Answer from Erica Eversman, attorney and consumer advocate:

This is a tough question. Of course it’s improper for an insurer to refuse to pay to the insured/on behalf of the insured an amount necessary to properly repair a vehicle. However, if you ask the Department of Insurance (DOI), they’ll say it’s a matter of contract, so you should look at the policy. Of course, the policy never says we’ll only pay a maximum of $300 for the paint/materials for any repair. But that’s effectively what they do.

So the answer is, it’s absolutely improper, but is it out-right illegal? Not specifically. It’s an unfair and deceptive claim practice, but the insurer is going to dance around the issue by claiming it’s a "threshold," not a cap, and
that it has determined that the cap amount is sufficient. Then it’s up to the insured to take the insurer to task on the issue via the DOI or court.

Answer from Mark Clark, PBE expert, speaker, consultant and 24-year contributor to BodyShop Business:

Caps are illegal in a few states, but in other states, it’s legal for insurers to do just about anything they want, including establishing thresholds or caps. The typical $350 to $450 limit will repair 90 percent of all claims; they want additional documentation when the paint and material costs are more.