As insurance companies whittle away at shop profits by slicing our estimates, shop owners are finding themselves going to small claims court with their customers. Why? To collect fees they're owed for repair charges that insurers deem:
- "Included" (part of your overhead);
- "Unreasonable" (no one else charges for that); or
- "Inflated" (we only pay $XX).
In fact, small claims court was one of the issues discussed at a recent Coalition for Collision Repair Excellence (CCRE) meeting. The meeting also included a mock trial.
Now don't get me wrong. This isn't to suggest that you go to court every time one of the above three situations arises (you'd spend your entire life in a courtroom). Besides, it wouldn't be worth your time.
But what do you do when an insurance company only wants to pay $4,958 for a job that realistically costs $8,950 to repair completely and properly? Is it possible to seek - and receive - restitution from an insurance company once they've said "No"?
To answer these questions, a few basic things must be understood. The most important is that the shop is repairing the vehicle for the consumer, not for the insurance company. And if the vehicle owner wants his automobile repaired properly, someone has to pay. If the insurer refuses, then it's up to the owner to decide what to do - not the shop.
Some customers don't really care about their cars. Others simply don't have the desire to pursue a claim - either they're lazy or intimidated by our legal system. Still others don't have the resources to retain an attorney. (Quite often, the fee charged by the attorney is prohibitive). For these reasons, not all cases are candidates for the courtroom.
But some are.
The first step is to educate your customer - make him understand that to get a top-quality repair, certain procedures need to be performed - and paid for. By managing customer expectations from the very beginning, not only do you have an automatic increase in CSI, but you prepare the customer in case the insurer balks at your charges.
Items like "cover vehicle for priming," "mask jambs," "repair pinchwelds" and "materials invoices" are things that insurance personnel often don't want to pay for. But if you're tired of giving away your labor and materials and you've properly educated your customer, going to court can be of great benefit - both with respect to the particular job at hand and for future claims. (Once an insurance company pays for an operation, it makes it quite a bit easier to get paid for it next time.)
Many shop owners may be hesitant to go to court with their customers - the legal system can be intimidating. But thanks to a few attorneys who dedicated their time at the CCRE meeting, those of us in attendance learned that we don't need to fear the judicial system when we're in the right.
Before the mock trial, Texas attorney Coyt Randal Johnston explained some of the basics of small claims court. He explained that the usual courtroom procedures aren't always followed in small claims court, especially in smaller townships and rural areas, and that things like the plaintiff's and defendant's opening statements are often waived. (The opening statement is where the attorneys state why the case is before the court. Since this information is generally included in the paperwork for the case anyway, it's sometimes bypassed by the judge in an effort to be expedient.) Another thing we learned (which simply amazed me) was that in the smaller municipalities and in justice-of-the-peace courts and the like, the "judge" frequently isn't even an attorney.
Johnston also explained the importance of choosing an attorney when pursuing a lawsuit against an insurer. He said that you need to find an attorney who knows your business. Otherwise, be prepared to pay him to learn your business.
Besides Johnston, three other attorneys also devoted their time to the mock trial: Leslie Judson Shekell, who's currently representing two collision repair shop owners in three Kentucky tortious interference cases; Patrick J. McGuire, a shops' rights and legal council attorney based in Chicago; and Chris Davis, a Dallas defense attorney.
The Case Before the Court
The premise of the case was that a vehicle owner paid out-of-pocket to have all the necessary items repaired on her vehicle because the shop refused to complete procedures for which it wasn't properly compensated. This case came to court because the consumer had been properly managed by the repairer. She'd been told what procedures would be required to properly repair her vehicle and to restore it as close to pre-loss condition as humanly possible. When the insurer's estimate was found to be insufficient to accomplish thorough repairs, she was further educated as to the consequences of doing incomplete repairs and not performing all of the necessary procedures. The shop also explained to her that she had the right to have her vehicle repaired as close as humanly possible to pre-loss condition. When the insurance company for the at-fault claimant declined payment for proper repairs, she chose to pay the shop's charges out-of-pocket and to then go to court to fight the at-fault party's insurance company to get what was owed to her.
Because there's no contract (policy) in third-party claims, there are no provisions for the insurance company to dictate the repair process or to limit coverage other than the insurer wasn't obligated to pay more than the actual cash value of the vehicle. In short, this consumer made an informed decision to have her vehicle repaired properly and to seek reimbursement from the at-fault party's insurance company on her own.
The shop owner/manager doesn't have to appear with the vehicle owner unless he's subpoenaed. On the other hand, a shop that goes to the lengths of educating the consumer and keeping him fully involved in the repair and decision-making process is undoubtedly a consumer-focused shop - so it'd be fairly hypocritical to go to such lengths and to then leave the customer to fight a battle about which he knows very little in an arena this intimidating.
A smart consumer, or his attorney, will subpoena the shop owner or manager. Generally, a consumer isn't well-versed in the field of collision repair and wouldn't be able to properly justify the charges, procedures and methods employed and, most likely, wouldn't be able to answer any of the technical questions an insurer's lawyer might ask.
Another important reason for the shop to be present is that it shows that it's willing to use whatever means necessary to ensure thorough and complete repairs - as well as proper compensation for itself. When a shop champions the rights of its consumers, it sends a message loud and clear: We won't produce second-rate repairs simply because an appraiser won't include all the necessary items and procedures to properly repair a customer's automobile.
By assisting consumers in this way, not only is the insurance representative more likely to concede to your requirements on the next job, you'll earn a loyal customer - a customer who has friends and relatives who drive automobiles. We all realize how valuable word-of-mouth advertising is, and this is a great investment in the future of the shop.
Can the shop itself take an insurance company to court? Yes. The shop could go to court seeking full and proper payment for services rendered but, to do that, the vehicle owner must first assign his rights to the shop. Remember, the shop has no contract with the insurance company. The shop's only contract, the contract to repair, is with the vehicle owner. One potential downside to this scenario is that the shop owner can be portrayed as "greedy" by the insurance company much more easily than they could paint the consumer as money-hungry:
"Your Honor, we've written a fair estimate to repair the vehicle in question for nearly $5,000. The shop is trying to milk the 'deep-pocketed' insurance company for almost another $4,000. They're asking for 80 percent more than we've already generously allowed."
A statement like this made by an insurer's attorney can be harmful to a shop's case. And, if called on it, the shop would have to admit that the numbers are entirely accurate - that the insurer did allow almost $5,000 and that the shop is asking for another $4,000.
While the court is supposed to weigh the facts for what they are, the impression given here is far different than if a consumer is being short-changed by his insurance company. Besides, the consumer did receive the benefit of the service, and as the vehicle owner, is responsible for payment for those services. Why should a shop owner play the role of a bank as well? Again, it all comes back to educating the consumer, not only with regard to the quality of repairs and potential problems caused by improper procedures, but also to their rights and responsibilities.
Pleading Your Case
The CCRE mock trial was an example of what might typically occur when a vehicle owner, the victim of an accident, pays for repairs out of pocket and then, in turn, takes the at-fault party (supported and defended by their insurance company according to the provisions of the insurance contract for indemnification) to court to recoup her expenses.
The plaintiff's attorney goes first and calls the witnesses for the plaintiff's side. The attorney can call anyone who has anything to do with the case - from accident-scene witnesses, police who responded to the scene, tow company drivers, technicians, managers, the vehicle owner - as well as anyone who can testify to previous dealings with an appraiser (to establish a pattern of underpayment for example). The owner of another shop could even be called to substantiate the claim practices of an insurance company if the attorney desires.
Due to time constraints, our trial was brief. In a typical courtroom, the plaintiff calls witnesses, and the defense gets to "cross examine." Cross examination is where the opposing attorney asks questions of the same witness.
After the plaintiff is through with all his witnesses, the defense calls its witnesses. The plaintiff's attorney can then cross examine the defense's witnesses. And the plaintiff and the defense can have both fact witnesses and expert witnesses.
Once the defense "rests" (states they have no more witnesses), the plaintiff can call a "rebuttal" witness - a person who's called to challenge or dispute the testimony of one of the defense witnesses.
Once all the witnesses have been called, both parties are usually allowed to make a closing statement - although this isn't one of the fixed rules and is sometimes omitted in smaller courtrooms.
In our case, the defense (the insurance side) closed with the argument that they have several shops who would've performed the repairs for less and who would've included, at no charge, many of the operations the plaintiff was charging for. Their point was that they could've had the repairs done for a lesser amount at a different facility. The plaintiff argued that what could've been was totally irrelevant - the matter before the court was what was actually done.
The decision in this case was based on tort law. Make no mistake: No one - not even an insurance company - can force a consumer to settle for less than what he previously had due to the negligence of someone else.
Our case hinged on the rights of the individual, and the outcome was determined - almost even before the case was on the docket - by those rights. The terms "reasonable" and "necessary" were the two primary factors. The rates charged by the repairer were well within reason, and the procedures were easily demonstrated to be necessary. (The necessity of each operation should've already been explained to the vehicle owner, preferably in the form of a written "Notice of Deficiencies," which clearly and concisely explains the consequences of not following the recommended procedures.)
Although the insurer's argument that the shop charged for procedures and processes not billed for by other companies, they couldn't deny that these operations were necessary. It was obvious why masking the jambs and recessed areas was a required step in the repair process. Their dispute of some 20-plus items was cut short by our judge after the first several items were easily shown to be a part of the normal course of repairs. It was irrelevant that some other shop might not have charged for many of these items on the insurer's list. Besides, it was conjecture - speculation that another shop wouldn't have charged. Another shop didn't do the repairs.
By being reasonable with their fees and by knowing what processes and procedures needed to be performed (again, knowing the "P" pages), the shop was able to do a complete and thorough repair - and get paid for it instead of giving away its labor and materials.
The judge found that the insurance company was obligated to pay the "reasonable" costs of the "necessary" procedures to properly restore the vehicle to as close to pre-loss condition as was humanly possible.
In this case, the plaintiff won easily because the shop representative was well-versed in the field of collision repair and was prepared to document and demonstrate to the court why the shop needed to perform the procedures listed on its estimate. Because the insurance attorney couldn't prove otherwise, the judge ruled in favor of the plaintiff.
The best advice of the day was to be prepared. It's far better to have something and to not need it than to need something and to not have it. This includes photos - and large, four-color photos are better than small black-and-white ones - initial estimates from the insurance company, supplements, shop estimates, estimates of other vehicles that included a specific item now being denied by the insurer, and anything else you can think of. It's critical to keep good records. Witnesses are often less convincing in court than documents.
"They'll reject people over paper every time," says Johnston.
Before your day in court, it can't hurt to have a fellow shop owner or employee ask you several random questions, just so you're not caught off guard by the vagueness of some of the questions. You never know what kind of nonsense the opposing attorney might ask, so try to be mentally prepared. The attorney may delve into your school background, your technical aptitude, your professional associations and a multitude of other areas in an effort to discredit you or in attempt to show you as less than the professional you are. Don't let them rattle you - you are the repair professional and, as such, your testimony can be of great importance.
I only wish I could've attended this session sooner. Within the past year, I've had several claims where the insurer outright refused to pay for all the necessary procedures. And small claims court really is a simple process. I have no idea why I didn't pursue it in any number of claims.
One particular instance that comes to mind was a lady who had a 2001 Toyota 4Runner. This poor woman was nearly in tears when the insurance company told her they wouldn't pay to repair her vehicle properly. A single mother, she couldn't afford to pay out-of-pocket.
Unknowingly, I was more than halfway there. I had sent her and her insurance company a Notice of Deficiencies (NOD), which clearly outlined the overlooked/omitted procedures. Really, all that remained was further educating her as to her contractual rights and then educating her attorney. I'm pretty sure it would've been an easily won "Bad Faith" claim. I'm even more sure - now that I have a better understanding of small claims court - that I won't make that mistake again.
Writer Patrick Yurek is the vice president of Collision Consulting LLC (www.CollisionConsulting.com). He has 22 years of industry experience and has held every conceivable position in a collision repair facility from sweeper to management. Among his credits are several PPG certifications and General Motors technical certificates. He was also the president of the General Motors Service and Parts Managers Organization of Western New York until he relocated to North Carolina, where he's now manager of the Arnold Palmer Cadillac collision center in Charlotte.
The Coalition for Collision Repair Excellence (CCRE) is a pro-industry, pro-consumer organization dedicated, in part, to regaining control of the collision repair industry. To contact the CCRE, go to www.TheCCRE.com or call them toll free at (877) 700-7743.