Avery v. State Farm Mut. Auto. Ins. Co.

835 N.E.2d 801

216 Ill.2d 100

296 Ill.Dec. 448

Michael AVERY et al., Appellees, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant.

No. 91494.

Supreme Court of Illinois.

August 18, 2005.

Rehearing Denied September 26, 2005.

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Michele Odorizzi, Bradley J. Andreozzi, Allan Erbsen, of Mayer, Brown, Rowe & Maw, William R. Quinlan, of Quinlan & Carroll, Ltd., Marci A. Eisenstein, Aphrodite Kokolis, of Schiff, Hardin & Waite, Gino L. DiVito, of Tabet, DiVito & Rothstein, L.L.C., Chicago, Skadden, Arps, Slate, Meagher & Flom (Wayne W. Whalen, Edward M. Crane, Gregory S. Bailey, Chicago, Sheila L. Birnbaum, Douglas W. Dunham, New York, New York, of counsel), Robert H. Shultz, Jr., of Heyl, Royster, Voelker & Allen, Edwardsville, for appellant.

Michael B. Hyman, William H. London, Melinda J. Morales, of Much, Shelist, Freed, Denenberg, Ament & Rubenstein, P.C., Robert A. Clifford, Robert P. Sheridan, of Clifford Law Offices, Chicago, Patricia Murphy, of Marion, Edward J. Kionka, Carbondale, Elizabeth A. Cabraser, Morris A. Ratner, Scott P. Nealey, of Lieff, Cabraser, Heimann & Bernstein, L.L.P., San Francisco, California, for appellees.

Richard F. Record, Jr., Stephen L. Corn, of Craig & Craig, Mattoon, for amici curiae Department of Insurance of the State of North Carolina et al.

Robert H. King, Jr., Steven C. Coberly, of Greenberg Traurig, P.C., Chicago, for amicus curiae Alliance of American Insurers.

Jeffrey P. Lennard, Richard L. Fenton, Brett J. Hart, of Sonnenschein, Nath & Rosenthal, Chicago, for amicus curiae Allstate Insurance Company.

Brian L. Crowe, Patricia S. Spratt, of Shefsky & Froelich, Ltd., Chicago, Robin S. Conrad, Washington D.C., for amicus curiae Chamber of Commerce of the United States of America.

Iwan, Cray, Huber, Horstman & VanAusdal, L.L.C., Chicago (Elaine S. Vorberg, Michael D. Huber and James K. Horstman, of counsel), for amicus curiae Citizens for a Sound Economy Foundation.

Mitchell A. Orpett, Chicago (Tribler, Orpett & Crone, P.C., of counsel), for amicus curiae J. Lee Covington II, Superintendent of the Ohio Department of Insurance.

John H. Beisner, Marc E. Isserles, of O'Melveny & Myers, L.L.P., Washington, D.C., for amici curiae General Motors Corporation and Ford Motor Company.

J. William Lucco, Joseph R. Brown, Jr., of Lucco, Brown & Mudge, Edwardsville, David P. Gersch, of Arnold & Porter, Washington, D.C., Sheila Carmody, of Snell & Wilmer, Phoenix, Arizona, for amici curiae Government Employees Insurance Company et al.

James R. Thompson, Steven F. Molo, Norman K. Beck, Jon J. Kramer, of Winston & Strawn, Chicago, for amicus curiae Illinois Chamber of Commerce.

Robert N. Enoex, Springfield, for amicus curiae Illinois Department of Insurance.

David E. Bennett, James A. Spizzo, Thomas A. Baker, of Vedder, Price, Kaufman

& Kammholz, Chicago, for amicus curiae Illinois Manufacturers' Association.

Richard Hodyl, Jr., of Williams, Montgomery & John, Ltd., Chicago, for amici curiae National Association of Independent Insurers et al.

John W. Bauer, Kansas City, Missouri, for amicus curiae National Association of Insurance Commissioners.

Richard J. Rappaport, of Ross & Hardies, Chicago, for amici curiae Public Citizen, Inc. and The Center for Auto Safety.

John Lingner, of Kakacek & Lingner, Chicago, Daniel J. Popeo, Richard A. Samp, Washington, D.C., for amicus curiae Washington Legal Foundation.

J. Timothy Eaton, Kevin P. Shea, of Ungaretti & Harris, Chicago, for amici curiae National Conference of Insurance Legislators and The American Legislative Exchange Council.

Dmitry Feofanov, Dixon, F. Paul Bland, Jr., Washington, D.C., for amici curiae Trial Lawyers for Public Justice et al.

Jerome F. Crotty, of Rieck & Crotty, P.C., Chicago, for amici curiae Alliance of Automotive Service Providers National Association et al.

William J. Harte, Ltd., Joseph E. Tighe, P.C., and Sotiras & Mannix, Ltd., Chicago, for amicus curiae Illinois Trial Lawyers Association.

Lawrence S. Fischer, Chicago, Eugene Anderson, New York, New York, of Anderson, Kill & Olick, P.C., Amy Bach, Mill Valley, California, for amicus curiae United Policyholders.

Chief Justice McMORROW delivered the opinion of the court:

Michael Avery and other named plaintiffs brought a class action in the circuit court of Williamson County against defendant, State Farm Mutual Automobile Insurance Company (State Farm). Representing a nearly nationwide class of State Farm policyholders, plaintiffs alleged claims sounding in breach of contract and statutory consumer fraud, in addition to a claim seeking declaratory and injunctive relief.

The circuit court certified the class. The breach of contract claim was tried before a jury, and the remaining claims received a simultaneous bench trial. The jury returned a verdict in favor of plaintiffs on the breach of contract claim, and the circuit court entered judgment in favor of plaintiffs on the consumer fraud claim. With regard to the third count, the circuit court granted declaratory relief but declined to grant injunctive relief. The damages awarded to plaintiffs totaled $1,186,180,000.

The appellate court affirmed the judgment, with one exception. The appellate court reversed a portion of the damages, lowering the total award to $1,056,180,000. 321 Ill.App.3d 269, 254 Ill.Dec. 194, 746 N.E.2d 1242. We allowed State Farm's petition for leave to appeal. 177 Ill.2d R. 315(a).

Plaintiffs' suit centers on certain automobile repair part categories which have been identified in the record and to which we refer throughout our discussion. "Crash parts" refers to automobile components that are used to replace parts damaged in a crash, rather than parts that have failed mechanically. They are primarily sheet metal and plastic parts that are attached to the outer shell of the car. Crash parts consist of two categories. The first category is comprised of new parts made by or on behalf of the automobile's original manufacturer. These parts are commonly referred to as "Original Equipment Manufacturer" parts, or "OEM" crash parts. The second class includes aftermarket parts made by companies not affiliated with original equipment manufacturers. These parts are referred to as "non-OEM" crash parts.¹

A succinct general overview of plaintiffs' theory of the case may be found in "Plaintiff's Memorandum in Support of Application of Illinois Law to the Claims of Class Members Under Illinois Choice of Law Doctrine":

"In this case, plaintiffs have placed at issue the propriety of State Farm's uniform practice of specifying the use of non-OEM crash parts to repair its policyholders' cars in every instance in which such cheaper parts are available. * * * Plaintiffs contend that this policy breaches State Farm's standard contract because it is not designed to restore policyholders' cars to their pre-loss condition by using parts of like kind and quality. Plaintiffs further contend that this practice violates Illinois' consumer law because the practice itself and its economic ramifications constitute a violation of Illinois consumer statutes, which prohibit misrepresentations as to the `standard, quality, or grade' of the goods and services provided under State Farm's policies. Citation. At trial, the Court and jury must resolve the classwide question of whether State Farm, by requiring the uniform use of non-OEM crash parts, and through the course of conduct it designed to conceal the true import of this practice from its policyholders, breached its contractual obligations and committed consumer fraud."

This opinion is divided into two principal sections: "Breach of Contract" and "Consumer Fraud." In a third section, we deal with plaintiffs' claims for declaratory and injunctive relief. These sections are further subdivided, as required by the various arguments and issues, as follows:

I. Breach of Contract

A. Propriety of the Nationwide Contract Class

B. Whether the Verdict May Be Affirmed with Respect to Subclasses

1. The Massachusetts and "Assigned Risk" Policies

2. The "You Agree" Policies

3. The "Like Kind and Quality" Policies

4. Damages

a. Specification Damages

b. Installation Damages

II. Consumer Fraud Act

A. Plaintiffs' Consumer Fraud Claim

1. Plaintiffs' Consumer Fraud Claim May Not Be Based on a Breach of a Promise Contained in Their Insurance Policies

2. This Case Is Not About the Specification of Defective Parts

3. The Representations Which Form the Basis of Plaintiffs' Cause of Action for Consumer Fraud Do Not Include the Statement That Non-OEM Parts Are as Good as OEM Parts

4. Describing a Non-OEM Part as a "Quality Replacement Part" Is Puffing and, Hence, Not Actionable

5. The Guarantee Provided by State Farm Cannot Form a Basis for Plaintiffs' Consumer Fraud Claim

6. The Crux of Plaintiffs' Consumer Fraud Claim Is a Failure by State Farm to Disclose the Categorical Inferiority of Non-OEM Parts During the Claims Process

B. Propriety of the Nationwide Consumer Fraud Class

1. Scope of the Consumer Fraud Act

2. Whether the Consumer Fraud Act Applies to the Transactions at Issue in This Case

C. Propriety of Judgment: Named Plaintiff

1. Burden of Proof

2. The Deceptive Act or Practice

3. Actual Damage

4. Proximate Cause — Actual Deception

D. Other Issues

III. Equitable and Declaratory Relief

We begin with plaintiffs' breach of contract count.

I. Breach of Contract

Plaintiffs' original class action complaint, which was filed in July 1997, was amended several times. The trial, which took place in 1999, was predicated upon plaintiffs' third amended class action complaint. Count I (breach of contract) of the third amended complaint alleged that State Farm breached its "uniform insurance contract" with its policyholders. Plaintiffs alleged that, under the terms of this contract,...