Court Decision in State Farm Case May Limit Reach of Class Action Suits

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State Farm Mutual Automobile Insurance won the reversal of a $1 billion judgment at the Illinois Supreme Court, a victory for business groups seeking to limit class action lawsuits.


The court said 4.7 million claims over State Farm’s use of generic car parts varied too much to be grouped together. The ruling indicates the judges will probably throw out a $10.1 billion award against Altria Group’s Philip Morris USA over cigarette marketing, lawyers and professors said. Altria’s shares rose to a record.


“The court made it crystal clear that individual questions of fact are not to be mowed down by overly broad class action principles,” an attorney with Shook Hardy & Bacon in Washington, Victor Schwartz, said. Shook Hardy represents Altria in other litigation. “If similar principles are applied, it’s difficult to see how the judgment against Altria can be sustained.”


State Farm customers claimed the generic parts used in car repairs were of lower quality than original equipment, violating their insurance policies. An Illinois jury awarded them $456 million for breach of contract in 1999, and the trial judge added $730 million in damages on a fraud claim. An appellate court reduced the verdict to $1.01 billion.


Yesterday’s Illinois Supreme Court ruling “sends a strong signal that class action abuse won’t be tolerated,” a senior vice president of the National Chamber Litigation Center, which represents the U.S. Chamber of Commerce, Robin Conrad, said in a statement.


One of the seven judges didn’t vote and two dissented with parts of the ruling. The election of Lloyd Karmeier, a Republican, to the court in November shifted its balance toward a more probusiness stance, an attorney at Johnson & Bell in Chicago, John Bell, said.


“It’s a bleak day for insureds in Illinois and across the country,” an attorney for the plaintiffs with Much Shelist Freed & Ament in Chicago, Michael Hyman, said. “The court is putting down challenges that will have to be addressed by class actions in the future and that’s troubling.”


Mr. Hyman said plaintiffs are still reviewing the case before deciding their next step. State Farm had argued there was no breach of contract or fraud, and the car parts were the same quality as original equipment. A State Farm spokesman, Phil Supple, didn’t return calls seeking comment.


“On tobacco, I think this tells us the court is not going to bend over backwards to help marginal or weak consumer class action claims,” a professor at Brooklyn Law School, Anthony Sebok, said.


Altria shares jumped as much as 4.8%. The Illinois court is to review the New York-based company’s appeal of a $10.1 billion judgment in a class action suit that accuses the company of deceiving customers into believing its “light” cigarettes were safer. No hearing date has been set.


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