The Illinois Supreme Court decision overturning a class action lawsuit against State Farm and a $1.1 billion damage award points out defects in the law governing class actions, insurance industry groups said.
A spokesman for State Farm said the company was "very pleased that the Illinois Supreme Court found that State Farm's actions were correct" in the case of Avery v. State Farm, in which policyholders sued the insurer for using aftermarket parts for collision repairs, claiming they were substandard and unsafe.
Insurance organizations said the decision had wider ramifications for other insurers. The Avery case trial court certified it as a class action despite arguments from State Farm's attorneys that it failed to qualify because of differences in policies and consumer protection laws from state to state.
The high court agreed that the differences between the policies and applicable consumer protection laws were too great, stating in its opinion that "it was an abuse of discretion for the circuit court to certify plaintiffs' breach of contract claim as a class action."
"This case was the poster child for why the nation's class action system was in need of reform," said Robert J. Hurns, counsel for the Property Casualty Insurers Association of America (PCI), which filed an amicus brief in the case.
Robert Detlefsen, public policy director for the National Association of Mutual Insurance Companies, also applauded the court's ruling against the class action but noted the effects of the lower court's erroneous decision.
"It's wonderful that the Illinois Supreme Court has declared that the Avery case should not have gone to trial nearly six years after the trial court's decision," Mr. Detlefsen said.
But, he added, "it's appalling to think that in the meantime, State Farm was forced to spend millions of dollars defending itself from what was essentially an illegitimate lawsuit. Because State Farm is a mutual company, those dollars came directly from the pockets of its policyholders."
Leah Lorber, an attorney in the Washington office of Shook, Hardy and Bacon LLP, said that State Farm's status as a mutual company made the whole lawsuit somewhat questionable.
"They were actually suing themselves," Ms. Lorber said of the plaintiffs, adding that damage awards "have to come from somewhere" and would likely have meant smaller dividends and higher premiums for State Farm policyholders.
Mr. Detlefsen said that the ruling should also serve as a call for lawmakers to change state class action laws so that decisions to certify a class could be challenged more swiftly and allow defendants to avoid the severe costs involved.
"All of this could have been avoided," Mr. Detlefsen said, "if Illinois had a law allowing either party to immediately appeal an adverse class action certification ruling to the State Supreme Court, with a requirement that the Supreme Court issue a definitive ruling on the appeal before the case could go to trial. Texas passed such a law three years ago, and the Avery debacle should serve notice to other states that they ought to follow Texas's lead."
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