Collision repairers and their representatives have come up with numerous different legal theories about why insurers shouldn’t be allowed to create networks. One of them is based on the now little-known Consent Decree.
In November 1963, the U.S. Justice Department settled a class action suit that it brought against the associations representing some 265 insurance companies, which resulted in their officers signing a “Federal Antitrust Consent Order,” known as the Consent Decree. A consent decree in general is a written agreement in which a company or organization under investigation by a governmental agency agree to do or not do something in the future – without admitting any past wrong-doing. In this case it settled the class action suit without trial. The signers, three insurance trade associations and their members agreed to forever refrain from several practices, including setting prices and steering. They admitted no wrongdoing but agreed to abide by its terms in perpetuity, meaning it’s still binding on its signatories today. The signatories, however, have been absorbed into new associations.
The DOJ filed an action against the associations alleging that they had formulated an “Independent Appraisal Plan” in 1947 “to depress and control automobile material damage repair cost.” The heart of the plan was a scheme to control the work of independent appraisers who prepared estimates of repair costs and got body shops to agree to them. The Government’s case focused on an insurance industry invention called the Combined Claims Committee (CCC) which was established to control collision repair prices. Basically, each CCC member-insurer selected one favored appraiser or appraisal firm in each market area, to the exclusion of others, to receive all of the participating insurer’s adjusting work, as long as this adjuster worked within the guidelines that the CCC established and controlled.
Under the plan, committees appointed by the trade groups would sponsor individuals or partnerships to act as appraisers in assigned territories for all association members. In return for the insurers’ agreement to use them exclusively, the appraisers would agree to depress and control repair costs by arranging (when possible) for shops to agree to estimates before they had examined the damaged vehicles, by “establish[ing] strict labor time allowances,” and by “obtain[ing] the lowest possible hourly labor rate.” The DOJ alleged that the plan violated the Sherman Act. In November 1963 (less than a week after John F. Kennedy’s assassination) the Government’s case was dismissed, pursuant to an agreed order under which the defendant associations were enjoined from pursuing any program that had the purpose or effect of “exercising any control over the activities of any appraiser.”
The Independent Appraisal Plan has never been revived, nor has any program or practice which favors chosen damage appraisers or excludes others.
In the words of Silvie Licitra, well-respected collision industry writer and a collision repairer at the time, resultant payoffs and corruption were rampant because the selected appraiser fixed the labor rates, required arbitrary discounts on parts, and held firm to the labor times published in a guide. These appraisers also had shops with which they had unwritten agreements that their estimates would be accepted, sight unseen. “Those appraisers all had their hands out and if you didn’t pay them off, they’d write lousy estimates (creating) a take-it-or-leave-it situation, the shop being faced with losing the job if they didn’t play ball (with insurers).”
Frank Stepanek, chairman of the National Body Shop Committee of the Independent Garage Owners (IGO) of America (precursor to the Automotive Service Association), was quoted in a November 1963 industry publication: “It’s no longer legal for many insurance companies to demand discounts, set the hourly rates, boycott repair shops [and] use specific appraisers.”
A number of trade associations were targeted in the years following the signing of the Consent Decree. In March of 1964, Allstate Insurance Company filed suit against 109 members of the Central Jersey Auto Body Association (CJABA), charging them with antitrust violations, conspiracy and price fixing. In July of that year, a judge ordered the association members to sign a consent decree of their own. The embittered members reluctantly settled with Allstate, citing lack of funds to finance a protracted legal battle with the company.
In support of the CJABA, an association of central New York body shop owners set up a legal defense fund for the CJABA. Their spokesman was quoted as saying: “It’s with deep regret that this spirit was not nationwide. I strongly urge every body shop or garageman who looks forward to freedom in his business to alert himself and seek remedies that will maintain our rights and freedoms in the industry.”
The legal wrangling went back and forth until the summer of 1967, when a congressional committee called for an investigation into the auto insurance business. U.S. Sen. Philip Hart of Michigan proposed federal oversight of the industry and an amendment to the 1945 McCarran-Ferguson Act as a way to curb insurance domination of the collision repair industry. McCarran-Ferguson effectively shielded the insurance industry from federal antitrust laws by granting states the primary responsibility for regulating insurance. Sen. Warren Magnuson, chairman of the Senate Commerce Committee, made additional calls for investigative probes and even threatened to launch an independent investigation by a special counsel.
Between congressional pressures and Transportation Secretary Don Boyd’s insistence the matter be studied by his department, the White House was prompted to step in. In a message to Congress in early 1968, President Lyndon Johnson called for a thorough investigation into the auto insurance business.
“The Consent Decree was like a Band-Aid,” said Dick Hogg, a suburban Philadelphia body shop owner who remembered the ‘63 action, as well as the business conditions that led to its signing. Hogg also remembers that its signing didn’t usher in a golden age for body shops. “It only gave us temporary relief because like some other laws, there was no enforcement. The terms of the Consent Decree were diluted by the state regulations that are, for the most part, unenforced. The insurance departments give the benefit of the doubt to the insurers.”
Since insurance companies hedged their bets with their chosen appraisal firm, they had control. No auto damage claims were settled unless they passed through The Plan’s sieve, and as you might expect, the dollars that passed through were only those deemed allowable by the insurance industry at large. The typical labor rate for collision repair was between $5 and $6 per hour.
Essentially, the selected appraiser fixed the labor rates, required arbitrary discounts on parts and held firm to the labor times published in a guide. In addition, the appraiser had shops with which one had unwritten agreements to accept their estimates sight unseen.
According to Silvie Licitra's writings at the time, payoffs and corruption were rampant. “It was a real crazy business back then,” wrote Licitra. “Those appraisers all had their hands out, and they were taking money like crazy. If you didn’t pay them off, they’d write lousy estimates. It was a take it or leave it situation because a body shop was faced with losing the job if they didn’t play ball.”
In question, however, is the specificity of the Consent Decree to individual insurance companies today. The Decree was signed by representatives of the three major insurance associations at the time: Association of Casualty and Surety Companies (ACSC)--(Now American Insurance Association) ; American Mutual Insurance Alliance (AMIA)--(Now the Alliance of American Insurers); and National Association of Mutual Casualty Companies (NAMCC)--(Now National Association of Mutual Insurance Companies).
Also, despite their seniority in business the majority of the dominant companies today are not on the list of signatories so represented. State Farm (1922), Farmers (1928) and GEICO (1936) do not, for example, appear on the list of companies represented.
In addition, communication from the DOJ’s Antitrust Division claims that the consent decree cannot be enforced against individual insurance companies, since the companies themselves were not signatories to the decree.
Read the 1963 Consent Decree in full at http://www.ican2000.com/documents/1963/
Content herein draws upon articles published by Charlie Barone and John Yoswick.