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Avery v. State Farm Mutual Automobile Insurance Company

April 05, 2001


Appeal from the Circuit Court of Williamson County. No. 97-L-114 Honorable John Speroni, Judge, presiding.

Justices: Honorable Gordon E. Maag, J. Honorable Thomas M. Welch, J., and Honorable Robert L. Welch, J., Concur

The opinion of the court was delivered by: Justice Maag

State Farm Mutual Automobile Insurance Company (State Farm) appeals from a $1.18 billion judgment entered against it in a nationwide class action lawsuit tried in the circuit court of Williamson County, Illinois. The three-count complaint, filed on behalf of a class of State Farm automobile insurance policyholders (plaintiffs), alleged breach of contract, consumer fraud, and claims seeking equitable relief. On appeal State Farm seeks the decertification of the class and a reversal of the judgment below or, alternatively, a new trial. State Farm also seeks to have the punitive damages award vacated or reduced.

[The following text is nonpublishable under Supreme Court Rule 23 (166 Ill. 2d R. 23).]

The tone of this appeal was set in the statement of facts. The parties seem to agree on little beyond the fact that the members of the class all purchased State Farm automobile insurance policies. The class consisted of more than four million State Farm automobile insurance policyholders nationwide whose vehicles sustained damage as a result of accidents and required repairs that included the replacement of one or more designated "crash parts". "Crash parts" were described as vehicle components typically repaired or replaced as a result of crash damage rather than normal use. They are primarily sheet metal and plastic parts attached to the outer shell of the vehicle. The types of "crash parts" at issue included fenders, hoods, doors, quarter panels, tailgates, grills, headlight and taillight mounting panels, brackets, moldings, and bumpers. There were 25 types of "crash parts" at issue in this case.

[The preceding text is nonpublishable under Supreme Court Rule 23.]

In count I of the complaint, plaintiffs alleged that State Farm issued form contracts containing an identical promise to its policyholders nationwide. Plaintiffs contended that in exchange for payment of the insurance premium, State Farm had promised to pay for replacement parts of "like kind and quality" that would restore the vehicle to its "pre-loss condition" and that it breached this promise by uniformly specifying inferior non-original equipment manufacturer (non-OEM) parts when they were available and cheaper than original equipment parts made by the automobile manufacturer (OEM). Counts II and III alleged violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (CFA) (815 ILCS 505/1 et seq. (West 1998)). In those counts, plaintiffs claimed that State Farm had a nationwide claims practice of uniformly specifying cheaper non-OEM crash parts on damage estimates issued to its policyholders despite the fact that it knew that those parts were inferior in quality and condition and would not return the damaged vehicle to its preloss condition. Plaintiffs claimed that by adopting and employing this claims practice, State Farm deceived its policyholders in that it failed to inform them of the inferior quality of specified replacement parts. It was alleged that State Farm was able to succeed in this deception by representing that the inferior parts met high performance criteria and by offering a bogus guarantee to replace unsatisfactory non-OEM parts at no cost to the policyholder.

State Farm objected to the certification of the class, on the grounds that the individual questions of fact and law overwhelmingly dominated any purported common questions in the contract and consumer-fraud claims. State Farm also denied the allegations of the complaint.

The trial court conducted a pretrial evidentiary hearing on the class-certification issue. After considering documents and the testimony of several witnesses, the court certified the class as follows:

"All persons in the United States, except those residing in Arkansas and Tennessee, who (1) were insured by a vehicle casualty insurance policy issued by Defendant State Farm and (2) made a claim for vehicle repairs pursuant to their policy and had imitation[,] that is, non-factory-authorized and/or non-OEM parts installed on their vehicles or else received monetary compensation determined in relation to the cost of imitation parts. Excluded from the class are employees of Defendant State Farm, its officers, its directors, its subsidiaries, or its affiliates.

In addition, the following persons are excluded from the class:

(1) persons who resided in Illinois and whose policies were issued/executed prior to April 16, 1994, and (2) persons who resided in California and whose policies were issued/executed prior to September 26, 1996."

The trial court also reviewed State Farm auto policies that were issued to class members who resided in states other than Illinois. The court found that there were some variations in the form of the policy from state to state, but it concluded that these variations were immaterial because the operative policy language in each policy was susceptible to uniform interpretation. The court determined that in each policy State Farm made the identical promise to pay for parts "of like kind and quality" that would restore the vehicle to its "original pre-loss condition".

[The following text is nonpublishable under Supreme Court Rule 23.]

The trial lasted almost 30 days. The parties presented testimony from dozens of witnesses and introduced hundreds of exhibits. Summarizing all of the evidence would be neither manageable nor beneficial. Exhibits and testimony will be referenced as required to dispose of the issues raised in this appeal. The positions of the parties at trial were as follows:

[The preceding text is nonpublishable under Supreme Court Rule 23.]

I. Plaintiffs' Contentions At Trial

A. Breach of Contract

In the breach-of-contract claim, plaintiffs alleged that State Farm's practice of specifying non-OEM parts constituted a breach of its contractual obligation to pay for parts "of like kind and quality" to restore the vehicles to "pre-loss condition". This class-wide claim was based on plaintiffs' theory that the non-OEM parts specified in the damage estimates were categorically inferior. Plaintiffs presented evidence to demonstrate that State Farm had a uniform, corporate-wide claims adjustment manual that dictated the policy for the settlement of property-damage claims with its insureds and that this policy and practice was devised, implemented, dictated, and monitored from its home office in Bloomington, Illinois.

[The following text is nonpublishable under Supreme Court Rule 23.]

During the applicable class period, a nationwide directive was in effect that required the specification of non-OEM parts in the settlement of its policyholders' damage claims if the non-OEM parts were cheaper. State Farm claims estimators were required to utilize a computer system programmed to select the cheapest available non-OEM part certified by the Certified Automotive Parts Association (CAPA), an association formed and largely funded by the insurance industry to regulate and certify aftermarket parts. The estimators had no authority to substitute OEM parts in damage estimates when non-OEM parts were cheaper and available. In the event the damaged part was not one that was subject to CAPA certification, the computer selected and the estimator routinely specified a non-certified, non-OEM part.

The computer program contained a matrix of all parts that were available and the suppliers who carried those parts. State Farm selected the suppliers and approved the parts that were listed in the computer software. In order to prepare a damage estimate, the claims estimator would enter into the computer system the make and model year of the damaged part, and the computer would identify the cheapest part without regard for the preloss condition of the damaged vehicle. That part and its cost would be specified on the damage estimate. The claim was resolved based upon the cost of the non-OEM part. Adjustors and claims estimators were trained in these policies and practices through in-house seminars, which were held at the home office.

Plaintiffs also presented numerous documents and the testimony of expert witnesses to bolster the claim that the non-OEM parts which State Farm specified were categorically inferior in terms of fit, function, performance, durability, corrosion resistance, appearance, and safety. Plaintiffs' experts included both auto body repairmen who had practical, hands-on experience with the non-OEM parts State Farm specified and experts who had advanced education, training, and experience in such fields as industrial engineering, metallurgy, and materials sciences. One of those experts had observed the process used in the manufacture of non-OEM parts at a plant in Taiwan. Another conducted testing on a sample of non-OEM parts. Plaintiffs also presented an expert in market analysis.

[The preceding text is nonpublishable under Supreme Court Rule 23.]

B. The Consumer Fraud Act

In the consumer-fraud claim, plaintiffs alleged that State Farm knowingly concealed information about the inferior condition of the non-OEM parts it was specifying on damage estimates and misrepresented the quality and condition of those parts to its policyholders. Plaintiffs presented evidence, in the form of State Farm's own documents and testimony from past and current State Farm employees, to show that State Farm knew that the non-OEM parts were inferior in terms of fit, quality, function, performance, corrosion resistance, appearance, and safety. These parts were represented to policyholders as "quality replacement parts". There was also evidence that State Farm's guarantee that it would replace non-OEM parts at no cost to the unsatisfied policyholders upon demand was bogus. If the aftermarket part was warranted by the part manufacturer, the policyholder was required to contact the manufacturer for relief. In most cases, these part manufacturers were located outside the United States in Taiwan or another country. If the policyholder demanded replacement of the non-OEM part, a State Farm adjustor was required to investigate the claim, and if it was approved, an OEM replacement part was installed but the cost was charged to the policyholder as an indemnity payment.

II. State Farm's Contentions At Trial

State Farm defended by presenting witnesses who testified that the use of non-OEM parts had been approved in all states in which the class members reside, that non-OEM parts were "equivalent" or "functionally equivalent" to OEM parts, that the use of non-OEM parts did not adversely effect occupant safety, and that non-OEM parts did not reduce the value of the vehicle. State Farm also presented evidence to show that it advised its policyholders of its use of non-OEM parts in the policy, in estimates, and in a pamphlet provided with the estimate. There was also evidence that 95% of State Farm's policyholders renewed their policies. This evidence was offered in an attempt to prove that State Farm insureds were satisfied customers. State Farm also presented as experts those who had practical experience and those with credentials similar to plaintiffs' experts, to counter plaintiffs' opinion witnesses. Thus, there was a classic battle of experts, and the fact finders were required to determine the weight and credibility of these witnesses.

III. The Verdict and Judgment

After many hours of deliberation, the jury returned a verdict on the breach-of-contract claim. The jury found that State Farm failed to perform its obligations under the contract and breached its contract with the plaintiff class. Damages to the plaintiff class were fixed at $243,740,000 in direct damages and $212,440,000 in consequential damages.

The consumer-fraud counts of the complaint were resolved in a bench trial. In its written judgment, the trial court found that State Farm misrepresented, concealed, suppressed, or omitted material facts concerning the non-OEM crash parts with the intent that its policyholders rely upon these deceptions in violation of the CFA. The trial court noted that it concurred with the jury's verdict on the breach-of-contract claim. The court found that plaintiffs had incurred actual damages as a result of State Farm's deceptive practices, but the court did not award actual damages, noting that the jury had awarded identical actual damages in the breach-of-contract case and that plaintiffs could not recover these damages twice. The court awarded the sum of $130 million in disgorgement damages (representing the direct savings State Farm realized from use of non-OEM parts) and imposed a constructive trust on that sum. The court also awarded $600 million in punitive damages. The court granted declaratory relief, holding that State Farm was obligated to pay for crash parts of like kind and quality which restored a vehicle to its preloss condition. The court denied the prayer for injunctive relief, finding that there was an adequate remedy at law. Judgment was entered on the verdicts, but the court retained jurisdiction over the parties and the fund to enforce all provisions of the judgment, to administer the damages awarded, and to consider attorney fees. It is from this judgment that State Farm appeals.

IV. Issues on Appeal

[The following text is nonpublishable under Supreme Court Rule 23.]

As a preliminary matter, we note that the record in this case contains more than 30,000 pages of pleadings and more than 13,000 pages of transcripts of the proceedings. We extended the page limitations of the briefs so that both parties would have an adequate opportunity to address the errors which State Farm identified as prejudicial. We also extended the time for oral argument. Though there may have been other issues that could have been identified, we will address only those issues raised in the appellate briefs.

[The preceding text is nonpublishable under Supreme Court Rule 23.]

There are certain standards that the parties are required to meet when raising any issue on appeal. It is well established that a court of review is entitled to have briefs submitted that are articulate and organized and present cohesive legal argument in conformity with our Supreme Court rules. Schwartz v. Great Central Insurance Co., 188 Ill. App. 3d 264, 268, 544 N.E.2d 131, 133 (1989). A reviewing court is also entitled to have issues clearly defined with pertinent authority cited and coherent arguments presented; arguments inadequately presented on appeal are waived. Spinelli v. Immanuel Lutheran Evangelical Congregation, Inc., 118 Ill. 2d 389, 401, 515 N.E.2d 1222, 1227 (1987). Mere contentions without argument or citation of authority do not merit consideration on appeal (Fuller v. Justice, 117 Ill. App. 3d 933, 942, 453 N.E.2d 1133, 1139 (1983)), nor do statements unsupported by argument or citation of relevant authority. Hutchings v. Bauer, 212 Ill. App. 3d 172, 183, 571 N.E.2d 169, 176 (1991), rev'd on other grounds, 149 Ill. 2d 568, 599 N.E.2d 934 (1992). Contentions supported by some argument but by absolutely no authority do not meet the requirements of Supreme Court Rule 341(e)(7) (155 Ill. 2d R. 341(e)(7)). In re Marriage of Drummond, 156 Ill. App. 3d 672, 684, 509 N.E.2d 707, 716 (1987). We point out these requirements because in the argument portion of the briefs, nearly every issue argued contains multiple subissues consisting of a single sentence or paragraph. These subissues appear as naked assertions that are rarely clothed with citation to the record or to pertinent authority. Often these miniclaims also lack a developed argument. They appear from nowhere and then vanish in a twinkling, never to be heard of again. We will give these matters all the attention they deserve. None!

These rules have not changed in almost a century. "If the questions involved in a case are of sufficient importance to justify asking this court to decide them, they are worthy of careful consideration of counsel presenting them. If the case is not properly presented and the court is not given the benefit of precedents, there is a danger of a decision being rendered that will not be in harmony with the weight of authority. It is the duty of attorneys practicing in this court to present to the court the authorities supporting their views[] and to assist the court in reaching a correct conclusion." Kelley v. Kelley, 317 Ill. 104, 107, 147 N.E. 659 (1925). "Reviewing courts are entitled to have issues clearly defined [and] to be cited pertinent authorities and are not a depository in which an appellant is to dump the entire matter of pleadings, court action, argument[,] and research as it were, upon the court." In re Estate of Kunz, 7 Ill. App. 3d 760, 763, 288 N.E.2d 520, 523 (1972).

[The following text is nonpublishable under Supreme Court Rule 23.]

An objection to evidence must be timely made and must specify the reasons for the objection. People v. Trefonas, 9 Ill. 2d 92, 98, 136 N.E.2d 817, 820 (1956). In order to be timely, the objection must be made at the time the evidence is admitted. Trefonas, 9 Ill. 2d at 98, 136 N.E.2d at 820; Johnson v. Hoover Water Well Service, Inc., 108 Ill. App. 3d 994, 1006, 439 N.E.2d 1284, 1293 (1982). It must designate the particular testimony considered objectionable and point out the objectionable features. Trefonas, 9 Ill. 2d at 98, 136 N.E.2d at 820. An objection to evidence on a specific ground is a waiver of objection on all grounds not specified. Johnson, 108 Ill. App. 3d at 1006, 439 N.E.2d at 1293. "The function of the objection is, first, to signify there is an issue of law, and, secondly, to give notice of the terms of the issue." Trefonas, 9 Ill. 2d at 98, 136 N.E.2d at 820. In addition, the theory upon which a case is tried in the lower court cannot be changed on review, and an issue not presented to or considered by a trial court cannot be raised for the first time on review. Woman's Athletic Club of Chicago v. Hulman, 31 Ill. 2d 449, 202 N.E.2d 528, 530 (1964).

The reasons behind the rules requiring timely and specific objections to be raised during the trial and in the posttrial motion are simple. See Brown v. Decatur Memorial Hospital, 83 Ill. 2d 344, 349-50, 415 N.E.2d 337, 339 (1980). These rules allow the decision maker who is most familiar with the events of the trial, the trial judge, to review his decisions without the pressure of an ongoing trial and to grant a new trial if, on reconsideration, he concludes that his earlier decision was incorrect. Brown, 83 Ill. 2d at 349-50, 415 N.E.2d at 339. The rule requiring the statement of the specific grounds urged as support for the claim of error allows a reviewing court to ascertain from the record whether the trial court has been afforded an adequate opportunity to reassess the allegedly erroneous rulings, and it prevents the litigant from stating mere general objections and subsequently raising on appeal arguments that the trial judge was never given the opportunity to consider. Brown, 83 Ill. 2d at 349-50, 415 N.E.2d at 339. It promotes the accuracy of decision making and eliminates unnecessary appeals.

[The preceding text is nonpublishable under Supreme Court Rule 23.]

During the trial and on appeal, the parties argued at length about whether the evidence at trial established that non-OEM parts were inferior to OEM parts, whether non-OEM parts were categorically inferior, and what other conclusions should be drawn from the evidence presented. It is not our function as a reviewing court to reweigh the evidence. The rule we must apply in considering the evidence is as follows:

"An initial step in analyzing the issue before us is to determine the authority of the jury, trial court, and appellate court[] and their relationship to one another. Unquestionably, it is the province of the jury to resolve conflicts in the evidence, to pass upon the credibility of the witnesses, and to decide what weight should be given to the witnesses' testimony. [Citation.] A trial court cannot reweigh the evidence and set aside a verdict merely because the jury could have drawn different inferences or conclusions[] or because the court feels that other results are more reasonable. [Citation.] Likewise, the appellate court should not usurp the function of the jury and substitute its judgment on questions of fact fairly submitted, tried, and determined from the evidence which did not greatly preponderate either way." Maple v. Gustafson, 151 Ill. 2d 445, 452-53, 603 N.E.2d 508, 511-12 (1992).

We are compelled to view all the evidence and inferences therefrom in the light most favorable to the verdict winner. Quality Granite Construction Co. v. Hurst-Rosche Engineers, Inc., 261 Ill. App. 3d 21, 632 N.E.2d 1139 (1994). Accordingly, that is the view we adopt in considering the questions of fact raised herein.

While State Farm has not properly preserved for review a number of the issues it has raised in its brief, we must remind the parties that the doctrine of waiver is an admonition upon the parties, not a restriction upon the jurisdiction of a reviewing court. Hux v. Raben, 38 Ill. 2d 223, 224, 230 N.E.2d 831, 832 (1967). A reviewing court, in its discretion, may consider issues not properly preserved by the parties, in the exercise of its responsibility to reach a just result and to maintain a sound body of precedent. Hux, 38 Ill. 2d at 225, 230 N.E.2d at 832; Wagner v. City of Chicago, 166 Ill. 2d 144, 148, 651 N.E.2d 1120, 1122 (1995). In this decision, we have pointed out a number of instances where an issue raised on appeal has, in fact, been waived, and then we have proceeded to address many of those issues on the merits. We did so in the interest of thoroughly considering the issues raised in this appeal. Our consideration of the merits did not change the outcome.

A. The Class Certification

[The following text is nonpublishable under Supreme Court Rule 23.]

The class action lawsuit is a litigation tool that allows a representative party to pursue like claims of a large number of people in one action where individual actions may be impracticable. Brooks v. Midas-International Corp., 47 Ill. App. 3d 266, 271, 361 N.E.2d 815, 818 (1977). The class action mechanism is predicated on the inability of the court to entertain the actual appearance of all members of the class and the impracticality of having ...

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