DiVito, Quinlan & Crisham, Ltd., Chicago, IL; Wm. Kent Brandon, Brandon, Schmidt, Goffinet & Solverson, Carbondale, IL; Robert H. Shultz, Jr., Heyl, Royster, Voelker & Allen, Edwardsville, IL; Marci A. Eisenstein, Aphrodite Kokolis, Schiff, Hardin & Waite, Chicago, IL, Attorneys for Appellant.

Edward J. Kionka, Carbondale, IL; Elizabeth J. Cabraser, Morris A. Ratner, Scott P. Nealey, Yu-Yee Wu, Lieff, Cabraser, Heimann & Bernstein, LLP, San Francisco, CA; Patricia S. Murphy, Marion, IL; Michael B. Hyman, William H. London, Melinda J. Morales, Much, Shelist, Freed, Denenberg, Ament & Rubenstein, P.C., Chicago, IL; Don Barrett, Richard R. Barrett, S. Katherine Barrett, Barrett Law Offices, Lexington, MS; Thomas P. Thrash, Little Rock, AR, Attorneys for Appellees.

Justice MAAG delivered the opinion of the court:

State Farm Mutual Automobile Insurance Company (State Farm) appeals from a $1.18 billion judgment entered against it in a nationwide class action lawsuit tried in the circuit court of Williamson County, Illinois. The three-count complaint, filed on behalf of a class of State Farm automobile insurance policyholders (plaintiffs), alleged breach of contract, consumer fraud, and claims seeking equitable relief. On appeal State Farm seeks the decertification of the class and a reversal of the judgment below or, alternatively, a new trial. State Farm also seeks to have the punitive damages award vacated or reduced.

[Editor's Note: Text omitted pursuant to Supreme Court Rule 23.]

In count I of the complaint, plaintiffs alleged that State Farm issued form contracts containing an identical promise to its policyholders nationwide. Plaintiffs contended that in exchange for payment of the insurance premium, State Farm had promised to pay for replacement parts of "like kind and quality" that would restore the vehicle to its "pre-loss condition" and that it breached this promise by uniformly specifying inferior non-original equipment manufacturer (non-OEM) parts when they were available and cheaper than original equipment parts made by the automobile manufacturer (OEM). Counts II and III alleged violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (CFA) (815 ILCS 505/1 et seq. (West 1998)). In those counts, plaintiffs claimed that State Farm had a nationwide claims practice of uniformly specifying cheaper non-OEM crash parts on damage estimates issued to its policyholders despite the fact that it knew that those parts were inferior in quality and condition and would not return the damaged vehicle to its preloss condition. Plaintiffs claimed that by adopting and employing this claims practice, State Farm deceived its policyholders in that it failed to inform them of the inferior quality of specified replacement parts. It was alleged that State Farm was able to succeed in this deception by representing that the inferior parts met high performance criteria and by offering a bogus guarantee to replace unsatisfactory non-OEM parts at no cost to the policyholder. State Farm objected to the certification of the class, on the grounds that the individual questions of fact and law overwhelmingly dominated any purported common questions in the contract and consumer-fraud claims. State Farm also denied the allegations of the complaint.

The trial court conducted a pretrial evidentiary hearing on the class-certification issue. After considering documents and the testimony of several witnesses, the court certified the class as follows:

"All persons in the United States, except those residing in Arkansas and Tennessee, who (1) were insured by a vehicle casualty insurance policy issued by Defendant State Farm and (2) made a claim for vehicle repairs pursuant to their policy and had imitation[,] that is, non-factory-authorized and/or non-OEM parts installed on their vehicles or else received monetary compensation determined in relation to the cost of imitation parts. Excluded from the class are employees of Defendant State Farm, its officers, its directors, its subsidiaries, or its affiliates.

In addition, the following persons are excluded from the class: (1) persons who resided in Illinois and whose policies were issued/executed prior to April 16, 1994, and (2) persons who resided in California and whose policies were issued/executed prior to September 26, 1996."

The trial court also reviewed State Farm auto policies that were issued to class members who resided in states other than Illinois. The court found that there were some variations in the form of the policy from state to state, but it concluded that these variations were immaterial because the operative policy language in each policy was susceptible to uniform interpretation. The court determined that in each policy State Farm made the identical promise to pay for parts "of like kind and quality" that would restore the vehicle to its "original pre-loss condition".

[Editor's Note: Text omitted pursuant to Supreme Court Rule 23.]

I. Plaintiffs' Contentions At Trial

A. Breach of Contract

In the breach-of-contract claim, plaintiffs alleged that State Farm's practice of specifying non-OEM parts constituted a breach of its contractual obligation to pay for parts "of like kind and quality" to restore the vehicles to "pre-loss condition". This class-wide claim was based on plaintiffs' theory that the non-OEM parts specified in the damage estimates were categorically inferior. Plaintiffs presented evidence to demonstrate that State Farm had a uniform, corporate-wide claims adjustment manual that dictated the policy for the settlement of property-damage claims with its insureds and that this policy and practice was devised, implemented, dictated, and monitored from its home office in Bloomington, Illinois.

[Editor's Note: Text omitted pursuant to Supreme Court Rule 23.]

B. The Consumer Fraud Act

In the consumer-fraud claim, plaintiffs alleged that State Farm knowingly concealed information about the inferior condition of the non-OEM parts it was specifying on damage estimates and misrepresented the quality and condition of those parts to its policyholders. Plaintiffs presented evidence, in the form of State Farm's own documents and testimony from past and current State Farm employees, to show that State Farm knew that the non-OEM parts were inferior in terms of fit, quality, function, performance, corrosion resistance, appearance, and safety. These parts were represented to policyholders as "quality replacement parts". There was also evidence that State Farm's guarantee that it would replace non-OEM parts at no cost to the unsatisfied policyholders upon demand was bogus. If the aftermarket part was warranted by the part manufacturer, the policyholder was required to contact the manufacturer for relief. In most cases, these part manufacturers were located outside the United States in Taiwan or another country. If the policyholder demanded replacement of the non-OEM part, a State Farm adjustor was required to investigate the claim, and if it was approved, an OEM replacement part was installed but the cost was charged to the policyholder as an indemnity payment.

II. State Farm's Contentions At Trial

State Farm defended by presenting witnesses who testified that the use of non-OEM parts had been approved in all states in which the class members reside, that non-OEM parts were "equivalent" or "functionally equivalent" to OEM parts, that the use of non-OEM parts did not adversely effect occupant safety, and that non-OEM parts did not reduce the value of the vehicle. State Farm also presented evidence to show that it advised its policyholders of its use of non-OEM parts in the policy, in estimates, and in a pamphlet provided with the estimate. There was also evidence that 95% of State Farm's policyholders renewed their policies. This evidence was offered in an attempt to prove that State Farm insureds were satisfied customers. State Farm also presented as experts those who had practical experience and those with credentials similar to plaintiffs' experts, to counter plaintiffs' opinion witnesses. Thus, there was a classic battle of experts, and the fact finders were required to determine the weight and credibility of these witnesses.

III. The Verdict and Judgment

After many hours of deliberation, the jury returned a verdict on the breach-of-contract claim. The jury found that State Farm failed to perform its obligations under the contract and breached its contract with the plaintiff class. Damages to the plaintiff class were fixed at $243,740,000 in direct damages and $212,440,000 in consequential damages.

The consumer-fraud counts of the complaint were resolved in a bench trial. In its written judgment, the trial court found that State Farm misrepresented, concealed, suppressed, or omitted material facts concerning the non-OEM crash parts with the intent that its policyholders rely upon these deceptions in violation of the CFA. The trial court noted that it concurred with the jury's verdict on the breach-of-contract claim. The court found that plaintiffs had incurred actual damages as a result of State Farm's deceptive practices, but the court did not award actual damages, noting that the jury had awarded identical actual damages in the breach-of-contract case and that plaintiffs could not recover these damages twice. The court awarded the sum of $130 million in disgorgement damages (representing the direct savings State Farm realized from use of non-OEM parts) and imposed a constructive trust on that sum. The court also awarded $600...