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Friday, 12 January 2007 16:52

Farmers to pay $17 million plus for use of non-OEM parts

Farmers Insurance Group has agreed to pay over $17 million to settle a California class-action suit that claimed the insurer had breached its insurance contracts by requiring the use of certain non-OEM crash parts.  The insurer has also agreed that, for a period of one year, it will adjust claims "as appropriate using only OEM Crash Parts, salvage Crash Parts or CAPA Crash Parts that have not been decertified."

Farmers, which admitted no wrongdoing, has agreed to pay $17 million to the class counsel and $20-40 per part to its insurance customers that are eligible to file a claim. Hoods are compensated at $40, with most other parts falling within the $20 range. The customers are primarily those who had their vehicles fixed with non-OEM parts that were not CAPA certified.

Other settlement relief includes extended warranties on replaced non-OEM parts, training of claims personnel, disclosure concerning the use of non-OEM parts and training on the CAPA compliance process.

The settlement was reached at trial after the close of evidence in a class-action lawsuit brought against Farmers Insurance in 2001 for their use of non-OEM parts.

The case, Lebrilla v. Farmers Group, was brought for the consumers by lead counsel Timothy Blood of Lerach Coughlin Stoia in San Diego. He said the settlement relates to the collision industry as well as those insured.

"The warranty obligations provide the body shop with a way to require Farmers to pay for the replacement of failed crash parts," Blood said.

"When these parts fail, it's not because of the body shop, it's because of the part. If the part fails, Farmers is required to pay to have the defective part replaced. That's what I want body shops to be aware of and understand. If it's a bad part, it's a bad part - it's not the body shop's fault."

Farmers Group is represented by Raoul Kennedy and Jose Allen of Skadden Arps in San Francisco. Allen pointed out that the warranty itself is not an end result of the settlement.

"Farmers has always offered a warranty with respect to non-OEM and the same warranty that applied in the past will continue," Allen said. "All that it will be doing is reiterating that you've got this warranty."

Results of the settlement include the clarification of acceptable parts, which states, "Farmers will issue a bulletin to all claims personnel and Circle of Dependability Shops expressly stating that it may adjust claims as appropriate using only OEM Crash Parts, salvage Crash Parts or CAPA Crash Parts that have not been decertified." This will be in place for the period of one year from the effective date.

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"The purpose under the settlement agreement is to make sure that parts that are certified by CAPA, that never should have been, or are defective - they have to be decertified," said Blood.

In the Second Amended Complaint For Damages And Equitable Relief, a document submitted during the trial, it states that "CAPA's certification program covers less than 3 percent of the imitation parts sold."

"Farmers, under the settlement, is going to continue to be able to use CAPA certified parts in the repair of cars and trucks damaged in an accident, and that is one of the very major aspects of the settlement," Allen said. "I don't know that there's much to say about the settlement beyond that."

Allen said he did not have any objections to the end result of the settlement. He did, however, object to the choice of words used to describe parts.

"They are non-OEM parts. We don't call them imitation parts. That's a word that the plaintiffs' lawyers like to use," Allen said.

Farmers will educate and train the claim specialists and the Circle of Dependability shops on the complaint process as outlined in the settlement.

"Speaking to body shops, the problems they run into (with certain CAPA certified parts) may lead to CAPA decertifying (those) parts. With the settlement, it requires Farmers to make sure that everyone is aware of the complaint process. (Body shops) can use that to make sure parts get decertified, and bring it to the attention of everybody," Blood explained.

The settlement of the case applies to those insured by Farmers Insurance Exchange, Mid-Century Insurance Company or any other affiliated company who have had an accident and had insurance claims adjusted based on the use of certain non-OEM parts between June 15, 1996 and November 1, 2006.

Farmers is the third largest insurer of homes and vehicles in the United States with more than 14 million customers. Allen did not want to speculate as to how much money Farmers will pay out to its customers who file a claim.

"We won't know that number until people submit claim forms. That's going to be happening over the next several months," Allen said.

The settlement will be effective pending a final approval from the court on May 17. A website and toll-free phone number will be established to provide information on the claims process. For information, visit www.lerachlaw.com and click on the link under the "Settlements & Claim Form" heading on the home page.

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