State Farm, the nation's largest car insurance company, has discovered after a careful review of its records, that it first told federal regulators about problems with Toyota (TM) cars in 2004. The insurance giant had made earlier statements that it first reported issues with cars from the world's No.1 vehicle manufacturer in 2007. The State Farm story was first reported by Reuters.The news raises several issues. The first is why transportation regulators never raised an alert about the 2004 data. The answer may be that the information was benign and not worthy of further examination. State Farm hasn't said which vehicles its report covered and what the nature of the problem was.
Government transportation officials may also complain that they cannot review in depth every complaint they receive. If they use that defense, it will raise pressure on the National Highway Traffic Safety Administration, which has already been criticized for acting too slowly on Toyota quality issues.
Another issue the State Farm disclosure raises is that Toyota should have been aware of any product problems with its cars if an insurance company was. Congress will certainly press this issue when the House Oversight and Government Reform Committee questions Toyota CEO Akio Toyoda on Feb. 24.
The new information will probably play into a number of class actions and product liability lawsuits against Toyota. As Daily Finance reported on Feb. 19, Dimitrios Biller, a lawyer for the car company who oversaw Toyota's nationwide defense efforts against rollover lawsuits from 2003 to 2007, says the firm was aware of product defects during his tenure and withheld the information from plaintiffs who filed lawsuits against the company. Biller has also filed his own lawsuit against Toyota, which involves matters about his compensation and employment contract.
Toyota now has to be concerned that the information from State Farm and Biller will make it appear that it repeatedly concealed data about product problems. If that ends up being the case, Toyota's legal liabilities could grow into the billions of dollars. The Financial Times has already reported that lawsuits against the company are seeking over $3.2 billion.
There's more bad news about Toyota in the press almost every day, but the State Farm information may end up being among the most damaging.
Why do investors make the decisions that they do?View Course »