October 5, 1999

 State Farm Is Told to Pay Policyholders $456 Million in Auto-
 Parts Case

 By MATTHEW L. WALD

 WASHINGTON -- An Illinois jury ruled on Monday that State Farm
 breached its contract with its auto policy holders by requiring
 body shops to use lower-priced generic body parts for crash
 repairs, rather than those made by the auto manufacturers. Under
 the verdict, which could have wide impact on the insurance
 business, State Farm must pay $456 million as compensation to
 policy holders who filed about 4.7 million claims.

 A judge is expected to rule soon if State Farm, which is based
 in Bloomington, Ill., committed fraud by requiring such parts.
 The judge, John Speroni, could assess hundreds of millions of
 dollars more in punitive damages and damages for fraud.

 Since State Farm is a mutual company, owned by its policy
 holders, the ruling would eventually mean higher rates. William
 S. Sirrola, a spokesman, said, though, that the company had cash
 on hand for the short-term problem.

 "We carry policy holder surplus to cover disasters," he said.
 "This would be looked at as a disaster, not natural disaster,
 but a disaster."

 The company plans to appeal.

 Don Barrett, a lawyer representing the plaintiffs, said the next
 step would be to sue the Certified Auto Parts Association, along
 with other companies that require the use of substitute parts,
 including Nationwide, Allstate, USAA and Geico.

 The parts association, he said, is "the automotive parts
 equivalent of the Council for Tobacco Research." Their case
 argues that the parts are of inferior quality and the insurance
 companies knew this.

 Insurance experts were divided about the effect of the decision,
 which came in a class-action lawsuit in Marion, Ill. Some
 consumer advocates have been pushing hard for wider use of
 "substitute" parts, as a way to hold down auto repair costs by
 denying the auto makers a monopoly on replacement parts.

 The substitute parts often sell for hundreds of dollars less
 than those offered by auto companies; for example, a recent
 survey by the Alliance of American Insurers found that the
 bumper for a 1996 Ford Explorer costs $370.07 from Ford and $278
 from an independent manufacturer; a replacement hood for a 1995
 Pontiac Grand AM, costs $307 from GM, vs. $154 for the generic
 version.

 But lawyers for the plaintiffs in the class-action suit said
 that the generic parts often did not fit right and reduced the
 appearance, functionality and resale value of a car. "They're
 not made to same standards and specifications," said Elizabeth
 Cabraser, one of the lawyers. "They don't have quality control
 and they're not crash-tested."

 To hold down costs, New York, Massachusetts and Hawaii encourage
 or require the use of such substitute parts when they are
 available. Ms. Cabraser said, though, that the states also
 required that the parts had to be "of like kind and quality,"
 and never were.

 State Farm says it guarantees such parts as long as the policy
 holder owns the car, although some consumers and body shops
 complain that they are made of inferior materials or do not fit
 as well as replacements made by the auto companies themselves.
 Consumer advocates say, though, that even if a consumer is
 paying for auto maker's parts, the auto body shops sometimes use
 the substitute parts and pocket the difference; sometimes they
 do so after promising consumers to inflate the repair estimate
 so a policy holder does not have to pay the deductible, consumer
 advocates say.

 State Farm calls the parts "quality replacement parts," and
 others call them "after-market parts."

 "We consider the verdict a major setback for our policy holders
 and the company, and all consumers," said David A. Hurst, a
 spokesman for State Farm.

 Another backer of generic parts, Clarence Ditlow, the executive
 director of the Center for Auto Safety, said, "If this decision
 stands, the auto companies will be sitting fat and happy,
 getting monopoly prices on crash parts again."

 Ditlow is a founder of the Certified Auto Parts Association, a
 non-profit organization funded in part by the insurance
 companies, that certifies the quality of major replacement parts
 like hoods and fenders. Ditlow said that when his 1987 Geo Prizm
 had an accident in 1994 and needed a new fender, he specified
 that he wanted a part certified by his organization, which cut
 the repair cost by about $100. "It just didn't affect the
 value," he said.

 Last year State Farm, the nation's largest auto insurer, asked
 the Supreme Court to block the suit on the grounds that it would
 amount to letting an Illinois judge assume national authority
 over insurance regulation, a state function, but the court
 refused to intervene. Various state agencies filed briefs in
 support of that argument last year, and some said they would
 probably do so again now.

 The verdict applies to claims filed from July 31, 1987, to Feb.
 23, 1998, and includes $243.7 million for direct damages, even
 if the car was later sold for full book value; the jury it
 awarded another $212.4 million for "installation damages," the
 estimated cost to replace the parts. Plantiffs' lawyers said
 members of the affected class need not do anything, and that
 State Farm would use its records to make payments. But State
 Farm spokesmen said that the company only knew of claims in
 which generic parts had been specified on estimate sheets, not
 where they had actually been installed.

 The fraud portion applies only to claims filed from 1996 onward,
 because of the statute of limitations.

 The plaintiffs' attorneys said they were also seeking an
 injunction against State Farm to forbid the company from
 requiring replacement parts. Hurst said the company was
 reconsidering its policy.

 Copyright 1999 The New York Times Company


 @@

 State Farm Told to Pay Customers Millions Verdict on Using
 Generic Auto Parts Could Raise Rates

 By Warren Brown Washington Post Staff Writer

 Tuesday, October 5, 1999; Page A01

 An Illinois county court yesterday ordered the nation's largest
 auto insurer to pay $456 million to policyholders who, in a
 class-action lawsuit, accused the company of approving the use
 of inferior parts in collision repairs of their cars and trucks.

 The verdict, which State Farm Mutual Automobile Insurance Co.
 said it will appeal, is a major setback for a campaign by both
 insurance companies and some consumer groups to encourage the
 use of generic body parts to hold down repair costs. Later this
 week, the judge in the case plans to rule on whether the company
 deliberately deceived customers, which could significantly
 increase the penalty.

 Insurance company officials said the jury verdict would result
 in higher insurance premiums and have a chilling effect on
 competition in the $9 billion-a-year parts market. Car companies
 and their suppliers still dominate the parts market, but generic
 body parts -- generally sheet-metal parts such as fenders and
 door panels -- now account for about 15 percent of repairs
 covered by all insurers.

 But the plaintiffs in the case argued that the replacement parts
 didn't measure up, leaving them with hoods that didn't close
 properly and other problems. And internal memos from State Farm
 executives disclosed during the trial raised questions about
 whether the parts -- known in the trade as "aftermarket" parts -
 - were the equal of the originals.

 "Their own documents said there was a problem with the parts,"
 said Thomas Hatley, foreman of the 12-member jury in the
 Williamson County Courthouse in Marion, Ill. "We fairly quickly
 came to a conclusion that the parts were not of like kind and
 quality."

 Insurance companies 12 years ago established the Certified
 Automotive Parts Association, now headed by Washington consumer
 advocate Jack Gillis, in an effort to validate the quality of
 generic parts. But earlier this year, Consumer Reports said that
 many of the CAPA-certified parts weren't up to snuff and often
 resulted in substandard repairs.

 The lawsuit was filed on behalf of 4.7 million current and
 former State Farm policyholders -- in every state except
 Tennessee and Arkansas, where similar lawsuits are pending --
 who had cars repaired from July 1987 through February 1998.
 Plaintiffs are seeking $4 billion on their claim that State Farm
 committed fraud in using the generic parts.

 Because Associate Circuit Judge John Speroni certified the
 policyholders as a class, the verdict could both discourage
 insurance companies from promoting the use of generic parts and
 affect some state laws that encourage the use of cheaper parts,
 if policyholders live in those states.

 If the jury verdict isn't increased by Speroni, policyholders
 should expect to receive about $100 each. The exact form of
 payment has not been determined, and appeals could take many
 years.

 State Farm officials said the real issue concerns breaking the
 automakers' dominance over the replacement-parts business and
 getting a better deal for their policyholders.

 "The issue is whether we will be able to continue offering our
 policyholders the best available service at the lowest possible
 prices by using lower-priced quality parts not made by original-
 equipment manufacturers," said State Farm spokesman Bill Sirola.
 "We feel strongly about this, so strongly that we are going to
 appeal" the county jury's verdict and any penalties resulting
 from a fraud ruling by the judge, Sirola said.

 The American Insurance Association, a Washington-based trade
 association representing 370 major property and casualty
 insurers, joined in the criticism of the verdict, calling it "a
 decision that adversely affects competition and could prove
 costly for millions of consumers."

 But plaintiffs' attorney Michael B. Hyman, speaking to reporters
 yesterday in Marion, said the generic parts -- most of which
 were made in Taiwan -- used in State Farm repairs were
 substandard because they had not been adequately rust-proofed,
 crash-tested or tested for other potential defects. "The whole
 industry has to change its practice of putting in these parts,
 which the jury has found to be inferior," Hyman said.

 Officials at the Dallas-based Automotive Service Association,
 which represents 15,000 independent auto-repair shops
 nationwide, said the Illinois ruling should help to educate
 consumers about how parts are chosen in auto repairs. "The
 biggest problem is consumer ignorance," said Bob Redding, the
 association's Washington representative. "Consumers simply don't
 know what kinds of parts are being used, and that puts us in the
 middle of a bad situation."

 Many auto insurers are willing to pay only for generic parts,
 but most consumers believe they are receiving original-equipment
 parts, Redding said. Consumers who discover that their parts are
 from an outside supplier, often because the part fits
 improperly, "often get angry with us," Redding said.

 Redding's association has been lobbying state legislatures
 nationwide to establish a program of "notice and consent," in
 which consumers would be given the right to accept or reject
 non- original parts in the repair of their vehicles.

 A number of insurers, such as the Chubb Group of Insurance Cos.
 in Warren, N.J., already guarantee their policyholders the right
 to use only original parts for repairs.

 The verdict comes as the parts business is restructuring into an
 increasingly competitive business. Globally, major automakers
 have been spinning off, or otherwise divesting themselves of,
 in- house parts operations in a bid to cut costs through open-
 market competition.

 Companies such as Delphi Automotive, once a captive supplier of
 General Motors Corp., must now compete head to head with generic
 and original-equipment suppliers to stay in business. Ford Motor
 Co. is in the process of trying to win the United Auto Workers
 union's backing for a plan to spin off its Visteon Automotive
 group.

 © Copyright 1999 The Washington Post Company


 @@

 10/04/99

 State Farm Policy Holders Get $456M

 By MICHAEL PEARSON= Associated Press Writer=

 MARION, Ill. (AP) _ A jury today ordered the nation's largest
 auto insurer to pay $456 million for allegedly cheating
 customers by ordering body shops to use substandard repair
 parts.

 Lawyers for State Farm policyholders complaining about
 ``aftermarket parts'' had asked for more than $5.4 billion in
 damages in the class-action lawsuit. A decision on parts of the
 suit was still pending.

 The lawsuit, which went to the jury on Wednesday, accused the
 State Farm Mutual Automobile Insurance Co., based in
 Bloomington, of breaching its contract with policyholders to
 restore their cars to their pre-accident condition.

 Jurors decided that claim, while two consumer fraud counts
 accusing State Farm of deceiving customers were to be decided by
 Williamson County Circuit Judge John Speroni. Speroni was
 expected to rule within the next few days.

 Plaintiffs had sought $1.4 billion on the breach of contract
 claim decided today and about $4 billion on the other counts.

 The lawsuit involved parts such as door panels, hoods and
 fenders, modeled on original parts produced by automakers but
 made without benefit of the original specifications. About 15
 percent of all crash-repair parts used last year were
 aftermarket replacements, according to insurance and auto-body
 repair groups.

 Critics claim such parts fail to provide the same fit, finish,
 corrosion protection and, in some cases, safety as the more
 expensive parts made for automakers.

 Industry analysts and some consumer advocates have said a large
 verdict against State Farm could reduce the use of aftermarket
 parts in the auto-repair business and drive up the price of
 crash repairs.

 During trial, State Farm lawyers said the use of aftermarket
 parts saved policyholders more than $233 million in premiums in
 1998.

 The lawsuit combines the potential claims of 4.7 million current
 and former State Farm policyholders.


 @@

 8/9/99 - Trial set challenging insurer's insistence on cheaper
 parts for

 MARION, Ill. (AP) - When Peggy Frey picked up her newly repaired
 Ford Mustang from the body shop recommended by her insurance
 company, she found the hood didn't fit and the headlights were
 loose.

 Frey, of Indian Shores, Fla., spent the next year battling with
 State Farm Insurance Co., contending it forced the shop to use
 substandard replacement parts when repairing her car after an
 accident.

 Next week a jury will begin hearing dozens of complaints like
 Frey's as it considers a class-action lawsuit that could
 fundamentally change the way insurance companies pay for car
 repairs.

 The suit, filed on behalf of 5.5 million current and former
 State Farm auto insurance customers, is the latest chapter in a
 debate over auto parts that has gone on for more than a decade.

 If the plaintiffs prevail, the suit could cost State Farm more
 than $2 billion and force the nation's largest auto insurer to
 drop its policy of insisting on cheaper replacement parts.

 The lawsuit involves door panels, hoods, fenders and other parts
 modeled on original equipment produced by automakers, but made
 without benefit of the original specifications. Known in the
 industry as aftermarket replacements, these parts made up about
 15 percent of all crash-repair parts used last year, according
 to the Inter-Industry Conference on Auto Collision Repair, a
 trade group.

 Plaintiffs contend that State Farm breached its contract with
 customers and violated Illinois consumer fraud laws when it
 required cars be fixed with parts that don't return the vehicles
 to the ``pre-loss condition'' called for in its policies.

 At least 40 other companies have policies requiring or favoring
 the use of aftermarket parts, but only Bloomington-based State
 Farm is named in this lawsuit. Plaintiff's attorney Don Barrett
 said State Farm was targeted because it is the industry leader
 and because of its policy requiring customers to pay more if
 they want original equipment parts.

 The only way State Farm policyholders can be assured of getting
 original equipment parts is to pay the extra cost themselves -
 an average of $100 to $150 per repair job, plaintiffs contend.

 State Farm says aftermarket parts are just as good as the others
 and save customers money.

 Using such parts ``allows for competition in the crash part
 replacement market and keeps the costs consumers pay through
 insurance for auto repairs lower,'' spokesman Bill Sirola said.

 Until Frey was involved in an accident with a truck, she had
 been restoring her 1988 Mustang in hopes of selling it to a
 collector.

 Now the car ``looks like a reject,'' she said.

 State Farm, which insures one of every five cars in the United
 States, tells body shops to use aftermarket parts if available.
 About 20 percent of the company's repairs use such parts, the
 company said.

 A February Consumer Reports evaluation of aftermarket parts
 found they typically take longer to install, often do not fit as
 well and are more rust-prone. Consumers Union, which publishes
 Consumer Reports, urged the Federal Trade Commission to require
 consumer consent for use of such parts and CU also suggested
 establishing safety standards for replacement parts.

 Critics also charge some parts can lead to lower resale values
 and higher crash repair bills in the future. The Consumer
 Reports study said aftermarket bumpers performed miserably - in
 a 5-mph crash involving a Ford bumper, damages totaled $235,
 compared to $1,320 for an aftermarket bumper.

 Sirola said State Farm does not use aftermarket bumpers because
 they are not approved by the Certified Automotive Parts
 Association, an insurance-industry organization that sets
 standards for aftermarket parts.

 But CAPA-approved parts have also been criticized. Last year,
 the Automotive Service Association, a trade group of nearly
 13,000 body shops, withdrew its representative from CAPA's
 board, saying CAPA had done too little to improve the quality of
 replacement parts.

 CAPA executive director Jack Gillis did not return telephone
 calls seeking comment. In 1990, State Farm paid $100,000 to
 Illinois policyholders to settle a suit over similar
 allegations. The company also agreed in a 1995 San Diego case to
 pay $3.5 million toward parts testing and give $35 refunds to
 affected policyholders.


 @@

 Friday, October 29, 1999

 State Farm agents ask for congressional inquiry

 WASHINGTON (AP) -- Thirty-nine current and former State Farm
 agents appealed to Congress Friday to investigate the insurance
 giant, claiming the company has abused policyholders and agents.

 The Bloomington, Ill.-based company called the complaints ``wild
 accusations,'' mostly made by agents involved in a lawsuit
 against the company.

 A federal judge in California recently issued a summary judgment
 in favor of State Farm's right to institute various programs and
 procedures to recover from losses from Hurricane Andrew and the
 Northridge earthquake. Agents complained the measures were
 unfair to policyholders and are appealing the ruling.

 ``These wild accusations are hurtful and are an outright slap in
 the face,'' said Harold Gray, State Farm's regional vice
 president for the area that includes Washington, D.C.

 The company, in a statement, said the news conference called by
 the agents was ``a sad distraction caused by a few dozen people
 - - most of them disgruntled former agents with a litigation-
 inspired motive.''

 Pia Pialorsi, a spokeswoman for the Senate Commerce Committee,
 where the letter was sent, said officials there had not yet seen
 the letter but ``it is something the committee would look
 into.''

 The agents complained that the company has a history of fraud
 and deception.

 ``The notion of State Farm as an honest, neighborly company no
 longer exists,'' said a letter from the agents to Sen. John
 McCain, R-Ariz., chairman of the Commerce Committee. ``The
 current management of State Farm has, instead, repeatedly abused
 the policyholders and its independent agents for too long in
 order to gain unwarranted financial advantage for itself.''

 The agents noted in the letter that the company is involved in
 numerous lawsuits. A judge this month awarded State Farm auto
 insurance customers $1.2 billion because the insurer used
 generic replacement parts in auto body repairs. Company
 officials maintain that State Farm abides by regulations on use
 of such parts in every state where it does business.


 @@

 October 9, 1999

 State Farm damages swell to $1.2 billion A judge said generic
 parts were fraudulently used. He added $730 million to an
 earlier jury award.

 By Michael Pearson ASSOCIATED PRESS

 MARION, Ill. - A damage award to State Farm auto-insurance
 customers swelled to nearly $1.2 billion yesterday after a judge
 ruled that the nation's largest auto insurer committed fraud by
 its use of generic replacement parts in auto-body repairs.

 Yesterday's $730 million award of actual and punitive damages
 came on top of a jury's $456 million verdict Monday in the same
 class-action lawsuit. The initial award was already believed to
 be the largest ever against an insurer.

 At issue is the use of "aftermarket" auto parts - modeled on
 those made by the manufacturer but made without access to
 factory specifications - to repair the cars of State Farm
 policyholders.

 Critics say aftermarket parts are not as good as those made for
 automakers. The lawsuit accused State Farm executives of
 concealing that information while flooding customers with
 brochures promoting the parts as a high-quality, low-cost
 alternative.

 The jury's award to 4.7 million State Farm policyholders was
 based on a claim that the insurer breached its contract with
 customers by failing to restore their cars to their pre-accident
 condition.

 Yesterday, Judge John Speroni of Williamson County Circuit Court
 ruled separately that State Farm violated Illinois consumer
 fraud law by using substandard parts and concealing that fact
 from customers.

 Current and former policyholders who could have claims against
 the company would get an average of $100 each under the breach-
 of-contract judgment. It was unclear how many plaintiffs are
 affected by the consumer fraud judgment, or what their average
 share would be.

 State Farm's chairman and CEO, Edward B. Rust Jr., promised an
 appeal of both verdicts and said the company was "astonished" by
 yesterday's decision.

 Rust said the consumer-fraud finding was particularly troubling,
 declaring that State Farm abides by regulations on use of
 aftermarket parts in every state where it does business.

 "Now it's been decided that by abiding by those regulations we
 have violated the law," he said at a news conference at the
 company's headquarters in Bloomington, Ill. "That just doesn't
 make sense."

 The award approved by Speroni is $130 million in actual damages
 and $600 million in punitive damages. The plaintiffs had sought
 nearly $4 billion in actual and punitive damages, but their
 attorneys said they were satisfied with the decision.

 "Hopefully we have State Farm's attention," said Trish
 Littleton, an attorney for the plaintiffs.

 Industry analysts said the verdicts could increase insurance
 premiums and the cost of auto-body repairs if allowed to stand.

 The insurance industry offered scathing criticism of the ruling.

 "I think this is not a good day for anybody but a handful of
 plaintiff lawyers and major stockholders in the three major car
 companies," said Kirk Hansen, director of claims for the
 Alliance of American Insurers, a trade association.

 The judge said State Farm violated its trust with policyholders
 by deliberately adopting a "misleading term" - "quality
 replacement parts" - to refer to aftermarket parts.

 But he declined to issue an injunction sought by the plaintiffs
 to order State Farm to better notify customers of the use of
 aftermarket parts, saying they could bring a lawsuit if the
 company continues to violate the law.

 Much of the plaintiffs' case against State Farm centered on
 internal memos questioning the parts' quality.

 According to materials provided to State Farm policyholders,
 aftermarket parts used by the company are certified by an
 independent testing agency, meet high-quality standards, and
 meet the company's contractual obligation to restore a car to
 its pre- accident condition using parts of "like kind and
 quality."

 But in a 1997 memo introduced as evidence, a State Farm
 executive wrote: "We may well say it is like kind and quality,
 but the bottom line is that it is not the same."

 ©1999 Philadelphia Newspapers Inc.


 @@

 December 21, 1999

 State Farm Appeals $1.2B Judgment

 MARION, Ill. (AP) -- State Farm insurance company is appealing a
 judgment that would force it to pay $1.2 billion to policy
 holders who claim they had no choice but to repair their cars
 with so-called ``aftermarket'' auto-body parts.

 In October, a judge and jury found that the parts were
 substandard following a class-action lawsuit filed on behalf of
 as many as 4.7 million policy holders with claims dating as far
 back as July 1987.

 The appeal was filed Friday in Williamson County Circuit Court
 and will be forwarded to the Illinois Appellate Court in Mount
 Vernon within 60 days, court officials said yesterday.

 Among other things, State Farm's appeal claims none of the
 plaintiffs named in the lawsuit proved they were injured in cars
 repaired with generic parts, according to State Farm spokesman
 Dave Hurst.

 ``The plaintiffs' attorneys also said they would prove that all
 generic parts are inferior to brand-name parts and they failed
 to do so,'' Hurst said Monday.

 He said the appeal also cites the company's ``customer
 satisfaction'' guarantee, which would have allowed the
 plaintiffs to return parts they were not happy with.

 ``If a generic part is put on the car and after that they have a
 problem with it, then they can come to us and we will either
 repair or replace it,'' Hurst said.

 ``Aftermarket'' repair parts include hoods, fenders and other
 body parts modeled on manufacturers' originals but made without
 access to factory specifications. Critics say the parts fail to
 deliver the same level of fit, finish, corrosion resistance and
 - - in some cases -- safety, as original parts.

 Patricia Littleton, an attorney for the plaintiffs, said she was
 not surprised by the appeal. But she said several courts --
 including the Illinois Supreme Court and U.S. Supreme Court --
 have already ruled on the matters raised in State Farm's appeal.

 ``There's really nothing here that the courts have not already
 seen, except for the punitive award itself,'' Littleton said
 today. She added that an agreement also was reached Friday to
 set aside the $1.2 billion award in a court-controlled fund and
 to add 9 percent interest over the length of the appeal, which
 is expected to take at least 18 months.

 A Williamson County jury awarded $456 million in the breach-of-
 contract claim. The judge who oversaw the case added an
 additional $730 million after finding the company had defrauded
 consumers by concealing problems with the parts.

 State Farm Mutual Automobile Insurance Co. is the fifth-largest
 insurer in the country, with $24.2 billion in assets.

 Other insurers, including Allstate, Geico, Nationwide, USAA,
 Progressive, Metropolitan and Farmers Group of Insurance
 Companies, also have been sued in similar cases.

 Hurst said there also was evidence disallowed in the original
 trial that State Farm attorneys felt they should have been able
 to present. That included State Farm's assertion that the use of
 generic parts benefitted consumers by forcing auto makers to
 lower the cost of brand-name parts.

 State Farm lawyers also contend they should have been allowed to
 present evidence that savings resulting from the use of generic
 parts were passed on to policy holders, Hurst said.

 In the past two years, he said State Farm has returned $1.5
 billion worth of dividends to its policy holders and has reduced
 premiums by $2.5 billion.


 @@

 Cutting Claims With Fraud? Records Sealed in Major Insurer's
 Case

 By Edward Walsh Washington Post Staff Writer

 Sunday, July 4, 1999; Page A01

 The nation's largest automobile insurer has settled several
 lawsuits over the past year that allege the company used
 fraudulent medical reports by outside firms to slash or deny
 insurance claims submitted by people injured in car accidents.
 Now, three consumer groups have gone into federal court in
 Oregon seeking to unseal the records of one of the cases,
 arguing that it holds clues to what could be a widespread
 practice within the industry.

 The case, in U.S. District Court in Eugene, Ore., involves the
 settlement of a lawsuit filed by Debbie Foltz, an Oregon woman,
 against State Farm Mutual Automobile Insurance Inc. After her
 son was injured in an auto accident, Foltz alleged that State
 Farm sent her medical claim to a supposedly independent outside
 firm for review, knowing that the firm would return a phony
 medical analysis that said State Farm should deny or reduce the
 claim.

 According to Foltz's lawyer and others who have represented
 plaintiffs in lawsuits against auto insurers, the Foltz case,
 which began in 1994, is but a small piece of a larger pattern.
 The use of independent, outside firms to review medical claims
 is extremely common in the insurance industry, and is even
 mandated in two states. The plaintiffs' lawyers charge that, in
 an effort to keep down costs, insurance companies are
 systematically using dubious reports from some such firms as a
 pretext to cut their payments for medical treatment.

 Last year, a jury in Idaho found State Farm did exactly that in
 one case. A few months later, the insurer settled with Foltz and
 several other policyholders who had made similar allegations.

 But the details of the Foltz case and others that were settled
 may never be known. A key provision of the settlement, insisted
 upon by State Farm, was that U.S. District Judge Michael R.
 Hogan seal virtually the entire case record, an apparently
 voluminous file containing four years of pretrial skirmishing by
 lawyers for the two sides. Lawyers involved in the case are
 precluded from discussing it or identifying the related cases
 that were settled at the same time. The records in those cases
 are also believed to be sealed.

 The secrecy surrounding the Foltz settlement, and the insurance
 industry practices that it may shroud, is the focus of the new
 legal action by the consumer groups and the Washington-based
 Trial Lawyers for Public Justice Foundation. The groups are
 attempting to persuade Hogan to unseal the court records in an
 effort to shed light on a relatively new practice by the
 insurance industry that plaintiffs' lawyers say is saving
 insurance giants like State Farm millions of dollars a year at
 the expense of their policyholders.

 "Consumers cannot fight what they do not know about," said Linda
 Sherry of Consumer Action, one of the groups that is attempting
 to intervene in the case.

 At the heart of the Foltz case and several others against major
 insurance companies is a process known as "utilization review"
 or "paper review." It involves the review of insurance claims by
 outside companies that employ physicians and other medical
 experts to determine whether medical treatments were necessary
 and the charges reasonable, the standard set in law. Much of the
 analysis is done by computer, matching the claims submitted to
 an insurance company against stored information on past
 treatments and charges for the same condition.

 But critics charge that some insurance companies, which began
 using utilization review about 10 years ago in an attempt to
 root out claims for unnecessary medical treatments and inflated
 charges, have entered an alliance with unscrupulous outside
 firms that promise they will reduce insurers' costs by
 generating reports that are all but guaranteed to recommend
 denial or slashing of claims.

 One such case that reached trial was in Idaho, where in 1994
 Cindy Robinson sued State Farm over a three-year delay in the
 payment of medical claims stemming from an automobile accident.
 When the trial ended last year, the jury awarded Robinson $2,500
 in damages under her policy, $100,000 in additional damages for
 intentional infliction of emotional distress and $9.5 million in
 punitive damages.

 In a blistering opinion last August, Idaho District Judge D.
 Duff McKee upheld the jury verdict and the amount of damages.
 Reviewing the testimony in the case, McKee wrote that "the
 evidence was overwhelming that the utilization review company
 selected by the claim examiner was a completely bogus operation.
 The company did not objectively review medical records but
 rather prepared 'cookie-cutter' reports of stock phrases,
 assembled on a computer, supporting the denial of claims by
 insurance companies. The insured's medical records were not
 examined and reports were not prepared by doctors or even
 reviewed by doctors."

 McKee said that State Farm's management knew that the reports it
 was receiving from outside utilization review companies were
 false but condoned the practice because it was "leading to
 reduced claim expenses."

 "The defendant's conduct in this case was outrageous,
 intentional, harmful and an extreme deviation from reasonable
 conduct," McKee wrote. "The practice of manufacturing evidence
 to use in defeating a claim being made by the insurance
 company's own insured is reprehensible."

 The utilization review firm that produced the reports in
 Robinson's case was Medical Claims Review Services (MCRS), which
 was based in Bethesda and is now apparently defunct. Ten years
 ago, the company's president, Ronald E. Gots, wrote an article
 in an insurance industry trade publication urging the industry
 to turn to utilization review as a way to combat what he
 described as the "vast economic interests" that were constantly
 pressing for "exaggerated medical losses."

 Gots, a physician who now heads two other companies in
 Rockville, did not respond to messages left at his office.

 State Farm, which has 36.7 million auto insurance clients, is
 appealing the Robinson verdict. Officials at the company's
 Bloomington, Ill., headquarters said they could not comment on
 any of the cases or the general subject of utilization review.
 "Anything we say about this topic could come back to haunt us in
 discovery in some case involving this," said Dave Hurst, a State
 Farm spokesman.

 But the cadre of plaintiffs' lawyers who daily do battle with
 the insurance industry in courtrooms and law offices across the
 country are more than eager to talk about the topic. Rick
 Friedman, an Anchorage lawyer who represented Robinson, said
 that during the case he obtained 79 MCRS reports on medical
 claims in Idaho and Montana and that every one said either that
 the claimant was not injured or that the injury was not caused
 by the accident that led to the claim.

 "These are supposed to be independent reviews of medical
 records," Friedman said. "At the trial, a former State Farm
 adjuster said they get these reports, send them to the insured
 and tell them this is what the independent review concluded. She
 said most people just give up at that point. Some will call back
 and she said she was trained to say we have lawyers to fight
 this. She said then everybody gives up."

 "It's all over the country, these phony medical review
 services," said Daniel J. Gatti, a personal injury lawyer who
 represented Foltz. "They have a computer program that says all
 soft tissue injuries heal in six months. To put everybody in the
 same group and use a computer program to say this is what they
 get is expletive. We think it's fraud."

 Another person who will talk about this system is James Mathis,
 a former State Farm supervisor who sued the company in 1997 for
 wrongful discharge from his job in Washington state three years
 earlier. Last year, a federal judge issued a summary judgment
 against Mathis in the case. He is appealing.

 Mathis said that when he was in charge of processing medical
 claims by State Farm policyholders in Washington state the
 insurer's position was "you don't use an outside utilization
 company that did not provide you with at least a 20 percent
 reduction in the billing. Otherwise it would not be cost
 effective."

 Mathis said one company that he considered "too aggressive" in
 cutting medical claims was Comprehensive Medical Review (CMR),
 which is headquartered in San Diego and is headed by William J.
 Marvin, a former chairman of the San Diego County Republican
 Party. CMR provided the medical reports in the Foltz case.

 "CMR had a mind-set. They were going to prove to State Farm that
 they were a profit machine," said Mathis, who gave testimony in
 the Robinson and Foltz cases. "They were going to cut every
 bill."

 Attempts to reach Marvin by phone were unsuccessful.

 David Snyder, assistant general counsel of the American
 Insurance Association, a trade association of property and
 casualty insurers, said that during the 1990s there has been
 "tremendous pressure on insurers to reduce expenses and
 premiums. One way a number of insurers have responded is to more
 closely review medical bills to make sure they are 'reasonable
 and necessary,' which is the standard."

 Snyder said this was particularly important because in some
 states the amount of medical charges set the parameters for the
 amount of awards for "pain and suffering" in lawsuits stemming
 from automobile accidents. "The higher you can drive the medical
 bills the greater the litigation value of the case," he said.
 "That's why insurers need to control medical costs, because
 otherwise this can greatly increase the cost of insurance for
 everybody."

 Snyder added that the utilization review system is one factor
 behind a trend toward stable or lower auto insurance premiums
 and is considered so important in Pennsylvania and New Jersey --
 two historically high-cost insurance states -- that such reviews
 are mandated by law.

 Friedman, Robinson's lawyer, said, "Most people would agree that
 there is a place for paper review in handling insurance claims,
 but like any tool it can be misused." Speaking of the two
 companies that reviewed the Foltz and Robinson claims, he added,
 "I don't think that you would find that these are two bad apples
 out of a healthy barrel, but that half the barrel is rotten.
 What's going on, in my opinion, is the insurance industry is
 waging an undeclared war against American consumers. They know
 exactly what they are doing."

 "The insurance industry is making more and more use of
 utilization firms," said Matthew Whitman, an Oregon lawyer who
 is working with the consumer groups. "It's an out for the
 insurance company."

 Whitman and other lawyers for the consumer groups argue that the
 sealing of records in the cases that have been settled makes it
 difficult to determine if there is widespread abuse in the
 industry and unnecessarily shields companies from public
 accountability. They also charge that the extent of secrecy in
 the Foltz case is virtually unprecedented, involving not only
 the court record but also the very existence of the case itself.

 According to Whitman, when he visited the federal courthouse in
 Eugene last April, the court clerk told him that Foltz v. State
 Farm did not exist because it did not show up in the court's
 internal computer system. A physical search later located the
 thin case file that is public. But Whitman said the file
 contained references to about 450 motions and other items that
 have been sealed.

 Sarah Posner, a staff attorney for Trial Lawyers for Public
 Justice, said that as recently as last week an attempt to locate
 the case through a nationwide computer system that lawyers
 routinely use came up blank.

 "Inevitably, this favors big corporations such as insurance
 companies and other defendants," Whitman said of the system that
 enables companies to demand silence in exchange for large
 monetary settlements. "Debbie Foltz cannot defend the rights of
 everyone to access to the courts. At some point the money gets
 too big."

 © Copyright 1999 The Washington Post Company


 @@

 http://www.latimes.com/news/state/reports/quack/lat_quac
 k000613.htm

 Reports on Quake Claims Made Public Insurance: Confidential
 records released by state Senate leaders show 20th Century,
 State Farm and Allstate mishandled hundreds of cases.

 By VIRGINIA ELLIS, Times Staff Writer

 SACRAMENTO--State Senate leaders Monday released confidential
 state reports showing that three of the nation's largest
 insurance companies--20th Century, State Farm and Allstate--
 mishandled hundreds of claims following the Northridge
 earthquake.

 Sen. Martha Escutia (D-Whittier) said she was taking the unusual
 step of disclosing confidential documents because it was the
 only way to make public how companies had treated their
 policyholders after the 1994 disaster. Escutia would not reveal
 where she obtained the documents.

 Republican state Insurance Commissioner Chuck Quackenbush, who
 commissioned the reports, has insisted they are secret. But in
 his dealings with insurance companies, he threatened to make the
 studies public if the companies did not agree to settlements
 requiring millions of dollars in payments to nonprofit
 foundations.

 Senate President Pro Tem John Burton (D-San Francisco), who
 supported Escutia's decision to go public with the information,
 said the reports clearly showed that insurers had "complicity"
 in the scandal enveloping Quackenbush.

 "This is fairly damning stuff," Burton said after the hearing.
 "It indicates that there was a pattern and practice of bad faith
 and deception on the part of major insurance carriers who may or
 may not have been patrons of his reelection."

 The foundations, now under investigation by two legislative
 committees and Atty. Gen. Bill Lockyer, used the settlement
 money to finance ads featuring the commissioner, conduct
 political polling and make contributions to organizations
 associated with him. None of the money was spent on earthquake
 research, as the companies had been promised by Quackenbush.

 As a result, both Republican and Democratic lawmakers have said
 pressure is mounting for Quackenbush either to resign or face
 impeachment. "Should Quackenbush step down? I think he should, I
 really do," state Sen. Cathie Wright (R-Simi Valley) said
 Monday.

 The decision to release the state claims examinations came under
 immediate fire from angry insurance company officials, who
 accused the senators of an "egregious act" that violates one of
 the very laws the Legislature passed. Under California law, the
 surveys, called market conduct examinations, are confidential
 unless the commissioner chooses to make them public.

 "Sen. Escutia has placed herself above the law today while at
 the same time criticizing others in these hearings as placing
 themselves above the law," said Jerry Davies, a spokesman for
 the Personal Insurance Federation, a trade group that represents
 homeowner, automobile and earthquake carriers.

 James Mattesich, an attorney for State Farm Insurance, said
 Escutia had kept her intentions to release the reports quiet so
 that insurers were precluded from seeking court action to stop
 the disclosure.

 Escutia said she believes her rights as a lawmaker to obtain
 information from agencies the Legislature oversees supersede
 "any confidentiality statute."

 "Our job is to find out whether or not insurers committed large-
 scale violations of claims handling laws . . . after Northridge
 and whether . . . they were subjected to appropriate
 disciplinary action," she said. "Without those exam reports, it
 is literally impossible for this body to do its job."

 Escutia said now that she has seen the exams, it is clear
 Quackenbush was not truthful when he described them as showing
 mostly technical violations. Nor, she said, had the
 contributions to the foundations been adequate punishment for
 the claims handling violations uncovered by examiners.

 The surveys, reported in The Times two months ago, concluded
 that 20th Century, State Farm and Allstate had repeatedly low-
 balled claims, failed to inform policyholders of their benefits
 and forced many claimants to sue to get full payment.

 An analysis of the reports by Douglas Heller of the Foundations
 for Taxpayer and Consumer Rights found that State Farm failed to
 properly explain benefits or misled policyholders in 37% of the
 825 claim files that were reviewed in the report. In the case of
 20th Century, he said the exam showed that policyholders were
 low- balled in 32% of the 432 files examined.

 Allstate improperly deducted the cost of wear and tear on
 possessions, he said, in 16% of the 808 files that were
 scrutinized.

 In testimony before the Assembly Insurance Committee,
 Quackenbush's deputies have said they ordered the examinations
 after a flood of complaints from policyholders. Although
 companies paid more than $16 billion in claims, auditors
 conducted their examination by reviewing only a sampling from
 each insurer.

 William Sirola, a State Farm official, insisted the reports gave
 an unfair picture because the settlements stopped them from
 being completed. He said in their final form they would have
 included the companies' reaction to each finding. He said State
 Farm officials, for example, believe they can refute each of the
 conclusions reached by examiners.

 Copyright 2000 Los Angeles Times


 @@

 June 18, 2000

 Scandal Involving Earthquake Victims Hits California Insurance
 Commissioner's Office

 By B. DRUMMOND AYRES JR.

 SACRAMENTO, June 17 -- The office of California's insurance
 commissioner has been hit by a scandal that threatens to cost
 him his job and the tottering California Republican Party some
 of its hopes for rejuvenation in the 2000 election.

 The commissioner, Charles Quackenbush, one of only two
 Republicans who hold statewide office, is fighting accusations
 that he allowed half a dozen insurance companies to shortchange
 earthquake victims, and that in return the companies financed
 nonprofit foundations that he set up to funnel political slush
 money.

 Mr. Quackenbush, who has talked of running for governor or the
 United States Senate, denies the accusations, saying that, at
 worst, he is guilty of only careless administrative oversight.

 "It's a witch hunt," he said the other day.

 The insurance companies also deny any wrongdoing.

 But committees of both houses of the California Legislature are
 investigating, as is the California attorney general, Bill
 Lockyer. With each new revelation, and each new demand for Mr.
 Quackenbush's resignation or impeachment or trial on criminal
 charges, Republican officials wonder whether the 2000 election
 could turn out to be a worse disaster than the 1998 election.

 In 1998, Democrats took back the governor's office, gained
 control of both houses of the State Legislature and left
 Republicans holding only a pair of cabinet-level offices,
 insurance commissioner and secretary of state.

 "We surely don't need a scandal at this point," said Senator
 James L. Brulte, the leader of the Senate Republican caucus and
 perhaps the most powerful Republican in the state.

 Specifically, Mr. Quackenbush is accused of striking a
 sweetheart deal with insurance companies in which he agreed not
 to fine them $3 billion for shortchanging claimants after the
 1994 Los Angeles earthquake and they agreed, in turn, to make
 $12.8 million in tax-deductible contributions to foundations
 that he set up to help quake victims -- foundations, it is said,
 that he then used to funnel money to friends and into schemes to
 advance his political career.

 In one instance, the legislative committees have been told,
 $263,000 in foundation money was given to a football camp
 attended by the Quackenbush children and $500,000 was given to
 the Greater Sacramento Urban League, whose board includes Mr.
 Quackenbush.

 In another instance, according to other testimony, $400,000 in
 foundation money was used to pay Mr. Quackenbush's longtime
 political advisory team for help in establishing the
 foundations, and then, at the team's recommendation, $100,000 in
 foundation money was used to pay for a poll regarding Mr.
 Quackenbush's political popularity, followed by a $3 million
 payment for a television campaign on earthquake preparedness
 that prominently featured Mr. Quackenbush.

 Mr. Quackenbush told one investigative committee that he was
 "mortified" by the "perception" of any wrongdoing by the
 foundations. He faulted the officials to whom he said he had
 delegated responsibility to run the foundations.

 "We're obviously going to have to try a different way," he
 conceded.

 The committee chairman, Assemblyman Jack Scott, said, "They seem
 clearly out of control."

 Officials for the insurance companies, among them Allstate,
 Farmers, State Farm and 20th Century, insist they never
 underpaid any of the 600,000 victims of the 1994 quake, one of
 the costliest disasters to strike this country and one that has
 cost the companies $16 billion so far. Still, the companies say
 it was far less painful to finance the Quackenbush foundations
 than to fight off the commissioner's threat to take $3 billion
 more in fines.

 To make sure the companies did not balk at his offer, some
 officials say, Mr. Quackenbush put up a display of the kinds of
 adverse news articles they might face should they be fined.

 As for how foundation money was spent, the companies insist they
 were as shocked as anyone to find out.

 "Tackling drills were not the kind of shaking we expected the
 money to be spent on," Steve Patterson, a State Farm lawyer,
 told one legislative committee.

 One of the most powerful and outspoken Democrats in the
 Legislature, John Burton, the president pro tem of the Senate,
 said: "Don't be fooled. They were all in it together."

 When the scandal broke several months ago, Republican leaders
 kept quiet in hopes of keeping the party from being tied to it.
 But over the last 10 days, as more and more details and
 accusations have emerged, especially charges that Mr.
 Quackenbush was closely involved in running the foundations day
 to day, not just in overseeing them generally, party leaders
 have begun to speak out.

 A number have joined the rising chorus of Democrats demanding
 that Mr. Quackenbush resign and a few have even sided with the
 smaller chorus of Democrats who are talking of an impeachment
 inquiry if Mr. Quackenbush does not resign.

 Last week, after hearing testimony that forged checks passed
 through one foundation and that officials of another created
 minutes for meetings that never took place, Assemblyman Tom
 McClintock, a Republican from the area hit by the 1994 quake,
 said, "The committee is now in receipt of sufficient evidence to
 warrant a formal impeachment inquiry."

 A poll released on Thursday by the Field Institute, one of the
 state's leading polling organizations, found Californians
 favoring Mr. Quackenbush's resignation or impeachment by roughly
 two to one.

 The legislative hearings resume on June 26, with Mr. Quackenbush
 scheduled to testify.

 Copyright 2000 The New York Times Company


 @@

 July 25, 2000

 An Insurance Investigation Concentrates on State Farm

 By JOSEPH B. TREASTER

 he National Association of Insurance Commissioners said
 yesterday that it had begun investigating reports that State
 Farm, the largest auto insurer, improperly denied claims for
 treatment of injuries in accidents nationwide.

 George Nichols III, the president of the association, which
 represents insurance regulators in all 50 states, said it was
 not immediately clear how widespread the practice might have
 been but that investigators intended to study claims for
 treatment of injuries in all the states.

 Mr. Nichols said the investigation would initially concentrate
 on companies known as medical review utilization organizations
 that are intended to provide independent judgments on whether
 claims for injuries should be paid or rejected. But he said the
 precise scope of the investigation would be worked out by a core
 group of regulators including those from Illinois, where State
 Farm is based; Maryland; Colorado; and Oregon.

 State Farm acknowledged that some claims might have been
 improperly handled and said that it welcomed the inquiry. Under
 insurance regulatory practices, State Farm, as the subject of an
 inquiry, will have to pay for the work of the investigators.

 Investigations of this type, known formally as multistate market
 conduct exams, have been rare, but they have resulted in fines
 of millions of dollars for some companies.

 In one of the biggest recent cases, the Prudential Insurance
 Company of America, one of the largest life insurers, was fined
 $35 million in 1996 for misrepresenting the costs and terms of
 coverage to millions of customers. It later paid more than $1
 billion to settle class-action suits arising from the
 investigation. Just last year, American Bankers Insurance was
 fined $15 million for misleading customers and sometimes
 refusing to pay claims for insurance on such things as credit
 card balances, furniture and appliances.

 Last Tuesday, Deborah Senn, the insurance commissioner in
 Washington State, ordered her own investigation of State Farm
 and five other insurers on similar grounds. The other companies
 are the Safeco Insurance Company, Farmers Insurance Company of
 Washington, Pemco Insurance Company, Mutual of Enumclaw and the
 Allstate Property and Casualty Company.

 Critics say some of the medical companies working with State
 Farm and other insurers employ reviewers who lack medical
 training. Other critics say these organizations are sham
 operations designed to help insurance companies reject claims
 and keep down costs.

 A State Farm spokesman, Philip Supple, said the insurer sent
 less than 5 percent of its injury claims to these companies and
 paid the others "without any review at all."

 He said that State Farm had begun its own investigation last May
 after State Farm employees began to question information that
 was being provided and some customers filed suits. State Farm
 contracts with about 75 of these companies, he said. In
 reviewing 4,900 claims, Mr. Supple said, State Farm concluded
 that 500 might have been improperly reduced and subsequently
 paid the claims with interest.

 Mr. Supple said State Farm "wants to make sure the utilization
 review process is fair and objective." He said that customers
 who had concerns about their claims and wanted to take "a second
 look" could do so by contacting their State Farm agent or claims
 representative.

 Mr. Nichols said he and other regulators first became aware of
 questions about State Farm's claims practices through a report
 broadcast on the NBC magazine show "Dateline" in late June.

 He said he called Edward Rust, the chief executive of State
 Farm, on July 15 to tell him that an investigation was being
 started. "He said he would fully cooperate with our activities,"
 Mr. Nichols said. The insurance commissioner said that State
 Farm would be formally notified of the investigation in a letter
 this week.

 About 40 states have established regulatory review panels to
 deal with challenges of claims payment for health insurance,
 but, in most states, neither the panels nor any other regulatory
 body has oversight on auto injury claims. That is likely to
 change, regulators said, as a result of the State Farm
 investigation.

 Copyright 2000 The New York Times Company


 @@

 9/8/0

 Link Between Tires and Crashes Went Undetected in Federal Data

 By MATTHEW L. WALD with JOSH BARBANEL

 WASHINGTON, Sept. 7 -- Statistics from a widely used federal
 database show that fatal crashes involving Ford Explorers were
 almost three times as likely to be tire related as fatal crashes
 involving other sport utility vehicles. But Ford, Firestone and
 federal safety regulators said this week that they never
 detected the pattern in the data, which might have provided an
 early warning of problems with Firestone's tires for sport
 utilities.

 The discrepancy emerged in an analysis by The New York Times of
 data from the Department of Transportation's Fatality Analysis
 Reporting System. It showed that from 1995 through 1998, the
 most recent year available, fatal crashes involving Explorers
 were 2.8 times as likely to list tires as a contributing factor
 as those involving other S.U.V.'s.

 In Congressional testimony on Wednesday, the two companies and
 officials of the National Highway Traffic Safety Administration
 said that they looked at a variety of databases without spotting
 the tire flaw now blamed for 88 deaths in rollovers.

 Firestone documents obtained by Congressional investigators,
 meanwhile, show that officials of the tire maker were briefed as
 early as February about rising warranty costs for the tires
 recalled last month. Company executives had testified Wednesday
 that Firestone's data on warranty claims did not show a problem
 with the tires. Page C1.

 Jacques Nasser, Ford's president and chief executive, testified
 late Wednesday night at a House subcommittee hearing that even
 after replacing Firestone tires in Saudi Arabia, Malaysia and
 Venezuela, Ford held off taking action in the United States last
 year because its review of various databases assured the company
 -- wrongly, as it turned out -- that there was not a problem
 here.

 "We are a data-driven company," he said.

 When asked by Representative Bart Stupak, a Democrat of
 Michigan, what information the company had to support its
 actions overseas, Mr. Nasser replied: "Anecdotal data." He
 added, "There is no data in those countries."

 Ford said it also looked through its data on consumer complaints
 to the company itself and its dealers. But the number of
 complaints was low, rising to a peak of 10 in 1998. Company
 officials said that since Ford routinely directed its customers
 with tire problems to the tire manufacturers, the small numbers
 were not surprising. Mr. Nasser said Ford planned to work more
 closely with the tire industry to detect problems earlier.

 The Department of Transportation database is one of the few
 tools by which the government can independently track defects
 that cause fatal accidents. With its budget tightened, the
 highway safety agency over the years has pulled back from
 collecting anecdotal evidence from garages and body shops.

 Yet patterns in the government data are not always obvious. The
 Fatality Analysis Reporting System records approximately 40,000
 deaths a year, and, as various witnesses pointed out in this
 week's hearings, the simple fact that people die in accidents
 where tires may be a factor is not noteworthy.

 Sue Bailey, the administrator of the highway safety agency,
 said, for example, that if the database showed a single seat
 belt failure, her agency would immediately start an
 investigation, because seat belts are expected never to fail.
 But, she said, "tires do fail; if you run your tires for 40,000
 miles, there's a certain expected failure rate."

 And until the recall of 15-inch Firestone ATX, ATX II and
 certain Wilderness AT tires was announced early last month, she
 noted, the agency had received only about 5 complaints a year
 concerning the tires out of 50,000 complaints of all kinds about
 vehicles.

 Looking at the discrepancy between tire-related fatalities
 involving Explorers and those involving other sport utility
 vehicles "cracked the code," said Ernie Grush, Ford's manager of
 safety data analysis, after being told of the findings by The
 Times.

 But examining the data without a clear idea of what it contains
 is much harder than finding clues once a problem is known.

 There were just 35 tire-related fatal crashes involving
 Explorers in the 1995-98 period, as counted by The Times. Mr.
 Grush pointed out that compared with the number of miles driven
 by Explorers by the end of 1998, about 120 billion, the number
 of deaths was extremely small -- about 0.03 per hundred million
 miles.

 That represents a small fraction of the deaths in Explorers
 because of rollovers -- about 0.6 per hundred million miles. It
 is a smaller fraction yet of all fatalities in Explorers --
 about 1 per hundred million miles.

 Among the limitations of the federal database, Mr. Grush and
 others noted, is that it records only vehicle type, not tire
 type. The data points to a problem with Firestone tires only
 because the vast majority of new Explorers were equipped with
 Firestone tires.

 Further supporting the conclusion is an analysis by The Times of
 the federal data on tire-related deaths in Explorers produced in
 1996 and 1997. Explorers built at Ford's Louisville plant were
 equipped with Goodyear tires in 1996 and Firestones the next
 year. Ford's St. Louis plant did the opposite.

 The fatality database shows that Ford found that there were nine
 fatal accidents involving Explorers from the plants using
 Firestone tires and one from the plants using Goodyear tires. An
 analysis by Ford confirmed these findings.

 The federal data shows no tire- related fatalities involving
 Explorers from 1991 to 1993 and a steadily increasing number
 thereafter, which may reflect that tread separation becomes more
 common as tires age. The Explorer was introduced at the end of
 1990, as a 1991 model.

 For the years 1995 through 1998, the federal database shows,
 there were 17.8 tire-related fatal accidents for every 1,000
 such accidents involving Explorers. For all other sport utility
 vehicles, there were 6.4 tire- related fatal accidents per 1,000
 accidents; the number for cars was 6.0 tire-related fatal
 accidents.

 Safety experts lament that there is only limited data on a
 category of crashes that is probably six to eight times the size
 of the one tracked by the Department of Transportation -- those
 that cause injuries but no deaths. A yet larger category is
 crashes with property damage but no injury. Trends could be
 obvious sooner by using larger databases, experts say.

 "Fatals are investigated very thoroughly," said Stephanie Faul,
 a spokeswoman for the American Automobile Association Foundation
 for Traffic Safety. "Property damage crashes are hardly
 investigated at all."

 One source for such data is insurance companies. State Farm, the
 nation's largest automobile insurer, contacted the National
 Highway Traffic Safety Administration several times last year
 about tire failures, according to Samuel Boyden, the company's
 associate research director, who testified at Wednesday's House
 hearing. But the agency did not follow up on the contacts.

 Representative Billy Tauzin, the Louisiana Republican who
 presided at the hearing, suggested that the government agency
 should make better use of insurance data.

 Copyright 2000 The New York Times Company

 @@

 Link Between Tires and Crashes Went Undetected in Federal Data

 By MATTHEW L. WALD with JOSH BARBANEL

 WASHINGTON , Sept. 7 -- Statistics from a widely used federal
 database show that fatal crashes involving Ford Explorers were
 almost three times as likely to be tire related as fatal crashes
 involving other sport utility vehicles. But Ford, Firestone and
 federal safety regulators said this week that they never
 detected the pattern in the data, which might have provided an
 early warning of problems with Firestone's tires for sport
 utilities.

 The discrepancy emerged in an analysis by The New York Times of
 data from the Department of Transportation's Fatality Analysis
 Reporting System. It showed that from 1995 through 1998, the
 most recent year available, fatal crashes involving Explorers
 were 2.8 times as likely to list tires as a contributing factor
 as those involving other S.U.V.'s.

 In Congressional testimony on Wednesday, the two companies and
 officials of the National Highway Traffic Safety Administration
 said that they looked at a variety of databases without spotting
 the tire flaw now blamed for 88 deaths in rollovers.

 Firestone documents obtained by Congressional investigators,
 meanwhile, show that officials of the tire maker were briefed as
 early as February about rising warranty costs for the tires
 recalled last month. Company executives had testified Wednesday
 that Firestone's data on warranty claims did not show a problem
 with the tires. Page C1.

 Jacques Nasser, Ford's president and chief executive, testified
 late Wednesday night at a House subcommittee hearing that even
 after replacing Firestone tires in Saudi Arabia, Malaysia and
 Venezuela, Ford held off taking action in the United States last
 year because its review of various databases assured the company
 -- wrongly, as it turned out -- that there was not a problem
 here.

 "We are a data-driven company," he said.

 When asked by Representative Bart Stupak, a Democrat of
 Michigan, what information the company had to support its
 actions overseas, Mr. Nasser replied: "Anecdotal data." He
 added, "There is no data in those countries."

 Ford said it also looked through its data on consumer complaints
 to the company itself and its dealers. But the number of
 complaints was low, rising to a peak of 10 in 1998. Company
 officials said that since Ford routinely directed its customers
 with tire problems to the tire manufacturers, the small numbers
 were not surprising. Mr. Nasser said Ford planned to work more
 closely with the tire industry to detect problems earlier.

 The Department of Transportation database is one of the few
 tools by which the government can independently track defects
 that cause fatal accidents. With its budget tightened, the
 highway safety agency over the years has pulled back from
 collecting anecdotal evidence from garages and body shops.

 Yet patterns in the government data are not always obvious. The
 Fatality Analysis Reporting System records approximately 40,000
 deaths a year, and, as various witnesses pointed out in this
 week's hearings, the simple fact that people die in accidents
 where tires may be a factor is not noteworthy.

 Sue Bailey, the administrator of the highway safety agency,
 said, for example, that if the database showed a single seat
 belt failure, her agency would immediately start an
 investigation, because seat belts are expected never to fail.
 But, she said, "tires do fail; if you run your tires for 40,000
 miles, there's a certain expected failure rate."

 And until the recall of 15-inch Firestone ATX, ATX II and
 certain Wilderness AT tires was announced early last month, she
 noted, the agency had received only about 5 complaints a year
 concerning the tires out of 50,000 complaints of all kinds about
 vehicles.

 Looking at the discrepancy between tire-related fatalities
 involving Explorers and those involving other sport utility
 vehicles "cracked the code," said Ernie Grush, Ford's manager of
 safety data analysis, after being told of the findings by The
 Times.

 But examining the data without a clear idea of what it contains
 is much harder than finding clues once a problem is known.

 There were just 35 tire-related fatal crashes involving
 Explorers in the 1995-98 period, as counted by The Times. Mr.
 Grush pointed out that compared with the number of miles driven
 by Explorers by the end of 1998, about 120 billion, the number
 of deaths was extremely small -- about 0.03 per hundred million
 miles.

 That represents a small fraction of the deaths in Explorers
 because of rollovers -- about 0.6 per hundred million miles. It
 is a smaller fraction yet of all fatalities in Explorers --
 about 1 per hundred million miles.

 Among the limitations of the federal database, Mr. Grush and
 others noted, is that it records only vehicle type, not tire
 type. The data points to a problem with Firestone tires only
 because the vast majority of new Explorers were equipped with
 Firestone tires.

 Further supporting the conclusion is an analysis by The Times of
 the federal data on tire-related deaths in Explorers produced in
 1996 and 1997. Explorers built at Ford's Louisville plant were
 equipped with Goodyear tires in 1996 and Firestones the next
 year. Ford's St. Louis plant did the opposite.

 The fatality database shows that Ford found that there were nine
 fatal accidents involving Explorers from the plants using
 Firestone tires and one from the plants using Goodyear tires. An
 analysis by Ford confirmed these findings.

 The federal data shows no tire- related fatalities involving
 Explorers from 1991 to 1993 and a steadily increasing number
 thereafter, which may reflect that tread separation becomes more
 common as tires age. The Explorer was introduced at the end of
 1990, as a 1991 model.

 For the years 1995 through 1998, the federal database shows,
 there were 17.8 tire-related fatal accidents for every 1,000
 such accidents involving Explorers. For all other sport utility
 vehicles, there were 6.4 tire- related fatal accidents per 1,000
 accidents; the number for cars was 6.0 tire-related fatal
 accidents.

 Safety experts lament that there is only limited data on a
 category of crashes that is probably six to eight times the size
 of the one tracked by the Department of Transportation -- those
 that cause injuries but no deaths. A yet larger category is
 crashes with property damage but no injury. Trends could be
 obvious sooner by using larger databases, experts say.

 "Fatals are investigated very thoroughly," said Stephanie Faul,
 a spokeswoman for the American Automobile Association Foundation
 for Traffic Safety. "Property damage crashes are hardly
 investigated at all."

 One source for such data is insurance companies. State Farm, the
 nation's largest automobile insurer, contacted the National
 Highway Traffic Safety Administration several times last year
 about tire failures, according to Samuel Boyden, the company's
 associate research director, who testified at Wednesday's House
 hearing. But the agency did not follow up on the contacts.

 Representative Billy Tauzin, the Louisiana Republican who
 presided at the hearing, suggested that the government agency
 should make better use of insurance data.

 Copyright 2000 The New York Times Company

 @@

 Low-Profile Consumer Protection Experts See Venezuela Ill-
 Equipped to Deal With Tire Debacle

 By LARRY ROHTER

 ARACAS, Venezuela, Sept. 7 -- The offices at the decaying
 headquarters of the government consumer protection agency here
 are threadbare and sparsely furnished, and the elevators do not
 always work. The concept of class-action suits does not exist in
 the local legal code, and even if it did, there is no network of
 consumer advocacy groups or lawyers to promote them.

 Tire failures and rollovers involving Bridgestone/Firestone and
 the Ford Motor Company have emerged as the biggest product
 liability controversy in years, and Venezuela as one of the
 scandal's main focal points. But neither the legal system nor
 the government regulatory structure here is prepared for a case
 of this magnitude, experts here agree.

 "In North America, the theme of consumer protection is
 constantly on the agenda, to the point that you even make movies
 like `Erin Brockovich,' " said Liliana Ortega, a leading human
 rights lawyer here. "But this is an extremely disjointed
 society, with consumers who are badly educated as to their
 rights and very little tradition of asserting those rights. So
 this case is emblematic and sets a very important precedent."

 Last week, citing what it described as evidence that both
 Firestone and Ford were aware of defects in their products, the
 Venezuelan government recommended that criminal charges be filed
 against both companies, and this week Firestone agreed to recall
 62,000 of its tires here. More than 60 deaths have been caused
 by blowouts on Ford Explorers on Venezuelan highways, government
 officials say.

 For that reason, the Firestone- Ford debacle would seem tailor-
 made for President Hugo Chávez. A 46-year-old former army
 colonel, cashiered after leading a failed coup in 1992, Mr.
 Chávez won a landslide victory in 1998 on a platform that
 promised social justice and a new, more equitable economic
 order. Then, after gaining passage of a new Constitution, he
 repeated that feat in July.

 On a visit to China last year, Mr. Chávez visited Mao's tomb and
 announced, in a variation on one of the Great Helmsman's most
 famous phrases, that "Venezuela has stood up." He has also led
 the recent resurgence of OPEC that has pushed oil prices to
 their highest level in a decade, and in speeches here he
 regularly lambastes "savage neo-liberalism" and the "rotten
 oligarchy" that puts profit ahead of the national interest.

 "Under previous governments, nobody took an interest in things
 like this, and the directors of this agency were businessmen
 themselves, Chamber of Commerce types, foxes guarding the
 chicken coop," said Jorge Domínguez, chief inspector of the
 Consumer Defense and Education Institute, the consumer agency.
 "But now, because we have a new president, this has changed."

 Yet to describe Indecu, as the agency is known in Spanish, as a
 bare-bones operation is to be generous. With a budget of just
 over $3 million and 300 employees, it has a limited ability to
 monitor the safety of products and respond to consumer
 complaints in this nation of 23 million people.

 Mr. Domínguez, for example, is an agronomist whose main area of
 expertise is spoiled food and who has to make do with a staff of
 just 20. In the Firestone-Ford case, the chief investigator is
 actually a civic-minded volunteer, Carlos Salanova, an auto
 dealer and former tire salesman from the same town as Indecu's
 president, Samuel Ruh Ríos.

 Mr. Ruh said this week that he had been invited to testify at
 Congressional hearings in Washington and that he was willing to
 go if Mr. Chávez authorized him to do so. But it is not clear
 how much new information Indecu would be able to add to what is
 already known in the United States.

 "The investigation began much more than two months ago, but the
 beginning was very slow," Mr. Domínguez said. "The first problem
 we ran into was that there were no statistics, no entity we
 could turn to and say, `Give me the list of all accidents
 involving Explorers.' "

 Part of the gap has been filled by Franklin Hoet, a prominent
 lawyer here whose daughter and son-in-law were injured and their
 nanny killed when their Explorer rolled over in 1998. Mr. Hoet's
 clients included both Firestone and Ford, but he has severed
 ties with both and is now encouraging other Venezuelan victims
 to join the effort to "force them to take responsibility for
 their actions."

 Venezuela's new Constitution includes an article that guarantees
 consumers the right to safe, high- quality products. But Mr.
 Hoet describes the provision as "more an ideal than a reality,"
 noting that "there is also a right to life, but every day people
 are killed or raped in jail."

 Furthermore, legislation that would establish standards for
 consumer products and put teeth into regulations is feeble or
 riddled with loopholes. "What is lacking is more solid
 institutions to control the quality of production," said Gerardo
 Blyde, a leading constitutional lawyer and member of Congress.
 "A consumer protection law exists, but it has to be reformed to
 include a more effective control mechanism."

 But the biggest impediment to resolving the case is probably the
 judicial system. "Venezuelan courts are severely questioned and
 criticized because they cannot offer even the minimum guarantees
 of judicial security," Ms. Ortega said. "There are problems of
 impunity, corruption, lack of professional training and
 resources, and cases derailed in deference to political or
 commercial interests."

 With his own actions, Mr. Hoet has made it clear that he agrees
 with that assessment. The civil complaint and demand for damages
 to be made on behalf of his family will be filed in the United
 States, not here, he said, adding that he finds it odd that
 Firestone and Ford might object.

 "For 20 years the business community has complained about the
 lack of a reliable justice system, saying that it is one of the
 problems that discourage foreign investment," he said. "Now, all
 of a sudden in a complicated case like this, with all these
 deaths and injuries, they are suddenly going to say everything
 is just fine?"

 His opinion is not universally shared here. "I don't think a
 U.S. court has jurisdiction over this matter," Mr. Blyde said.
 "These tires were produced in Venezuela, and both the buyer and
 the seller are Venezuelan. If you buy a Sony television and
 there's a problem, it should be Sony of Venezuela who responds,
 not Sony in Japan."

 But in a country that is undergoing what Mr. Chávez calls a
 "peaceful social revolution," legal and administrative criteria
 may not be the only relevant factors. Countervailing political
 currents could also complicate the situation.

 For one thing, the roughly 25,000 Venezuelan owners of
 Explorers, which sell for about $27,000 here, several times the
 average annual income, are hardly Mr. Chávez's natural
 constituency. He presents himself as the paladin of the poor,
 and those with incomes high enough to afford such vehicles voted
 overwhelmingly for his opponents.

 In addition, Mr. Chávez has had a largely cordial relationship
 with Ford, the No. 2 automaker here, with 18 percent of the
 market. One of Mr. Chávez's central populist initiatives has
 been production of a "people's car," and Ford was an early
 supporter of the program, and its generous tax advantages.

 "This is a government that has focused almost exclusively on
 politics during the 18 months it has been in power, and has not
 dedicated itself to the themes of administration and law," Mr.
 Hoet said. "I think it is more convenient for everyone involved
 in this matter that the case be resolved in the United States."

 Copyright 2000 The New York Times Company


 @@

 02/12/99

 Judge Approves State Farm Settlement

 BLOOMINGTON, Ill. (AP) _ A McLean County judge has approved a
 settlement in which State Farm Insurance Cos. expects to pay
 $238 million to customers who sued the company accusing it of
 fraudulent practices in selling life insurance. Some 4 million
 State Farm customers were represented under the class-action
 lawsuit. A tentative settlement was announced in August, and
 McLean County Judge Ronald Dozier approved it Thursday, although
 he said it wasn't perfect. Dozier suggested some minor changes
 but said he didn't feel he could legally make them. ``We all can
 say it could be better,'' he said Thursday following two days of
 hearings on the settlement. ``This settlement is fair,
 reasonable and adequate. It's not great, but it's good.'' State
 Farm expects to pay more than $26 million in attorney fees and
 case expenses. The Bloomington-based company denied any
 wrongdoing but said it agreed to settle the class- action
 lawsuit to avoid a protracted court battle. The settlement
 involves current and former owners of whole life and universal
 life policies issued between January 1982 and December 1997. The
 lawsuit accused the company of several fraudulent practices: _
 Encouraging policyholders to switch to a new policy, in which
 they lost value but were led to believe it was in their best
 interest; _ Promising returns based on assumptions the company
 knew to be unrealistic, such as double-digit interest rates; _
 Soliciting sales by referring to life insurance policies as
 ``investments'' and ``retirement plans''; _ And artificially
 inflating dividend projections. Unless one of the plaintiffs
 decides to appeal, millions of notices to the affected
 policyholders and former policyholders will be mailed within
 five months. The same people were notified after the tentative
 settlement was reached in August. Most people will be paid with
 credits to their State Farm accounts, but the company said those
 payments can be converted to cash. The company expects just 5
 percent of those eligible to collect. Critics say that's because
 the notices are difficult to understand. Last year, State Farm
 paid more than $100 million to settle a lawsuit alleging it
 covertly trimmed earthquake policies in California.


 @@

 Cutting Claims With Fraud? Records Sealed in Major Insurer's
 Case

 By Edward Walsh Washington Post Staff Writer Sunday, July 4,
 1999; Page A01

 The nation's largest automobile insurer has settled several
 lawsuits over the past year that allege the company used
 fraudulent medical reports by outside firms to slash or deny
 insurance claims submitted by people injured in car accidents.
 Now, three consumer groups have gone into federal court in
 Oregon seeking to unseal the records of one of the cases,
 arguing that it holds clues to what could be a widespread
 practice within the industry.

 The case, in U.S. District Court in Eugene, Ore., involves the
 settlement of a lawsuit filed by Debbie Foltz, an Oregon woman,
 against State Farm Mutual Automobile Insurance Inc. After her
 son was injured in an auto accident, Foltz alleged that State
 Farm sent her medical claim to a supposedly independent outside
 firm for review, knowing that the firm would return a phony
 medical analysis that said State Farm should deny or reduce the
 claim.

 According to Foltz's lawyer and others who have represented
 plaintiffs in lawsuits against auto insurers, the Foltz case,
 which began in 1994, is but a small piece of a larger pattern.
 The use of independent, outside firms to review medical claims
 is extremely common in the insurance industry, and is even
 mandated in two states. The plaintiffs' lawyers charge that, in
 an effort to keep down costs, insurance companies are
 systematically using dubious reports from some such firms as a
 pretext to cut their payments for medical treatment.

 Last year, a jury in Idaho found State Farm did exactly that in
 one case. A few months later, the insurer settled with Foltz and
 several other policyholders who had made similar allegations.

 But the details of the Foltz case and others that were settled
 may never be known. A key provision of the settlement, insisted
 upon by State Farm, was that U.S. District Judge Michael R.
 Hogan seal virtually the entire case record, an apparently
 voluminous file containing four years of pretrial skirmishing by
 lawyers for the two sides. Lawyers involved in the case are
 precluded from discussing it or identifying the related cases
 that were settled at the same time. The records in those cases
 are also believed to be sealed.

 The secrecy surrounding the Foltz settlement, and the insurance
 industry practices that it may shroud, is the focus of the new
 legal action by the consumer groups and the Washington-based
 Trial Lawyers for Public Justice Foundation. The groups are
 attempting to persuade Hogan to unseal the court records in an
 effort to shed light on a relatively new practice by the
 insurance industry that plaintiffs' lawyers say is saving
 insurance giants like State Farm millions of dollars a year at
 the expense of their policyholders.

 "Consumers cannot fight what they do not know about," said Linda
 Sherry of Consumer Action, one of the groups that is attempting
 to intervene in the case.

 At the heart of the Foltz case and several others against major
 insurance companies is a process known as "utilization review"
 or "paper review." It involves the review of insurance claims by
 outside companies that employ physicians and other medical
 experts to determine whether medical treatments were necessary
 and the charges reasonable, the standard set in law. Much of the
 analysis is done by computer, matching the claims submitted to
 an insurance company against stored information on past
 treatments and charges for the same condition.

 But critics charge that some insurance companies, which began
 using utilization review about 10 years ago in an attempt to
 root out claims for unnecessary medical treatments and inflated
 charges, have entered an alliance with unscrupulous outside
 firms that promise they will reduce insurers' costs by
 generating reports that are all but guaranteed to recommend
 denial or slashing of claims.

 One such case that reached trial was in Idaho, where in 1994
 Cindy Robinson sued State Farm over a three-year delay in the
 payment of medical claims stemming from an automobile accident.
 When the trial ended last year, the jury awarded Robinson $2,500
 in damages under her policy, $100,000 in additional damages for
 intentional infliction of emotional distress and $9.5 million in
 punitive damages.

 In a blistering opinion last August, Idaho District Judge D.
 Duff McKee upheld the jury verdict and the amount of damages.
 Reviewing the testimony in the case, McKee wrote that "the
 evidence was overwhelming that the utilization review company
 selected by the claim examiner was a completely bogus operation.
 The company did not objectively review medical records but
 rather prepared 'cookie-cutter' reports of stock phrases,
 assembled on a computer, supporting the denial of claims by
 insurance companies. The insured's medical records were not
 examined and reports were not prepared by doctors or even
 reviewed by doctors."

 McKee said that State Farm's management knew that the reports it
 was receiving from outside utilization review companies were
 false but condoned the practice because it was "leading to
 reduced claim expenses."

 "The defendant's conduct in this case was outrageous,
 intentional, harmful and an extreme deviation from reasonable
 conduct," McKee wrote. "The practice of manufacturing evidence
 to use in defeating a claim being made by the insurance
 company's own insured is reprehensible."

 The utilization review firm that produced the reports in
 Robinson's case was Medical Claims Review Services (MCRS), which
 was based in Bethesda and is now apparently defunct. Ten years
 ago, the company's president, Ronald E. Gots, wrote an article
 in an insurance industry trade publication urging the industry
 to turn to utilization review as a way to combat what he
 described as the "vast economic interests" that were constantly
 pressing for "exaggerated medical losses."

 Gots, a physician who now heads two other companies in
 Rockville, did not respond to messages left at his office.

 State Farm, which has 36.7 million auto insurance clients, is
 appealing the Robinson verdict. Officials at the company's
 Bloomington, Ill., headquarters said they could not comment on
 any of the cases or the general subject of utilization review.
 "Anything we say about this topic could come back to haunt us in
 discovery in some case involving this," said Dave Hurst, a State
 Farm spokesman.

 But the cadre of plaintiffs' lawyers who daily do battle with
 the insurance industry in courtrooms and law offices across the
 country are more than eager to talk about the topic. Rick
 Friedman, an Anchorage lawyer who represented Robinson, said
 that during the case he obtained 79 MCRS reports on medical
 claims in Idaho and Montana and that every one said either that
 the claimant was not injured or that the injury was not caused
 by the accident that led to the claim.

 "These are supposed to be independent reviews of medical
 records," Friedman said. "At the trial, a former State Farm
 adjuster said they get these reports, send them to the insured
 and tell them this is what the independent review concluded. She
 said most people just give up at that point. Some will call back
 and she said she was trained to say we have lawyers to fight
 this. She said then everybody gives up."

 "It's all over the country, these phony medical review
 services," said Daniel J. Gatti, a personal injury lawyer who
 represented Foltz. "They have a computer program that says all
 soft tissue injuries heal in six months. To put everybody in the
 same group and use a computer program to say this is what they
 get is expletive. We think it's fraud."

 Another person who will talk about this system is James Mathis,
 a former State Farm supervisor who sued the company in 1997 for
 wrongful discharge from his job in Washington state three years
 earlier. Last year, a federal judge issued a summary judgment
 against Mathis in the case. He is appealing.

 Mathis said that when he was in charge of processing medical
 claims by State Farm policyholders in Washington state the
 insurer's position was "you don't use an outside utilization
 company that did not provide you with at least a 20 percent
 reduction in the billing. Otherwise it would not be cost
 effective."

 Mathis said one company that he considered "too aggressive" in
 cutting medical claims was Comprehensive Medical Review (CMR),
 which is headquartered in San Diego and is headed by William J.
 Marvin, a former chairman of the San Diego County Republican
 Party. CMR provided the medical reports in the Foltz case.

 "CMR had a mind-set. They were going to prove to State Farm that
 they were a profit machine," said Mathis, who gave testimony in
 the Robinson and Foltz cases. "They were going to cut every
 bill."

 Attempts to reach Marvin by phone were unsuccessful.

 David Snyder, assistant general counsel of the American
 Insurance Association, a trade association of property and
 casualty insurers, said that during the 1990s there has been
 "tremendous pressure on insurers to reduce expenses and
 premiums. One way a number of insurers have responded is to more
 closely review medical bills to make sure they are 'reasonable
 and necessary,' which is the standard."

 Snyder said this was particularly important because in some
 states the amount of medical charges set the parameters for the
 amount of awards for "pain and suffering" in lawsuits stemming
 from automobile accidents. "The higher you can drive the medical
 bills the greater the litigation value of the case," he said.
 "That's why insurers need to control medical costs, because
 otherwise this can greatly increase the cost of insurance for
 everybody."

 Snyder added that the utilization review system is one factor
 behind a trend toward stable or lower auto insurance premiums
 and is considered so important in Pennsylvania and New Jersey --
 two historically high-cost insurance states -- that such reviews
 are mandated by law.

 Friedman, Robinson's lawyer, said, "Most people would agree that
 there is a place for paper review in handling insurance claims,
 but like any tool it can be misused." Speaking of the two
 companies that reviewed the Foltz and Robinson claims, he added,
 "I don't think that you would find that these are two bad apples
 out of a healthy barrel, but that half the barrel is rotten.
 What's going on, in my opinion, is the insurance industry is
 waging an undeclared war against American consumers. They know
 exactly what they are doing."

 "The insurance industry is making more and more use of
 utilization firms," said Matthew Whitman, an Oregon lawyer who
 is working with the consumer groups. "It's an out for the
 insurance company."

 Whitman and other lawyers for the consumer groups argue that the
 sealing of records in the cases that have been settled makes it
 difficult to determine if there is widespread abuse in the
 industry and unnecessarily shields companies from public
 accountability. They also charge that the extent of secrecy in
 the Foltz case is virtually unprecedented, involving not only
 the court record but also the very existence of the case itself.

 According to Whitman, when he visited the federal courthouse in
 Eugene last April, the court clerk told him that Foltz v. State
 Farm did not exist because it did not show up in the court's
 internal computer system. A physical search later located the
 thin case file that is public. But Whitman said the file
 contained references to about 450 motions and other items that
 have been sealed.

 Sarah Posner, a staff attorney for Trial Lawyers for Public
 Justice, said that as recently as last week an attempt to locate
 the case through a nationwide computer system that lawyers
 routinely use came up blank.

 "Inevitably, this favors big corporations such as insurance
 companies and other defendants," Whitman said of the system that
 enables companies to demand silence in exchange for large
 monetary settlements. "Debbie Foltz cannot defend the rights of
 everyone to access to the courts. At some point the money gets
 too big."

 _ Copyright 1999 The Washington Post Company


 @@

 02/12/99

 Judge Approves State Farm Settlement

 BLOOMINGTON, Ill. (AP) _ A McLean County judge has approved a
 settlement in which State Farm Insurance Cos. expects to pay
 $238 million to customers who sued the company accusing it of
 fraudulent practices in selling life insurance.

 Some 4 million State Farm customers were represented under the
 class-action lawsuit. A tentative settlement was announced in
 August, and McLean County Judge Ronald Dozier approved it
 Thursday, although he said it wasn't perfect.

 Dozier suggested some minor changes but said he didn't feel he
 could legally make them.

 ``We all can say it could be better,'' he said Thursday
 following two days of hearings on the settlement. ``This
 settlement is fair, reasonable and adequate. It's not great, but
 it's good.'' State Farm expects to pay more than $26 million in
 attorney fees and case expenses. The Bloomington- based company
 denied any wrongdoing but said it agreed to settle the class-
 action lawsuit to avoid a protracted court battle.

 The settlement involves current and former owners of whole life
 and universal life policies issued between January 1982 and
 December 1997. The lawsuit accused the company of several
 fraudulent practices:

 _ Encouraging policyholders to switch to a new policy, in which
 they lost value but were led to believe it was in their best
 interest;

 _ Promising returns based on assumptions the company knew to be
 unrealistic, such as double-digit interest rates;

 _ Soliciting sales by referring to life insurance policies as
 ``investments'' and ``retirement plans'';

 _ And artificially inflating dividend projections. Unless one of
 the plaintiffs decides to appeal, millions of notices to the
 affected policyholders and former policyholders will be mailed
 within five months. The same people were notified after the
 tentative settlement was reached in August.

 Most people will be paid with credits to their State Farm
 accounts, but the company said those payments can be converted
 to cash. The company expects just 5 percent of those eligible to
 collect. Critics say that's because the notices are difficult to
 understand.

 Last year, State Farm paid more than $100 million to settle a
 lawsuit alleging it covertly trimmed earthquake policies in
 California.


 @@

 October 5, 1999

 State Farm Is Told to Pay Policyholders $456 Million in Auto-
 Parts Case

 By MATTHEW L. WALD WASHINGTON  -- An Illinois jury ruled on
 Monday that State Farm breached its contract with its auto
 policy holders by requiring body shops to use lower-priced
 generic body parts for crash repairs, rather than those made by
 the auto manufacturers. Under the verdict, which could have wide
 impact on the insurance business, State Farm must pay $456
 million as compensation to policy holders who filed about 4.7
 million claims.

 A judge is expected to rule soon if State Farm, which is based
 in Bloomington, Ill., committed fraud by requiring such parts.
 The judge, John Speroni, could assess hundreds of millions of
 dollars more in punitive damages and damages for fraud.

 Since State Farm is a mutual company, owned by its policy
 holders, the ruling would eventually mean higher rates. William
 S. Sirrola, a spokesman, said, though, that the company had cash
 on hand for the short-term problem.

 "We carry policy holder surplus to cover disasters," he said.
 "This would be looked at as a disaster, not natural disaster,
 but a disaster."

 The company plans to appeal.

 Don Barrett, a lawyer representing the plaintiffs, said the next
 step would be to sue the Certified Auto Parts Association, along
 with other companies that require the use of substitute parts,
 including Nationwide, Allstate, USAA and Geico.

 The parts association, he said, is "the automotive parts
 equivalent of the Council for Tobacco Research." Their case
 argues that the parts are of inferior quality and the insurance
 companies knew this.

 Insurance experts were divided about the effect of the decision,
 which came in a class-action lawsuit in Marion, Ill. Some
 consumer advocates have been pushing hard for wider use of
 "substitute" parts, as a way to hold down auto repair costs by
 denying the auto makers a monopoly on replacement parts.

 The substitute parts often sell for hundreds of dollars less
 than those offered by auto companies; for example, a recent
 survey by the Alliance of American Insurers found that the
 bumper for a 1996 Ford Explorer costs $370.07 from Ford and $278
 from an independent manufacturer; a replacement hood for a 1995
 Pontiac Grand AM, costs $307 from GM, vs. $154 for the generic
 version.

 But lawyers for the plaintiffs in the class-action suit said
 that the generic parts often did not fit right and reduced the
 appearance, functionality and resale value of a car. "They're
 not made to same standards and specifications," said Elizabeth
 Cabraser, one of the lawyers. "They don't have quality control
 and they're not crash-tested."

 To hold down costs, New York, Massachusetts and Hawaii encourage
 or require the use of such substitute parts when they are
 available. Ms. Cabraser said, though, that the states also
 required that the parts had to be "of like kind and quality,"
 and never were.

 State Farm says it guarantees such parts as long as the policy
 holder owns the car, although some consumers and body shops
 complain that they are made of inferior materials or do not fit
 as well as replacements made by the auto companies themselves.
 Consumer advocates say, though, that even if a consumer is
 paying for auto maker's parts, the auto body shops sometimes use
 the substitute parts and pocket the difference; sometimes they
 do so after promising consumers to inflate the repair estimate
 so a policy holder does not have to pay the deductible, consumer
 advocates say.

 State Farm calls the parts "quality replacement parts," and
 others call them "after-market parts."

 "We consider the verdict a major setback for our policy holders
 and the company, and all consumers," said David A. Hurst, a
 spokesman for State Farm.

 Another backer of generic parts, Clarence Ditlow, the executive
 director of the Center for Auto Safety, said, "If this decision
 stands, the auto companies will be sitting fat and happy,
 getting monopoly prices on crash parts again."

 Ditlow is a founder of the Certified Auto Parts Association, a
 non-profit organization funded in part by the insurance
 companies, that certifies the quality of major replacement parts
 like hoods and fenders. Ditlow said that when his 1987 Geo Prizm
 had an accident in 1994 and needed a new fender, he specified
 that he wanted a part certified by his organization, which cut
 the repair cost by about $100. "It just didn't affect the
 value," he said.

 Last year State Farm, the nation's largest auto insurer, asked
 the Supreme Court to block the suit on the grounds that it would
 amount to letting an Illinois judge assume national authority
 over insurance regulation, a state function, but the court
 refused to intervene. Various state agencies filed briefs in
 support of that argument last year, and some said they would
 probably do so again now.

 The verdict applies to claims filed from July 31, 1987, to Feb.
 23, 1998, and includes $243.7 million for direct damages, even
 if the car was later sold for full book value; the jury it
 awarded another $212.4 million for "installation damages," the
 estimated cost to replace the parts. Plantiffs' lawyers said
 members of the affected class need not do anything, and that
 State Farm would use its records to make payments. But State
 Farm spokesmen said that the company only knew of claims in
 which generic parts had been specified on estimate sheets, not
 where they had actually been installed.

 The fraud portion applies only to claims filed from 1996 onward,
 because of the statute of limitations.

 The plaintiffs' attorneys said they were also seeking an
 injunction against State Farm to forbid the company from
 requiring replacement parts. Hurst said the company was
 reconsidering its policy.

 Copyright 1999 The New York Times Company


 @@

 State Farm Told to Pay Customers Millions Verdict on Using
 Generic Auto Parts Could Raise Rates

 By Warren Brown Washington Post Staff Writer Tuesday, October 5,
 1999; Page A01

 An Illinois county court yesterday ordered the nation's largest
 auto insurer to pay $456 million to policyholders who, in a
 class-action lawsuit, accused the company of approving the use
 of inferior parts in collision repairs of their cars and trucks.

 The verdict, which State Farm Mutual Automobile Insurance Co.
 said it will appeal, is a major setback for a campaign by both
 insurance companies and some consumer groups to encourage the
 use of generic body parts to hold down repair costs. Later this
 week, the judge in the case plans to rule on whether the company
 deliberately deceived customers, which could significantly
 increase the penalty.

 Insurance company officials said the jury verdict would result
 in higher insurance premiums and have a chilling effect on
 competition in the $9 billion-a-year parts market. Car companies
 and their suppliers still dominate the parts market, but generic
 body parts -- generally sheet- metal parts such as fenders and
 door panels -- now account for about 15 percent of repairs
 covered by all insurers.

 But the plaintiffs in the case argued that the replacement parts
 didn't measure up, leaving them with hoods that didn't close
 properly and other problems. And internal memos from State Farm
 executives disclosed during the trial raised questions about
 whether the parts -- known in the trade as "aftermarket" parts -
 - were the equal of the originals.

 "Their own documents said there was a problem with the parts,"
 said Thomas Hatley, foreman of the 12-member jury in the
 Williamson County Courthouse in Marion, Ill. "We fairly quickly
 came to a conclusion that the parts were not of like kind and
 quality."

 Insurance companies 12 years ago established the Certified
 Automotive Parts Association, now headed by Washington consumer
 advocate Jack Gillis, in an effort to validate the quality of
 generic parts. But earlier this year, Consumer Reports said that
 many of the CAPA-certified parts weren't up to snuff and often
 resulted in substandard repairs.

 The lawsuit was filed on behalf of 4.7 million current and
 former State Farm policyholders -- in every state except
 Tennessee and Arkansas, where similar lawsuits are pending - -
 who had cars repaired from July 1987 through February 1998.
 Plaintiffs are seeking $4 billion on their claim that State Farm
 committed fraud in using the generic parts.

 Because Associate Circuit Judge John Speroni certified the
 policyholders as a class, the verdict could both discourage
 insurance companies from promoting the use of generic parts and
 affect some state laws that encourage the use of cheaper parts,
 if policyholders live in those states.

 If the jury verdict isn't increased by Speroni, policyholders
 should expect to receive about $100 each. The exact form of
 payment has not been determined, and appeals could take many
 years.

 State Farm officials said the real issue concerns breaking the
 automakers' dominance over the replacement-parts business and
 getting a better deal for their policyholders.

 "The issue is whether we will be able to continue offering our
 policyholders the best available service at the lowest possible
 prices by using lower-priced quality parts not made by original-
 equipment manufacturers," said State Farm spokesman Bill Sirola.
 "We feel strongly about this, so strongly that we are going to
 appeal" the county jury's verdict and any penalties resulting
 from a fraud ruling by the judge, Sirola said.

 The American Insurance Association, a Washington-based trade
 association representing 370 major property and casualty
 insurers, joined in the criticism of the verdict, calling it "a
 decision that adversely affects competition and could prove
 costly for millions of consumers."

 But plaintiffs' attorney Michael B. Hyman, speaking to reporters
 yesterday in Marion, said the generic parts -- most of which
 were made in Taiwan -- used in State Farm repairs were
 substandard because they had not been adequately rust-proofed,
 crash-tested or tested for other potential defects. "The whole
 industry has to change its practice of putting in these parts,
 which the jury has found to be inferior," Hyman said.

 Officials at the Dallas-based Automotive Service Association,
 which represents 15,000 independent auto- repair shops
 nationwide, said the Illinois ruling should help to educate
 consumers about how parts are chosen in auto repairs. "The
 biggest problem is consumer ignorance," said Bob Redding, the
 association's Washington representative. "Consumers simply don't
 know what kinds of parts are being used, and that puts us in the
 middle of a bad situation."

 Many auto insurers are willing to pay only for generic parts,
 but most consumers believe they are receiving original-equipment
 parts, Redding said. Consumers who discover that their parts are
 from an outside supplier, often because the part fits
 improperly, "often get angry with us," Redding said.

 Redding's association has been lobbying state legislatures
 nationwide to establish a program of "notice and consent," in
 which consumers would be given the right to accept or reject
 non- original parts in the repair of their vehicles.

 A number of insurers, such as the Chubb Group of Insurance Cos.
 in Warren, N.J., already guarantee their policyholders the right
 to use only original parts for repairs.

 The verdict comes as the parts business is restructuring into an
 increasingly competitive business. Globally, major automakers
 have been spinning off, or otherwise divesting themselves of,
 in- house parts operations in a bid to cut costs through open-
 market competition.

 Companies such as Delphi Automotive, once a captive supplier of
 General Motors Corp., must now compete head to head with generic
 and original-equipment suppliers to stay in business. Ford Motor
 Co. is in the process of trying to win the United Auto Workers
 union's backing for a plan to spin off its Visteon Automotive
 group.

 _ Copyright 1999 The Washington Post Company


 @@

 10/04/99

 State Farm Policy Holders Get $456M

 By MICHAEL PEARSON= Associated Press Writer= MARION, Ill. (AP) _
 A jury today ordered the nation's largest auto insurer to pay
 $456 million for allegedly cheating customers by ordering body
 shops to use substandard repair parts.

 Lawyers for State Farm policyholders complaining about
 ``aftermarket parts'' had asked for more than $5.4 billion in
 damages in the class-action lawsuit. A decision on parts of the
 suit was still pending.

 The lawsuit, which went to the jury on Wednesday, accused the
 State Farm Mutual Automobile Insurance Co., based in
 Bloomington, of breaching its contract with policyholders to
 restore their cars to their pre-accident condition.

 Jurors decided that claim, while two consumer fraud counts
 accusing State Farm of deceiving customers were to be decided by
 Williamson County Circuit Judge John Speroni. Speroni was
 expected to rule within the next few days.

 Plaintiffs had sought $1.4 billion on the breach of contract
 claim decided today and about $4 billion on the other counts.

 The lawsuit involved parts such as door panels, hoods and
 fenders, modeled on original parts produced by automakers but
 made without benefit of the original specifications. About 15
 percent of all crash-repair parts used last year were
 aftermarket replacements, according to insurance and auto-body
 repair groups.

 Critics claim such parts fail to provide the same fit, finish,
 corrosion protection and, in some cases, safety as the more
 expensive parts made for automakers.

 Industry analysts and some consumer advocates have said a large
 verdict against State Farm could reduce the use of aftermarket
 parts in the auto-repair business and drive up the price of
 crash repairs.

 During trial, State Farm lawyers said the use of aftermarket
 parts saved policyholders more than $233 million in premiums in
 1998.

 The lawsuit combines the potential claims of 4.7 million current
 and former State Farm policyholders.

 8/9/99 - Trial set challenging insurer's insistence on cheaper
 parts for MARION, Ill. (AP) - When Peggy Frey picked up her
 newly repaired Ford Mustang from the body shop recommended by
 her insurance company, she found the hood didn't fit and the
 headlights were loose.

 Frey, of Indian Shores, Fla., spent the next year battling with
 State Farm Insurance Co., contending it forced the shop to use
 substandard replacement parts when repairing her car after an
 accident.

 Next week a jury will begin hearing dozens of complaints like
 Frey's as it considers a class-action lawsuit that could
 fundamentally change the way insurance companies pay for car
 repairs.

 The suit, filed on behalf of 5.5 million current and former
 State Farm auto insurance customers, is the latest chapter in a
 debate over auto parts that has gone on for more than a decade.

 If the plaintiffs prevail, the suit could cost State Farm more
 than $2 billion and force the nation's largest auto insurer to
 drop its policy of insisting on cheaper replacement parts.

 The lawsuit involves door panels, hoods, fenders and other parts
 modeled on original equipment produced by automakers, but made
 without benefit of the original specifications. Known in the
 industry as aftermarket replacements, these parts made up about
 15 percent of all crash-repair parts used last year, according
 to the Inter-Industry Conference on Auto Collision Repair, a
 trade group.

 Plaintiffs contend that State Farm breached its contract with
 customers and violated Illinois consumer fraud laws when it
 required cars be fixed with parts that don't return the vehicles
 to the ``pre-loss condition'' called for in its policies.

 At least 40 other companies have policies requiring or favoring
 the use of aftermarket parts, but only Bloomington- based State
 Farm is named in this lawsuit. Plaintiff's attorney Don Barrett
 said State Farm was targeted because it is the industry leader
 and because of its policy requiring customers to pay more if
 they want original equipment parts.

 The only way State Farm policyholders can be assured of getting
 original equipment parts is to pay the extra cost themselves -
 an average of $100 to $150 per repair job, plaintiffs contend.

 State Farm says aftermarket parts are just as good as the others
 and save customers money.

 Using such parts ``allows for competition in the crash part
 replacement market and keeps the costs consumers pay through
 insurance for auto repairs lower,'' spokesman Bill Sirola said.

 Until Frey was involved in an accident with a truck, she had
 been restoring her 1988 Mustang in hopes of selling it to a
 collector.

 Now the car ``looks like a reject,'' she said.

 State Farm, which insures one of every five cars in the United
 States, tells body shops to use aftermarket parts if available.
 About 20 percent of the company's repairs use such parts, the
 company said.

 A February Consumer Reports evaluation of aftermarket parts
 found they typically take longer to install, often do not fit as
 well and are more rust-prone. Consumers Union, which publishes
 Consumer Reports, urged the Federal Trade Commission to require
 consumer consent for use of such parts and CU also suggested
 establishing safety standards for replacement parts.

 Critics also charge some parts can lead to lower resale values
 and higher crash repair bills in the future. The Consumer
 Reports study said aftermarket bumpers performed miserably - in
 a 5-mph crash involving a Ford bumper, damages totaled $235,
 compared to $1,320 for an aftermarket bumper.

 Sirola said State Farm does not use aftermarket bumpers because
 they are not approved by the Certified Automotive Parts
 Association, an insurance-industry organization that sets
 standards for aftermarket parts.

 But CAPA-approved parts have also been criticized. Last year,
 the Automotive Service Association, a trade group of nearly
 13,000 body shops, withdrew its representative from CAPA's
 board, saying CAPA had done too little to improve the quality of
 replacement parts.

 CAPA executive director Jack Gillis did not return telephone
 calls seeking comment. In 1990, State Farm paid $100,000 to
 Illinois policyholders to settle a suit over similar
 allegations. The company also agreed in a 1995 San Diego case to
 pay $3.5 million toward parts testing and give $35 refunds to
 affected policyholders.


 @@

 October 9, 1999 State Farm damages swell to $1.2 billion A judge
 said generic parts were fraudulently used. He added $730 million
 to an earlier jury award.

 By Michael Pearson

 ASSOCIATED PRESS MARION, Ill. - A damage award to State Farm
 auto-insurance customers swelled to nearly $1.2 billion
 yesterday after a judge ruled that the nation's largest auto
 insurer committed fraud by its use of generic replacement parts
 in auto- body repairs.

 Yesterday's $730 million award of actual and punitive damages
 came on top of a jury's $456 million verdict Monday in the same
 class-action lawsuit. The initial award was already believed to
 be the largest ever against an insurer.

 At issue is the use of "aftermarket" auto parts - modeled on
 those made by the manufacturer but made without access to
 factory specifications - to repair the cars of State Farm
 policyholders.

 Critics say aftermarket parts are not as good as those made for
 automakers. The lawsuit accused State Farm executives of
 concealing that information while flooding customers with
 brochures promoting the parts as a high-quality, low- cost
 alternative.

 The jury's award to 4.7 million State Farm policyholders was
 based on a claim that the insurer breached its contract with
 customers by failing to restore their cars to their pre-
 accident condition.

 Yesterday, Judge John Speroni of Williamson County Circuit Court
 ruled separately that State Farm violated Illinois consumer
 fraud law by using substandard parts and concealing that fact
 from customers.

 Current and former policyholders who could have claims against
 the company would get an average of $100 each under the breach-
 of-contract judgment. It was unclear how many plaintiffs are
 affected by the consumer fraud judgment, or what their average
 share would be.

 State Farm's chairman and CEO, Edward B. Rust Jr., promised an
 appeal of both verdicts and said the company was "astonished" by
 yesterday's decision.

 Rust said the consumer-fraud finding was particularly troubling,
 declaring that State Farm abides by regulations on use of
 aftermarket parts in every state where it does business.

 "Now it's been decided that by abiding by those regulations we
 have violated the law," he said at a news conference at the
 company's headquarters in Bloomington, Ill. "That just doesn't
 make sense."

 The award approved by Speroni is $130 million in actual damages
 and $600 million in punitive damages. The plaintiffs had sought
 nearly $4 billion in actual and punitive damages, but their
 attorneys said they were satisfied with the decision.

 "Hopefully we have State Farm's attention," said Trish
 Littleton, an attorney for the plaintiffs.

 Industry analysts said the verdicts could increase insurance
 premiums and the cost of auto-body repairs if allowed to stand.

 The insurance industry offered scathing criticism of the ruling.

 "I think this is not a good day for anybody but a handful of
 plaintiff lawyers and major stockholders in the three major car
 companies," said Kirk Hansen, director of claims for the
 Alliance of American Insurers, a trade association.

 The judge said State Farm violated its trust with policyholders
 by deliberately adopting a "misleading term" - "quality
 replacement parts" - to refer to aftermarket parts.

 But he declined to issue an injunction sought by the plaintiffs
 to order State Farm to better notify customers of the use of
 aftermarket parts, saying they could bring a lawsuit if the
 company continues to violate the law.

 Much of the plaintiffs' case against State Farm centered on
 internal memos questioning the parts' quality.

 According to materials provided to State Farm policyholders,
 aftermarket parts used by the company are certified by an
 independent testing agency, meet high- quality standards, and
 meet the company's contractual obligation to restore a car to
 its pre-accident condition using parts of "like kind and
 quality."

 But in a 1997 memo introduced as evidence, a State Farm
 executive wrote: "We may well say it is like kind and quality,
 but the bottom line is that it is not the same."

 _1999 Philadelphia Newspapers Inc.


 @@

 Posted at 12:56 p.m. PDT Friday, October 29, 1999

 State Farm agents ask for congressional inquiry

 WASHINGTON (AP) -- Thirty-nine current and former State Farm
 agents appealed to Congress Friday to investigate the insurance
 giant, claiming the company has abused policyholders and agents.

 The Bloomington, Ill.-based company called the complaints ``wild
 accusations,'' mostly made by agents involved in a lawsuit
 against the company.

 A federal judge in California recently issued a summary judgment
 in favor of State Farm's right to institute various programs and
 procedures to recover from losses from Hurricane Andrew and the
 Northridge earthquake. Agents complained the measures were
 unfair to policyholders and are appealing the ruling.

 ``These wild accusations are hurtful and are an outright slap in
 the face,'' said Harold Gray, State Farm's regional vice
 president for the area that includes Washington, D.C.

 The company, in a statement, said the news conference called by
 the agents was ``a sad distraction caused by a few dozen people
 - - most of them disgruntled former agents with a litigation-
 inspired motive.''

 Pia Pialorsi, a spokeswoman for the Senate Commerce Committee,
 where the letter was sent, said officials there had not yet seen
 the letter but ``it is something the committee would look
 into.''

 The agents complained that the company has a history of fraud
 and deception.

 ``The notion of State Farm as an honest, neighborly company no
 longer exists,'' said a letter from the agents to Sen. John
 McCain, R-Ariz., chairman of the Commerce Committee. ``The
 current management of State Farm has, instead, repeatedly abused
 the policyholders and its independent agents for too long in
 order to gain unwarranted financial advantage for itself.''

 The agents noted in the letter that the company is involved in
 numerous lawsuits. A judge this month awarded State Farm auto
 insurance customers $1.2 billion because the insurer used
 generic replacement parts in auto body repairs. Company
 officials maintain that State Farm abides by regulations on use
 of such parts in every state where it does business.


 @@

 December 21, 1999

 State Farm Appeals $1.2B Judgment

 MARION, Ill. (AP) -- State Farm insurance company is appealing a
 judgment that would force it to pay $1.2 billion to policy
 holders who claim they had no choice but to repair their cars
 with so-called ``aftermarket'' auto- body parts.

 In October, a judge and jury found that the parts were
 substandard following a class-action lawsuit filed on behalf of
 as many as 4.7 million policy holders with claims dating as far
 back as July 1987.

 The appeal was filed Friday in Williamson County Circuit Court
 and will be forwarded to the Illinois Appellate Court in Mount
 Vernon within 60 days, court officials said yesterday.

 Among other things, State Farm's appeal claims none of the
 plaintiffs named in the lawsuit proved they were injured in cars
 repaired with generic parts, according to State Farm spokesman
 Dave Hurst.

 ``The plaintiffs' attorneys also said they would prove that all
 generic parts are inferior to brand-name parts and they failed
 to do so,'' Hurst said Monday.

 He said the appeal also cites the company's ``customer
 satisfaction'' guarantee, which would have allowed the
 plaintiffs to return parts they were not happy with.

 ``If a generic part is put on the car and after that they have a
 problem with it, then they can come to us and we will either
 repair or replace it,'' Hurst said.

 ``Aftermarket'' repair parts include hoods, fenders and other
 body parts modeled on manufacturers' originals but made without
 access to factory specifications. Critics say the parts fail to
 deliver the same level of fit, finish, corrosion resistance and
 - - in some cases -- safety, as original parts.

 Patricia Littleton, an attorney for the plaintiffs, said she was
 not surprised by the appeal. But she said several courts --
 including the Illinois Supreme Court and U.S. Supreme Court --
 have already ruled on the matters raised in State Farm's appeal.

 ``There's really nothing here that the courts have not already
 seen, except for the punitive award itself,'' Littleton said
 today. She added that an agreement also was reached Friday to
 set aside the $1.2 billion award in a court-controlled fund and
 to add 9 percent interest over the length of the appeal, which
 is expected to take at least 18 months.

 A Williamson County jury awarded $456 million in the breach- of-
 contract claim. The judge who oversaw the case added an
 additional $730 million after finding the company had defrauded
 consumers by concealing problems with the parts.

 State Farm Mutual Automobile Insurance Co. is the fifth- largest
 insurer in the country, with $24.2 billion in assets.

 Other insurers, including Allstate, Geico, Nationwide, USAA,
 Progressive, Metropolitan and Farmers Group of Insurance
 Companies, also have been sued in similar cases.

 Hurst said there also was evidence disallowed in the original
 trial that State Farm attorneys felt they should have been able
 to present. That included State Farm's assertion that the use of
 generic parts benefitted consumers by forcing auto makers to
 lower the cost of brand- name parts.

 State Farm lawyers also contend they should have been allowed to
 present evidence that savings resulting from the use of generic
 parts were passed on to policy holders, Hurst said.

 In the past two years, he said State Farm has returned $1.5
 billion worth of dividends to its policy holders and has reduced
 premiums by $2.5 billion.