Policyholders at State Farm
                   Win Lawsuit Over Auto Parts

                   By DEBORAH LOHSE
                   Staff Reporter of THE WALL STREET JOURNAL

                   A jury in Marion, Ill., state court awarded $456 million to State Farm
                   Mutual Automobile Insurance Co. policyholders, who alleged they were
                   harmed by State Farm's policy of using generic auto parts, rather than
                   those issued by the original auto maker, for repairs.

                   The case was closely watched by the nation's auto insurers, many of whom
                   make use of generic parts, also known as aftermarket parts, which are
                   generally cheaper. State Farm, which plans to appeal, said it was
                   disappointed by the verdict, especially because it guarantees the parts,
                   which are certified by the Certified Automotive Parts Association. "We do
                   not disagree that there are some aftermarket parts that are not of good
                   quality, but we have processes in place to make sure those parts don't
                   wind up on State Farm-insured cars," State Farm Senior Vice President
                   Jack North said.

                   However, State Farm is considering changing its policy. "We can't ignore
                   the findings of this jury," said Mr. North, who said no decision has been
                   reached.

                   The class action claimed State Farm's emphasis on allegedly inferior
                   generic parts violates provisions in its auto-insurance contracts pledging to
                   restore damaged cars to preaccident condition. The lawsuit was filed in
                   state court in July 1997, and covers about 4.7 million policyholders in 48
                   states with auto policies issued between July 1987 and February 1998.

                   At issue is State Farm's policy of paying only for generic auto-body parts
                   such as hoods, doors, bumpers and fenders after a car accident.
                   Policyholders who prefer original-maker parts are forced to pay any
                   excess over the generic price. (Mechanical parts such as engines, brakes
                   and batteries weren't at issue in the suit.)

                   The policyholders' lawyers argued during the seven-week trial that generic
                   body parts, some of which are made in Taiwan, are inferior to
                   car-manufacturer-issued parts. Body-shop experts testified generic-part
                   makers use inferior materials and reinforce the metals far less thoroughly.
                   The policyholders also argued such parts diminish the value of cars, making
                   it impossible for State Farm to live up to its contractual obligation to
                   restore cars to previous condition.

                   "Policyholders paid full value for that promise," said Patricia Littleton, one
                   of the plaintiffs' attorneys. "And they did not get the benefit of that bargain."

                   The insurance industry is facing similar lawsuits seeking class-action status
                   around the country. With the latest State Farm decision, insurers are fearful
                   of a tidal wave of copycat suits, given that many insurers' policies contain
                   policy language vowing to restore damaged cars to precrash condition.

                   Not all companies refuse to pay for original car-maker parts. Allstate
                   Corp., the Northbrook, Ill., insurer that is named in nearly a dozen similar
                   suits, pays for car-manufacturer-issued parts if customers want them, as
                   does Chubb Corp., Warren, N.J. Robert Pike, executive vice president of
                   Allstate, said it has won dismissal or been dismissed as a defendant in three
                   suits.

                   The award in the State Farm case was for compensatory damages
                   intended to repay policyholders an average of $51 apiece for the
                   difference between parts they got and original-auto-maker parts, as well as
                   repay some for the labor costs to install the proper part. The damage
                   amount also is intended to cover two days' car rental for some affected
                   policyholders, Ms. Littleton said.

                   The judge in the case, Associate Circuit Judge John Speroni, will decide in
                   the next few days on separate consumer-fraud allegations, which could
                   result in additional punitive damages to State Farm. He also will rule on
                   plaintiffs' request that State Farm be enjoined from continuing to require
                   generic parts until it better discloses the practice to customers.

                   State Farm, which posted a summary of the case on its Web site
                   (www.statefarm.com/media/snider.htm), argued policyholders were fully
                   informed in their policies, repair-estimate documents and a State Farm
                   brochure that repair shops would use such parts.