Wednesday, 15 April 2015 00:00

MS Attorney General Jim Hood Asks U.S. for Probe of ‘Steering’ of Customers by Insurers

Mississippi Attorney General Jim Hood has asked U.S. Attorney General Eric Holder to investigate allegations that some insurance companies’ are “steering” auto policyholders to certain repair shops and coercing those shops to use inferior replacement parts.

The intent of those practices is to pad the insurers’ bottom line, Hood said in the letter dated March 13.

Hood’s letter is part of a broad legal challenge to such practices.

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And it comes during an election year in Mississippi in which the incumbent insurance commissioner has a challenger.

John Arthur Eaves Jr. of Jackson is the lead attorney representing 17 states thus far and 500 body shops across the nation in cases being adjudicated in the U.S. District Court for Middle Florida.

The cases are being tried as multi-district litigation because of their similarities.

A Mississippi case, Capitol Body Shop Inc. et al v. State Farm Mutual Automobile Insurance Co. et al, faces a [March 20] deadline to be refiled after Judge Gregory Presnell sent it back “without prejudice,” meaning it could be resubmitted with changes.

Eaves noted that in 1963 the Department of Justice entered a consent decree with insurance trade associations to halt the “steering” practice.

That point is raised in Hood’s letter to Holder, which also states that “insurers are implementing programs which require the use of after-market parts or re-manufactured parts, without disclosing the use of such to consumers and in spite of the fact that such parts are not of the same like, kind and quality of the original equipment manufacturer. This practice risks both the safety of the consumer, as well as the integrity of any vehicle warranties that the consumer may have otherwise.”

For example, Hood said, “body shops have reported to my office that they are pressured into accepting bids from [State Farm’s]  . . . online system,” Parts Trader, “ which “State Farm requires its ‘Select Service’ shops to use for obtaining parts.

“Body shops have reported to my office that they are pressured into accepting bid from Parts Trader for after-market or remanufactured part that are unsafe and far below the quality of the original equipment manufacturer.”

Hood asked Holder to see if such practices not only violate the 1963 consent decree but also federal laws and regulations.

Hood said on “Anderson Cooper 360” on CNN last month that insurers that use such practices attempt to “use their economic power to grind down working people.”

He said in response to a question that he is “reviewing options” as to which actions he might take.

State Farm issued this statement to the Mississippi Business Journal:

“Our customers choose where their vehicles are going to be repaired. We provide information about our Select Service program while at the same time making it clear they can select which shops will do the work.”

Meantime, the owner of Clinton Body Shop has the distinction of being a litigant against State Farm and also Republican candidate for state insurance commissioner.

John Mosley is challenging two-term Commissioner Mike Chaney in the Aug. 4 party primary. There are no Democratic candidates.

Mosley would like to see changes in how the department is run, and how campaigns for the office are run.

For starters, he said that if he is elected, he would ask the Legislature to prohibit campaign contributions from insurance companies.

Turning to auto insurance, he noted that the department website states that “the most an insurance company shall be required to pay for the repair of a vehicle . . . is the lowest amount that such vehicle . . . could be properly repaired or replaced . . .  within a reasonable geographical or trade area of the insured.”

“Most insurance policies actually provide for greater payment than what is statutorily required . . . .”

Mosley said in an interview that “you don’t know what a struggle that is” to find one of those insurers that would pay beyond the minimum.

He recommends changing the wording of the guideline and the state law it is based on to include a definition of “properly” by adding language to the effect of “adhering to all manufacturers’ specified repair procedures.”

Also, he would like the see the licensing of body shops. Currently shops may voluntarily subscribe to the standards of I-CAR, or the Interindustry Conference on Auto Collision Repair, an international not-for-profit organization.

Moving to another area, Mosley said that property and casualty insurance needs more transparency.  He supports the latest attempt to pass what has been called the Clarity Act, which would make it easier to determine how insurers received in premiums and how much they pay out in each zip code.

The effort was launched after Hurricane Katrina and coastal homeowner’s policyholders felt that they were paying a disproportionate share.

He said that Chaney has been reluctant to support the measure till this election year. He said the information is available in the commissioner’s office, but “it’s not an easy task to look and see what the losses are by zip code.”

“These folks on the coast are still paying higher premiums 10 years after Katrina. And folks in the other parts of the state think their premiums are higher because they think they are subsidizing the Gulf Coast.”

Chaney said that he “killed” two earlier versions of the act in the past because using the zip codes would have been too fragmentary. He said he and others started working on the bill last year and reframed measure, which also tracks claims and premiums by county. Gov. Phil Bryant signed House Bill 739 on March 13.

If he were to become commissioner, Mosley, 61, acknowledged in response to a question that he could be seen as in a potential conflict of interest of regulating the auto insurance industry while depending on it.

He agreed the best thing would be for him to put his business in a blind trust where he would have no dealings with it as long as he held office.

Chaney, 71, is the 11th person to hold the position of commissioner since the department was established in 1900, he said.

The department benefits from the stability of having a strong continuity, Chaney said.

He said that the body shops have some valid points about what kind of parts they use, “but in many cases the original parts are not as good some of the replacement parts they’re using. You have to worry about the safety of automobiles.”

Meantime, the  labor rates in Vicksburg, where he lives, are typically $50 to $55 an hour, Chaney said, adding, however, that in some cases department investigators have found that “shops are trying to get $70 to $75 an hour.”

Chaney believes that the current outbreak of hostilities between body shops and insurers — at least in Mississippi — was fed by a horrendous hailstorm two years ago.

The storm “did $500 million in damage from Vicksburg to Meridian in a band about 15 miles wide. A hundred and 80 million of it was in automobiles in the Jackson metro area. About 20 body shops were making all that money. That’s when our nightmare began with the body shops . . . which were billing without preauthorization” from the insurers.

“It basically was a spitting contest between the body shops and the insurance companies. We didn’t have a lot of complaints from consumers. We were able to take care of them. John [Mosley] made a lot of money during that time.”

As for contributions from insurance companies regulated by the state, he said his position is “you’ll still get good government whether you contribute to me or not.”

He conceded that it takes a lot of money to run for the office. He’ said he’ll need $300,000 to $400,000 this year. As of Jan. 30, his campaign has received $136,084.13 and had cash on hand of $267,921.99, according to the secretary of state’s office.

But in point of fact Chaney said: “We don’t take money from big insurance companies.”

Otherwise, “if I see where I have to regulate somebody who has given me money, I’ll refuse it,” Chaney said.Or if someone is offering a campaign contribution to curry favor, “I’ll prosecute ‘em.”

Mosley’s campaign was not started till late February, and so his first reporting deadline will be May 8.

 

We would like to thank the Mississippi Business Journal for permission to reprint this article.

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