I. Backround: The State of the Law in New York
In New York, as in most states, the insurance industry has been able to lobby state legislatures to enact “toothless” insurance laws that claim to regulate the insurance industry without actually doing so. As a result, most insurance companies believe, and rightfully so, that they can exploit the law with impunity and bully insured’s into having their cars repaired by captive and tightly controlled repair shops. Fortunately, most states including New York, also have little known but effective consumer protection laws designed to protect consumers from improper corporate behavior.
New York’s “toothless” insurance statute is called Insurance Law Section 2610, known as the “anti-steering law.” It states that not only do consumers have an absolute right to select the repair shop of their choice, but that an insurance company may not recommend a repair shop without a consumer request to do so. Of course, nowhere does this “anti-steering law” provide for a remedy to a consumer when the statute is violated. Rather, the law gives the power to raise a violation only to the Attorney General or the Department of Insurance, and not the consumer or his chosen repair shop. New York’s Consumer Protection Law can be found within the state’s General Business Law and specifically at section 349. The law was originally enacted to protect consumers from unscrupulous business practices but has been expanded to include any consumer oriented conduct that is materially misleading which causes harm to a party.
Thus, it is here, where the interests of large corporations overlaps with the interests of small businesses, that the legal battle between insurers and independent repair shops is taking shape.
II. Progressive’s motion to dismiss
In our lawsuit we alleged that Progressive, as one of the largest automobile insurance companies in the country, used intimidation, threats, disparaging statements and direct lies about North State in order to force North State’s customers and others similarly situated into using Progressive’s network of direct repair shops and that these actions caused harm to North State. In other words, that Progressive purposefully and improperly misled and deceived customers about both North State and its own repair shops for their economic gain and to North States economic detriment.
At the close of the discovery phase in the case, Progressive moved the court for a dismissal. It did so by making two divergent but significant arguments.
First, Progressive argued that its actions in connection with the way it “offered” its Direct Repair Program was not misleading or deceptive.
Second, Progressive argued that even if the way it offered its direct repair program was misleading and deceptive, New York’s Insurance Law did not allow a consumer or a repair shop such as North State to bring such an action.
Thus the court was forced to make three separate but intertwined decisions:
First, did Progressive act improperly?
Second, if they did act improperly, were those actions of the kind contemplated by the Consumer Protection Law?
And third, if Progressive acted improperly and those improper actions violated the consumer protection law, did the fact that those actions also violate the Insurance Law matter?
As explained below, the court disagreed with each of Progressive’s arguments and denied Progressive’s motion to dismiss. (Dennis Artese, Esq., of the firm of Anderson, Kill & Olick, authored the legal papers submitted on behalf of North State and the decision issued by the court could not have been possible without the immense effort and dedication of Mr. Artese and the Anderson, Kill & Olick firm.)
III. Did Progressive act improperly in violation of the Consumer Protection Law?
In response to this question, North State submitted evidence obtained from its customers that Progressive used deceptive and misleading tactics in order to bully consumers into having their cars repaired at its DRP shops. This evidence included testimony from North State customers chronicling the lies and misrepresentations made by Progressive’s employees about North State. North State also relied upon similar cases where Insurance Companies had been found guilty of violating New York’s Consumer Protection Laws as well as on the decision in the matter entitled MVB Collision v. Allstate, where a Federal Court found that actions such as disparaging statements, intentionally declaring vehicles a total loss and “steering” were deceptive practices as contemplated by the Consumer Protection Statute. (Here a special thank you and expression of appreciation must go out to the owners of Mid-Island Collision in Long Island, New York, as well as to their Counsel, for obtaining this extremely important decision.)
After viewing the evidence submitted by both sides, the court held: “North State has submitted evidence that Progressive employees made disparaging, untrue statements to its insured’s concerning North State, in connection with the DRP, that caused Plaintiff to lose customers and that such evidence of misrepresentations, made in connection with its DRP, an established program involving billions of dollars and thousands of consumer-insured’s was sufficient to violate the consumer protection statute”.
Thus having dispensed with the question of whether Progressive’s acts could be deemed deceptive and misleading in violation of the Consumer Protection Law, and answering that question with a resounding ‘YES,’ the court turned to the question of whether North State had a right to make such a claim at all.
IV. Are North State’s claims barred by the Insurance Law?
As stated above, Progressive predictably relied upon the argument that North State’s consumer protection action was simply a veiled “steering” claim which was barred by New York’s Insurance Law. This argument has been made by insurance companies in nearly every jurisdiction (see the California “Hughes v. Progressive” case at www.autobodynews. com) and in fact Progressive had been successful in making this same argument in New York in another matter involving MVB Collision. (See MVB Collision v. Progressive, Nassau County, New York).
After viewing all of the evidence submitted in this case however, the court disagreed with Progressive and held that because an insurer’s misrepresentations to its insured’s as part of a broad DRP is enough to violate the consumer protection laws, the fact that those misrepresentations also violate the Insurance Law does not stop the collision repairer from being allowed to bring an action against the insurance company.
The court again looked to the MVB Collision v. Allstate case for guidance when it wrote: “With respect to the argument that the plaintiff’s cause of action was really a disguised steering claim, the Allstate Court held: Here, by contrast, there is evidence of a free-standing claim of deceptiveness’ that simply happens to overlap’ with a claim under the Insurance Law. The alleged scheme to dissuade Allstate insured’s from going to Mid Island involved not only steering but also, inter alia, alleged defamatory comments. Thus, because plaintiff’s § 349 claim merely happens to overlap’ with provisions of New York Insurance Law, it is not an improper attempt to circumvent the lack of a private right of action under the Insurance Law.”
II. What does it all mean?
So what does the North State case, MVB v. Allstate and Hughes v. Progressive mean for the collision repair industry today?
First, the cases show that individual repair shops and the industry as a whole now have a means to combat the illegal steering practices so long a staple of the insurance industry. By asserting your rights as a consumer under your state’s consumer protection laws, you as a business now have the means to stop improper steering as soon as you become aware of the practice. While lawsuits can be expensive, the costs of a suit pale in comparison to the amount of business that a shop loses at the hands of illegal steering. Further, now that the precedents are being set, attorneys in your state will be much more willing to bring an action on your behalf which should bring litigation costs down as well.
Second, but perhaps even more critical is the fact that as a result of these and other lawsuits, there are now a growing number of legal precedents that are establishing exactly what constitutes improper, deceptive and illegal steering activities in the insurer-collision repairer relationship. For example, the court in the North State case took great pains to define what it considered “improper conduct” to be and looked to the earlier MVB Collision case for help in crafting its definition. The practice is called “setting and defining precedent” and it is the way in which our laws and our society develop over time. Thus, cases like North State v. Progressive and MVB Collision v. Allstate are actually helping to define what it is an insurance company can and cannot do when interacting with a collision repair business and the importance of these and other cases like them cannot be overstated.
In the end, the conflict between the independent repairer and the insurance industry will of course continue. However, the legal precedents now set by North State v. Progressive and other matters are working toward establishing the legal and practical boundaries within which an insurance company may conduct itself.
Anthony J. Mamo is an attorney practicing in Westchester County New York. He specializes in litigation on behalf of individuals and small businesses particularly in the collision repair industry. He has been involved with the representation of North State Custom since 2005. He may be contacted by email at Mamolawfirm.com or by phone at (914) 631-5050.