Settlement averts State Farm racketeering trial

TIM BROSS, MARGARET CRONIN FISK AND JEF FEELEY

On the brink of a trial, State Farm agreed to pay $250 million to customers who claimed the company tried to rig the Illinois justice system to wipe out a $1 billion jury verdict from 19 years ago.

The customers were seeking as much as $8.5 billion in damages in a civil racketeering trial that was set to start Tuesday in federal court in East St. Louis, Ill. A judge granted preliminary approval to the accord and set a final fairness hearing for December.

The biggest U.S. auto insurer was accused in the case of leading an effort to recruit a judge friendly to its cause for the Illinois Supreme Court, secretly funding Judge Lloyd Karmeier’s 2004 election campaign by funneling money through advocacy groups that didn’t disclose donors. Under the federal Racketeer Influenced and Corrupt Organizations Act, any damages would have been tripled.

The company denied any wrongdoing in settling the claim.

The settlement came after the jury was selected last week and just before opening statements were set to begin.

The plaintiffs were seeking $1 billion in damages based on the original verdict and $1.8 billion in interest, plus tripling under the racketeering law. The jury would have determined damages and the judge would have decided on the interest.

The settlement ends more than 20 years of litigation by State Farm customers who alleged they were given generic car parts of lower quality than original equipment for more than a decade, violating the terms of their insurance policies. In 1999, an Illinois state court jury awarded the customers $456 million for breach of contract, and the trial judge added $730 million in damages on a fraud claim. An appellate court reduced the verdict to $1.056 billion, but it was one of the largest class-action awards in U.S. legal history.

In 2004, Karmeier, a Republican who had been a circuit judge in rural Washington County for almost two decades, was elected to the Illinois Supreme Court. A year later, that court threw out the award, and the U.S. Supreme Court refused to review the case, seemingly ending the litigation.

The class of customers covered by the deal will include policy holders in the U.S. in all but two states who were insured by a vehicle casualty policy with State Farm from July 28, 1987 to Feb. 24, 1998. Customers in Tennessee and Arkansas weren’t part of the original suit because there was previous litigation in those states, so they aren’t part of the current settlement.