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Thursday, 30 July 2009 12:32

Double Whammy on DRPs and Steering Hits Collision Repairers in California

On July 9, a Los Angeles County appelate court upheld Infinity Insurance’s claim that it is only liable for all of its insured’s costs if the vehicle owner uses an Infinity DRP shop for repairs, otherwise it is only liable for 80% of the repair costs.

An unrelated legislative move, AB 1200  may allow insurers to continue citing the benefits of their DRP programs to car owners even after they have already selected a shop, which is illegal under current California law. See story here at Autobody News.com or July Western issue for more on AB 1200 (Hayashi).

Plaintiff Eugene Maystruk sued defendant Infinity Insurance Company (Infinity) for allegedly violating subdivision (d)(2) of section 758.5, which states that if the insured “elects to have the vehicle repaired at the shop of his or her choice, the insurer shall not limit or discount the reasonable repair costs based on charges that would have been incurred had the vehicle been repaired by the insurer‟s chosen shop.”

The parties disagree as to whether Infinity’s vehicle repair policy violates subdivision (d)(2) by providing two tiers of coverage: (1) 100 percent coverage for reasonable costs incurred at a facility selected by the insurer; but (2) only 80 percent coverage for reasonable costs incurred at a facility selected by the insured.

The trial court dismissed the complaint because Section 758.5 “does not require insurers to pay 100 percent of reasonable repair costs incurred at an auto repair shop of insured’s choosing.”

Infinity sold Eugene Maystruk a Repair Satisfaction Vehicle Program (“RSVP”)  Physical Damage Only Policy, which covered 100 percent of “the fair and responsible charges” for repairs performed at affiliated “RSVP” shops. However, the policy limited coverage for repairs performed at non-RSVP shops to 80 percent of the reasonable repair costs.

The policy listed 80 affiliated “RSVP shops,” that are exempt from the limitation of coverage clause. Of the 80 RSVP shops listed in the policy, 18 are located in the Los Angeles area where Maystruck lives, however he filed a claim with Infinity and had the vehicle repaired at a non-RSVP shop of his choice. After approving the repairs to Maystruk’s vehicle, Infinity paid 80 percent of the repair costs according to the RSVP policy.

On October 26, 2007, Maystruk filed a class action suit against Infinity, alleging Infinity’s discounted coverage of non-RSVP shop repairs violated Section 758.5.

Infinity argued the statute did not require insurers to pay 100 percent of all reasonable repair costs in excess of deductible. Infinity asserted Section 758.5 permits a reduced rate of coverage for repairs performed at non-RSVP shops as long as the reduction is not based on the amount that would have been charged by an RSVP shop. Because the policy’s coverage limitation was not “based on charges that would have been incurred had the vehicle been repaired by the insurer’s chosen shop,” Infinity argued its policy did not violate the statute.

The trial court found the statutory violation claim must fail because the coverage limitation was not based on the amount that would have been charged by an RSVP shop, and amending the complaint would be futile in light of Maystruk’s failure to establish facts sufficient to state a cause of action. Thus the trial court dismissed Maystruk’s action. Maystruk appealed the judgment.

On July 9, 2009, the Court of Appeal rejected Maystruk’s argument that Section 758.5 effectively prohibited the two tiers of coverage at issue in this case. Looking first to the language of the statute itself, the Court held the statute was clear and unambiguous.  Because the text of the statute was unambiguous, the Court had no need to review and analyze the legislative intent of Section 758.5 for statutory interpretation.

Most ominously for California consumes and repairers, the Court of Appeal found nothing in the statutory text of Section 758.5 requires insurers to pay 100 percent of reasonable repair costs regardless of where the vehicle is repaired. The statute specifically requires an insurer to pay 100 percent of the repair costs only when the insured accepts the insurer’s recommendation to take the vehicle to a specific shop, in which case “the insurer shall cause the damaged vehicle to be restored to its condition prior to the loss at no additional cost to the claimant other than as stated in the policy or as is otherwise allowed by law.” Section 758.5(b)(2).

“If the Legislature had intended to require insurers to pay 100 percent of a vehicle’s repair cost regardless of whether the insured took the vehicle to a recommended shop, it would have expressly said so.” Thus, the Court held Section 758.5 does not necessarily prohibit two-tier coverage policies such as Infinity’s.

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