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Letter to the Editor
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Wednesday May 15

Keystone Automotive Industries Contests Being Named Additional Defendant in Class Action Suit Against Erie Insurance

Keystone Automotive Industries, Inc. has received notification that Erie Insurance Company has filed a joinder complaint against forty-four additional manufacturers and distributors of aftermarket collision replacement parts, including Keystone Automotive.

The forty-four additional defendants are now part of a class action originally filed against Erie Insurance in May 2000 with respect to Erie's specifications of aftermarket collision replacement parts. Erie Insurance claims that the manufacturers and distributors of these aftermarket parts have represented that their replacement parts were as good as OEM parts and that they were not defective, inferior or substandard. In late 1999, after the State Farm verdict, Erie Insurance stopped specifying aftermarket parts, so it is anticipated that the joinder of Keystone will not have a direct impact on operating results.

The class action was filed against Erie Insurance in the Philadelphia County Court of Common Pleas by a plaintiff alleging that she was the holder of an Erie automobile insurance policy, that her insured vehicle had been in an accident and, at the direction of Erie, certain of the parts used in the repair of the vehicle were aftermarket parts. She alleges that the use of these parts, rather than OEM parts, breached the insurance contract, was an unfair trade practice and a violation of consumer protection law and was in bad faith. Plaintiff alleges that aftermarket parts are defective, inferior and substandard compared to OEM parts and fail to restore a damaged vehicle to its pre-loss condition and value. On March 13, 2002, the Court certified a national class joining all Erie Insurance policyholders whose cars had been repaired with one or more of the 25 aftermarket crash parts specified in the class action or had received monetary compensation based upon the cost of such aftermarket parts, between 1994 and the date the complaint was filed.

"Keystone vigorously denies any liability to the plaintiffs or Erie Insurance on multiple grounds. First and foremost, Keystone believes that the aftermarket products it distributes are of like kind and quality as compared to the original OEM parts. In addition, Keystone warrants substantially all of its products to be free of defects in material and workmanship for as long as the original purchaser owns the vehicle on which the part is installed. In fact, over the past ten years, warranty claims have been extremely rare," said Charles J. Hogarty, president and chief executive officer of Keystone.

Hogarty noted that results of recent blind tests, conducted by independent third parties, have shown that certain aftermarket parts scored higher than the comparable OEM replacement parts in terms of fit and finish. "The facts do not support a claim that all of the aftermarket parts specified in the class action are inferior, nor that a vehicle repaired with any of these aftermarket parts is worth less than if the vehicle had been repaired with OEM parts. Aftermarket mechanical parts have been successfully used to repair vehicles for decades with no detrimental impact on consumers," he said.

Hogarty added that it has been Keystone's experience that there have been virtually no safety issues with the parts it has distributed. He cited a U.S. General Accounting Office report in early 2001 which focused on the safety of aftermarket crash parts and the National Highway Transportation and Safety Administration's (NHTSA) role in regulating these crash parts. According to NHTSA, it has not taken any action to regulate aftermarket crash parts because studies conducted to date and other data and analysis do not demonstrate that there are safety-related problems with these parts.

"We welcome the opportunity to demonstrate to the Court what the marketplace already knows, that substantially all the products we distribute are of like kind and quality to OEM parts. Most consumer groups support the use of aftermarket products as the most cost-effective method of moderating increasing automobile insurance rates. To effectively ban the use of aftermarket collision replacement parts through the use of class actions, would restore OEMs to a monopoly pricing position, resulting in much higher repair costs and insurance premiums," Hogarty said.

"While Keystone is confident as to the quality of the parts that it distributes and believes that it will ultimately prevail in the class action, litigation is costly and outcomes are difficult to predict. A substantial verdict against Keystone would have a material adverse impact upon the company and its operations," he added.

Keystone Automotive Industries, Inc. distributes its products in the United States primarily to collision repair shops through its 114 distribution facilities, of which 21 serve as regional hubs. Its product lines consist of automotive body parts, bumpers, and remanufactured alloy wheels, as well as paint and other materials used in repairing a damaged vehicle. These products comprise more than 19,000 stock keeping units that are sold to more than 25,000 repair shops throughout the nation.

©2002 Collision Repair Industry INSIGHT
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