The suit seeks unspecified financial damages and names 27 insurers, including Illinois-based State Farm, which has the largest market share in the state at about 25 percent. Others with large market share include Ohio-based Progressive Insurance and Indiana Farmers Mutual Insurance Co.
The suit accuses the insurers of “engaging in an ongoing, concerted, and intentional course of action and conduct with State Farm acting as the spearhead to improperly and illegally control and depress the automobile damage repair costs.”
In addition, “The insurance companies (“Insurers”) are improperly intruding upon the relationship between the shops and consumers and placing the driving public at harm by their practices.”
As it pertains to direct repair program (DRP) shops, the suit also accuses the insurers of “engaging in an ongoing pattern and practice of coercion and implied threats to the pecuniary health of the individual plaintiff businesses to force compliance with unreasonable and onerous concessions.”
Tony Passwater, IABA executive director, states, “There’s going to be a battle. For decades the insurers have interfered with the collision repair professional’s obligation to restore the vehicle back to pre-accident condition as humanly possible. It has been well documented with the 1963 Consent Decree. Since then, over the last two decades, the pressure to compromise the repair quality and safety has increased with many insurer mandates and cost controls. It must stop; the driving public deserves a vehicle that has been repaired properly and is safe.”
Passwater says, “I am sure that in the near future possibly hundreds of shops will stand up and join this action to allow our industry to repair the vehicles properly for the safety of the consumer. It is unfortunate that the driving public is bombarded daily with the billions of dollars of advertising the insurers are spending to convince them that they are a “good neighbor” or “on their side,” but once this action begins to unfold, the real nature of what has been happening will certainly be revealed.”
“John Eaves Jr., lead counsel for the actions across the country, is following a very organized and strategic plan to maximize the effect of the lawsuit for the industry. Some of the top tobacco litigators in the country are now included as legal counsel for many states. Former attorney generals are counsel for many members. The fight is beginning to shift to a more even playing field.”
When insurers don’t cover the full cost of repairs, “it’s such a difficult thing to pass on to a customer,” said Kevin Wells, who operates Quality Collision Inc. in Bloomington, IN, and is a plaintiff in the suit. Wells said he often just eats the cost the insurance company won’t pay.
“I’m taking it in the shorts by about $6 an hour for every job I do,” Wells said.
The lawsuit takes aim at State Farm, which uses its dominant and influential position among other insurers in “spearheading efforts to control and artificially depress damage repair costs,” the suit alleges.
State Farm spokeswoman Missy Dundov denied the allegations, but declined to elaborate, according to the Associated Press.
“This suit has no merit and in no way accurately describes the business relationship State Farm has with thousands of body shops across the country,” she said.
A spokeswoman for Indiana Farmers said that the company had not received notice it had been named in a suit.
A search of complaints against State Farm filed with the Indiana Department of Insurance did not reveal any filed by body shops, said department spokeswoman Alexandra Peck.
Body shops say State Farm conducts surveys of the going labor rate shops charge in a given area. The data and methodology are not disclosed, shops complain. “Shops are simply required to blindly accept State Farm’s pronouncements regarding these matters.”
The insurer attempts to prohibit shops from discussing the labor rates they provide as part of the surveys, “asserting any discussion may constitute illegal price fixing.”
Shops that complain the labor rate is inadequate are often told they are the only body shop in the area to say so and that they don’t conform to the “market rate.”
In fact, “State Farm knew multiple shops had attempted to raise their labor rates and advised State Farm of such,” the suit alleges.
The shops allege insurers have failed to abide by industry standards for auto repairs and repair-estimating databases. At the same time, many insurers pressure shops to reduce costs by using recycled parts. But used parts like doors can require hours of additional labor to be made to fit properly and to be reconditioned.
Ultimately, shops are required to either make “less than quality” repairs or suffer a financial loss. Taking shortcuts raises the specter of safety issues, but once a vehicle is repaired, it’s not easy to spot problems such as improper welds that might be hidden by seam sealer.
Neither scenario is palatable to many body shops.
“There are a lot of them that have hung it up and said, ‘That’s it. I can’t take it anymore,’” Passwater said.
“The guys can’t make it. It’s not that they are bad businesspeople,” said Scott Blake of Blake’s Carstar Collision Center in LaPorte, IN, and president of the IABA.
Some shops have survived cost pressures by adding services, such as applying sprayed-on bed liners for pickup trucks. Some shops have purchased others through a roll-up strategy intended to improve efficiencies.
Passwater said the state once had about 2,000 shops; there are now 800 to 1,000.
The 34-page suit alleges insurers have violated the federal Sherman Act, both in price-fixing and through boycotting tactics.
They contend the boycotting efforts include insurers telling policyholders that a certain shop will be more expensive and that choosing it also means they’ll be responsible for additional rental-car charges.
Another tactic, body shops allege, is to tell consumers the work won’t be guaranteed by using a shop that doesn’t conform to a repair program agreement. That’s misleading, however, because insurers require all shops to stand behind their work for a period of time.
The collision shops seek unspecified compensatory damages for under-payments as well as damage for lost business opportunities.
They also seek an injunction that would require insurers to modify their practices.