Appeals Court Tosses $20 Billion Parts Class Action

By Daniel Hays

NU Online News Service, Nov. 23, 4:28 p.m. EDT?A federal appeals court in Atlanta has tossed out a $20 billion class action that claimed major insurers' use of generic spare parts to repair auto damage violated U.S. antitrust law.

The 11th U.S. Circuit Court of Appeals, in rejecting the plaintiffs' arguments in Gilchrist v. State Farm Mutual, found that the suit involved the "business of insurance'' which is exempted from federal antitrust law under the McCarran-Ferguson Act.

Besides finding that it had no jurisdiction, the appeals court found as well that both the insurance industry in general and the use of non-OEM [original equipment manufacturer] parts in particular are regulated by the states.

Berry & Leftwich, the Washington law firm representing the plaintiffs, had no immediate comment today whether they would seek permission to appeal the decision to the U.S. Supreme Court.

In making its ruling, the Circuit Court remanded the case back with instructions to dismiss to U.S. District Court Judge Maurice Paul in Gainesville, Fla. Judge Paul had certified a nationwide class of 70 million insureds in 2002.

The case had named as defendants State Farm, Allstate, Nationwide and GEICO. It was brought by three Florida residents--Linda Gilchrist, Joanne Zipperer and Jackie Valentine.

According to the Circuit Court, plaintiffs argued that insurers' cost-cutting arrangements with third parties required use of non-OEM parts to repair policyholders' vehicles.

Additionally, the court noted, the complaint argued that insurers created and financed the Certified Auto Parts Association to promote inferior crash parts as acceptable substitutes for OEM parts, "thereby advancing the anticompetitive conspiracy."

"Finally she [Ms. Gilchrist] contends that insurers have benefited from the conspiracy by reducing their repair costs and raising their profits above what they would experience in a competitive market," the court said.

Ross Meyers--a Lees Summit, Mo. attorney who filed a friend-of-the-court brief for the National Association of Insurance Commissioners on behalf of the insurers--said $20 billion was involved because the plaintiffs had sought treble damages for alleged premium overcharges.

He said he had argued that the premise of the suit was wrong because the individual states have differing laws and regulations regulating use of OEM parts. Some states require that only OEM parts be used for repairs and others, like Florida, require only that the body shop damage estimate include a notice that non-OEM parts will be used.

"It's all over the board around the country," he said, adding that "the plaintiffs wanted one standard to apply for all." He said his brief also noted that Florida state's insurance rating law has "all sorts of antitrust provisions."

Others filing amicus briefs included the U.S. Chamber of Commerce and USAA insurance.

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Appeals Court Tosses $20 Billion Parts Class Action

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