That was one of the questions at the heart of a panel discussion on “indemnification” at the Collision Industry Conference (CIC) held in Oklahoma City in late April.
Rick Tuuri, who chairs CIC’s “Insurer-Repairer Relations Committee,” said the topic was triggered by the indemnification clause found in many direct repair agreements. That clause requires the participating shop to “indemnify” (or “hold harmless”) the insurer, which could prevent the shop from pursing a legal claim against the insurer, or make the shop responsible to compensate or defend the insurer in a legal claim arising from repairs made under the agreement.
“I think for repairers it ultimately comes down to this: If the contract is going to hold me to indemnify the insurer against anything caused by the repair, then insurers should ultimately say, ‘You’re responsible for indemnifying us, so you make all the (repair) decisions and we’ll pay you for what the repair is,’ ” panelist Aaron Schulenburg, executive director of the Society of Collision Repair Specialists (SCRS), said. “I think most repairer would be fine with that. I think where the issue comes is when insurers start to be involved in the process by specifying part types or repair procedures—to identity how the repair shop does their job –while also asking to be indemnified against anything that results from that. If there’s involvement in the decision-making process, I think the repairer believes there should also be involvement in the liability.”
Oklahoma shop owner Gary Wano agreed. He said he thinks that, indemnification or not, if a problem occurs based on a repair, the shop and insurer will both find themselves in court.
“The argument from the repairer standpoint is that if the insurer…had left me to do what I do—put the part on I want to put on, or do the operation the way I wanted to do it—none of us would be in that court to begin with,” Wano said.
Perhaps not surprisingly, insurers on the panel viewed the issue differently. Allstate’s Randy Hanson said that, first, he’s not sure it’s much a topic of concern. He said that in the decades he’s been involved with his company’s DRP, he doesn’t recall a question from shops coming up about it.
“I can also say in 30-plus years, I have not once evoked an indemnification clause in a contract for a DRP partner,” Hanson said. “Not once.”
He said five of the six indemnification elements in the Allstate DRP agreement have nothing to do with repair issues. They prohibit such things as a shop making a claim against the insurer if a shop employee makes a workers’ compensation claim, or someone having repaired vehicles under the agreement seeking Allstate employee benefits.
But Hanson said Allstate needs repairers to fix cars for its policyholders, so if concerns about indemnification prevented enough shops from signing the agreement, his company would have to find ways to address that.
“I don’t want to be so crass as to say take it or leave it, but they’re not going away.” Hanson said of the indemnification clauses. “Everybody is protecting themselves to a certain extent. To an extent that we can’t do business together? Let’s have a conversation. I’m open for that. I think we’ll listen. And I think we’ll make changes where it’s appropriate.”
Panelist George Avery, a claims consultant with State Farm, said at first that like Hanson, he hasn’t seen the indemnification clause being much of an issue for shops on his company’s direct repair program. But he also said State Farm did make a significant change to its indemnification clause.
“Our initial Select Service agreement did have a 1-way hold-harmless against us,” Avery said. “It was in our benefit. As a result of input from our (repairer) advisory council, we changed that and now it’s both ways. We added a two-way hold-harmless for both the repairer and for us.”
But he also pointed out that some of what shops consider insurer involvement in the repair process is driven by the insurer’s policy contract with its customers. He said State Farm’s insurance policy, for example, says it can designate the type of replacement parts for which it owes.
“George has a good point: The policy is the policy,” Schulenburg conceded. “You’ve set an expectation with your policyholder on what you owe for. I don’t think there’s an issue there at all. You owe for what you contracted for. However, there are third-party claimants, and they don’t have a policy with you.”
Schulenburg also pointed out that insurers attempt to involve themselves in repair decisions beyond just parts. The policy doesn’t inform the consumer that the insurer may say, “We’re going to section this rail here versus putting it in at a factory seam,” Schulenburg said.
He said that intrusion by insurers into the repair process, pressing shops to do something that deviates from OEM recommendations or their own repairers expertise, is why shops are concerned about the indemnification clause.
Speaking from the floor of CIC, California shop owner Randy Stabler raised several other concerns he has related to indemnification. He said the fact that Avery and Hanson haven’t seen indemnification result in an issue doesn’t mean it couldn’t.
“I’ve never had a fire in my shop, but I have fire insurance,” Stabler cited as an analogy.
He also said it would seem fair that insurers cross-indemnify shops, in case an adjustor, for example, slips and falls while at the shop, or makes inappropriate comments to a shop employee that results in a claim against the shop. He also pointed out that shops have business insurance to protect themselves in the case of an error or omission, but that insurer offering that coverage is basing that policy on protecting the shop, not the insurer with which the shop has a contract.
“When you actually go to your (business) insurance company and say here’s my DRP agreement and they actually look at that, they go, ‘Ooooh. Ooooh. We don’t like that so much.’ So that’s another practical issue we have to be aware of.”
Schulenburg pointed out that the indemnification discussion came about as part of the committee’s effort to craft a set of guidelines for the “most beneficial and productive repairer-insurer relationships.”
“So insurers could say, ‘Look, it’s in there; you should read your documents and if you don’t like it, don’t sign it,’ and repairers could say, ‘Let me fix the car and get out of my business.’ But neither of those things really get us to the goal of this committee, which is to build better relationships between the two parties.”
To that end, committee chairman Tuuri said he drafted a position statement on the topic that reads in part, “Indemnification clauses in DRP agreements…should be fair to both insurer and repairers.”
Wano, Avery and Schulenburg said that initially that seemed like a good addition to the committee’s guidelines for mutually-beneficial insurer-shop relationships.
“We’re not solving the world’s problems here,” Wano conceded. “But as long as the carriers and repairers are willing to sit down and take a look at these things…”