After market parts litigation hits Canada

Insurance companies in Canada are feeling the impact of the late 1999 U.S. aftermarket parts class action trial that resulted in a $1.18 billion award against State Farm Insurance. The insurer was found to have failed to perform its obligation under contract with motorists and violated the terms of its policies by using non original equipment manufacturer (OEM) parts to repair vehicles.

A class action style lawsuit has been filed in Quebec against Groupe Desjardin, ING Canada – second largest auto insurer in Canada – and AXA Canada relating to their use of “imitation” parts.

The Insurance Bureau of Canada (IBC) has asked its Ontario claims committee to look at their current practices with respect to aftermarket parts and develop a sound position on the issue. “In some cases the quality of these (aftermarket) parts are better than OEM parts,” says IBC Ontario vice president Mark Yakabuski, who warns policyholders need to be informed of potential premium increases if insurers are forced to exclusively use OEM parts. “At some point, we may have to consider a special endorsement on the policy for OEM parts.”

Despite the U.S. decision, the debate is not over among American insurers. According to the Insurance Information Institute, crash parts debates have turned into a war state to state. Robert Hurns, associate counsel at the National Association of Independent Insurers, notes the issue has exploded over the past two years. “In 1998, only eight states were debating this issue. Yet, following a February 1999 article in Consumer Reports, this increased to 25 states. Now, all but eleven states have some kind of law requiring specific policy language regarding the use of aftermarket parts.”

Both State Farm and Liberty Mutual Insurance have announced a prohibition on using some or all aftermarket crash parts on vehicles repaired in Ontario. Liberty Mutual Insurance is one of nine insurers named in aftermarket parts class action suits in the U.S.