More than 4 million policyholders had a good enough case to convince a state jury in Marion, Ill. On Oct. 4, the jurors awarded them $465 million in compensatory damages - the largest finding ever against an insurance company. But that verdict hardly settles issues raised by this dubious class-action suit against State Farm Insurance, largest car insurer in the US.
The basic question is, what best serves the American consumer? The plaintiffs in the case argued the consumer was ill-served by State Farm's policy of preferring, in some cases, the use of replacement auto-body parts - hoods, fenders, doors, etc. - not made by a car's original maker. They said these parts, called "after market," were inferior, and that the insurer was obligated, by contract, to try to restore a vehicle to pre-accident condition.
But there's another side. A national quality-control agency, the Certified Auto Parts Association, strives to ensure that after-market products are sound and safe. State Farm specifies the use of either certified parts or original-manufacturer parts. And, in fact, 80 percent of the auto parts used to rebuild damaged cars in this country are from original makers. Some 5 percent are used parts from junk dealers.
The remaining 15 percent from other suppliers, domestic and foreign, ensures some competition for the automakers, who would otherwise have a monopoly on what amounts to a $10 billion a year market. Anyone who's dented a bumper knows how outrageously expensive a piece of molded plastic or metal can be. Keeping prices down, by encouraging competition, makes sense.
The Illinois suit, however, could push insurers back toward sole reliance on car manufacturers' parts. That's not the best outcome for the consumer, who would foot the higher prices in higher premiums. Instead, continue strengthening the part-certification process (far less than half of after-market parts are now covered by it). Persuade insurers to make sure collision shops use certified parts. And keep the legal case moving. State Farm should do better on appeal.
(c) Copyright 1999. The Christian Science Publishing Society