Judgments Set Anti-Business Tone

Published February 1, 2006

Two recent class-action cases illustrate how lawsuit abuse in Illinois has damaged the state’s legal reputation. Although the Illinois Supreme Court recently reversed the judgments against the corporate defendants in both cases, the magnitude of the judgments, and the costs related to fighting the lawsuits, have contributed to Illinois’ reputation as having a hostile legal climate for business. So has the state’s reputation for being overly generous in certifying class actions.

The first case, Avery et al. v. State Farm Insurance, revolved around State Farm’s practice of using auto parts from sources other than the original equipment manufacturer (known as non-OEM parts) when repairing automobiles involved in accidents covered by insurance policies it had written. Siding with plaintiffs and their lawyers, the trial court found State Farm had breached its contract with policyholders by using non-OEM parts, ruling State Farm should pay $1.18 billion in damages. An appellate court later reduced that amount to $1.05 billion.

The second blockbuster case to come out of Illinois in recent years was a class-action case against Philip Morris USA and parent company Altria. Claiming smokers had been deceived into believing “light” and “low tar” cigarettes were safer than regular cigarettes, trial lawyers filed suit demanding billions of dollars on behalf of Illinois smokers. A judge in Madison County ruled in favor of the trial lawyers and their plaintiffs, demanding Philip Morris pay more than $10 billion to smokers.

At the time of the ruling, Madison County was deemed the Number 1 Judicial Hellhole in America by the American Tort Reform Association.

Both judgments were reversed in 2005 by the state supreme court. In each case, the court agreed with defendants that the cases should not have been given class-action status. The court also determined State Farm had not committed a breach of contract by using non-OEM parts, and that Philip Morris USA had not engaged in deceptive marketing.

— Sean Parnell