Insurance Industry Under Fire for Repair Practices

The insurance industry’s preference for cheaper auto body parts is under attack in courts from Arizona to Florida. State Farm is already at trial defending its practice, while at least seven other insurers face lawsuits filed this year.

Most of the lawsuits--there are 14 in all--were filed shortly after the publication of a Consumer Reports article in February criticizing the parts. One, in Maryland, was filed Monday.

The lawsuits accuse Allstate, Geico, Nationwide, USAA, Progressive, Metropolitan and Farmers of breach of contract and fraud.

So far, the State Farm lawsuit--a class-action filed in Williamson County Circuit Court in Marion representing 5.5 million current and former policyholders--is the only case to go to trial.

Auto insurance customers contend the use of parts modeled on factory originals but made without the benefit of factory specifications failed to restore their cars to pre-loss conditions, as required in most policies.

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But some critics say the suits, if successful, will hurt consumers by reducing the use of such aftermarket parts, causing prices and premiums to rise.

“All other things being equal, and that’s a big if, it’s a good thing for consumers to have generic products on the market,” said Brian Wolfman of consumer group Public Citizen. “The presence of generic products brings down the cost of other products.”

The State Farm trial continued in its second week Tuesday with testimony from a body shop owner who said aftermarket parts never match the quality produced by factories run for auto makers.

“If it’s not the same in thickness, if it’s not the same in weld, then it’s not safe, either,” John Kirby of Mobile, Ala., said in videotaped testimony.

Previously, witnesses have testified that State Farm documents also call into question the parts’ quality. In one, company lawyers suggested eliminating the use of aftermarket sheet metal parts because of the increasing cost of litigation.

Although State Farm has settled lawsuits over use of the parts in Cook County, Ill., and California, it has denied allegations that it uses unsafe or inferior parts, saying its practice of using “quality replacement parts” saves customers money.

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Steve Berman, a Seattle attorney handling lawsuits against Allstate, Nationwide, Geico and USAA in Arizona, Illinois, Ohio and Washington state, said those cases are almost identical to the one involving State Farm.

The Arizona suit accuses Allstate and Geico of violating that state’s insurance code, federal racketeering laws and consumer fraud laws by forcing shops to use aftermarket parts and failing to disclose their use to consumers.

The suit, filed in January, is awaiting class-action certification.

But Charles Davies, general counsel for Geico in Chevy Chase, Md., said his company doesn’t conceal its use of the parts, because executives think they are a good deal for customers.

“There is no reliable evidence we’ve seen to say these parts on the whole are bad,” Davies said. “If we didn’t have competitive parts which are lower in price than the manufacturers’ parts, we would have a situation where insurance is unaffordable.”

Nationwide declined to comment. Metropolitan’s telephone went unanswered after normal business hours late Tuesday.

The other companies did not return calls earlier in the day seeking comment.