Court Dismisses Class Action Challenging Automobile Insurer’s Specification of ‘Non-OEM’ Crash Parts In Repair Estimates

December 31, 2010 | Appeals | Insurance Coverage

Patchen v. Government Employees Insurance Company, U.S. District Court, Eastern District of New York

On January 7, 2011, United States District Court Judge Arthur Spatt granted GEICO’s motion to dismiss plaintiffs’ Complaint. Rivkin Radler attorneys Evan H. Krinick, Michael P. Versichelli and Michael P. Welch represented GEICO. The case presented an important issue that has divided courts across the country – whether the specification of “non-OEM” crash parts in repair estimates violates the terms of an automobile insurance policy. The court’s ruling in favor of GEICO is the first decision in New York to address this issue and is an important victory for automobile insurers.

Plaintiffs sustained damage to their automobiles in separate accidents. Plaintiffs took their vehicles to auto shops where insurance adjusters for defendant GEICO estimated the cost of repairs to their respective vehicles. Based on these estimates, GEICO issued a check to each plaintiff in the total amount of the adjuster’s estimate. Plaintiffs claimed that the estimates were too low and that GEICO did not fully compensate them for the damage to their vehicles because the estimates were based on less expensive non-Original Equipment Manufacturer (non-OEM) crash parts rather than parts made by the vehicle’s original manufacturer (OEM). According to plaintiffs, the problem with regard to specifying non-OEM parts is that they are “universally inferior” to OEM parts and thus breached GEICO’s obligation to pay the cost of repairing their vehicles with parts of “like kind and quality.”

Plaintiffs asserted causes of action on behalf of themselves and a putative class of similarly situated plaintiffs for breach of contract, unfair and deceptive trade practices under New York Gen. Bus. Law § 349, unjust enrichment, moneys had and received, and declaratory and injunctive relief. GEICO filed a motion to dismiss the action. GEICO argued that the premise underlying all of plaintiffs’ claims – that non-OEM parts are universally inferior to OEM parts – was implausible and inconsistent with New York State Insurance Department regulations, which explicitly authorized the use of non-OEM parts in vehicle damage repair estimates. Plaintiffs argued that because non-OEM parts are “reverse-engineered” by manufacturers lacking access to the original product design specifications, they are, without exception, inferior and not of “like kind and quality.”

Judge Spatt accepted the arguments advanced on behalf of GEICO and dismissed all of plaintiffs’ causes of action. Persuaded by the Illinois and Massachusetts high court rulings in Avery v. State Farm Mut. Auto. Ins. Co. and Roth v. Amica Mut. Ins. Co., the district court determined that plaintiffs could not plausibly claim that GEICO breached its contract by specifying non-OEM parts when it was expressly permitted to do so under the governing regulations, which were incorporated into the parties’ agreement. The court declined to accept that New York’s detailed regulatory scheme was mooted by the parts’ universal inferiority.

Even without considering New York’s regulatory scheme, the court found plaintiffs’ allegation of universal inferiority implausible. The court noted, “it is not plausible that, among the dozens of various replacement parts at issue, manufactured by the scores of non-OEM manufacturers for the hundreds of vehicle models sold in the United States, there are no parts that have been designed to equal their OEM counterparts.” Further, because plaintiffs could not establish that they were actually harmed by GEICO’s specification of non-OEM parts, as opposed to plaintiffs demonstrating that a particular part failed or proved inadequate, the Court held that plaintiffs’ GBL § 349 and other claims were deficient.

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