Groups Say Parts Suit Is Barred By Federal Law

NU online News Service, July 21, 3:55 p.m.EDT?A combine of industry trade groups is making a legalargument that a class action over insurers' use of generic parts torepair customers' auto damage is impermissible under the federallaw giving states the power to regulate insurance.

The insurance organizations, who said "billions" of dollars areat stake, voiced their contentions in a friend-of-court brief filedwith the 11^th U.S. Circuit Court of Appeals in Atlantaseeking to overturn a ruling by a U.S. District Court for theNorthern District of Florida in the case of Gilchrist, et al.v. State Farm Mutual Automobile Insurance Co., et al.

In November 2002, the Florida court certified a countrywideclass of auto insurance policyholders who claim that Allstate,GEICO, Nationwide and State Farm conspired to violate antitrustlaws by requiring the use of non-original equipment manufacturerparts to repair their damaged vehicles.

The plaintiffs argue that the parts requirement caused premiumsto be above competitive levels for the actual quality of theinsurance policy provided and reduced the quality of the insuranceoffered to class members.

The Alliance of American Insurers, Downers Grove, Ill.; theAmerican Insurance Association, Washington, D.C. ; the NationalAssociation of Independent Insurers, Des Plaines, Ill.; and theNational Association of Mutual Insurers, Indianapolis, are askingthe federal appeals court to reverse the lower court's classcertification order.

According to the organizations' brief, by granting class status,the court has ignored the provisions of the McCarran-Ferguson Act,which allow states to regulate insurance. It argues further thatunder the filed-rate doctrine, insurers cannot be attacked in courtonce a state insurance regulator has approved a rate.

Ann Spragens, Alliance general counsel, said: "We feel verystrongly that the court erred in its decision to grant class statusto this group of policyholders. Class certification in ananti-trust case puts a gun to the insurer's head. If we can'tpersuade the court to overturn the grant of class certification,insurers will feel enormous pressure to settle.

"Even though the law in the 11^th Circuit is stronglyin their favor, insurers are being threatened with the potentialfor triple damages that could reach into the billions ofdollars."

David Snyder, AIA vice president and assistant general counsel,said, "So long as insurance remains state regulated, each statemust give deference to the laws passed by the other states.

"If one state's court can, in essence, become a nationalinsurance regulator through the artifice of a class action, wewould rather the national regulator be established by statute, berequired to include all of the balancing and due process that isinvolved in a modern regulatory system, and act under a regulatorysystem that is focused on solvency regulation and that encouragescompetition."

"We don't think this is an issue ripe for certification of classaction, especially since insurers are not mandating the use ofaftermarket parts," said Jim Taylor, counsel for the NAII."Certified aftermarket parts have proven to be a great tool incontrolling claim costs, and if insurers are prohibited from usingthem, everyone will pay more for insurance because of theexorbitantly high cost of original equipment manufacturerparts."

"Setting and determining rates is clearly the business ofinsurance, and rate regulation is within the exclusive jurisdictionof the states and their regulators who have the unique expertise todetermine appropriate rates of insurance for their citizens," saidGregg Dykstra, vice president and general counsel of NAMIC. "It is,as a practical reality, impossible for the plaintiffs to establishthrough common proof that all of the millions of class members fromdifferent states with different regulatory approaches paidexcessive rates."

The insurers trade group combine said no fewer than 15additional friend-of-the-court briefs are being filed in thiscase--all asking that the class certification be rejected.