State Farm avoids $8.5B lawsuit with a $250m settlement

After 19 years of lawsuits, State Farm is finally settling a fraud/racketeering case for $250m -- a small fraction of the $8.5B penalty it would have faced in court.

State Farm, America’s largest auto insurance company, paid a $250m settlement to a group of customers right before a long-awaited racketeering trial was scheduled to begin this week.

The settlement is the anticlimactic finale of a 19-year-long scandal involving allegations of fraudulent car parts and crooked judges that would have cost the insurance company $8.5B.

Decades of denial

In 1999, State Farm class-action plaintiffs won $1.19B when an Illinois state court determined that the insurer had replaced quality car parts with junk components.

Then in 2004 State Farm allegedly spent $3.5m getting “Farm-friendly” judge Lloyd Karmeier elected. Karmeier immediately threw out the case — exonerating State Farm and leaving customers nothing.

But when State Farm muffled an appeal attempt, the cantankerous customers filed a new racketeering charge in federal court. 

State Farm has fewer ‘friends’ in federal court

This time State Farm’s attempts to get the case dismissed failed, finally forcing the company to go to court or pay up. But State Farm still insists they didn’t do anything illegal and are paying the settlement “simply to bring an end to the litigation.” 

But Bob Clifford, a lawyer representing the plaintiffs, is convinced otherwise, saying the decision “to pay a quarter of a billion dollars […] speaks for itself.” The $250m settlement is less than 3% of what State Farm would have paid for the $8.5B racketeering penalty.

So 20 years later, swindled State Farm customers will finally get a couple of dollars for those crappy carburetors. 

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