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Thursday, 31 August 2006 17:00

DOI declares arbitrary capping of paint costs to be unfair claims practice

The California Department of Insurance (DOI) has taken the first steps toward eliminating a long-standing thorn in the side of the collision industry - capping paint costs. In late August, the DOI held a workshop, chaired by staff members Deputy Insurance Commissioner Woody Girion and Tony Cignarale to discuss capping paint costs by insurance companies. 

Over ten years ago, the DOI issued a letter that stated the department's position on paint capping. Their position at that time was that the practice was illegal. This meeting reinforced that position once again.

After a lengthy discussion, Cignarale stated that the act of arbitrarily capping paint costs is an unfair claims practice. He also advised the insurers that a single method of calculation must be used throughout the process - cherry picking the calculations is not acceptable.

According to Girion, "the meeting was prompted because the DOI received numerous calls and complaints regarding the capping of paint and material. We wanted to fully vet this issue.

"Our interpretation of applicable law says it is illegal to cap paint materials. Insurance companies cannot tell the shop that the paint charge is too much. This is an arbitrary cap. 'This is all we are going to pay' is capping.

"The body shops and insurance companies differ in their interpretations. Shops say the caps are unreasonable. Insurer's say this is merely a threshold. The results of our research were quite amazing. Investigation exposed unacceptable patterns and practices in both body shops and the insurance industry. We are confident that ultimately we will be able to solve this issue to the satisfaction of everyone."

Girion expressed the hope that clarification of the issue could alleviate long-standing concerns, along with other issues that may have been festering. "We will encourage understanding between all the parties.

"The DOI has been concerned about the capping issue for quite some time, but the wheels of justice turn slowly," continued Girion. "It is not always transparent what the problem is when the parties are entrenched in their views, clouded by emotions, tempers and past practices. Our job is to look at this issue objectively and resolve it."

Shops stand up

Both California industry associations were present at the hearing - the California Autobody Association (CAA) and the Collision Repair Association of California (CRA).

CRA president Gene Crozat put on a dramatic presentation to demonstrate the extent of the capping problem. He put out a solid silver bar and cans of paint to show how expensive paint really is. A three-once bottle of specialty paint can cost as much as $700.

"Imagine if you had to go to the safe every time you needed paint," said Crozat. "The system is ludicrous. It was developed over 40 years ago. This was a window that had to be broken. The state is losing around $50 million in sales tax."

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The success of bringing this issue to the forefront can be attributed to the grassroots efforts of both associations. Filing complaints and sending in receipts has helped bring the severity of this issue to the DOI's attention. Sitting down and explaining the situation to Girion brought about a better understanding of the problem.

Crozat spoke quite frankly to the DOI. "If you don't step up and do something, you and the insurance companies are in bed with each other. That's anti-trust and DOI is responsible."

And speaking to industry colleagues he pointed out that "shops can make a difference if they just start standing up for themselves and speaking out against unfair practices. We need to protect our customers by putting money back in their pockets. Customers should not have to eat the extra expense, nor should the body shop."

Kudos to DOI

CAA and CRA both made a point of thanking Girion and Cignarale for their support of the collision repair industry on this issue. Girion told CRA that if he understood the issues better, and he found that the allegations bear weight, he would respond to unlawful conduct. He has spent many hours discussing the paint capping issue and waded through numerous documents to achieve a clearer picture of the industry's concerns, demonstrating the DOI's willingness to take steps to correct any unlawful conduct.

A follow-up meeting will be held to elaborate on the DOI's position and to determine how this can be made part of the insurance industry market conduct survey, which is a preliminary review process of insurers that pro-actively advises them of possible violations and provides the opportunity to take corrective action before disciplinary action results.

More work to do

The fight has just begun. When they run into paint capping, shop owners are encouraged to send complaints to the DOI with a copy to Deputy Commissioner Woody Girion, California Department of Insurance, 300 Spring Street, South Tower, Sacramento, California 90013. It is important to continue to provide documentation to demonstrate that the practice of paint capping is still rampant.

 

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