In the federal lawsuit, 14 Indiana shops and others have accused State Farm Insurance and competitors of extracting “unreasonable and onerous” concessions on vehicle repair costs. When a shop doesn’t comply with price ceilings, the insurers dissuade policyholders from choosing that shop for repairs by telling them it has quality issues or gets lots of complaints, the shops allege in the suit filed April 2, 2014. The 34-page suit alleges insurers have violated the federal Sherman Act, both in price-fixing and through boycotting tactics.
Insurance company dictates are “placing the driving public at harm,” says the lawsuit. (Other defendants include Allstate, American Family, Auto-Owners, Erie Insurance, Indiana Farmers Mutual, Liberty Mutual, Nationwide, Shelter General, and Zurich American.)
Pat Johnson, shop owner of Brothers Body & Paint in Martinsville, IN, was cut from State Farm’s Select Service Program in November 2013, unable to live with the its requirement that he buy vehicle parts through the online PartsTrader site instead of using his own long-time suppliers. Now Johnson says he is feeling the pain of losing business from State Farm. Revenue at Brothers Body & Paint has fallen by $100,000 so far in 2014 from his former $2 million annual gross on repairing about 60 vehicles a month. Johnson has said he may need to cut his 12-person staff, but he’s adamant about not letting State Farm dictate his parts-buying.
“They’re a force to be reckoned with. You don’t want to argue with them. But sometimes you have to stand your ground,” Johnson said.
“They trusted me for 20 years, and now I’m nothing,” Johnson said of State Farm. Johnson has repaired cars in Martinsville since 1982, and said insurers are continually expanding their lists of work they won’t fully pay for. That included no longer paying full cost for installing corrosion protection inside a bumper and doing fine sanding on body panel paint jobs, he said.
“They don’t tell you not to (perform certain routine repair tasks),” Johnson said. “They just don’t pay for it. If they went to Wal-Mart, they’d pick up 10 things and they’d pay for six. That’s the way they operate,” said Johnson, who has joined the Indiana lawsuit against the insurance companies.
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 $6.00 an hour for every job I do,” Wells said.
Johnson said he’d be happy if insurance companies dropped their approved-shop lists and repair mandates and paid for claims without dictating through reimbursements how body shops like his should do their job.
“I don’t tell them how to sell insurance,” he said. “All I want to do is fix cars.”
Surveys Also Point of Contention
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.
“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 Indiana Auto Body Association (IABA).
The insurance companies have responded in kind in the media, defending their DRP programs as a key way to keep premiums on auto policies under control.
“These lawsuits are another attempt to undermine programs insurers have put together” to hold down vehicle repair costs, said Bob Passmore, a spokesman for the Property Casualty Insurers Association of America, which represents insurance companies.
“The programs have been around 20-plus years, and they are time-tested. People like them. They achieve desired results,” to get vehicles repaired quickly by repair shops vetted by the insurer and at reasonable cost, he said.
“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,” said Missy Dundov, a spokeswoman for State Farm.
Dundov said State Farm built its Select Service network by listing body shops that provide warranties on their work and meet performance standards set by State Farm. But a State Farm customer is “free to choose the repair shop of his or her choice,” even if it’s not on the Select Service list, she said.
When it comes to parts, Dundov said, State Farm’s “current business practice” is to pay for non-factory-made parts only in uses that don’t play a role in crash protection—unless a customer requests otherwise. If a body shop is told to install a used part, “we rely on the repairer to inspect the part and ensure that it is of sufficient quality to repair the vehicle properly,” she said.
Dundov said PartsTrader, “creates a consistent approach to parts ordering,” and does so, “at a competitive price, as quickly as possible.” Body shops overall have had a “quite positive” reaction to the online ordering system, Dundov said.
As for allegations in the lawsuit that State Farm steers customers to body shops in its Select Service network, Dundov said it’s up to customers to decide what body shop to use.
A spokesman for Progressive, Jeff Sibel, said, “We are aware of the new litigation against us and believe that we can demonstrate the fairness in our claims practices at the appropriate time.”
A GEICO spokeswoman, Christine Tasher, said the company won’t comment on pending litigation.
“There’s going to be a battle,” says Tony Passwater, executive director of the IABA, the lead plaintiff. Passwater says that on average, insurers won’t reimburse for $550 to $750 worth of work on a typical repair job of $3,500, leaving it up to the body shop to pick up the unpaid costs. That $550 to $750 estimate of unreimbursed costs will likely be used by the body shops’ attorneys in figuring their damage claims against the insurers.
Passwater said the state once had about 2,000 shops; there are now 800 to 1,000.
Passwater has been promoting the lawsuit among auto body shops around the state and expects that the 24 current plaintiffs will swell by 15 to 20 in the next several months.
But some shop owners, he said, are reluctant to join because “they’re concerned about any retribution the insurance companies might do.”
Eaves said he thinks the numerous lawsuits he and co-counsel are filing could eventually be consolidated in one court. He said he expects to present testimony from “whistle-blowers” who worked for insurance companies and will give evidence of collusion among companies in their business tactics.
But the litigation could be fierce, Eaves said.”We’re anticipating extensive push-back. They’re making billions of dollars by these practices and they’re not willing to give it up easily.”
Even so, Eaves said, several insurance companies have approached him to ask about settling the claims to avoid lengthy litigation and a possible high-stakes jury trial. “We are already in discussion with three insurance companies that are willing to discuss resolving it. I was kind of shocked. I never had a case where somebody came so quickly and wanted out.”