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What is paint capping?
Paint capping is a practice instituted by an insurance company that arbitrarily limits the amount of money they reimburse a repair facility for paint and materials on a specific repair order.

To fully understand paint capping, you must first understand how paint and materials are calculated on an estimate. The standard practice in the industry is to multiply the number of refinish hours on an estimate times the shop's posted hourly rate for paint and materials or the prevailing market rate.

For example, the estimate on Mrs. Jones damaged vehicle was written for 10 hours of refinish time. In Littletown, USA, the market rate for paint and materials is $22. So, if you multiply 10 x $22, you'd have $220 for paint and materials.

Mrs. Jones has XYZ Insurance, and their paint thresholds are $200 for single-stage paint, $250 for two-stage (basecoat/clearcoat) and $300 for three stage. In this example, Mrs. Jones would be under the arbitrary cap of $250 since her vehicle – like most vehicles – is basecoat/clearcoat.

In the event the repair facility had a supplement and added three refinish hours, the estimate would now reflect $286 for paint and materials. Using the initial 10 hours and adding three on the supplement, 13 hours x $22 = $286. Unfortunately, XYZ Insurance is only willing to reimburse the shop up to $250.

Now the repair facility is placed in a precarious situation and has a business decision to make. The repair facility has one of three options and, depending on the situation, one may be more attractive than the other. I'm not too certain that I can make a strong argument for the third option but nonetheless, it's an option and many of our members have made that decision. They can:

1. Pass the additional cost on to their customer;

2. Contact the insurer, document their costs and seek reimbursement; or

3. Repair the vehicle and absorb the reduction in net profit on that repair.

Although a repair facility may approach each paint-capping situation differently, one thing remains constant: Society of Collision Repair Specialists (SCRS) members and collision repairers all across the country who sought to be reimbursed for paint and materials beyond the threshold have benefited from the report we issued in 1996.

Prior to 1996, the industry faced an improbable task of receiving reimbursement for paint and materials used on a repair when they exceeded the insurance companyÕs arbitrary cap or threshold. Then-SCRS Executive Director John Loftus received countless complaints and requests for assistance. To help, he would often intercede and speak with the insurance company to explain the justified expense. Due to the time involved in resolving these disputes – as well as the increased frequency – Loftus and the SCRS Board of Directors decided to take it to the next level. They were determined to help our membership while educating the industry in the process.

Over the next several months, Loftus wrote letters to department of insurance (DOI) offices in all 50 states. He requested that they respond in writing as to whether or not arbitrary paint capping was illegal in their respective state. SCRS received responses from 49 of them. Thirty-four said it was illegal and 12 said "maybe." Those that replied "maybe" said it would need to be reviewed on a case-by-case basis. Since the time the study was released, SCRS members have been able to amicably resolve issues with paint caps or thresholds with insurers all across the country. (To view the 1996 SCRS report, click here.)

Unfortunately, the information we've gathered is quickly becoming outdated. That being said, we sent out similar letters to the DOIs in the third quarter of 2002. The results we received were very ambiguous because most were reluctant to give a definitive yes or no. I contacted several of the insurance commissioners, and they recommended that I provide another letter with hypothetical scenarios to rule upon. Those letters were mailed in January, and the results will be revealed later this year in an article I write for BSB. To read this letter, see sidebar, "2003 SCRS Paint Capping Study" on pg. 60 of the magazine. If you're confronted with a paint-capping situation and you seek the difference beyond the arbitrary threshold, what should you do?

Your first step is to contact the adjuster and explain the additional expense. If the adjuster refuses to reimburse you, check to see if you reside in a state where it's illegal by consulting the 1996 SCRS report or contact your state's DOI.

Why is paint capping illegal in some states? Insurance is regulated at a state level, not the federal level, so each state has its own laws. What makes paint capping illegal in some states is that consumers who have an actual cash value (ACV) auto policy need to be notified by a declaration of the limit in the original policy if anything is to be arbitrarily limited or capped.

If paint capping is illegal in your state, you obviously have a better chance of getting paid. But even if it's not illegal, you still want to show the adjuster the 1996 SCRS report (until our new study is completed) and subsequent documentation. Your documentation should include a comprehensive list of the material used serves as an invoice similar to replacing a part on the vehicle.

Documenting your expense isn't as labor intensive as you may think. There are several tools in the marketplace, some of which have been extremely effective. The following are some of the different methods available:

1. Manually document all materials used and calculate the expense.

2. Utilize an automated system such as the Mitchell Refinishing Materials Guide and Calculator, Com-puterLogic's new system or a system provided by your paint manufacturer or supplier.

If you're still unsuccessful in negotiating, contact the adjuster's supervisor and attempt to resolve the issue with him. Continue this process until you exhaust all options.

Resolving these disagreements entails remaining professional at all times and having supporting documentation. Nobody wins when it becomes argumentative. In most instances, providing the documentation resolves the issue.

Work with the facts and not perception. Guessing you've used more material on a job and trying to substantiate it for payment is similar to a customer calling you and requesting an estimate on the number of hours to repair a big dent in his quarter panel. It can't be done so don't expect to be successful if you don't do your homework. Extend the same courtesy to the adjuster as you would your customer, and you may be surprised with the results.

Are you entitled to a markup? Yes. Whether you mark it up – and by how much – is a business decision you need to make. There's no standard rule, although "fair and reasonable" should factor in to your equation. If you expect to be treated fairly, you need to exhibit the same flexibility when negotiating.

Without a doubt, paint capping continues to be an issue in the industry. Although it's not as prevalent as it was in 1996, the fact remains that as the faces in the industry change, the education process starts all over again.

It's up to you to document the facts and to educate those who don't have the knowledge you possess. Remember, it's hard to argue facts. But perception is just that: perception.

Writer Dan Risley grew up in the industry, working in his family's shop as soon as he was old enough to push a broom and pull weeds in the back lot. During his career, he's also worked for BASF, CCC and Process Claims. He's currently the executive director of the SCRS.

Here's the letter and hypothetical scenarios that the Society of Collision Repair Specialists (SCRS) sent to all 50 states' insurance commissioners in January, asking them to rule on paint capping. The results will be revealed later this year in a follow-up article in BodyShop Business.

Dear Insurance Commissioner:

My name is Dan Risley, Executive Director for the Society of Collision Repair Specialists (SCRS), the largest national collision repair trade association in the United States representing over 4,000 independent collision repair shops.

Six years ago, SCRS' Executive Director John Loftus conducted an extensive research project on arbitrary paint capping. Paint capping, also referred to as a paint threshold, is a practice some insurance companies institute to limit the amount of money they reimburse for paint and materials on an estimate without consideration as to the actual cost.

Insurance commissioners in all 50 states were contacted, requesting a written response as to the legality of "paint capping" in their respective states. SCRS received responses from 49 states and then published the information so repair facilities could amicably resolve arbitrary paint-capping issues with the insurance companies and appraisers as the situation arose. This approach of making information available as to what was actually allowed under each state's statutes and rules avoided many misunderstandings and conflicts while, at the same time, allowing for a less stressful claims experience by the consumer. Additionally, vehicles were repaired in a more timely manner due to a more clear understanding of the processes by all involved in the claims process.

Because the data we accrued has become outdated, we're in the process of updating that information. Early in 2002, we sent letters to the insurance commissioners in all 50 states but were discouraged by the responses thus far due to their ambiguity. After speaking with several commissioners, the overwhelming recommendation was to provide hypothetical situations for consideration. Below you'll find four scenarios pertaining to paint capping.

We respectfully request a written response as to how they relate to statutory regulations in your state. The legality of each scenario should be interpreted independent of any contractual agreement the repair facility may have with a particular insurance company. These agreements include DRPs (direct-repair programs). We recognize collision repairers often agree to participate in these programs and agree to specific concessions in return for being listed as a preferred shop in their network and aren't to be considered when formulating your response.

Scenario No. 1:
The collision repair facility writes an estimate to repair a vehicle. The estimated dollars for paint and materials is $416 based upon the standard practice of multiplying the number of refinish hours times the market rate for paint and materials. In this scenario, Mrs. Jones has 16 hours of refinish time on the estimate. The market rate for paint and materials in Littletown, USA, is $26 per hour. $26 x 16 = $416. When Mrs. Jones drops her vehicle off to be repaired, she informs the repair facility that she has XYZ Insurance Company. Upon completion of the repairs, the repair facility submits a bill to XYZ Insurance Company for the full amount of the repair including the $416 in paint and materials cost. XYZ Insurance Company calls the repair facility to inform them that they only pay up to $300 for paint and materials. The repair facility informs the insurance company that they can justify the expense by providing a detailed invoice of the costs. XYZ Insurance still refuses and reduces the check sent to the repair facility by $116.

Scenario No. 2:
Mrs. Jones is in a collision. XYZ insurance company contacts her and informs her that an independent appraiser will be out to estimate the damage. The appraiser writes the estimate according to the guidelines that XYZ Insurance provides. Mrs. Jones then receives a check in the mail from XYZ for the total amount of the estimate less any deductible. XYZ's guidelines for the appraiser specify the maximum amount of money allowable for paint and materials is $300. The estimate contains 15 hours of refinish time. The market rate for paint and materials in Littletown, USA, is $26 per hour. $26 x 15 = $390. Thus, the estimate is written with a cap of $300 such that the appraiser is within the guidelines supplied to him/her by ABC. Mrs. Jones drops off her vehicle for repairs and leaves a copy of the estimate provided by the independent appraiser. The repair facility immediately contacts the appraiser to inform him/her that a supplement would need to be written to cover the $62 in paint and materials lost by virtue of the cap. The independent appraiser informs the repair facility that $300 is all XYZ will pay. The repair facility offers to fax an invoice of all the paint and materials needed once the repairs were completed. The appraiser insists that XYZ will not pay for it. The repair facility contacts the insurance company to receive payment for the additional paint and materials, and receive the same response. The insurer will not pay for any additional paint and material expense.

Scenario No. 3:
The collision repair facility writes an estimate to repair a vehicle. The estimated dollars for paint and materials is $442 based upon the standard practice of multiplying the number of refinish hours times the market rate for paint and materials. In this scenario, Mrs. Jones has 17 hours of refinish time on the estimate. The market rate for paint and materials in Littletown, USA, is $26 per hour. $26 x 17 = $442. When Mrs. Jones drops her vehicle off to be repaired, she informs the repair facility that she has XYZ Insurance Company. Upon completion of the repairs, the repair facility submits a bill to XYZ Insurance Company for the full amount of the repair, including an invoice of $442 for paint and materials cost. The repair facility utilized the Mitchell Materials Estimating Guide, a nationally accepted standard for calculating paint and material. XYZ Insurance Company calls the repair facility to inform them that they only pay up to $300 for paint and materials. The repair facility informs the insurance company that they're under no obligation to agree to a paint cap/threshold. Furthermore, they justified the expense with the invoice of the cost. XYZ Insurance still refuses and reduces the check sent to the repair facility by $142.

Scenario No. 4:
The collision repair facility writes an estimate to repair a vehicle. The estimated dollars for paint and materials is $390 based upon the standard practice of multiplying the number of refinish hours times the market rate for paint and materials. In this scenario, Mrs. Jones has 15 hours of refinish time on the estimate. The market rate for paint and materials in Littletown, USA, is $26 per hour. $26 x 15 = $390. When Mrs. Jones drops off her vehicle to be repaired, she informs the repair facility that she has XYZ Insurance Company. Upon completion of the repairs, the repair facility submits a bill to XYZ Insurance Company for the full amount of the repair, including an invoice of $463 for paint and materials cost. The repair facility utilized the Mitchell Materials Estimating Guide, a nationally accepted standard for calculating paint and material. XYZ Insurance Company calls the repair facility to inform them that they only pay up to $300 for paint and materials. The repair facility informs the insurance company that they're under no obligation to agree to a paint cap/threshold. Furthermore, they justified the expense with the invoice of the cost. XYZ Insurance still refuses and offers to increase the hourly rate from $26 to $28 while informing the repair facility that would be the max they could offer. XYZ reduces the check to the repair facility by $43.

We respectfully request your ruling and written response on arbitrary paint capping in your state specific to the four hypothetical scenarios we provided. We thank you in advance for time and consideration as it's greatly appreciated. If you should have any questions, please don't hesitate to call me.

Dan Risley, Executive Director, SCRS