Last week the Record ran excerpts of the Aug. 18 Illinois Supreme Court decision overturning a 1999 verdict in Avery vs. State Farm Insurance that dealt with contract claim.

Avery and other plaintiffs alleged that State Farm specified inferior crash parts that were not made by the original equipment manufacturer, or OEM. In a Williamson County trial, plaintiffs won more than a billion dollars in damages.

The Supreme Court ruled that the trial court erred in allowing claims for breach of contract and consumer fraud, in certifying a class action, and in awarding damages.

This week’s excerpts deal with the fraud claim:

Chief Justice Mary Ann McMorrow wrote, “As originally pled, plaintiffs’ class action complaint contained only a single count for breach of contract. Plaintiffs added count II, in which they alleged that State Farm violated the Consumer Fraud Act, in their Second Amended Class Action Complaint…

“State Farm argued that it was simply a duplicate of the breach of contract count and, therefore, should be dismissed…

“According to plaintiffs, the consumer fraud count was based on actions, representations and omissions which occurred during the claims process…

“Plaintiffs relied on…the estimate given to each of the named plaintiffs…Non-OEM parts are listed as ‘Quality Replacement Parts,’ while OEM parts are listed along with the manufacturer’s name…

“The second item relied upon by plaintiffs was a brochure produced by State Farm titled ‘Quality Replacement Parts’…In this brochure, State Farm refers to non-OEM parts as ‘quality replacement parts’…Also included in the brochure is a guarantee…

“The third and fourth items identified by plaintiffs – articles in a newsletter and a magazine – were not given to the policyholders during the claims process…

“The newsletter which the plaintiffs relied upon is titled ‘Good Neighbor News’ and is dated ‘Fall 1993.’ The fourth and final item identified by plaintiffs is an article from the April 1990 issue of a magazine called ‘Reflector,’ a State Farm publication circulated to State Farm agents…

“At trial, the five named plaintiffs testified…Shadle…testified that he received his estimate and ‘Quality Replacement Parts’ brochure when the claims adjuster first looked at his car, but that he did not read the brochure.

“Avery stated that he received his estimate and brochure in the mail after taking his car to an adjuster, that he read the brochure, and that he was ‘extremely concerned’ about what it said.

“Vickers first saw her written estimate when she went to pick up her car after it was repaired, although her body shop told her early in the repair process that non-OEM parts were going to be used…

“Covington did not see his estimate prior to the repairs being started, although his body shop informed him that non-OEM parts were being used. Covington received and read his brochure after the repairs were finished.

“DeFrank testified that he received his estimate and brochure from the claims adjuster prior to the repair of his pickup truck. He read the brochure and became ‘very upset’…

“At the conclusion of trial, the circuit court found that State Farm had violated the Consumer Fraud Act…The circuit court stated:

‘…State Farm chose to adopt and use on its estimates the misleading term Quality Replacement Parts, and to tell its policyholders…that the parts were as good, or better than, OEM parts. Further, the written disclosures…did nothing to advise the State Farm policyholder of the inferiority of the parts. Finally, State Farm’s guarantee improperly and unfairly placed the burden of securing a quality repair on the policyholder…’

“State Farm repeated its argument to the appellate court that plaintiffs’ consumer fraud claim was nothing more than a restatement of the breach of contract claim…The appellate court rejected this contention…

“State Farm also argued to the appellate court that it was not liable under the Consumer Fraud Act for the affirmative representations it made to plaintiffs because those representations were merely puffing and, therefore, not actionable. The appellate court rejected this argument…

“Finally, State Farm argued to the appellate court that the evidence was insufficient to establish that the actions, representations or omissions which occurred during the claims process proximately caused injury to any of the class members.

“The appellate court rejected this argument, too: ‘…There is overwhelming evidence of State Farm’s calculated deception…The deceit was deliberate and universally employed for the purpose of obtaining unearned, illegitimate monetary gain…’

“On appeal, State Farm contests…the circuit court’s judgment in favor of plaintiffs on the merits…

“There is still some confusion – as evinced by plaintiffs’ arguments before this court – as to exactly what conduct of State Farm is at issue under the consumer fraud claim…

“Before the circuit court, plaintiffs maintained that their consumer fraud count was not based on ‘the drafting, or the sale or even the interpretation’ of any class member’s insurance policy. Yet in their brief before this court, plaintiffs repeatedly point to State Farm’s contractual promises to define the consumer fraud…

“A breach of contractual promise, without more, is not actionable under the Consumer Fraud Act…

“Plaintiffs do not claim to have proven that any of the non-OEM parts specified by State Farm in its repair estimates were defective…Plaintiffs deliberately avoided any theory relating to defective parts at trial because such a theory would have significantly increased their burden of proof…

“Plaintiffs claim to have proven…that non-OEM parts are ‘categorically inferior’ to OEM parts. But ‘categorically inferior’ is not the same thing as ‘categorically defective.’ This point is important…

“Both the circuit court and the appellate court refer to State Farm’s specification of ‘categorically inferior’ parts as if the act of specifying nondefective parts, by itself, is fraudulent…However, it is no more fraudulent – in and of itself – to specify non-OEM parts while knowing that they are not as good as OEM parts than it is to sell Chevrolet automobiles while knowing that they are not as good as Cadillacs.

“The appellate court based its holding that State Farm violated the Consumer Fraud Act, in part, on its findings that ‘State Farm knowingly represented on its estimates and in its Quality Replacement Parts brochures’ that non-OEM parts ‘were of equal quality or better than OEM parts’…

“These findings, however, are incorrect. Neither the written estimates nor the Quality Replacement Parts brochures…contain the statement that non-OEM parts are ‘of equal quality to or better than OEM parts’…

“The ‘Good Neighbor News’ newsletter and the ‘Reflector’ magazine do contain the statement…However, there is no evidence that any of the named plaintiffs ever read, saw or were in any way aware of these documents…Accordingly, neither the ‘Good Neighbor News’ newsletter nor the “Reflector’ magazine has any relevance to this case…

“Plaintiffs object to two phrases describing non-OEM parts…The first phrase plaintiffs point to is ‘quality replacement parts’...The second phrase is ‘very high performance criteria’…Plaintiffs maintain that both these phrases are deceptive under the Consumer Fraud Act.

“State Farm, however, contends that these phrases are merely ‘puffing’…We agree…Describing a product as ‘quality’ or as having ‘high performance criteria’ are the types of subjective characterizations that Illinois courts have repeatedly held to be mere puffing…

“The circuit court held that State Farm violated the Consumer Fraud Act by providing a guarantee…It is not clear what the circuit court meant when it held that State Farm’s guarantee improperly put a ‘burden’ on policyholders. Every guarantee places a burden on the consumer...

“The circuit court cannot be correct if it meant that the guarantee is fraudulent because it required the policyholders to take action. If this were true, every guarantee, no matter how comprehensive or generous, would be inherently fraudulent…

“None of the named plaintiffs in this case testified that they had problems using the guarantee. Indeed, none of the named plaintiffs made any attempt to invoke it…

“When State Farm specified a non-OEM part in one of its repairs, it disclosed the use of that part…According to plaintiffs, State Farm should also have disclosed the categorical inferiority of non-OEM parts…But many businesses undoubtedly sell products with the knowledge that those products are not as good as other brands on the market.

“Under plaintiffs’ reasoning, it would appear that to avoid liability under the Act, every knowing sale of a brand of product which is not the top brand would have to carry a disclaimer: ‘Notice, our brand is not, on the whole, as good as our competitor’s’…

“Further, and of equal importance, we note that the disclosure provided by State Farm was required by, and complied with, state law…The Illinois Consumer Fraud Act exempts from its coverage practices or transactions which are permitted by other laws.”

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