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Consent Decree: Enforceable or Forgetable?

In 1963, 265 insurers signed a Consent Decree drafted by the U.S. Justice Department and Attorney General Robert Kennedy. By signing, they agreed to abide by the Decree’s terms: no more demanding discounts, setting hourly rates, boycotting repair shops and using specific appraisers. It’s still a binding agreement today … but will it ever be enforced?

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Writer Charlie Barone has been working in and around the body shop business for the last 35 years, having owned and managed several collision repair shops. He's an ASE Master Certified technician, a licensed damage appraiser and has been writing technical, management and opinion pieces since 1993.

In November 1963, the U.S. Justice Department settled a class action it brought against 265 insurance companies, in which their association officers had to sign a Consent Decree. Like so much of the Kennedy administration’s legacy of justice, the action was the product of its undaunted Attorney General (JFK’s brother Robert).

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Despite the fact the class action never went to trial, the Consent Decree shook the foundation of the auto insurance business. Its signers admitted to no wrongdoing but, nevertheless, agreed to abide by its terms (in perpetuity). It’s still binding on its signatories today, including any descendants of those original 265 companies.

Although the signing of the Consent Decree was heralded as a momentous event for the collision repair industry, today the document has all but been forgotten — except by a few in the collision repair business dedicated to its revival.

If you take a look at the news in the trade publications of that time, you’ll find the Consent Decree was regarded as the Emancipation Proclamation for the industry. Frank Stepanek, chairman of the National Body Shop Committee of the Independent Garage Owners (IGO) of America (forerunner of the Automotive Service Association), was quoted in a November 1963 industry tabloid as saying, "It’s no longer legal for many insurance companies to demand discounts, set the hourly rates, boycott repair shops [and] use specific appraisers."

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Those were heady words, to be sure, but in the context of today’s industry, the implications of its enforcement are nothing short of alarming (from an insurer’s standpoint, that is). It would unravel the systems with which the insurance companies settle property claims on automobiles. Their success is based on control of both losses and the resulting costs, which is expressly forbidden by the Consent Decree.

Signed on the Dotted Line
The Consent Decree says insurers must refrain from "fixing, establishing, maintaining or otherwise controlling the prices to be paid for the appraisal of damage, or to be charged by shops for repair." That promise more or less flies in the face of how claims are managed today, in which it’s generally understood that insurance companies set the prices for repairs, and a shop’s unwillingness to bend to their will could result in losing the job (or worse).

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The text of the Consent Decree is relatively short and to the point, as far as class-action settlements go. The U.S. Justice Department minced no words in describing the violations of the law. In fact, the word "conspiracy" is used to describe what the defendants did.

But in light of today’s insurance business and the way claims are uniformly processed, one could only conclude the 1963 Consent Decree must have been vanquished on an appeal or it was simply forgotten. Apparently the defendants in the case have assumed the latter.

As much as the acts described in the document resemble contemporary events in terms of direction of work and control over repair prices, there was a sense of blatancy in the insurance companies’ activities then that might not exist today. The defendants were so confident that their actions were an acceptable — even legal — method of operating a claims department that they permitted the conspiracy to grow without regard for consequences. Bear in mind, the illegal activities came on the heels of the McCarran-Ferguson Act, which had been passed at the end of World War II. McCarran-Ferguson effectively shielded the insurance industry from federal antitrust laws by granting states the primary responsibility for regulating insurance. Insurers had immunity (or so they thought).


The Plan
In the period following the war, insurance companies typically used independent appraisers to adjust claims, and today’s networks of direct-repair shops didn’t exist — or at least under that label they didn’t. But just as there are "approved shops" today, there were those that operated with that same handshake deal back then. It was part of "The Plan."

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Around 1940, the Associations of Casualty and Surety Companies (ACSC) and the Claims Executive Committee of the National Association of Mutual Casualty Companies (NAMCC) formed the Combined Claims Committee (CCC), from which a conspiracy to control collision repair prices grew. Basically, each member insurer selected one appraiser or appraisal firm in each market to the exclusion of the others, which were subject to boycott. The favored appraiser received all of the participating insurance company’s adjusting work, provided he functioned within the guidelines of The Plan.

Since insurance companies hedged their bets with their chosen appraisal firm, they had control. No auto damage claims were settled unless they passed through The Plan’s sieve, and as you might expect, the dollars that passed through were only those deemed allowable by the insurance industry at large. The typical labor rate for collision repair was between $5 and $6 per hour.

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Essentially, the selected appraiser fixed the labor rates, required arbitrary discounts on parts and held firm to the labor times published in a guide. In addition, the appraiser had shops with which one had unwritten agreements to accept their estimates sight unseen. According to Silvie Licitra — a well-known collision industry writer whose experience dates from that era — says payoffs and corruption were rampant.

"It was a real crazy business back then," says Licitra. "Those appraisers all had their hands out, and they were taking money like crazy. If you didn’t pay them off, they’d write lousy estimates. It was a take it or leave it situation because a body shop was faced with losing the job if they didn’t play ball."

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The Plan worked. By the end of 1961, it had been implemented across the United States, and in the words of the Consent Decree, it was "effectively controlling and depressing automobile material damage repair costs."

It should be noted that the effect of The Plan wasn’t necessarily deemed a consumer issue, which, as the repair industry of today has learned, is an essential element for government intervention. Nevertheless, the violations of the antitrust laws were so egregious in the years leading to the Consent Decree that the consumer issue never came up. The law breaking was so compelling that the Justice Department had no choice but to act on behalf of body shop owners.

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History often repeats itself, but never exactly. The past event itself (in this case, the 1963 Consent Decree) tends to be a factor in the current state of affairs. Even though the insurance industry is highly dependent on the same type of price fixing, boycotting and controls that brought about the Consent Decree, today’s insurance industry certainly has to be mindful of the almost 40-year-old settlement — and you’d expect that they’ve adjusted their claims strategies accordingly.

"The fact is, [insurers] don’t act in concert anymore," says Joe Landolfi, former chairman of the Collision Industry Conference (CIC) and corporate director of Sentry Claims Service. "That sort of thing doesn’t go on today."


What Consent Decree?
Until the mid 1990s, you would’ve been hard pressed to find a body shop owner familiar with the Consent Decree. But if awareness were widespread and its meaning applied to the business of settling collision claims, would we be where we are today? The answer hinges on the federal government’s assessment of the Consent Decree and its applicability on the property and casualty business. Evidently, the insurance industry’s evaluative process tells them it’s no threat. At least not yet.

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In fact, many in the insurance industry claim they’ve never even heard of the Consent Decree.

"That doesn’t ring a bell with me, and I’m the oldest guy around here," says Bob Spoulyar, general counsel to the National Association of Mutual Casualty Companies.

Spoulyar says he’s been affiliated with that association since 1973, and like virtually every other insurance trade association and carrier contacted for comment, he pled ignorance. Furthermore, the public affairs offices of every insurance company contacted for background for this article claimed to know nothing about it or declined to comment. Even the Alliance of American Insurers, a national trade association representing 326 property/casualty insurance companies and a successor to one of the associations that signed the Consent Decree, declined to answer questions for this article. Like other organizations, they promised to "look into it," but failed to respond by deadline.

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Inquiries sent to the U.S. Justice Department bore even less fruit. In spite of four written requests for answers to questions about the 1963 Consent Decree and its bearing on today’s business of settling physical damage claims, the federal government failed to respond. The inquiries were addressed to Joel I. Klein, assistant attorney general of the U.S. Department of Justice’s Antitrust Division. In all fairness, however, the antitrust division is presently consumed with the high-profile Microsoft case.

But Lou Baffa — a tireless body shop advocate and former president of the Auto Body Association of America — did get a response from the Justice Department.

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"I sent Joel Klein a package of documents referencing the 1963 Consent Decree and reams of evidence of its flaunting by the insurance industry," says Baffa. "After several months during which they reviewed the information I sent them, I received a short letter from the Justice Department. They told me they saw no antitrust violations."


Laying Down the Law
The Consent Decree isn’t a federal statute, but it does carry the force of law in all 50 states. It’s a settlement of a civil matter and thus requires intervention by a court to bring about enforcement. Its precepts are fundamental to free enterprise and rooted in antitrust law.

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Antitrust laws were enacted to protect competition. It’s long been held by our society that free and open competition benefits consumers by ensuring lower prices and access to new products. In an unfettered market, competing businesses seek to attract consumers by cutting prices, increasing the quality of their products or both. Competition and the opportunities it brings stimulate businesses to find new, innovative and more efficient methods of production. And that environment has led to deflation in markets, such as those for personal computers, consumer electronics and technology-driven products.

Three major federal antitrust laws exist: The Sherman Antitrust Act, the Clayton Act and the Federal Trade Commission Act.

The Sherman Antitrust Act has stood since 1890 when congress almost unanimously voted for its passage; only one vote was cast against it. The act outlawed all contracts, combinations and conspiracies that would unreasonably restrain interstate trade. And it was the acts of the CCC, in which they conspired to carve up the U.S. appraisal business and thereby the collision repair business, that led to the Consent Decree. By signing the document, all 265 companies acknowledged their violations of those laws. They’d acted with impunity. However, when you consider the political mood of the era, it’s not surprising.

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The passage of the McCarran-Ferguson Act in 1945 essentially gave the insurance industry a "get out of jail free" card by granting regulatory authority to the individual states. Gene Anderson, founding partner of Anderson, Kill & Olick, PC., a firm specializing in antitrust law, recalls the Consent Decree. "Not only is the state regulation lax, the insurance companies use the fact they’re regulated by the states as a protective shield," says Anderson. "Forty-eight out of 50 commissioners are in their back pocket.

"This decree was entered on Nov. 27, 1963, while I was working as an assistant U.S. attorney. Judge Edward C. McLean was one of the most respected judges on that court. In light of the McCarran Ferguson act, which exempted the insurance industry from antitrust laws — except in the event of a boycott — I was surprised they settled. When I first saw the Decree, I wondered if the Department of Justice had the jurisdiction to bring suit against these companies.

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"You need to understand there were no court proceedings. The lawyers got a quick settlement. But the matter was under investigation for a long time. In fact, I think a deal was cut in advance of the filing. As far as I know, and from looking at records, it’s 100 percent applicable to those companies [that signed the Consent Decree]. Many of today’s auto insurance companies are successors in title to the signatories. But the Consent Decree definitely isn’t applicable to new companies.

"In my view, there’s a very high likelihood [the insurance industry] will attempt to have the Consent Decree nullified. Their argument will be that they entered into this Decree when the business was different and that perpetual decrees no longer have applicability."

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Repercussions of the Decree
The 1963 Consent Decree wasn’t without its aftershocks. There were repercussions (or even what you might consider retributions). A number of trade associations were targeted in the years following the Consent Decree. For example, in March of 1964, Allstate Insurance Company filed suit against 109 members of the Central Jersey Auto Body Association (CJABA), charging them with antitrust violations, conspiracy and price fixing. In July of that year, a judge ordered the association members to sign a consent decree of their own. The embittered members reluctantly settled with Allstate, citing lack of funds to finance a protracted legal battle with the company.

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In a show of their support, an association of central New York body shop owners set up a legal defense fund for the strapped CJABA. Their spokesman was quoted as saying: "It’s with deep regret that this spirit was not nationwide. I strongly urge every body shop or garageman who looks forward to freedom in his business to alert himself and seek remedies that will maintain our rights and freedoms in the industry."

The legal wrangling went back and forth until the summer of 1967, when a congressional committee called for an investigation into the auto insurance business. In the fall of that year, U.S. Sen. Philip Hart of Michigan proposed federal oversight of the industry and an amendment to the 1945 McCarran-Ferguson Act as a way to curb insurance domination of the collision repair industry. Sen. Warren Magnuson, chairman of the Senate Commerce Committee, made additional calls for investigative probes and even threatened to launch an independent investigation by a special counsel.

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Between congressional pressures and Transportation Secretary Don Boyd’s insistence the matter be studied by his department, the White House was prompted to step in. In a message to Congress in early 1968, President Lyndon Johnson called for a thorough investigation into the auto insurance business.

It never happened.
"The Consent Decree was like a Band-Aid," says Dick Hogg, a suburban Philadelphia body shop owner who’s operated in the same location since 1958 and who vividly remembers the ’63 Decree, as well as the business conditions that led to its signing. Hogg also remembers that its signing didn’t usher in a golden age for body shops. "It only gave us temporary relief because like some other laws, there was no enforcement. The terms of the Consent Decree were diluted by the state regulations that are, for the most part, unenforced. The insurance departments give the benefit of the doubt to the insurers."

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Hogg also recalls a 1967 case brought by him and several other body shop owners against State Farm Insurance Company (Proctor et. al. vs. State Farm). The plaintiffs’ attorney was Harold E. Kohn, who was highly regarded in the field of antitrust for just having won a major case filed against General Electric and Westinghouse. Those companies were found guilty of price fixing in the business of electrical transmission equipment. Not only did Kohn secure a win for the electric utilities victimized by the conspiracies between those companies, but a few of their executives actually got jail time.

When Kohn examined the Consent Decree and witnessed the state of the autobody business a few short years after its signing, he was confident he would prevail for his body shop clients. In fact, Kohn told Hogg that his case would rival the one against GE and Westinghouse.

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To their utter amazement, they lost the case.

Will History Be Re-Written?
Is history repeating itself? Will auto insurers be forced to defend present-day practices based on their decades-old pledge to never again restrain interstate commerce? Will a Clinton administration in its sunset days exhume the Consent Decree and investigate the matter? Given the political nature of this 50-year-old conflict, much has to do with the pressure brought to bear on the Justice Department. You need to remember, however, that it was the United States that brought the 1963 class action against those companies, which broadens the scope beyond that of a civil matter.

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Laws were broken. But corporate behavior where laws are bent to the breaking point is a matter of history, and legal settlements and consent decrees notwithstanding, there’s no guarantee of enforcement.

"Insurance companies enter into settlements that only give the appearance of compliance," says Anderson, regarding how insurers routinely enter into such agreements where consent decrees are signed. "As such, [the agreement becomes] a license to steal, and more important, it shows they’re clean. We’ve learned that the law doesn’t impact the major swindlers. This allows them to get away with what they do."

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Louisiana shop owner and spokesperson for the Coalition for Collision Repair Equality (CCRE) Ann Spink agrees that it’s common for insurers to sign consent decrees. "Whenever members of the insurance industry are charged with civil or criminal misbehavior and they know they’re guilty, they enter into consent decrees," says Spink. "These decrees usually require them to pay a fine, commit to changing their behavior and quite often restructures the offending party.

"The 1963 Consent Decree resulted in the demise of three insurance associations and a commitment to never ‘control’ the automobile repair industry again.

"The insurance industry has discovered that consent decrees are a marvelous way of resolving legal disputes. Because legal research services such as West Law and Lexis-Nexis only report verdicts from superior courts — Courts of Appeal and Supreme Courts — the average attorney doesn’t have access to these consent decrees, so the insurance industry pleads guilty, gets a slap on the wrist and their admission remains virtually a secret from that time forward."

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With so many unenforced consent decrees in existence, is there any hope of the 1963 Consent Decree being different?

Queen Elizabeth was quoted as saying to Mary Queen of Scots, "No, history will not vindicate you, for I will write it."

Despite being the words of a monarch, they should still send a warning to those of us living in a democracy — in which our own participation is crucial. Though it’s the fervent wish of a number of collision repair industry activists that history will not be re-written — and that the terms of this decree be enforced — the reigning insurance monarchy will fight every step of the way to make sure that history doesn’t vindicate the collision repair industry.

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This article has been underwritten by the Committee for the Consent Decree, which is comprised of three Pennsylvania body shop owners: Steve Behrndt of Crawford’s Auto Center in Downingtown, Pa.; Jack Aigner of Mastercraft Collision in Penndel, Pa.; and Walt Berstler of Ber-Lyn Auto Body in West Chester, Pa. Without their funding for research, this article wouldn’t have been possible. For more information on the 1963 Consent Decree and how you can get involved today, contact the Pennsylvania Collision Trades Guild at www.pctg.org or go to (www.consentdecree.com).

The CCRE also hopes to get the 1963 Consent Decree enforced and reports that a coalition of state associations and CCRE will soon file litigation for the Decree’s enforcement. Anyone who would like to support CCRE’s efforts can contact CCRE Executive Director Dennis Howard at (877) 700-7743 or at (www.theccre.com).

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Writer Charlie Barone has been working in and around the body shop business for the last 27 years, having owned and managed several collision repair shops. He’s an ASE Master Certified technician, a licensed damage appraiser and has been writing technical, management and opinion pieces since 1993. Barone can be reached via e-mail at ([email protected]).

What Would John Sherman Say?
When you look at American history and explore the positive changes President John F. Kennedy and his administration were doing to better society, you become quite interested in who was behind pulling the trigger.

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In 1963, Attorney General Robert Kennedy and his staff had completed a lengthy investigation into antitrust violations by the insurance industry. The U.S. Justice Department found that throughout the ’50s, the entire collision repair industry had been manipulated by several insurance associations. The prices were "fixed," and the plans (forerunners of DRPs) were set up to steer repairs toward favored repair shops. Meetings were held to discuss how the insurance associations could further control the collision repair marketplace. Discounts were demanded. Labor rates were set and controlled. And body shops that attempted to work outside the plan were boycotted and victimized. Intimidation replaced the free enterprise system as the consumer’s right to choose was manipulated in such a fashion that nobody understood whose rights were being undermined.

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Sound familiar? Aren’t we dealing with the same exact scenario today … only 37 years later? Our industry has permitted itself to be subjected to the exact same corporate greed.

It’s important for society to research history and analyze how certain past developments affect our present situation. History is the standard by which our future is measured. With this in mind, our federal government should utilize the Sherman Antitrust guidelines and put a permanent end to the abusive practices of the insurance industry.

For Republican Sen. John Sherman of Ohio, chief sponsor of the Sherman Antitrust Act of 1890, the power of trusts amounted to "a kingly prerogative, inconsistent with our form of government." Sherman reasoned that "if we will not endure a king as a political power, we should not endure a king over production, transportation and sale of any of the necessaries of life."

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Insurance and the policy contract have become a necessity in today’s world. But if we apply Sherman’s philosophy to the manner in which insurance companies control the collision repair industry, there are obvious violations of antitrust laws written to safeguard citizens of the United States.

Insurance companies, through their vast resources, have been able to protect themselves from antitrust penalties by separating into many smaller companies operating under the umbrella of their corporate structures. They say they don’t concert with their rivals, but they seem to follow the same business plans. They claim there’s no collusion, but when one company markets a particular objective, the others promote the same direction. When one company begins a campaign that creates policy change, the others make the same change — claiming it’s the nature of the marketplace.

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The insurance industry claims their exemption from the McCarran-Ferguson Act gives them an authority to control prices beyond the business of insurance. But recent consolidation efforts between these giants of insurance should be attracting the watchful eye of our Justice Department. Still, most politicians are careful not to interfere with insurance issues, since political action committee (PAC) fund donations are utilized to finance campaigns. Unfortunately for us, the insurance industry has developed tremendous lobbying power that’s difficult to compete with.

But our concerns as American citizens shouldn’t be limited to how repairs to the family automobile are compensated. Three trillion dollars a year goes a long way in controlling the marketplace and government. Managed health care and DRPs are perfect examples of what the public has witnessed over the past few years. The insurance industry keeps coming up with plans to better control their cost and expenditures, but the end product seems to be more trips to the Appellate Court system.

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It makes you wonder what our world would be like today if only we could have better protected the Kennedy administration.

Writer Steve Behrndt is owner of Crawford’s Auto Center in Downingtown, Pa.

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