Appeals Court Tosses $20B Auto Parts Lawsuit
A federal appeals court in Atlanta has dismissed a $20 billion class-action lawsuit that claimed major insurers violated U.S. antitrust law by mandating the use of generic replacement parts to repair damaged cars.
The 11th U.S. Circuit Court of Appeals, in rejecting the plaintiffs arguments in Gilchrist v. State Farm Mutual, found the suit involved the "business of insurance," which is exempt from federal antitrust law under the McCarran-Ferguson Act. Besides finding that it had no jurisdiction, the appeals court ruled that both the insurance industry in general, and the use of non-original equipment manufacturer parts in particular, are regulated by the states.
Berry & Leftwich, the Washington law firm representing the plaintiffs, had no immediate comment on 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 Allstate, GEICO, Nationwide and State Farm as defendants. It was brought by three Florida residentsLinda Gilchrist, Joanne Zipperer and Jackie Valentine.
According to the Circuit Court, the plaintiffs argued that insurer cost-cutting arrangements with third parties required the 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 Meyersa Lees Summit, Mo., attorney who filed an amicus "friend-of-the-court" brief for the National Association of Insurance Commissioners on behalf of the insurerssaid $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 the use of OEM parts. Some states require that only OEM parts be used for repairs and others, like Florida, require only that the body shops damage estimate include a notice that non-OEM parts will be used.
"Its all over the board around the country," he said, adding that "the plaintiffs wanted one standard to apply for all." He said also that plaintiffs were unaware "that the states have antitrust laws that regulate insurance companies."
Others filing amicus briefs included the U.S. Chamber of Commerce and USAA insurance.
Reproduced from National Underwriter Edition, November 24, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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