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Allstate, GEICO, Nationwide, and USAA sued over auto parts
After three separtate lawsuits were filed against GEICO, Allstate, and Nationwide claiming the insurance companies breached their auto insurance contracts with policyholders, a fourth suit has been filed, this one against USAA Insurance. The lawsuit, filed on March 12 in Washington's King County Superior Court, alleges that USAA compels auto body shops to use imitation parts in repairs and doesn't disclose the practice to its policyholders.
GEICO and Allstate are being sued for violating Arizona's insurance code, Racketeering Influenced and Corrupt Organization (RICO) laws, and Arizona's consumer fraud act by allegedly forcing auto repair shops to use imitation parts and failing to inform consumers that estimates for repair were based on imitation parts.
Nationwide is being sued in Franklin County Common Pleas Court in Ohio for the same practices. The company has no comment on the suit.
The plaintiffs' lawyers for all four suits, Steve Berman and Steve Mitchell, seek class action status for the cases because they claim the companies' actions constitute a breach of contract with all their customers, whose policies say that repair and restoration of a vehicle's pre-crash condition will be made using parts of "like kind and quality."
"This is much more than a cosmetic issue. Imitation parts may be a serious safety threat," says Mitchell. "Repair shops call these parts 'Taiwan trash' for a good reason they have substandard fit, crash resistance, and mechanical operation. In a word, they are dangerous."
In cases in which USAA, Nationwide, GEICO, and Allstate informed policyholders that imitation parts were used for repair, the companies said that the parts met industry safety standards. According to Berman, that's not the case. "We know that most of these imitation parts fall short of [those] standards. That is a huge issue when it comes to things like crash protection."
Charles Davies, general counsel at GEICO, says that GEICO defends its use of non-Original Equipment Manufacturer (OEM) parts and does not use imitation parts on safety-related items such as steering columns.
Julie Rochman, a spokesperson at the Insurance Institute for Highway Safety, says that based on IIHS crash tests done in the 1980s, very few safety-related dangers could be attributed to the use of non-OEM parts. Rochman also contends that there is little difference between the safety of OEM and non-OEM parts.
Auto insurers face RICO statute
According to attorney Berman, GEICO and Allstate knew of their obligation to pay for quality parts but it deceived policyholders in order to reduce costs and increase profits. "Under Arizona state law, such a repeat misrepresentation for financial gain constitutes racketeering," Berman says.
Nationwide and USAA do not face charges of racketeering, but the complaints filed against the insurers cite fraud and breach of contract.
RICO was originally written to prosecute organized crime members, but has recently been broadened by the Supreme Court to include insurance companies. The Supreme Court ruled in January 1999 that Humana Health Insurance of Nevada could be sued under the RICO statute because it repeatedly misrepresented itself to policyholders. Under RICO, defendants are subject to triple damages if they lose the lawsuit.
All four suits seek reimbursement for class members for the actual cash value of their vehicles and an order that the insurers stop installing imitation parts and stop concealing their alleged illegal practices from their policyholders.
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