Court of Appeals ruling – significant on many levels

Aftermarket parts are not of like kind and quality to OEMs

In a unanimous decision the Missouri Court of Appeals for the Western District found American Family Insurance guilty of not paying for complete repairs in Nicholas H. Smith, et al. v. American Family Mutual Insurance Company by systematically specifying non-OEM parts and routinely omitting necessary repairs from estimates.

Presiding Judge Harold L. Lowenstein concluded that aftermarket parts are not of like kind and quality to OEMs. He said, “Plaintiff’s evidence established that, because of the nature of the engineering, production, and materials, aftermarket parts were inferior in fit and performance and, therefore, not of like kind and quality to OEM parts.”

One engineering consultant Paul Grigio testified that because aftermarket parts are reverse-engineered – where the specifications are derived from an OEM part rather than the specifications that govern the manufacture of the OEM part – the aftermarket manufacturing process can never attain the specifications and tolerances of an OEM part. The consultant testified that aftermarket parts “will be of lesser quality in the dimension, dimensional area, and possibly in the structural area.”

A University of Texas at Austin professor of mechanical engineering Dr. Kristin Wood, testified to the limitations of the reverse engineering process. Wood explained that the Certified Automotive Parts Association (CAPA), a body created by the insurance industry, “defines the standards for the manufacture and reverse engineering of imitation parts.”

Wood emphasized that like kind and quality went further than simple appearance or fit, that function and performance were the benchmarks. The professor testified that there were “real world consequences” of the use of aftermarket parts.

He also asserted that aftermarket parts are inferior in performance because CAPA does not always require that safety features on certain parts, such as hoods, be reverse-engineered into the aftermarket parts.

Based on his experience with reverse engineering, Wood stated that flaws in the reverse engineering process create flawed parts. Wood concluded that, based on his analysis and review of materials, “it is highly unlikely that CAPA-certified parts or imitation parts will be like kind and quality to OEM genuine parts.”

Even one of American Family’s own expert witnesses, Dr. Jason Hertzberg, an engineering consultant, agreed in testifying that “the steel in OEM parts was of a higher carbon, higher strength and higher hardness value” than AMPs.

Hertzberg also “admitted that in ‘salt spray’ tests, aftermarket parts consistently developed ‘red rust’ while OEM parts did not.”

This class-action is initially affecting 316,000 Missourians who filed repair claimants between May 1990 and December 2004. But the ramifications for insured as well as insurers around the country seem enormous.

Will AMPs suppliers like Keystone be able to correct the engineering and manufacturing processes of the inferior AMPs?