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Connecticut Supreme Court Delivers $35M Blow to Body Shops

The plaintiffs filed suit in 2003 in an attempt to circumvent the contracts the body shops entered into through The Hartford Fire Insurance Company’s direct repair program.

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The Connecticut Supreme Court recently reversed a $34.7 million judgment against The Hartford Fire Insurance Company in a class action suit (Artie’s Auto Body, Inc. et al v. The Hartford Fire Insurance Company) initiated by a group of more than 1,500 Connecticut collision shops.

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The plaintiffs filed suit in 2003 in an attempt to circumvent the contracts the body shops entered into through Hartford’s direct repair program. The plaintiffs initially prevailed at trial on their theory that the insurer violated the Connecticut Unfair Trade Practices Act (CUTPA) by requiring its staff appraisers to use the negotiated hourly labor rates set forth in the contracts the body shops agreed to enter, instead of rates that the plaintiffs contended more accurately reflected the actual value of their repair services. According to the plaintiffs, the insurer’s conduct constituted an unfair trade practice because it offended the public policy set forth in Connecticut regulation §38a-790–8 which governs the ethics of appraisers and requires them to “approach the appraisal of damaged property without prejudice against, or favoritism toward, any party involved in order to make fair and impartial appraisals….” Following a trial, the jury awarded plaintiffs $14,765,556.27 in compensatory damages, and the trial court awarded the plaintiffs $20,000,000 in punitive damages.

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On appeal, Hartford argued that §38a-790–8 did not apply to labor rates or the conduct at issue in this case and that the Connecticut insurance department had “consistently” interpreted §38a-790–8’s “favoritism” prohibition to allow for the company’s quid pro quo rate program.

The Connecticut Supreme Court agreed that insurance companies in Connecticut “have the right to negotiate the hourly labor rate that they are willing to pay for auto body repairs and to refuse to give their business to an auto body repair shop with which they are unable to agree on such a rate.” In determining that Hartford’s use of staff appraisers through its direct repair program did not violate §38a-790–8 or otherwise constitute a CUTPA violation, the court noted:

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“Indeed, we are unable to discern why appraisers, when negotiating for the cost of auto repairs on behalf of their employers, would ever owe a duty of impartiality to the auto body repair shops with whom they are negotiating. Under our regulatory provisions, those businesses are deemed to be capable of representing their own interests, and certainly are under no obligation to accept insurance related work that is not sufficiently remunerative.”

The court therefore agreed with the defendant that the trial court incorrectly concluded that §38a-790-8 supports the plaintiffs’ CUTPA claim alleging unfair labor rate practices, and accordingly, reversed.

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Click here to read more about the class action suit.

 

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