State Farm Loses Big In Court
A judge in Illinois this week awarded $730 million to State Farm policyholders whose vehicles were repaired with generic replacement parts. This is on top of a $456 million jury award in the same case earlier in the week.
The country's largest auto insurer says it will change the way it does business following that major loss in court. CBS News Consumer Correspondent Herb Weisbaum reports.
The company decided Thursday to temporarily suspend the use of "after-market" crash parts. For the time being, State Farm wants repair shops to only use parts made by auto manufacturers. State Farm says it's doing this to eliminate any customer confusion or concern.
Monday, a jury in Illinois ordered State Farm to pay $456 million to past and current policyholders. State Farm cheated its customers by making body shops use cheaper and sometimes inferior copycat parts for crash repairs, the jury decided.
They're called after-market parts because they are not made by the auto manufacturer.
Everyone agrees these knockoff parts are cheaper than the originals. But are they as good?
"Frankly we don't find any difference. We think these parts meet every aspect of the original equipment and that's why we feel so strongly about them as we do," says Bill Sirola of State Farm Insurance.
"And they're cheap, flimsy, imitation parts," says Don Barrett, one of the lawyers who sued State Farm. These poor-quality substitutes just don't look right, and that reduces the vehicle's resale value, he says. He claims State Farm and other insurance companies are well aware of the problems.
"The parts don't fit. The finish is poor. The parts don't hold paint. These parts have very little corrosion protection; the parts lack structural integrity," Barrett says.
He's not alone in bashing after-market parts. In its February issue, Consumer Reports said the quality of these generic imitations can vary widely, and called some of them "junk."
The people who do collision repair work said the same thing - that they don't fit and the quality is extremely poor.
Mike Rendazzo, who owns a collision shop in Bourbonais, Ill., describes a common problem. "Over here you can see the after-market fender doesn't line up with the factory door. The line is way too tight as it comes down; it actually touches here."
State Farm points out that it guarantees all after-market parts for as long as the policyholder owns the vehicle. And, the company says, customers aren't complaining.
Don't tell that to Peggy Frey of Indian Shores, Fla. She's one of the unhappy customers who sued State Farm.
"My car went in that shop with a Ford hood and Ford lights and what I came out with is not what I came in with," she says. "It looked terrible," she adds.
State Farm says it will appeal the jury's decision, which means if you're Peggy Frey or one of the 4.7 million other policyholders affected by his lawsuit, don't expect to see a refund check for years, if at all.
The insurance industry is saying this means auto insurance rates will go up. But the lawyers suing State Farm say there's no reason for that. They insist that using these after-market parts didn't really save any money because there were so many service problems with these repair jobs.
Those who are not State Farm policyholders but need a vehicle fixed after an accident should check with their insurance company. Ask what type of parts would be used to fix the car. Some companies are happy to use original parts. If you don't like the answer, you may want to shop around.
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