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An Analysis of Progressive Insurance vs. North State Custom

What North State Custom’s successful defense against a lawsuit brought by Progressive means for the collision repair industry.

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Writer E. L. Eversman is the General Counsel for Vehicle Information Services, Inc., award-winning author of the AutoMuse® blog and a frequent speaker and author on automotive consumer and legal issues.

On Dec. 15, Greg Coccaro and North State Custom were cleared of fraud charges in the 5-1/2-year-old case that Progressive brought against the shop relating to the repair of a customer’s Mercedes-Benz. To truly understand what the jury’s verdict means to the collision repair industry, we must closely examine some of the specific allegations made and the evidence presented at trial.

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Evidence

First, it’s important to note that the vehicle owner never complained about the repair. Instead, Progressive as the customer’s insurer brought the fraud lawsuit.

At trial, Progressive presented evidence that its estimates contained different parts and repair procedures than were on North State’s damage analysis and final documentation. Progressive attempted to establish that, because one of its employees had “gone over” the insurer’s initial estimate with a shop representative, the shop committed fraud by failing to adhere to its repair proposals.  

Among other issues, Progressive pointed out that the shop had repaired some panels instead of replacing them, as “allowed” by the insurer on its estimate, and applied the difference in price for those parts and labor to the shop’s higher labor rate instead.

North State presented evidence that it never agreed to perform repairs according to Progressive’s estimate, there was no contract between the insurer and the shop – only between the shop and the consumer – and that the shop was liable for the propriety of the repairs. Therefore, it had to make repairs according to its own professional judgment.

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Progressive argued that North State had “backed into” its dollar figure when creating its damage analysis and blueprint for repair, and that this demonstrated the shop’s fraud. Coccaro testified that North State used Progressive’s dollar figure when preparing its damage analysis and proposal for repair, as this was the amount the insurer had committed to pay to the insured. North State was then able to determine what repairs could be made to the customer’s vehicle for the designated amount of money.

North State demonstrated that it writes its own damage analyses and blueprints for repair. The shop stated that it does not “work off of,” download or otherwise incorporate an insurer’s estimate into any of its office work-product.

Good for the Industry

When the jury returned a verdict in favor of North State Custom and Greg Coccaro, finding they had not committed fraud, the entire collision industry benefited enormously. Why? Because a jury told the insurance industry that it was not fraudulent for a collision repairer to repair a vehicle according to his professional judgment – without regard to the insurer’s estimate – and accept payment for those repairs. In other words, the jury found that an insurer’s estimate is irrelevant for the purpose of determining how a vehicle will be repaired.  

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The jury also made it clear that it is not fraudulent for a collision repair shop to accept payment from an insurer when:

• ⁠the repairer’s damage analysis differs from the insurer’s estimate;
• when money the insurer has attributed for certain parts or procedures is allocated differently for higher labor rates or other activities by the shop;
• or even when only the bottom-line dollar amounts match.

The jury reestablished that the insurer’s estimate is nothing more than an internal document it produces to justify the payment on a property loss claim.

It’s important for the collision industry to use the momentum produced by this verdict to disassociate the repairer’s damage analysis and blueprint for repair from an insurer’s cost estimate. By never giving the insurer’s estimate any credibility as a repair blueprint, North State and Coccaro were able to clearly establish that they were in charge of the repair. Progressive was only paying the insured’s bill as per the contract of indemnification.  

Labor Rate

Progressive’s direct repair document expressly states that the insurer’s estimate is not a blueprint for repair and that the DRP shop has the sole responsibility (and liability) for determining how to repair the vehicle. It has to be asked, then, how Progressive could have brought and continued this suit against Greg Coccaro and North State Custom in good faith.

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Other incongruous items were also apparent. At trial, Progressive stated that it was attempting to recover the entire cost of repairs, totaling $34,091.37. However, Progressive’s expert witness, a body shop owner, testified that Progressive had already paid him $39,000, which didn’t include the days he had spent in White Plains, New York, for the trial. Simple subtraction shows that Progressive paid its expert witness more money to testify against a colleague than it sought to recover for the repair – and that doesn’t even touch the enormous amount of money Progressive paid its attorneys during the five-and-a-half years this case was litigated.

The witness also testified that Progressive was paying him $210 per hour for his testimony. Yet Progressive balked at paying North State Custom – the only Mercedes-Benz certified collision repair facility in Westchester County, N.Y. at that time – $53 per hour rather than the $42 labor charge it determined to be reasonable. And, unlike in other states, insurers paying claims in New York typically refuse to pay a higher labor rate for mechanical and structural repair work.

In the first trial of this matter in 2008, however, Progressive’s expert testified that while his shop’s body and paint labor rate was $48, his shop charged $52 for mechanical and structural repairs. Nonetheless, Progressive continues to refuse to pay a labor rate higher than the body rate for the mechanical and structural repairs performed on consumers’ vehicles in the State of New York, despite the fact that charging higher rates for mechanical and structural is a “standard in the industry” and despite paying higher rates for these repair categories across the country.

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Messy Handling

More telling, perhaps, was Progressive’s actions during the entire course of its handling of the claim identified as “PACMAN” in its electronic claims handling file. Early in the handling of this claim, Progressive tried to make Mercedes-Benz pay for what its adjuster wrote as a $26,804.20 claim. Progressive thought it might be able to hold Mercedes responsible for the single-car accident as it sought to determine if a mechanical failure related to a brake recall might have been the cause of the crash. Progressive also accused the company that towed the vehicle from the accident scene of contributing to the damage on the vehicle and opened a subrogation claim against it as well.

At the same time, Progressive supervisors and desk reviewers re-wrote the adjuster’s $26,804.20 “committed” cost estimate, reducing the amount by $8,364.86. After almost a month, Progressive finally offered the insured $17,939.34 ($18,434.34 less her deductible) as the alleged necessary amount of money to restore her vehicle to pre-loss condition. Progressive never contacted North State about the substantial reduction in value of its cost estimate, which the adjuster had given to North State at the time of his inspection. As far as North State knew, Progressive had committed to pay at least $26,804.20 (less deductible) as there were open items on the adjuster’s cost estimate for parts prices not yet included in the estimating system database.

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When North State finally learned of Progressive’s substantial reduction in the claim payment amount, it gave the insured two choices:

• She could remove her Mercedes E320 station wagon and take it to a different shop for repairs, as North State could not possibly make all the necessary repairs for the reduced amount Progressive was now offering her; or,
• she could elect to have the vehicle repaired by North State, pay the repair bill and seek indemnification from Progressive for the final bill – without North State having any contact with Progressive.  

She elected to have North State repair the vehicle.

Ironically, North State gave the customer the opportunity to have her vehicle repaired at a different repair facility, which is exactly what Progressive had been pushing her to do. In fact, the PACMAN claim file showed that Progressive had tried to steer her to a network facility no fewer than six times, despite the fact that New York’s anti-steering statute (NY CLS Ins. § 2610) forbids an insurer from discussing its network or identifying other repair shops once the consumer has identified she has a selected a collision repair facility. And according to the PACMAN notes, this insured had done so at the time she reported her claim.

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Shortly after the customer decided to have North State fully repair her vehicle, Victor Politzi, Progressive’s head of claims for the State of New York, reviewed this claim and found issues with Progressive’s handling of it. In his notes contained in the PACMAN dated Jan. 13, 2005, he stated that there were numerous problems with Progressive’s handling of the claim, including insurance regulatory violations, delays and improper triage determinations. He then stated that Progressive would have to do the best it could in dealing with “this difficult shop.”

From this point on, the manager for the office handling the claim became personally involved in its activities. Differing from the Dec. 29, 2004, entry in which one of the Progressive supervisors declared that Progressive “has not and will not attempt to negotiate an [agreed price] with shop,” the office manager, Nicholas Stanton, contacted North State on January 13, 2005, (after the discussion of Progressive’s mishandling with the head of New York claims) to try to “negotiate” with North State and come to “an agreed price” on the repairs.  North State stated that it was repairing the vehicle for the customer, according to its contract with her.

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Full Indemnification

In March 2005, when the vehicle was completely repaired, the customer asked North State to help her obtain full indemnification of her repair by sending Progressive the information on the repair work performed to her vehicle. North State agreed. Progressive then sent out a “team leader” to inspect the vehicle. Based on this inspection, Progressive rewrote various estimates and, on March 10, 2005, offered the insured approximately $30,447.93 (less deductible) to resolve her claim.  

Based, in part, on some pressure Progressive received from the insured and her son, Progressive then began to wonder whether it should total the vehicle. The Monroni label (window sticker) for this particular vehicle with its options was $57,260.00. At the time of the accident, the vehicle was only six months old and had approximately 4,000 miles on it, and the original adjuster noted early on that the manufacturer’s suggested retail price on the vehicle was over $52,000.

Because the vehicle was a newly redesigned model and was itself so new, Progressive was unable to find values for this vehicle in any of the New York Insurance Department approved guides, NADA or Red Book, but found values for similar vehicles without the 4Matic option in AutoTrader and from dealers in the local market for approximately $45,000. Progressive also determined that the value of the 4Matic option added about $5,000 to the value of a vehicle, which would make the actual cash value of the vehicle $50,000. Progressive, however, found one vehicle value for this car on Edmunds.com for $43,844 – which is the amount it offered the lease company to declare the vehicle a total loss. The lease company accepted, stating that it would get the remainder of the note payoff (of $54,650) from the GAP insurer.

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Before Progressive paid any money on behalf of the insured for the repairs, it decided to declare the vehicle a total loss and sue the collision repair shop to get its money back. Progressive deliberately hid from North State that it had declared this vehicle a total loss, and told the shop that it wanted to pick up the vehicle for the insured “as a customer service issue.” Progressive then faxed its “final estimate” of $36,903.57 to North State. North State immediately contacted Progressive to tell the insurer that the amount was too high and that the shop’s bill was only about $34,000. Progressive then revised its “final estimate” to $34,091.37 and prepared a payment to North State Custom in that amount.

Power of Attorney

Based on discussions with Victor Politzi and others at Progressive, Nicholas Stanton went to the insured’s house and “completed the power of attorney” to release the insured’s leasehold interest in the Mercedes. At trial, however, Progressive introduced this “power of attorney” as an exhibit to substantiate its assertion that it was now the legal owner of the repaired vehicle. But this power of attorney form only contained the vehicle’s identification number and insured’s signature, not any notarization or anything else that would make it complete. Stanton testified that he was not a notary public and admitted he did not have the form properly notarized.

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Having already decided to sue North State, when Progressive picked up the vehicle on March 23, 2005, it had also planned a method to preserve the car as evidence of the repairer’s wrongdoing. Progressive hired a tow company to place the Mercedes E320 wagon on a flatbed and take the vehicle to a nearby Adesa auto auction site for storage.  The PACMAN notes state, and Stanton confirmed at trial, that he hired an outside tow company rather than use an Adesa tow truck to prevent North State from discovering Progressive’s duplicity about returning the vehicle to the insured.

Although intending to carefully preserve the vehicle for evidence of the shop’s wrongdoing, Progressive damaged the vehicle before it even left the North State Custom parking lot. Instead of driving the vehicle onto the flatbed, or hooking up to the vehicle’s pre-designed front bumper tow hook, the tow operator hooked the chains to the control arms of the vehicle and pulled it onto the flatbed.  North State employees tried to prevent this by rushing out and explaining the negative effect this would have on the vehicle, but they were waved away by Progressive’s Nicholas Stanton, who said that the vehicle “was his problem now.”

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Progressive filed a suit against North State Custom and Greg Coccaro personally shortly afterward, alleging they committed fraud in the repair and charges for the vehicle.  

Salvage Value

Progressive never obtained a salvage value for the vehicle in March 2005 even though it planned to sue North State at that time. In fact, it never obtained a salvage value for the vehicle until July 2008, two weeks before the first trial. Nevertheless, Progressive tried to recover the entire cost of repair performed by North State and the entire cost of the total loss paid to the leasing company, amounting to over $78,435.37 – without any reduction for the salvage value of the vehicle as of March 2005. The appellate court that reversed the trial judge’s dismissal of the suit and returned it for retrial limited Progressive’s claim of recovery to the $34,091.37 alleged in the complaint.

During both trials, Progressive admitted that the vehicle had been damaged while in its possession, and that it was not claiming North State had failed to repair damage to the rear bumper that had occurred post-repair. However, Progressive did claim that North State had charged to repair the right and left rocker panels, but that the damage still existed.  

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Expert Opinions

In the 2010 trial, North State Custom’s and Greg Coccaro’s expert witness testified that he saw evidence that the rocker panels had both been repaired and that the existing damage was not caused by the accident. Instead, he testified that he had seen this type of damage hundreds of times and that it was caused by the vehicle being improperly placed on a lift. Testimony from various witnesses established that Progressive had moved this vehicle to various different locations on numerous occasions during the time it had custody of it.

At the end of the day, Progressive’s expert testified at both trials that he was only able to detect $2,808.65 of alleged fraud committed by North State and Coccaro. Yet he acknowledged that his shop was not Mercedes certified, his shop was not located in a “Mercedes neighborhood” where he routinely performed repairs on these vehicles, and that he was simply unable to detect evidence of some repairs North State claimed to have performed.

He testified that he did not detect any hammer marks or other typical indications of repairs to the vehicle’s unibody, but admitted on cross-examination that photographs from the accident scene reflected damage had occurred to the unibody, which was no longer present.  

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He also claimed that North State’s charges for approximately seven parts that had not been installed on the customer’s vehicle were fraudulent, in his opinion, not merely a mistake. However, he admitted that his shop had occasionally charged for different parts than had been installed on customers’ vehicles as a result of a miscommunication between his parts manager and him. Despite this lack of substantial evidence, Progressive still sued North State and Coccaro for fraud.

No Negligence

What is particularly important about that complaint filing is that Progressive only sued for fraud, not for negligence and fraud. Had Progressive added the customary negligence claim in the complaint, North State’s garage insurance carrier would have been responsible for paying for the majority of defense costs, not North State and Coccaro. Progressive’s complaint is nonetheless important for future actions because it alleges that the shop and its primary owner committed fraud by failing to repair the consumer’s vehicle according to the insurance company’s estimate.

Which brings us full-circle to the importance of this case for the entire collision repair industry: The insurance company estimate is irrelevant for purposes of determining how the collision repairer will repair the consumer’s vehicle. Likewise, it is not fraudulent for a repairer to accept payment from an insurer on behalf of a consumer and apply those monies to the repair activities as the repairer professionally determines.

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Lesson for All

The lesson for all repairers is that they should always be preparing their own damage analyses and blueprints for repair without regard to the insurer’s estimate.

Members of the U.S. Alliance of Collision Professionals, Inc. (USACP), have a pre-inked stamp so they can mark every insurance company estimate “For Informational Purposes Only.” This alleviates any confusion over who’s making the professional decisions about repairing a customer’s vehicle. Shops that “work off of,” utilize, download or otherwise give any credibility to an insurer’s estimate do nothing but contribute to the illusion that insurer cost estimates have meaning for determining and effecting repairs to consumers’ vehicles. In other words, those shops contribute to the problem other shops face when trying to remind insurers that repairers are the repair professionals. Insurers are simply professional payers.

Now is the time for all collision repairers to make certain they’re relegating insurance company estimates to their proper place – as insurance company internal documents justifying payment of a claim.

The industry would be foolish to waste the sacrifice Greg and his shop made that benefits the entire industry. You are in charge of the repair and liable for it. Write the damage analysis and blueprint for repair as you professionally determine, not based on the whim, instructions or alterior purposes of an insurer.

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E. L. Eversman is the chief counsel for Vehicle Information Services, Inc., and the author of the Forbes.com “Best of the Web” award-winning blog, AutoMuse. She has served as the chair of the Cleveland Bar Association’s Unauthorized Practice of Law Committee, vice chair of that association’s International Law Section and is listed in the National Registry of Who’s Who. Eversman is a frequent speaker and author on automotive legal topics and has been quoted in such publications as The Wall Street Journal Online, USA Today, Kiplinger’s Personal Finance, Cars.com, Yahoo! News and numerous trade magazines. She was also honored as the 2006 All Auto Appraisal Industry Conference hall of fame inductee. She is recognized nationally as an authority on diminished value and collision repair issues, and she served as an industry resource for the National Conference of Commissioners on Uniform State Laws’ Uniform Certificate of Title Act drafting committee. Prior to launching the AutoMuse blog addressing automotive legal and consumer issues, Eversman wrote the legal column for the Web directory, AutoGuide.net.

 

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