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 legal argument that a class action over insurers' use of generic parts to repair customers' auto damage is impermissible under the federal law giving states the power to regulate insurance.

The insurance organizations, who said "billions" of dollars are at stake, voiced their contentions in a friend-of-court brief filed with the 11^th U.S. Circuit Court of Appeals in Atlanta seeking to overturn a ruling by a U.S. District Court for the Northern 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 countrywide class of auto insurance policyholders who claim that Allstate, GEICO, Nationwide and State Farm conspired to violate antitrust laws by requiring the use of non-original equipment manufacturer parts to repair their damaged vehicles.

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

The Alliance of American Insurers, Downers Grove, Ill.; the American Insurance Association, Washington, D.C. ; the National Association of Independent Insurers, Des Plaines, Ill.; and the National Association of Mutual Insurers, Indianapolis, are asking the federal appeals court to reverse the lower court's class certification 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 that under the filed-rate doctrine, insurers cannot be attacked in court once a state insurance regulator has approved a rate.

Ann Spragens, Alliance general counsel, said: "We feel very strongly that the court erred in its decision to grant class status to this group of policyholders. Class certification in an anti-trust case puts a gun to the insurer's head. If we can't persuade 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 strongly in their favor, insurers are being threatened with the potential for triple damages that could reach into the billions of dollars."

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

"If one state's court can, in essence, become a national insurance regulator through the artifice of a class action, we would rather the national regulator be established by statute, be required to include all of the balancing and due process that is involved in a modern regulatory system, and act under a regulatory system that is focused on solvency regulation and that encourages competition."

"We don't think this is an issue ripe for certification of class action, especially since insurers are not mandating the use of aftermarket parts," said Jim Taylor, counsel for the NAII. "Certified aftermarket parts have proven to be a great tool in controlling claim costs, and if insurers are prohibited from using them, everyone will pay more for insurance because of the exorbitantly high cost of original equipment manufacturer parts."

"Setting and determining rates is clearly the business of insurance, and rate regulation is within the exclusive jurisdiction of the states and their regulators who have the unique expertise to determine appropriate rates of insurance for their citizens," said Gregg Dykstra, vice president and general counsel of NAMIC. "It is, as a practical reality, impossible for the plaintiffs to establish through common proof that all of the millions of class members from different states with different regulatory approaches paid excessive rates."

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

Special Reports /

Groups Say Parts Suit Is Barred By Federal Law

Related Stories

Recommended For You